July 5, 2012 / 3:42 PM / 7 years ago

UPDATE 1-Telefonica sets 5 bln euro digital revenue goal

* Sees 20 pct growth for unit, reaching target in 2015

* Will work with partners in payments, operating systems (Adds details, exec comments)

By Paul Sandle and Clare Kane

LONDON/MADRID, July 5 (Reuters) - Spain’s Telefonica set itself an ambitious target of lifting revenues in its digital division by 20 percent a year, hoping to win more of the territory staked out by the likes of Facebook and Google.

The division, one of Telefonica’s strongest growth drivers as it battles high unemployment in its home market and customer defections to cheaper competitors, aims to generate revenues of 5 billion euros ($6.3 billion) by 2015, as it rolls out new services to more than 300 million customers in Europe and South America.

Telefonica’s total revenue in 2011 was 62.8 billion euros and in February the company said it expects growth this year to be above 1 percent.

Mobile operators have invested billions of dollars in building networks, only to see a significant chunk of consumer spending on mobile services go to the likes of Apple.

Telefonica aims to secure more digital revenues through initiatives, often with partners, such as direct-to-bill payments, operating systems and mobile advertising, Matthew Key, chief executive of Telefonica Digital, said at an investor event in London.

Analysts said that it was difficult to assess how realistic the group’s new digital target was because it is not clear how much of its operations it could move into the division.

The group had signed agreements with Facebook, Google, Microsoft and Research in Motion to enable direct-to-bill payments, simplifying the payment for apps or even virtual goods within apps, such as a faster car in a Zynga game, he said.

“We think the potential here is really significant because this enables some of the really big internet businesses to connect far more directly with our customers from a monetisation perspective,” he said, adding that the service was already live in Germany and would be in 14 markets by the end of the year.

Telefonica Digital will also establish a mobile advertising business in Brazil, he said, and will partner Abu Dhabi-based Etisalat in areas such as financial services, cloud computing and mobile advertising.

The group has also developed its communications app, Tu Me, which has 250,000 users.

Web-based communications services can cannibalise operators’ traditional voice and text revenues, but Key said Tu Me was helping tie users into Telefonica’s network.

“Tu Me was the first over-the-top communications product that any core telco has developed,” he said. “Why have we done this? Fundamentally it’s about the customer relationship.”

Telefonica is also pushing a new operating system for mobile based on Mozilla’s HTML5 platform, and will launch the first devices using the system in early 2013.

“In any business it’s unhealthy to be strategically reliant on one supplier,” Key said. “If I look at our smartphone sales in Latin America we are overly reliant on (Google’s) Android.”

Key did not detail profit margins or expectations for the unit, nor its budget, but he did say the levels of investment from the parent group would remain steady over the next few years. ($1 = 0.7994 euros) (Editing by Elaine Hardcastle)

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