Telcos have increasingly recognized the significant growth opportunities in the B2B digital services segment in addition to traditional telco services. To capitalize on this shift, they have expanded beyond voice and data offerings to include managed services, positioning themselves as competitors to system integrators.
A notable example is Telefónica, which established Telefónica Tech in 2019 as a dedicated B2B digital services provider. Since its creation, Telefónica Tech has grown into a EUR 2B organization by leveraging its strong network foundation and integration capabilities acquired through strategic mergers and acquisitions between 2020 and 2024, as shown in Figure 1.
Figure 1: A series of M&A since the inception of Telefónica Tech
Telefónica Tech evolved its value proposition, transitioning from a traditional communications service provider to an enabler of digital transformation. It now supports customers throughout their digital journeys by combining technologies such as cloud, cybersecurity, IoT, and AI. However, this shift also brings two-fold challenges: it requires a move from a capital-intensive model to an integrated service approach emphasizing consultative sales and delivery excellence, and it would require a cultural shift with the leaders needing to change the way they approach a deal.
At the recently held Telefónica Tech Analyst Day 2024, the company’s leadership showcased how, over the past two years, Telefónica Tech has aligned its operations to meet these demands, focusing on integrating offerings across technologies and markets. In 2023, it adopted a new operating model, replacing its siloed structure with an integrated geographic commercial framework. The model is organized into two geographic verticals—Spain & Americas and Europe (UK, DACH, Nordics, and Adriatic)—and transversal global service lines, including IoT, Business Applications, Cybersecurity, Cloud, and AI & Data. This restructuring is aimed at achieving two primary goals:
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- Maximize business opportunities and improve utilization rates for its 6,300 professionals
- Replicate successful projects across geographies while ensuring consistent delivery across service lines
With this renewed strategy, Telefónica Tech aims to grow its revenue to EUR 3B by 2026, building on its 5.5M B2B customer base. For example, in Brazil, Telefónica’s subsidiary Vivo sees 15% of its 1.7M B2B customers consuming digital services from Telefónica Tech, accounting for just one-third of its total B2B revenue.
To unlock further growth, Telefónica Tech is focusing on cross-selling services and expanding business lines into new markets. While IoT-managed connectivity is already an established global service, efforts are underway to broaden other offerings. These include bringing cybersecurity services from Spain to the UK&I, extending Microsoft Dynamics solutions and industry best practices from the UK and Central Europe to Spain—beginning with the finance and insurance sectors—and scaling Spain’s AI & Data partnership programs to the UK and Central Europe.
Building Resilient Enterprises: Telefónica Tech’s Strategic Modernization Initiatives
According to Avasant publication, Application Modernization Services: Gen AI Fueling Application Modernization, the rising demand for resilience and availability, coupled with the shift to hybrid and multicloud strategies and a focus on business-driven outcomes, is pushing enterprises to modernize applications incrementally. The growing need for data integration, insights, and enhanced compliance and security also drives this effort. To accelerate modernization efforts, leading service providers embed AI across their offerings, streamlining processes such as quality assurance, cloud migration, rearchitecting, and code refactoring.
Telefónica Tech is addressing these evolving enterprise needs through a combination of strategic acquisitions, partnerships, and robust integration capabilities. The following case studies illustrate how Telefónica Tech is empowering businesses with multi-geo operations and a variety of business lines to achieve operational efficiency and competitive advantage:
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- Morgan Sindall Group: Following its acquisition of Cancom UK&I, which bolstered its multicloud and cybersecurity expertise, Telefónica Tech supported the UK-based construction services provider in developing a hybrid cloud strategy. Morgan Sindall required consistent access to data and applications across 450 construction sites, prompting Telefónica Tech to evaluate various SaaS solutions before settling on Microsoft Azure. However, the legacy system challenges made full cloud adoption cost-prohibitive, leading to a hybrid approach that balanced performance and cost. Telefónica Tech also assisted in refactoring and replacing legacy systems while providing advanced storage and network services to meet Morgan Sindall’s evolving needs.
These challenges are not surprising and align with the findings from the Avasant Application Modernization Services RadarView Survey, May 2024, which states that 80% of the obstacles in application modernization stem from legacy infrastructure. Addressing these hurdles requires multipronged strategies, including the 6Rs: refactor, rebuild, rearchitect, rehost, replatform, and replace.
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- Spanish Government IT Arm: Telefónica Tech secured a contract to deploy an on-premises big data platform, including the design of a data lake and integration of various technologies, ensuring robust data governance, security, and privacy.
- Infobip: Leveraging its acquisition of BE-terna, a European Microsoft cloud solutions provider, Telefónica Tech facilitated the deployment of Microsoft Dynamics 365 for Infobip, a global communications platform provider, across over 80 entities in 70 countries. The phased rollout, conducted in eight waves across nine months, minimized disruptions and improved Infobip’s reporting efficiency by reducing the financial consolidation timeline from an annual process to monthly reporting within just 15 days.
- Ferrovial: Telefónica Tech partnered with Ferrovial, a global infrastructure operator, to enhance its cybersecurity posture and achieve operational resilience. This involved securing third-party risks, identity management, and OT/IoT security. Generative AI was utilized to automate response workflows, reducing reliance on Level 3 security operators and empowering Level 1 and Level 2 teams. It also supported scripting and playbook development, reflecting current trends in using generative AI to bolster cybersecurity, as highlighted in our publication, Generative AI-based Security Tools are, in Effect, Fighting Fire with Fire.
These success stories underscore Telefónica Tech’s ability to deliver tailored solutions that address complex modernization challenges, improve operational efficiency, and ensure resilience.
Conclusion
By combining its robust network foundation with targeted acquisitions and innovative technologies such as AI, IoT, cloud, and cybersecurity, Telefónica Tech has redefined its value proposition to meet the evolving needs of enterprises worldwide. Through a series of strategic initiatives and its new operating model, Telefónica Tech is well-positioned to drive cross-market collaboration, enhance service delivery, and capitalize on emerging opportunities.
However, the road ahead presents both opportunities and challenges. As Telefónica Tech strives to grow its revenue to EUR 3B by 2026, its ability to integrate offerings seamlessly, scale successful projects across geographies, and expand into new markets will be critical. Achieving these goals will require more than operational excellence; it will demand a significant cultural shift. Leaders and teams must transition from a capital-intensive mindset to one that emphasizes consultative sales, delivery excellence, and customer-centric innovation. This cultural transformation is key to fostering collaboration, agility, and a shared vision across geographies and service lines.
Its ability to navigate the complexities of this transition while maintaining its momentum will determine its success in becoming a trusted partner for enterprises on their digital transformation journeys.
By Gaurav Dewan, Research Director, Avasant