O2 - The only way is up

O2 - The only way is up

 

O2’s move into services may have been gradual, but it was premeditated. A huge transformation took place when it was demerged from BT in 2001 after starting out as the company’s subsidiary. It went from being the UK’s fourth mobile network to taking the number one slot – and then in 2009 it overtook BT in customer numbers.

The operator set about differentiating itself from the start. It became the brand of younger consumers through its sponsorship of music venues, especially the former Millennium Dome, offering its customers priority tickets.

Then in 2009, the network launched a financial services arm, O2 Money, with cards aimed at helping consumers to manage their cash.

The network’s CEO, Ronan Dunne, has made no secret of its ambitions to expand into healthcare and education, and it has now also launched a travel insurance offering.

And with the mobile market becoming increasingly commoditised, aspirations to move beyond its core telecoms offering make sense. O2 has led its rivals in that space so far.

However, now the UK’s biggest network faces a new threat: the operator that has held the number one slot for nearly five years will be trumped by the upcoming merger of T-Mobile and Orange, which will dwarf O2’s 21 million customers with a combined 28.4 million base.

The operator has also lost its iPhone exclusivity and has come under continued criticism for its network capabilities.

‘Best customer experience’
However, O2 customer director Tim Sefton is not fearful of losing the top spot. He says: ‘We are keeping up to date with what customers want rather than our competitors. We recently acquired Jajah for internet based voice services as we think this is how customers will communicate in the future.’

He argues that giving the ‘best customer experience’ led to O2 being the number one operator, and adds: ‘We saw that as the outcome. I think we have proven that if we deliver a great brand we have the ability to add customers.’

Yet industry insiders agree that it will be tough for O2 to gain the eight million extra customers needed to regain the top slot. Strategy Analytics analyst Phil Kendall says: ‘They are starting from quite a big gap and they won’t close it any time soon.’

However, he adds: ‘If anything, they may benefit when the big shake out happens. T-Mobile and Orange may take the brand out of the market and then there is some potential for O2 to gain share.’

The O2 brand exploded in 2008, when its ‘see what you can do’ strapline was changed to ‘we’re better, connected’, just before its launch of Apple’s second exclusive phone with the operator.

And the company has shown successive growth every quarter since. Kendall says: ‘O2 is still in a strong position – it grew pretty well in the last 18 months.’

The marketing around the brand is still resonating. Kendall says: ‘Although Orange was the “cool” brand in the 90s, O2 got a new ad agency in the last six years and had the “connected” marketing.’

High brand awareness

O2’s marketing is a key factor, says Sefton, adding: ‘The trend is that the world is gravitating towards certain brands – O2 is one of those. The reason for this is consistency and creating a clear and distinct brand identity.’

Marketing has achieved high brand awareness, says Sefton, as well as the network’s sponsorship of The O2 and the fact that it was the brand that Apple originally partnered with for the iPhone.

Sefton claims that O2’s strength is a combination of an ability to keep awareness in advertising, and products and services that customers want – ‘a combination of the promotional mix’.

But the power of the O2 brand has almost made it hard to look at product range and pricing. The iPhone has helped the network, as well as its bolt-ons and Sim-only push, says Kendall, but the brand has outshone it all.

O2’s network problems may also be a threat. The operator announced last year that it would invest a £100m cash injection into improving its network, after data outages and patchy coverage.

Meanwhile, Vodafone and Orange, which also now distribute the iPhone, have been marketing their networks hard.

O2 threw a lot of money at London late last year, Kendall points out, and it also has the network share with Vodafone. But he adds: ‘It seems to have stepped back from marketing the network.’

It’s a very competitive market, admits Sefton, adding: ‘There are not just five operators, but other brands and businesses competing for a space.’

Sefton even sees Apple as a threat to a certain extent, because ‘although they are a partner of ours, they are also a competitor’.

But can O2 fill the gap by becoming a one-stop-shop for services? Kendall isn’t optimistic that services can save O2: ‘There is some argument for O2 services but I’m not convinced,’ he says. ‘If they don’t want to be perceived as a mobile brand, O2 Money is a bit below the radar – although insurance is interesting. O2 is still viewed as a mobile operator but there is an obvious link with money and insurance.’

Sefton says insurance is one part of the overall strategy. ‘What we have always thought of doing is creating a greater experience with telecoms at the core. At the start, O2 was not a traditional operator – the relationship that customers have with O2 shows that. Everything we are doing is around that strategy.’

And Kendall admits: ‘In terms of expansion away from mobile and telecoms services, they [O2] are almost the only operator doing that. Others are doing things in mobile and social networking, but in terms of thinking a little bit outside the box and going towards insurance, O2 is making interesting moves.’

Financial services
Sefton says the launch of O2 Money started to mark out where the network saw the opportunity for financial services.

He adds: ‘To continue along that logic, other areas of financial services – adjacent products that customers buy – is where we saw travel insurance. In the travel insurance market, it was always about price.’

O2 will be utilising this with its customers – travel insurance can be wrapped into roaming, for example.

And O2 has ‘been good’ with CRM and loyalty, says Kendall. ‘The O2 venue has helped to make it a cool brand again; it gives people something else to think about and has shifted the battleground to their advantage.’

Industry observers agree that the other operators will do services as well – such as the mobile wallet of the future – as they all have aspirations of tapping into the lifestyle market.

O2 is in a reasonably powerful position, but the areas where the company is seen as strong – customer loyalty and brand – are changeable.

‘T-mobile and Orange are likely to spend more on the brand after the merger,’ says Kendall. ‘It will be interesting to see what happens with the brand landscape next year.’

O2’s battle to maintain its lead may depend on whether it can attain real success in the services space, and on its ability to add a substantial amount of customers through it.

Written by Mobile Today
Mobile Today

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