Maidenhead in the autumn of 2006 was not a happy place. 3’s head office was gripped with tension and negativity as Hutchison Whampoa chief Canning Fok demanded to know how 3 UK had blown millions on building a subscriber base with a ferocious churn rate, with critics questioning how it was ever going to resemble a sustainable business.
Kevin Russell was drafted in initially as deputy CEO to Bob Fuller in November 2006, and was officially unveiled as the CEO six months later.
Since then he has turned the company around, with the once impossible in sight: breaking into profit.
He has built a business model around data, sharpened the focus on 3’s own retail, put two matters of regulation high on the agenda of Ofcom and rival networks, and recalibrated the financial metrics most important to 3.
That work has earned plaudits across the industry as Mobile has set about assembling its first ever Power50 – the 50 most influential people in the mobile industry over the last 12 months. Russell is Mobile’s Person of the Year, with high praise coming from rival networks.
Mobile didn’t tell Russell he had won, simply that he had been recognised as influential.
‘I am surprised. We have been incredibly inward looking. A lot of the work has been getting our own house in order, so I’m surprised that has had traction outside the business.’
Ask senior people within 3, and they describe an organisation that has been overhauled, with a new energy stemming from purposeful leadership at the top. The scale of the task appears to have been huge.
Russell lists his initial priorities when he took the reins: ‘The retail roll-out; getting 200 stores and 1,500 new store employees integrated and doing that well is a huge operational challenge. On top of that there was sorting out our brand, our propositions, credit control systems, processes, supply chain and customer resolutions… they all had to be looked at.’
He is quick to say that some of the tasks were identified before he arrived but identifying them is one thing, and executing them is another matter.
Much of the work, he says, has been assembling a team he regards as fundamental to 3’s progress this year. ‘We’ve got some people who are very passionate and talented in our business, and just get things done. My job is addressing what needs to be done, get the business focused and prioritise, but it’s been the work of some outstanding people that have got us results this year.’
But Russell wasn’t summoned to the UK because of his operational expertise. ‘I learnt in Israel that I’m not operationally strong, but I can identify people who understand systems and processes. I can identify leaders and managers. I’m more of a commercial person with a financial background.’
Russell is a Hutch veteran having been CEO of 3 Australia since September 2001, and put it on a sound footing. He started out his career at Hutchison in Hong Kong in 1995 and had a brief stint in Hutch’s Israel business.
Having looked at the UK business and the UK market, and ‘getting its own house in order’, Russell set about creating a business plan.
The self-proclaimed finance man says one of his main jobs is shifting the whole business’s attention away from customer numbers and even ARPU as a metric of success.
‘Margin, net service margin is what really counts,’ he says.
The argument is even ARPU – the widely held objective of most operators – is misleading if the cost for getting that ARPU is too high. Russell believes stability comes from margin.
‘3 needs to be double the size it is today in five years’ time. Double in terms of revenue and margin size. We will build a strong standalone business and taking decisions to get there: the right distribution mix, the network infrastructure.’
He says focusing on margin is important for the whole industry. ‘Net service margin is even more important than ARPU, or total revenue. This is how the market will evolve.’
With the target in place to double the size in five years’ time, he has created a plan revolving around data.
The first part of that is the network infrastructure. ‘We launched HSDPA in September/October last year. It was too late to be honest. HSDPA has been the catalyst for our capability to launch mobile broadband.
‘We have a product people want [dongles], we have a network that is strong, and will only get better with T-Mobile.’
He says the network share deal with T-Mobile ticks both boxes of moving towards a strategy based on data traffic, and adopting ideas to push costs down.
‘David Dyson (CFO) has done it [network sharing] in Sweden and Australia, and I did that in Australia. Both us and T-Mobile were looking at it so it had real momentum. There was a meeting in January 2007 and it moved very quickly.’
He won’t give a share split of how much mobile broadband dongles are taking of 3’s total contract numbers, but says it is sizeable. Industry figures suggest 3 has withstood the assault from Vodafone’s marketing and price matching to still take the lion’s share of what is a 25,000 dongles per week market.
‘3 was launched over five years ago and we’re now at a stage where there is a 3G product in the form of mobile broadband, where customers are running into stores and asking for the first time.’
Rivals have hit out at 3 for ‘trashing the market’ by cutting prices to what some networks have called ‘unsustainable’ levels. Vodafone matched 3’s £15 pricing, and 3 has gone further offering existing mobile phone customers, a dongle contract for an extra £5 per month.
He is unperturbed by the accusations.
‘There is definite sustainability in our model, even for other operators. If we look at mobile broadband, VOIP, instant messaging on mobiles – these are not services we want to milk margin out of but create mass market take up across contract and prepay. It only becomes relevant when consumers in volumes are using our data capability. I believe price and user experience have been barriers, and we are removing those barriers. Mobile broadband is an absolutely simple and clean product to use, and the price has seen huge take-up.’