Cutting Room: Dunne wrong to point finger at rivals

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Whilst O2 does is more expensive and perhaps offers better overall value than its operator rivals, Paul Withers disagrees with its UK CEO that they are devaluing the market by lowering prices

It was all smiles again this month at O2 following a disastrous July, with the operator reporting a strong set of financial results coupled with almost half a million new contract customers since the turn of the year.

But it was comments made by O2 CEO Ronan Dunne which got us talking in the office.

Dunne, who is never shy about speaking his mind, was openly critical of his rivals for offering high-end handsets for free on low-end deals, saying they devalue the industry by adopting unsustainable business models to boost trade.

Opinions on this statement in the office were divided.

Dunne admits O2 is more expensive than its rivals on some contract handsets, but he sees the handset and tariff as just one part of the overall package offered by the operator.

And he has a point. The operator has seen a turnaround in its financial performance since last year, including a tenfold increase in customer additions after launching O2 Priority Moments in July 2011.

The service has saved its customers more than £8 million. It has also recently been extended to local businesses in a move designed to help them boost trade.

O2 More, the operator’s personalised marketing service, has amassed more than 10 million customers since November 2009, while its gadget recycling scheme, O2 Recycle, has given back well over £30 million to customers since launching in October 2009.

O2 also provides its customers with free Wi-Fi in high street retailers, improving the overall customer experience.

This strategy is clearly working and people, whether they are aware of it or not, are paying for these privileges.

But does this mean other networks are devaluing the market? I would say no.

While these offerings will appeal to some, and are undeniably good, many consumers will be purely concerned with price – seeking the best deal on the lowest available tariff.

If O2’s rivals, Everything Everywhere, Three and even Vodafone, which is still seen in many circles as the more expensive brand, choose to adopt this strategy, so be it.

And if the other networks aren’t offering the same level of value-adds that O2 does, then surely that’s justification alone for them not to charge the same prices for their services?

It’s the same in all business sectors. There are those who buy their groceries from Waitrose and there are those who shop at Aldi. There is a market for both and it’s up to business to cater for each.

There may be instances where handsets are offered at a price which stretches their margins, in some instances removing them altogether, but we have to assume the cost is offset somewhere else rather than being a gamble on their own future.

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