O2’s CEO Ronan Dunne tells Mobile that O2 staff will be looking to him for leadership as Hutchison Whampoa and Telefonica continue to press ahead with negotiations over the sale of O2.
Speaking following the operator’s best quarterly customer growth figures in six years, Dunne says: ‘The one thing that I’m certain of is that I need to lead the 7,000 people in the business over the next 12 months. Our employees aren’t looking to Madrid or to China during that time, they’re looking to me because I am the boss.
‘The key message to our staff during this period of uncertainty is keep the focus on what you are doing. I think the majority of people are excited by the prospect of the deal creating a customer champion mobile brand and are keen to been seen as a valuable asset to the business. It’s no secret that Telefonica had certain financial constraints.’
Discussing the consolidation in the UK operator market, Dunne says that the need for investment, and desire to keep up, had led the brand to pursue itsstrategy: ‘The market in the UK is changing and there is a move towards consolidation. This has been driven by the supply side of things rather than the consumer, in my opinion. If you don’t have the financial capacity and scale to compete in this market then you will fall behind.
‘We weren’t the first mover, people were expecting something to happen and when we saw the first move we decided to act. Everybody has their playbook and when one move has been made you go back to your playbook and see what’s next.’
Dunne is particularly keen to point to the network’s strong 2014 financials; the network added 830,000 new customers for the year. O2 has had steady financials for a number of years and now the brand is keen to let the market know that it consistently leads the way in terms of customer churn, which came in at 1% for 2014. The O2 CEO is keen to point out that it has been a positive year for the network: ‘The bottom line is we nailed it in 2014, we took around 830,000 new customers for the year, which was excellent. The market has now stabilised, we believe that growth will come from us maintaining our share.
‘You might ask with all this success why are we selling? We see the market moving around us and we believe that it is better to be proactive rather than reactive. An agreement is likely to be put in place in a reasonable period of time, but the regulatory process will be a lengthy one. It’s on plan with the negotiations but there will be a number of weeks before the initial deal will be completed, and you can add nine to 10 months on to any definitive agreement. Until then it’s very much business as usual.
‘Until the deal is closed we will fight fiercely for customers; the law doesn’t allow me to do anything else. We’ll be out there kicking as hard as we always do. We have a clear strategy and we won’t be changing that moving forward.’
A question of choice
Dunne does however also believe that choice needs to be maintained for the consumer through a healthy MVNO market. The CEO points to recent MVNO deals that the firm had agreed with Sky and Talk Talk as evidence of the firm’s commitment to the sector: ‘Maintaining choice for the consumer is also hugely important and we have secured two new partnerships with Talk Talk and Sky, which we believe helps that. The balance between MVNO and MNO offerings needs to be there and is vital for the UK market.’
Branding has been a major point of discussion as the O2 and Three brands don’t appear particularly compatible on the surface. Dunne presents an interesting solution to this issue; Hutchison operating a multi-brand strategy: ‘It’s a complex deal, issues such as the brand haven’t even been considered yet. But I can say that the branding will be something designed to bring the best out of business. We have Giff Gaff and the JV with Tesco, which shows that you can successfully operate a multi-brand strategy in the UK. The number of propositions at the customer interface level, rather the number of networks, is the key to giving the consumer choice.’
The quad play elephant
The combination of O2 and Three brands creates a powerful force in the mobile space but it doesn’t address the issue of quad play, which haunts every mobile network these days. Dunne is keen to reiterate his theory that markets that have ‘gone quad play’ suffered from one or both of the following issues – a lack of penetration in one of the quad play markets and/or a lack of price competition in one of the platforms. In the UK, Dunne points out, there is neither an issue with penetration nor is there an issue with price competition in any of the four markets.
The O2 CEO also hints that the relationship with these quad play brands presents the commercial potential of a bundling of services if the network felt it needed to offer them: ‘We know that some customers will choose to go quad play, which is why we are working with two parties that already have a presence in this space [Talk Talk and Sky], giving us the commercial possibility to bundle. We have never set a strategy based on what others do. There will be an increase in the number of customers taking bundled products in the UK but a huge number of people will still choose a standalone best-in-class product.’
Dunne points out that O2’s recent success in forming high-profile partnerships with MVNO firms is in part due to a lack of quad play presence: ‘We have a track record of delivering when it comes to MVNOs, Tesco Mobile is the largest and most successful MVNO in the market. It’s about our ability to execute and quality of network, we have a pure mobile offering, which is of benefit to certain MVNOs. As the market rolls up and there are more multi play offerings, brands look at whether they want an agreement with a potential competitor.’
One area where O2 has also continued to steadily maintain its share is in the retail space. The operator picked up a handful of stores in the wake of the Phones 4u collapse and has maintained a single-minded approach to retail since it pulled out of the independent retailer in 2013. Dunne says that the network is continuing to evaluate the way in which its retail portfolio operates: ‘Our focus is on the in-store experience, and we’ve also expanded our range significantly. Towards the end of 2015 I believe we’ll see the expansion of the IOT space. This brings with it a range of possibilities that will help to engage people. We believe that the mobile phone will be the remote control for your life and so we are well placed with such developments.
‘We did 15 times the number of wearables we did last year and the market will definitely get bigger. Apple will kick it on with the launch of the Apple Watch. With these new products people definitely want to experience it.’
Addressing the slowdown in the smartphone market, Dunne says that the operator is looking at new ways to interest the consumer: ‘I think that Q1 is shaping up in a similar way to last year. We are seeing a breaking out of typical behaviours; the cycle by which people upgrade their phones is longer but we’re finding that people might be upgrading other devices instead – tablets with a cellular connection for example, or wearables. We are using our Refresh programme to offer a range of products now beyond smartphones.’