Market Insight

Telefonica seeks alternatives to smartphone duopoly

July 01, 2013

Abel Nevarez Abel Nevarez Research Analyst II, Mobile & Telecoms, IHS Markit

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Spanish multinational operator Telefonica has formed a marketing partnership to promote sales of Microsoft's Windows Phone handsets in selected markets. As part of the one year agreement, Telefonica will enhance its marketing efforts and device availability of Windows Phone 8 devices in the U.K., Germany, Spain, Mexico, Brazil and Chile.

Telefonica aims to lessen the current Android and iOS duopoly by offering alterative mobile OS platforms, emphasizing Window Phone's unique features such as full Office365 integration, SharePoint and entertainment and services like Skydrive and Xbox.

The announcement comes on the heels of Telefonica's release of the first Firefox OS mobile phone, the ZTE Open on its Spanish Movistar network.  Telefonica plans to launch Firefox OS devices in Brazil, Colombia, and Venezuela, with initial launch devices from Alcatel One Touch, LG and ZTE.

Telefonica's push behind operator-friendly alternatives such as Firefox OS and Windows Phone 8, highlights attempts by mobile network operators to regain a foothold against the iOS and Android duopoly.  Telefonica hopes to establish new mobile ecosystems to reduce its reliance on Apple's closed iOS and Android's fragmented platform to diversify its handset product portfolio.

Telefonica's decision to release Windows Phone and Firefox OS in strategic European and Latin American markets also underscores a move to promote emerging OS platforms via lost-cost handsets. Currently, Telefonica offers the 3.5 inch ZTE Open for €69/$90 (including €30/$39 balance) for prepay customers, while Nokia offers the most inexpensive Windows Phone, the Lumia 520 (Lumia 521 in the US) for $150 in select emerging markets. With the combination of Firefox OS and Windows Phone devices, Telefonica will be able to offer consumers an alternative smartphone experience at every price point.

Despite supporting new mobile platforms, Telefonica's move may make little difference to attract new users to adopt Windows Phone, considering its still limited app store range. Firefox OS's open-sourced HTM 5 based platform may fair better in attracting new users by utilizing integrated web-based app discovery and functionality. For developers, Firefox OS offers a solution to the discoverability, monetization and fragmentation problems encounter on closed platforms.

The release of Windows Phone 8 in November 2012 and Firefox this month, follow moves from several industry players to introduce alternative mobile OS platforms, such as Canonical's Unbuntu, Jolla's Sailfish OS and Samsung's Tizen - all scheduled for commercial release by the end of this year.

While not explicitly stated, it is likely that Microsoft is paying Telefonica for this promotion. It is no secret that Telefonica is struggling financially; most recently selling its Irish operations as part of an effort to pay off €6bn of its debt by the end of year. By a similar token Microsoft has shown its willingness to spend heavily to promote its Windows Phone platform, paying more than $1bn to Nokia in support payments to help the Finnish manufacturer through its transition to Windows Phone.

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