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Why O2 spent pounds sterling 550M on 4G (even though it's owner's debts top pounds sterling 48 billion)
Feb 24, 2013 (Financial Mail on Sunday - McClatchy-Tribune Information Services via COMTEX) --
These days in business you really have to want something to splash out pounds sterling 550 million, particularly if your existing debts are eye-watering. But O2 chief executive Ronan Dunne reckons it is money well spent for a slice of the next revolution in mobile phones.
That's what he paid in the auction for 4G (fourth generation) radio waves, which ended last week. This much-hyped, yet to be proven "advance" in technology should mean that phone companies can offer internet access on mobile phones as fast as home broadband is now.
The straightforward Dunne has no doubt 4G will live up to billing: "It means life does not have to pause when you leave the house -- 4G will deliver all the things you can get on your home computer, including high-definition TV. So you can watch the goals from Saturday afternoon football on your mobile, if that's your thing."
Since 6ft 3in Dublin-born Dunne, 49, played full-back at one of Ireland's most famous rugby-playing schools, Blackrock College -- old boys include Ireland star Brian O'Driscoll -- it is more likely that he'd click on the rugby.
It is a happy coincidence that O2 sponsors both the England and Ireland rugby union teams so he could at least celebrate a sound business decision even while drowning his sorrows after England's victory in Dublin a fortnight ago.
Dunne did not spend as much on 4G as O2's rival Vodafone, which splashed out pounds sterling 790 million, or even EE, which spent pounds sterling 588 million -- but then O2's parent company, Spain's Telefonica, is one of the most indebted in the world, owing a staggering 56 billion euros (pounds sterling 48.5 billion).
Nor did Dunne get the most spectrum, or even the best type. But he is definitely still in the game and that's what counts.
He says: "This is a truly landmark moment for the UK, presenting a wealth of opportunity to transform mainstream services to improve people's lives. Now the investment has been made for 4G to become a nationwide reality, we want all organisations across all sectors to ensure the true value of 4G is realised, so that together we can make Britain truly digital."
The auction raised pounds sterling 2.3 billion, a lot less than the pounds sterling 3.5 billion that Chancellor George Osborne hoped for. Back in 2000, at the height of the dotcom boom, then chancellor Gordon Brown raised pounds sterling 22.5 billion for 3G licences.
But phone companies do not have the resources they once did and are acutely aware that consumers will no longer pay through the nose just to use the latest, shiniest iPhone -- mobile operators' revenues have been flat over the past year.
And while consumers are hooked on social network sites, mobile operators have yet to work out how they can reap the benefit.
"The entire portfolio of smartphones will be 4G in future so more content, more data -- that is just the direction of travel," says Dunne, who is honest enough to admit that the best test he can give a new phone is to hand it to his 19-year-old student daughter. "She'll tell me straightaway if it's any good," he says.
For Dunne, 4G is simply too vital to fail. "We have to make the case for a digital Britain. It is tremendously important; it can be a change in the capacity of the economy, a digital transformation," he says. "Coverage with 3D is still only in the mid- 60 per cent, but 4G is set to cover 99 per cent of the population."
Dunne, who has been in charge for almost five years after previously serving as chief finance officer of the company he joined in 2000, points out that a loyalty scheme means O2 can offer members benefits suited to where they happen to be at any particular moment.
Heading to London's Docklands Then cheap tickets for the latest show at the O2 Arena can be yours, though Dunne notes that O2 is working hard to educate consumers on what information it holds on them.
He says: "I can't act in place of the conscience of the customer, so we act transparently to tell them what we know and then we offer them the choice of taking part in something that enhances their experience.
"And remember, the most information any of us give to anybody is to retailers' loyalty cards."
Dunne has said companies have an "absolute duty' to get youngsters into work and is involved in various initiatives, including joining forces with Bauer Media -- which owns the Bella and Take A Break magazines -- to create 30,000 opportunities for work experience over the next three years, ranging from one day to year-long internships.
Dunne can claim credit for adapting to consumers' more straitened times. It was Dunne who introduced deals offering a SIM-card, an agreed amount of network usage and a monthly payment but without the cost of a new phone. And O2, unlike some rivals, has never regarded its pay-as-you-go customers as second-class.
Dunne also led the way with the O2 wallet app, allowing users to make peer-to-peer payments (for example to friends or relatives) with their phones -- something we'll see more of with 4G.
Dunne's company demerged from fixed-line operator BT before being bought by Telefonica in 2005 and has 23.5 million customers, but it is no longer the biggest mobile phone company in the UK (that crown belongs to EE).
Telefonica's results are due this week, but in the most recent results for O2 for the third quarter of last year, revenues were down ten per cent. Churn -- the rate at which customers leave the operator -- was low, however, and 111,000 users had been added.
Dunne is married to a fellow chartered accountant -- "that can't be right, two accountants living together" -- and is happily settled in Weybridge, Surrey.
"I will be buried in Ireland, but I'll never live there," he says.
And while Osborne may be disappointed with the outcome of the 4G auction, Dunne has made a very expensive bet on it.
Now he has to deliver.
___ (c)2013 Daily Mail (London, ) Visit the Daily Mail (London, ) at
www.dailymail.co.uk/home/index.html Distributed by MCT Information Services
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