Retevision: constant change is the only way forward

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Retevision, previously the backbone provider for broadcast TV in Spain, was awarded a full telephony licence in 1998 prior to liberalization of the Spanish market. By the end of 1998 Retevision had already attracted over a million customers. Retevision's CEO Anna Maria Birules talks to Global Telecoms Business about the company's plans.

The Spanish fixed-line market was liberalized on December 1 1998. Two companies were awarded full telephony licences before that date. One of those companies, Retevision, was founded in 1989 as a public company to manage the television network. It is now positioning itself as the main alternative operator. By September 1998 Retevision had installed a fibre-optic national backbone.

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Lucia Grande, a telecoms equity analyst at Merrill Lynch in Spain, believes that the company has come a long way within a short space of time: "They started in January 1998 with indirect service offering national and international long-distance services. They were able to achieve significant increases in market share in the first six months of 1998. I think that the management has done a very good job, making people aware of their company. They have been in the press almost every day. They are very clear about what they want to achieve."

In an interview with Global Telecoms Business, Anna Maria Birules, the CEO of Retevision, explains the operator's goals: "As you know, we closed this first year of activity with a market share in basic telephony of about 10%. From a quantitative viewpoint, our main objective over the next few years is to achieve a net increase/user in the telecoms market."

Retevision has made such a strong initial impact that it may even go EBITDA positive before its initial forecast of 2001. Birules says: "In our planning, we wanted to break even in four years, so that will be around 2001- the beginning of 2002. We not only have telecoms interests, but also audio-visual interests. In any case, in our first year of business, we have already achieved positive operating results. It is improving considerably on our initial forecast."

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In fixed telephony, Retevision announced that it already had over 700,000 customers by September 1998. This figure had risen to 1 million by the end of the year. The success was partially attributable to an aggressive $10 million advertising and marketing campaign. Birules says: "I really believe that the advertising and marketing campaigns we have conducted have been very high profile. They have been very effective and successful. The $10 million has been a good investment not only in terms of acquiring customers, but also in making people aware of the brand name, Retevision within a very short time. This is an important asset today. It is really recognized and appreciated by the public at large and in some sense it is even a benchmark in the market."

The company recently gained the third cellular licence and began offering services at the end of January. They managed to beat off a bid from the Uni2 consortium, which had already won a licence to offer fixed services in Spain. Retevision Movil started offering services at the end of January. The company aims to have 300,000 cellular subscribers by the end of 1999. Birules comments on the importance of this licence: "Winning the third cellular licence in Spain marked a major step towards the goal of consolidating our global offerings in telecoms services."

Birules continues: "We have seen from some reports lately that the cellular Spanish market has grown significantly over the past few years. The growth rate of some of the other European countries has been larger. But we believe that the potential for growth is here. We want to increase our presence in the Spanish market through our mobile operation and achieve the growth rates that were common at the start of the liberalization process in Spain and growth rates that were common in Europe over the past couple of years."

Now Retevision can start to offer integrated service packages. Birules describes her vision of fixed/mobile convergence: "Many things still need to be resolved to achieve complete fixed/mobile convergence. In our opinion, it is one of the projects that has the best prospects in the sense of starting with an integrated offer, more integrated services and then advancing with more complete integration. In this regard the receipt of the mobile licence represented a major step towards the goal of consolidating a global offering within the shortest possible time."

Competition and impact of Retevision on the market
Birules sees Uni2 as part of the new competitive paradigm in Spain: "We believe that they will be part of the new competition that we will start to see in the Spanish market. Of course, some of the new entrants will aim to offer a global service, but not many. Some will succeed. Others will clearly focus on specific market segments, so that they will all make an impact, but will have different perspectives in the medium to long-term."

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As competition increases, Retevision will customize its offerings. Despite Telefonica's dominance, there is considerable potential for growth, as Birules explains: "Recently, a sector analyst pointed out that people in Spain, both in the residential market and business sector, are not suspicious of changing to different operators. The Spanish market has matured quickly. If I may say so, in some senses this is an achievement of Retevision, as we were responsible for breaking the monopoly and were able to make a commitment to customers in technical and commercial terms. We generated confidence in society. So we will see more competition, but in different styles: it can be very aggressive and also short term. We are positioning ourselves, not only in the short term, but also in the mid-to-long term. We are positioning ourselves to be a global operator in the Spanish market."

Retevision aims to offer more services to the business market: "Our presence in the business market in Spain is a very important goal for us. It is an important focus for 1999 and the years ahead. We are already doing this and prepare to launch new services in the business sector, with a special effort in data and Internet services, including Voice-over-IP," comments Birules.

Grande believes that the company is achieving considerable success here: "I think that they have been doing better than expected when attracting business customers. At the beginning, they were not so interested in business clients, but I believe that they have seen how lucrative this sector is. They have begun to do more marketing on that side."

One of the biggest challenges for the company is in the area of tariffs. According to Grande: "The most important challenge for Retevision is their tariff strategy. Right now, in Spain we have a structure that is still unbalanced. The monthly fee is one of the lowest in Europe. The local calls are some of the lowest in Europe. The long-distance tariffs are still higher and at the same time the regulator recently approved inter-connection rates are one of the best practices in Europe. So Retevision has plenty of room to reduce tariffs, in particular in long-distance."

Spanish inter-connection rates
Clearly the Spanish regulator CMT will play an important role in ensuring fair competition in Spain. Birules believes that the inter-connection charges are now coming down to an acceptable level: "I think that Spanish inter-connection charges are now developing in line with the rest of Europe. Before the "offer of reference", they were higher than they were in the rest of Europe and I believe that they are developing in line."

According to Birules, CMT is being fair to all the players: "With regards CMT, in my opinion we have had a regulatory body since the beginning of the process and it is becoming a strong body. CMT has been methodically and scrupulously applying the European regulations to Spanish regulation. It is good to have as strong as possible a CMT regulatory authority. I think CMT is being fair. It is not easy to open the markets and avoid provoking any unnecessary effects on the incumbent and also leave room for all the different operators. But I think that it has been quite fair."

As Birules notes, the unbundling of local loop access is a key issue: "We will have to ask the regulator to see when he will decide effectively to unbundle local loop access. But in any case, direct access is one thing that we have been working very strongly for in 1998 and represents one of the main challenges that we face this year. To achieve this goal, we are making maximum use of all available technological systems. So as I was saying: fibre; multi-point radio technologies; our own deployments; our agreements with others, in that case cable operators. We believe that we are at a crucial point. We have already launched direct access in the business sector. We ended up in 1998 with around 20,000 lines installed in major Spanish cities and we want to rapidly deploy and have available control by direct access."

Retevision has embarked on an aggressive capital expenditure programme to make sure that its network is ready to handle increased traffic, both voice and data. Birules talks about the operator's spending plans: "In 1998 we ended up spending 130 billion pesetas, which represents a significant step in the implementation of our own network. In that sense, we have several international centres, transit centres, local and more than 50 points of presence. The trunk network already has over 4,500 km of fully equipped SDH optical fibre.

We are able to provide any need to evolve whenever is convenient between SDH and IP. Last September, switches for access points to the Internet were commissioned in all 52 Spanish provinces and more than 15 data nodes supporting ATM services were already operational in September. I think that this is the way in which things will evolve. Also, if we look at the network, there has been a strong effort to install links for the Retevision mobile network. Network management has been very fast and flexible, involving the use of new technologies."

Retevision's role in the information society
Birules perceives a role for Retevision in the new information society : "We believe in a new way of seeing ourselves as the first alternative Spanish operator to be created. We believe that Retevision was created for the information society and to be a part of it. In that sense, on the one hand, Internet, IP and a new approach towards data services is very essential to our processes. In fact, we are building our structures and our technological platforms, business aims and a corporate culture that all differ from those of the traditional operators.

"We demonstrated one of our strategic commitments in 1998, which we developed in parallel with fixed telephony: Internet growth and the implementation of a strong data network. In a sense we are already becoming an advanced provider of integrated multimedia services. We have a video platform which is stressing a lot, not only the infrastructure, but also the content side. The main goal is to go for more expansion of telecoms services in platforms, other types of content, both for residential and for businesses. We are integrating services either on our own, or through agreements with third parties which are quite advanced. These will provide real solutions to both companies and individuals. So we want to leap into that market, advance quickly and positively contribute to the growth of data services in the Spanish business market."

Retevision aims to compete on quality of service. Birules talks about the operator's reluctance to compete purely on price: "I would like to make the following point. I strongly believe that price wars do not lead anywhere. We believe at Retevision that the important thing is to convey a coherent, competitive and innovative offering that meets residential and enterprise demands. Of course, price is a factor and can sometimes be the determining factor during the initial stages of market entry. Clearly, as we become more firmly established, the pricing issue will in some senses be relegated to second place. Retevision has pledged that we will keep the most competitive global offering in the market, which doesn't necessarily mean that we will have the lowest price in any of the products or services. We believe that we will not be playing in a price war scenario. There may be others that will really only compete on price. However, we will not compete only on price."

Its commitment to quality of service has been underlined by the fact that it has invested in a state-of-the-art billing system from PricewaterhouseCoopers. Birules says: "I think that our choice of PricewaterhouseCoopers has proved to be the right one. That has been corroborated by the fact that our invoice and billing system was awarded the IS0-9000-2 certificate in under less than a year, after undergoing a relevant external audit.

This represents very satisfactory recognition of what we have done, not only our best efforts, but also our choice of partner in that area, which has been PricewaterhouseCoopers. This has proved to be the right choice in terms of quality. It is a very powerful and flexible system and is crucial for our business."

Sale of government holding in Retevision
The government still owns 30% of Retevision. However, as Birules explains, the original consortium, which includes Telecom Italia and Endesa, is set to acquire the remaining 30% of the company: "The shareholders have expressed their intention to buy into the capital and have exercised their right in the privatization agreement, because this is the second phase of the process that was initiated in 1997, when 70% was sold to the present group of shareholders of Retevision."

Birules describes the benefits of its partnership with Telecom Italia: "The relationship with Telecom Italia is excellent. It is not only an honour, but also a great opportunity to share the project and build this alternative operator with a partner like Telecom Italia, not only because of their position and expertise, but also because they are entering into other markets with different characteristics. They are entering other markets where they are the second or third operator and so posses the experience of an active incumbent. They have also proved their long-term commitment to the project, the Spanish economy and the Spanish telecoms sector. In that sense, the relationship is not just in fixed: it is in Internet and cellular, in view of their position in mobile. One could say that they are the chief mobile operator in Europe ."

International ambitions
Retevision will concentrate on building up its position in Spain, although Birules does not rule out a more expansive international strategy, once it has built-up a better position in the domestic market: "For the time being, our activity which is considerable, will focus on the domestic market, although once we have what we consider to be the minimum required reach, our area of action could be extended to other countries where we can benefit from the presence of our partners in Retevision, both technological partners, such as Telecom Italia and also Electrical Utilities Companies, Endesa and Union Fenosa."

Birules believes that the company can become a benchmark for other alternative operators in Europe: "The long-term aim of Retevision is to be one of the European benchmarks and especially a benchmark for telecoms in Spain in the 21st century.

The sector is going to witness profound change. In fact, it is already seeing profound change as a result of the regulatory wave that is sweeping all over Europe. Also the changes that have been happening in the international arena, such as developments in the US. There will be opportunities in areas such as South America, so I think in that sense we will see many things changing."

New telecoms paradigm
Birules refers to telecoms developments: "Things will change from the perspective of telcos. They will evolve into multimedia providers. Others will evolve into strong infrastructure positions. I am referring not only to the operator and content side. But, there will also be a strong change on the supplier side. It is already partially affecting the situation within telcos.

But, in any case, regulation is bringing fundamental change firstly to market structure, and secondly to the way in which the main players behave. All the players are restructuring. A new type of user is emerging. This "new" user will be much more demanding than in the past and will be aware of the importance of competition between the new entrants and dominant operators.

"So the relationship between the operator and the end user is also changing the relationship between the operator and the supplier. The changes in the suppliers represent one of the aspects that will affect things. Obviously, there will be changes through agreements and alliances. I hope that this will result in a greater diversity of service, rather than a different type of concentration. A greater diversity of services should lead to the option of integrated services supply and allow for the continuation of technological innovation.

Birules clearly realizes the need to remain flexible in a market subject to rapid change: "From now on, whoever enters the market has to bear in mind that we will be constantly restructuring. These are not empty words.

This has to be part of the evolution of the company and part of the infrastructure and organizational actions that the company has to do. In that sense we will adapt and restructure constantly. In some businesses, if we want to be not only a global operator or, in some cases, a point of reference for telecoms in the next century, we have to anticipate both our own and our customer requirements. This will require a constant change in the organization and in some infrastructure areas, where we will need to adapt constantly to new situations."