Telefonica’s anouncement this week of its acquisition of O2 (BT’s spin-off four years ago) shows its ambition to compete not only in emerging markets (Latin America – Presentation on Telefonica’s Leadership in Latin America here- and recently China) but also in the european market outside Spain.

The move raises questions about the direction of the company in its strategy to be the european leader in a converging scenario. With more than 116M mobile customers but no broadband presence in UK and Germany is difficult to se how it will help Telefonica’s integration path announced by Cesar Alierta earlier this year as being at the center of their strategic plan towards 2008.

One of the best assets O2 has to offer is its experience in highly competitive markets, where Telefonica had no presence before. A experience that could be key to face increasing competition from Vodafone in Spain and future expansion plans in other european markets. The evolution of technologies that can change competition in mobile devices like WIMAX or the popularization of free WI-FI (initiatives like FON will be common place if they solve regulatory problems) adds aditional pressure.

With revenues of traditional voice services shrinking and growing competition in broadband, learning from hihgly competitive markets (where innovation is taking to the mass market services in the edge of broadband and mobility) sounds like a good option.

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