O2 looks beyond Vodafone for its new competition

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O2 takes higher ground and casts eyes beyond operator rivals for new competition

Telefónica O2 UK welcomed Vodafone’s improved financial performance last week as stimulus for the UK sector, and for the industry’s step into new markets.

But chief executive Ronan Dunne sought the higher ground, as O2 UK maintained growth in the quarter in key metrics and its management looks beyond everyday competitors to disrupt providers in parallel markets.

O2 UK increased revenue, profit and customer numbers in the quarter ended September 30, and in growth volumes took more than rivals on each count, even as Vodafone’s performance showed better improvement compared to its year-ago figures.

Dunne remarked: “It is not about Vodafone or Everything Everywhere for us. It is about deepening and broadening relationships with customers, and expanding into adjacent markets. Because, you know, my minutes are never going to be that different to those from Vodafone or BT.

“What is different is the quality of service and the breadth of our offer. Our core business is not mobile anymore, it is communications. If we don’t take this view, then we’re just competing in a declining market, and I am just first among losers.”

Beyond mobile
Dunne noted O2 UK’s move beyond mobile with new activity in fixed line voice and broadband, for which numbers have swelled by more than 25 per cent in the year, and VoIP markets.

He said: “That’s why we bought JaJah, a VoIP provider. If it was just about mobile, we wouldn’t have gone near it. But we think we should embrace that technology.”

Telefónica’s revenue from JaJah has increased since its $207 million purchase of it late last year, from deployment in the UK and Germany only.

Dunne said: “Most of our growth is not going to come from stealing customers from other operators but from bringing new experiences to customers, as we have done with broadband and fixed line services, which we have built from zero.”

He said the business has built good momentum around its Joined Up fixed initiative, now up against Vodafone’s fuller OneNet unified communications solution in the small business market.

Dunne suggested O2 UK is in a position to put more heavily integrated voice and data solutions into market already, and hinted a dedicated solution will come down the line. But he said Joined Up is a powerful offer in the market for now.

“We’re connecting a lot of customers. But, there is an opportunity for Vodafone to be successful too because we are often taking customers off BT and Cable & Wireless. And the quality of the service wrap is entirely new to customers in that market. The best mobile operators are streets ahead of fixed line providers.”

Seven verticals
As well, O2 parent Telefónica has identified seven vertical markets to go after: video and content, e-health, applications, security, financial services, cloud services and machine-to-machine (M2M) communications.

Telefónica considers each to be a €1 billion opportunity for the group. Dunne said the Telefónica model is to “build once and deploy many times” across its major businesses in the UK, Spain, Germany, Mexico and Brazil.

He suggested the Spanish business will likely take a lead on e-health, or ‘mHealth’, but observed new economic revisionism has created demand for remote-access and tele-working solutions within the NHS, and its equivalents in other markets. At the same time, Dunne said financial services will have a different look in the UK and in Telefónica’s Latin American units, say.

But the UK business has led Telefónica markets on initiatives such as its financial services products.

“In the UK market, we have continued to be the one [UK operator] to champion innovation. O2 UK has taken the lead on data, unequivocally. O2 Media is, unequivocally, best in class in this industry. We have got in to that space. In health, again, there is competition, but we are leading it. Tiered data, financial services; we lead the industry for those things.”

Of course, compared with O2’s glut of innovation around its core mobile proposition in 2007, when it launched the iPhone, its Simplicity SIM-only offer and its Priority scheme, some of its brand new ventures have spluttered in their early days.

It does not have a finance partner for O2 Money, following Royal Bank of Scotland’s withdrawal in July, and work on NFC and e-wallet technology has failed to progress much beyond trial-stage. Similarly, its O2 Media business has failed to spark in the broader consumer consciouness.

Dunne remarked: “I am not suggesting some [vertical market departments] aren’t still small, or only delivering nascent business now. And we have never suggested these are substitutes for our core communications business. But clearly they will scale up, and they are already delivering decent returns [in the UK].”

Dunne suggested Vodafone’s recent improvement could yet be a stimulus for critical scale of its own efforts to break new ground.

He said: “Competition drives innovation. It keeps customers happy, and allows for a differentiated experience.

“And with the O2 Media business say, actually, it probably does require the industry to put together a consistent inventory that advertisers can use to get to the next level. But we are at the forefront of innovation in this space.”

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