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Telefonica (TEF) Enters Into Cloud-Native Agreement With Oracle

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To better utilize the benefits of 5G and edge computing facilities in core network functions, Telefónica, S.A. (TEF - Free Report) recently inked a multi-year agreement with cloud-service provider Oracle Corporation (ORCL - Free Report) to migrate most of its database systems to the cloud. The deal is the second of its kind this month with Telefonica forging an agreement with International Business Machines Corporation (IBM - Free Report) to develop its first-ever Unica Next cloud-based 5G core network platform using IBM intelligent automation software and services.  

Per the Oracle deal, the Spain-based carrier will transfer all its internal and commercial operations data, including business intelligence services and billing, revenues and customer management products to the cloud-based platform in tune with the evolving business conditions. It will be operated by Oracle in Telefonica’s own datacenters to comply with European data laws. Moreover, this is likely to safeguard data security issues while keeping operating costs down as Telefonica has a debt-laden balance sheet.

The transition to a cloud-based platform is likely to consolidate and simplify its technological infrastructure as it aims to “reinvent” itself amid a challenging macroeconomic environment. Telefonica has restructured its Latin American business while remaining focused in other key European markets and the United States. The radical restructuring process features an “operational spin-off”, whereby the company has created two separate business entities, namely Telefonica Tech and Telefonica Infra. With the creation of the new units for digital technology and infrastructure assets, Telefonica expects to generate additional revenues of more than €2 billion a year by 2022. Further, the Group is exploring network sharing agreements to reduce capital intensity and optimize investment.

Telefonica has switched on 5G network in Spain. The company’s 5G network provides almost 80% of the population with advanced mobile Internet services, streamlining the entire communications infrastructure of the country. In recent years, Telefonica has invested heavily in the deployment and transformation of its network to provide excellent connectivity in all of its dimensions, capacity, speed, coverage, and security. The company is augmenting its 5G network infrastructure in Spain by reinforcing the long-term partnership with Huawei. It has adopted a multi-vendor strategy by collaborating with Nokia Corporation (NOK - Free Report) and Ericsson (ERIC - Free Report) to establish a 5G infrastructure. Telefonica has also inked agreements with global providers, including Amazon Web Services, Microsoft, Google, GE Healthcare, and Fortinet. It has invested in Nozomi Networks, a leader in industrial IoT cybersecurity.

The strategic deal with Oracle is likely to help Telefonica to better compete with its rivals in the low-cost domestic market of Spain, as it is experiencing a significant impact from the COVID-19 pandemic with pressure across the Group’s markets in both its B2C and B2B segments. The pandemic has also contributed to the significant depreciation of Latin American currencies versus the euro. Telefonica has classified its operations across Latin America (excluding Brazil) as non-core, given the challenging market conditions across these markets and their declining contribution to revenues and profitability in recent years.

Nevertheless, shares of the company have gained 39.5% in the past year compared with the industry rally of 17.7%.

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We remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks Rank #1(Strong Buy)stocks here.