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Telefonica Teams Up with Intel, Red Hat

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Spanish telecom giant Telefonica S.A. (TEF) has teamed up with software expert Red Hat (RHT) and Intel Corp. (INTC) to develop network functions virtualization service (:NFV) facilities.

In particular, the companies are working on a virtual infrastructure management (:VIM) platform based on open-source software that operates on Intel-powered servers. The idea is to avert fragmentation and vendor lock-in since operators shift to cloud-based telco networks. Research in this regard is being conducted at Telefonica's newly-established NFV Reference Lab.

Telefonica believes current networks, which include closed hardware appliances and ad hoc equipment, are hindering innovation. The role of NFV is thus crucial here as it replaces the numerous components with software running on standard hardware.

For 2014, the company is focusing on increasing network capacity to support data traffic growth and build network differentiation by developing high-speed infrastructure. The company has undertaken several efforts to enhance efficiency across European markets which include removal of handset subsidies in Spain, gradual reduction of subsidies in the U.K., network sharing agreement in the U.K. and Mexico, and redundancy program in Spain. Such initiatives should lead to further savings in the upcoming years and eventually boost profit.

Further, the company is also gearing up in the field of network virtualization in partnership with NEC Corporation. Based on SDN (Software-Defined Networking) and NFV (Network Functions Virtualization) technologies, network virtualization will reduce the dependence on hardware while also enhancing flexibility and network efficiency across Telefonica’s platform.

Telefonica currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other stocks worth considering within this sector are Level 3 Communications Inc. (LVLT), and KT Corp. (KT). Level 3 currently sports a Zacks Rank #1 (Strong Buy), while KT Corp. carries a Zacks Rank #2 (Buy).

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