O2 will focus on keeping up its strong market momentum this year after once again being the most profitable network operator in 2009 with a record low churn rate, Ronan Dunne, CEO of O2 UK, told Mobile last week.
‘The UK is a challenging market with an economy that is not doing us any favours,’ said Dunne. ‘The competition is trying to get its act together and not give us a free run every quarter, but despite that we have grown revenue for six quarters in a row and that has not been at the expense of profit.’
Commenting on last week’s financial results for 2009, Dunne said O2 is already looking at T-Mobile and Orange as a combined entity. ‘I’m pleased to say that in Q4 we made substantially more money than the two combined, so while they may be bigger in terms of market share, O2 will still be the most profitable.’
Dunne attributed the company’s success to two dynamics. ‘Momentum is critically important in this industry. For every quarter for the last five years we’ve taken our share, as a result we have a very efficient distribution machine – so we think we pay less to acquire our customers. I’m also hearing that there is a lot of money going into the channels from our competitors to buy share, but we’ve not had to do that.’
Looking ahead, Dunne said: ‘I think sector will be negative again this year overall, partly due to another cut in termination rates in the middle of 2010 and partly because of the good deals out there. But we are planning to grow in 2010, so that is why we’ve been actively deepening and broadening the relationship with customers built around a connectivity service brand.
‘The idea is that the remote control of your life is your phone , so if we are at the centre of that we can bring you more services such as broadband and fixed line, O2 Media, O2financial services and travel insurance.’
Dunne said that the industry was facing more demand than it knows what to do with on data. ‘We have to look at how content and bandwidth will be paid for. The model needs to evolve to look at how we cope with high data users and how we provide the right quality of usage. If we offer live streaming of HD video the definition has to be good without any buffering.
‘Consumers will have to pay for that service, but others will pay as well, for example, Amazon with the Kindle. It used to pay DHL £1 to deliver a book – now it will pay the mobile operators to squirt the book down to your Kindle. It will be the same for other content producers and distributors.’
Dunne believes O2 has posted the lowest ever churn rates in the history of the UK mobile industry at just 1%. He said this was due to successfully encouraging customer loyalty. ‘It’s not just about attracting people, but retaining them. If you have to buy gross expensively, you had better hold on to it, or it is not a sustainable model.’
The key factor in O2’s high retention rate is giving value for money, while not necessarily being the cheapest. ‘You have to provide good customer satisfaction and experience,’ said Dunne. ‘It matters that our call centres are UK based. You also have to provide a fair deal, so that the best deals are not just for new customers to attract them, but for all customers, so you stop existing ones from shopping around.’
Dunne said the O2 Priority scheme has been a major contributor to customer loyalty. The company is looking at ways to build its portfolio after widening it to the Academy venues and sporting events. He added that independent surveys reveal that people who are aware of O2 Priority are much more likely to stay with the company (10% less likely to churn) and 25% more likely to recommend it to friends.
O2 is continuing to upgrade its network after investing £30 million in boosting its London coverage recently. ‘We are rolling out the learning from London. We are making sure the way we build our networks is consistent with supplying a good service.
‘But it is not an arms race,’ continued Dunne. ‘We want users to have the confidence to rely on our system. Throughput is not the only measure. Speed and capacity are two sides of the same coin. If one person gets the download fast, but three others can’t get on because you haven’t got the capacity, then that’s no good.’
O2 results 2009
Total net revenues: £5.6bn (2008: £6.4bn)
EBITDA: £1.5bn (2008: £1.6bn)
EBITDA margin: 25.8% (2008: 26.1%)
Customer numbers 21.3 million (2008: 20.2 million)