O2 buoyant despite choppy waters for parent

21 May 2003

It was said at the time that the billions the mobile networks paid for 3G licences would come back to haunt them. This is the grim scenario now being played out in front of MmO2, although Danuta Gray, chief executive of O2 Ireland (pictured), tries to play down the crisis facing the group.

During its annual results announcement yesterday, which saw total turnover grow 14pc to £4.8bn sterling, MmO2 said that it is to slash the value of its assets by £9.66bn sterling, £8.3bn sterling of which stems from losses relating to goodwill and 3G licences. The remaining £1.36bn sterling relates to a write down it suffered when it sold off its loss-making Dutch operation recently. Meanwhile, its German business, which holds less than 8pc market share, is strongly tipped as another candidate for disposal.

Gray will not be drawn on whether MmO2 is a likely acquisition target but concedes that further consolidation through merger or acquisition is highly likely in the mobile communications industry over the coming months. “There is an enormous amount of speculation and rumour – and that’s only what it is. As a company we’ve always said we’re open to the prospect of consolidation at the right time and when it’s right for our shareholders,” she remarks.

About the only bright spot on the MmO2 horizon is its Irish business, which the company in the past has called its “jewel in the crown”. Yesterday’s results showed that the Irish operation continues to perform strongly. Turnover rose to €686m from €640m the previous year and earnings to €239m from €198m, with profit margins jumping from 30.9pc to 35.5pc. “I think it’s a really good sign that even in a very mature market we can achieve growth in revenue,” says Gray.

O2 Ireland’s average revenue per user figures reached €546 per user per annum, slightly ahead of the previous quarter’s €543. This compares with €340 in Germany and €346 (£247 sterling) in the UK.

In addition, for the first time, the company revealed user minute figures, which seemed to confirm the company’s claim that Irish mobile users ‘talk more’ than other nationalities. Irish users spend 188 minutes on their mobiles each month compared with 109 in Germany and 107 in the UK. “These figures should quash suggestions that we’re overcharging in Ireland,” Gray comments.

The big question facing O2 is where growth is going to come from in a market where mobile phone penetration is touching 80pc. Gray feels that growth is still possible but it would be driven more by users having multiple mobile devices, each requiring a separate SIM card, than new users coming onto the network. Gray herself is ‘multi-deviced’ as she carries a phone, an xda personal organiser and a Blackberry, the iconic email access tool, a new version of which 02 launched last week targeted at small businesses and the self-employed.

What this points to is a market that is becoming increasingly complex and at the same time services driven. “It’s a function of a maturing market,” Gray agrees. “When a market is growing very quickly, the discussion is much more about market share and acquiring new customers. When you have a large customer base, you have to start to get to understand much more about what matters to your customers as individuals.”

At the same time, O2 is also trialling new technologies such as Wi-Fi to ensure that it’s at the races as the demand for wireless connectivity services takes off. O2 currently has several wireless ‘hotspots’ in a dozen hotels around the country, including Jury’s hotels in Dublin, Cork, Galway and Limerick and Gray expects the number of locations to increase. Gray believes that Wi-Fi would only succeed when wireless hotspots are ubiquitous and users are free to roam between the hotspots of different operators. Far from being a threat to O2, these networks will become just element within its service offering, Gray emphasises. “It’s wireless technology; that’s what we’re in the business of.”

She also plays down the fuss over 3G – the technology at the root of MmO2’s financial problems. “For us, 3G is not as risky as might be perceived in the press. We took a very long hard look at it; it is absolutely something we believe in. It’s never been a case of if this service evolves and how fast, but when … Beyond the launch [in December] we will continue to look at the commercial realities and see what revenues come from it. So we’re not going to go out and march ahead to 99pc coverage just for the sake of it.”

She concludes: “This is a long-haul investment. The licence is over 20 years. It’s not all about it happening on 1 January 2004.”

While O2 Ireland builds and tests its 3G network, it is adding advanced services onto its current GPRS/2.5G platform with the intention of migration them onto 3G at a later date. In June or July it plans to begin trialling video with a small group of customers and by October start testing a music download service.

With so much on her plate, it seems that Gray has barely the time to be distracted by events in MmO2 and is certainly having none of the doomsday scenario being painted by industry watchers. The message coming from O2’s Baggot St headquarters is, very firmly, ‘it’s business as usual’.

By Brian Skelly