Telefónica Tech’s 2024 Analyst Day in London Highlights Impressive Inorganic Growth in AI, Cloud, and Compute—but Critical Integration Challenges Remain

On November 28, 2024 Telefónica Tech held its latest Industry Analyst Day in London. At the event, the System Integrator (SI) arm of Telefónica showcased its focus on enabling digital transformation through cutting-edge technologies like cybersecurity, cloud, the Internet of Things (IoT), big data, Artificial Intelligence (AI), and blockchain. Positioned as a critical growth driver within the Telefónica Group, Telefónica Tech accounts for 20% (€1.9bn in 2023) of Telefonica Group’s total B2B revenues (€9.4bn in 2023) and continues to build on its strong capabilities to meet evolving market demands. Aligning with broader trends of innovation and digitalization across industries, these efforts underscore Telefónica’s ambition to become a leader in advanced digital solutions.  

While previous events were dominated by an update on Telefónica’s telco and connectivity activities, this year’s edition was interesting, as it focused exclusively on Telefónica Tech’s activities around enterprise cloud (public/private, as well as sovereign), computing and AI. In doing so, Telefónica Tech seems to have understood that being seen as a reliable digitization partner for enterprises requires expertise that goes far beyond its legacy expertise in cellular connectivity. As the adoption of private cellular networks shows, enterprises are not interested in deploying connectivity on its own anymore. Rather, they are interested in enabling new transformative use cases with immediately measurable business impacts. Consequently, enterprises are interested in consuming connectivity only inasmuch as it enables use cases like the application of AI or tighter integration of their data utilizing cloud computing capabilities.

To gain a foothold in the cloud, data, and AI industries, Telefónica Tech has relied on inorganic growth—with a few noticeable acquisitions (please note, this list is illustrative and not exhaustive).

• In 2021, Telefónica Tech acquired Spanish Altostratus Cloud Consulting to expand its multi-cloud capabilities, particularly its expertise in Google Cloud services. Altostratus specializes in cloud migration, data analytics, and application modernization. This acquisition enhanced Telefónica Tech’s ability to deliver multi-cloud solutions with a focus on Google Cloud Platform (GCP)-centric workloads.
• In the same year, Telefónica Tech acquired Adatis, a leading data analytics consultancy specializing in Microsoft’s data platform. Adatis provided advanced expertise in business intelligence, data warehousing, and analytics services using Azure, SQL Server, and Power BI. This acquisition reinforced Telefónica Tech's offerings in hybrid cloud analytics and its focus on helping enterprises extract actionable insights from their data. Adatis was integrated into Telefónica’s Data and AI business unit.
• In 2022, Telefónica Tech acquired the U.K.-based Incremental Group and BE-terna, a European provider of cloud-based business applications based on Microsoft 365 and SAP. These acquisitions enabled Telefónica Tech to advance its position as a leading partner for Information Technology (IT) Services, particularly in the U.K. and Ireland regions. Incremental and BE-terna became integrated into Telefónica Tech’s Business Outcome business line.

Without a question, Telefónica Tech is an impressive story of how to systematically use inorganic growth opportunities to increase market presence and build up expertise across different domains and national markets quickly. This is particularly true as Telefónica Tech certainly did its homework in the lead-up to these acquisitions: Not only did Telefónica Tech target companies that align with its core strategic goals, but also conducted thorough due diligence in identifying firms that can bring complementary capabilities (such as deeply rooted partnerships with different public cloud providers) to the table.

While Telefónica Tech has been successful in its inorganic growth strategy, it also faces challenges common to such an approach. As noted earlier, each acquired company brings its own cloud partnerships and expertise. Since these companies have been integrated into separate business units, rather than across them, this has led to each unit adopting a slightly different cloud strategy. This fragmentation can result in inconsistencies in service offerings, operational processes, and the overall approach to multi-cloud environments, hindering the ability to deliver a unified strategy for customers. This can make upselling existing customers and scaling projects across different business units unnecessarily complex. And indeed, this is what you can see from Telefónica Tech, where every business unit now follows its own partnership strategy:

• The Hybrid Cloud unit follows an any-cloud strategy, partnering with all major cloud providers
• The Business Outcome unit focuses on delivering its services on Microsoft cloud infrastructure
• The Data & AI business unit delivers its solutions on Amazon Web Services (AWS), Microsoft, and Google Cloud infrastructure

As demonstrated by Telefónica Tech's approach, acquisitions are a highly effective strategy for telcos to address the growing demand for enterprise cloud services and enhance their capabilities in the cloud domain. To ensure these acquisitions are delivering a coherent cloud strategy across the entire new company, they need to be integrated across business groups and ensure maximum cohesion, and provide easier opportunities to scale client engagement across these groups.

• Establish a Unified Cloud Strategy: First, companies like Telefónica Tech will have to define a company-wide cloud strategy that relies on clearly and concisely defined long-term vision. From a conceptual point of view, this means defining specific roles for each (public) cloud provider as part of the different Telefónica Tech solution. Based on these considerations, the cloud strategy will then require a centralized governance framework for cloud usage, focusing on security, compliance, and cost management. Once the framework is in place, companies like Telefónica Tech should look at standardizing Key Performance Indicator (KPI) metrics to evaluate cloud partnerships and solutions across the company. This will allow the provision of cloud-based enterprise solutions with constant Service-Level Agreements (SLAs) to enterprise customers.
• Provide Centralized Integration and Cross Unit Collaboration: In a second step, solution providers should then look at establishing a centralized team that executes the unified cloud strategy. This “cloud center of excellence” should look at standardizing tools, best practices, and providing a common governance framework. To do this, it should look at the strategic assets that each of the recent acquisitions has brought into the company and how they can be standardized to be replicable across the company. Furthermore, this central task force should look at implementing unified customer engagement frameworks to ensure consistent messaging and offerings across units.
• Invest in Hybrid and Multi-Cloud Orchestration Tools: Finally, solution providers like Telefónica Tech should invest in a toolset that allows the company and its enterprise customers to utilize the benefits of multi-cloud partnerships. Adopting advanced orchestration platforms and developing standardized Application Programming Interfaces (APIs) can improve interoperability and flexibility between cloud environments. In addition, solution providers can look at data fabrics and other tools that allow the unified management of workloads across private and public cloud environments for enterprises.