Several shades of Gray

19 Dec 2003

Cradling a cup of coffee in her hands while a cool breeze flows through an open window, Danuta Gray ponders a question about the changing business landscape she and her close team of workers have faced since she took up the reins of O2 in Ireland two years ago. She smiles: “I’m a Yorkshire person and Yorkshire people are used to being direct and can’t stand bullshit and jargon, and neither can this team.”

The response, almost the parting shot in our interview, sums up the panoply of issues that have been the bane of most mobile operators’ working lives in the past year, where everything from building a 3G mobile infrastructure to demonstrating price clarity to an Oireachtas committee were par for the course. The year ahead, with the actual arrival of 3G services, increasing saturation of the existing mobile marketplace in Ireland at 83pc of the population and the threatened return of Eircom to the mobile business in May, promises to be even more chock-full with drama and tension.

“It’s been an interesting year for what was really supposed to be only a transition year before moving towards 3G. When you thought everything might go quiet, guess what? It’s busier than ever,” she says.

Gray, who came to the helm of the then Esat Digifone in June 2001, has presided over a strong period of sustainable growth for O2 in Ireland, but has now entered an era where her company and rival operator Vodafone must consolidate and hold on to their positions as significant market powers in the face of number portability and the imminent arrival of Hutchison 3G to the Irish market. With 83pc of the Irish population now mobile, overtaking fixed-line communications, the massive revenue growth enjoyed in earlier years looks set to slow, forcing operators such as O2 and Vodafone to figure out new services and methods of driving revenues and, at the same time, compete aggressively against one another.

Like most people in prominent business positions, Gray’s original professional background could not be more different to her present role. She began her career as a research scientist designing anti-asthmatic drugs. “I found myself becoming more and more expert in a narrower and narrower field. One day I looked out the window of the lab I was working in and saw my boss arriving in what can only be described as a jalopy of a car. A minute later the sales and marketing manager arrived in a shiny new Mercedes and I thought ‘there’s something not right here’. My career might have been academically respectable, but I was bored.”

Gray accepted a job with BT and was involved in project managing the largest IT upgrade in Europe at the time. After moving into network management roles at BT, Gray transferred to BT Mobile where she did an MBA and began to head up various sales and marketing divisions in the group before playing a key shareholder role in a BT Mobile investment in Germany that later became a full-blown BT company.

Not long after, following BT’s acquisition of Esat Digifone, the then CEO Barry Maloney announced his intention to leave to pursue a career in the venture capital industry. Gray got the job. The first difference Gray encountered upon taking up her role at O2 in Ireland was the open, creative environment. “People aren’t frightened to say what they think here and are very hard working and committed,” she says.

Once she got behind the task, the objective became clear. “The challenge was really migrating O2 in Ireland from being an entrepreneurial start-up (it only started in 1997) to being part of a big corporation that had to perform to expectations in London. At the same time the Irish mobile market went from being rapid growth and customer acquisition to being saturated. Now we have to think about keeping customers and identifying new revenue streams. The team is as aggressive as it ever was, but in a different way. Not only do we want to acquire new customers, but also instill a level of satisfaction amongst existing customers. We want to win because we are working smarter and allocating our resources more cleverly,” Gray explains.

On the revenue front, O2 Ireland has done quite well, but Gray is a realist and knows that the times of massive growth through new mobile users are coming to an end. In its most recent financial results for the half year to 30 September, the company saw service revenues grow to €352m, up from €321m last year and its customer base increase marginally to 1.27 million people. Minutes of usage on voice calls by O2 Ireland customers are the highest in the group at an average of 192 minutes, compared with 114 in the UK and 113 in Germany. Data as a percentage of service revenues grew to 18.4pc and average revenue per user (ARPU) blended between pre- and post-paid customers was €551.

“What we’ve done is move from a world that was predominantly one of handset sales and market growth two years ago to one where prices have come down continuously by 25pc every year for the past three years and the pressure is on to create new services that are relevant to different customer types. Prices have been going down but we’ve seen usage going up. Text messaging alone in the Irish market has increased by 20pc year on year.

“Revenue growth is slowing down, but it is not stopping. This is a trend that’s true across the board in the mobile industry as companies need to continue to be competitive and drive value for all customers, whether it’s business people or consumers. We’re under pressure to perform in new ways and be transparent in our prices,” she insists.

Gray and O2 are now competing against a wide range of products and leisure pursuits where consumers expect value for money. “There is a consciousness out there amongst people about what they are spending on their food, their entertainment and their mobile phone — we are under continual pressure from consumers looking for increasing proof that we are giving them value for money. That’s one of the reasons why we refreshed prepaid tariffs for our existing customers — we’ve extended off-peak hours to 16 hours a day and you can choose whether that’s during the day or in the evening. As well as this we moved to the all-Ireland tariff, promising one rate North and South.

“It’s been a principle of the way we are doing business, to have no strings. If you have hidden terms and conditions, in the end customers will not trust you,” she advises.

Referring to the Oireachtas committee on communications’ investigation into pricing transparency in the pre- and post-paid mobile industry in September, Gray says: “The whole Oireachtas committee happened because we [all mobile network operators] failed as an industry to explain the difference between high tariffs and high-usage levels. On a bill the amount of money the customer spends out of their pocket is fundamentally linked to usage levels. We take that very seriously and have put a lot of effort into making sure customers understand what we are offering them. We always have done, only the problem was we needed to put more effort behind it.

“It’s just good business. If mobile operators do things in a way that customers can see what we are offering them, they’ll trust us and continue their usage of those services. The committee showed the industry how it needed to communicate that more frequently and continue to abide by that principle. O2 actually had its prepaid price changes on the blocks for several months before the investigation and for various reasons we hadn’t introduced them. We could have introduced them just before it took place, but chose not to because it would have looked like a cynical reaction to an issue we didn’t believe we faced,” Gray explains.

The advent of number portability in the summer, a service that allows users to switch network operators without changing the prefix on their mobile numbers, threw up another threat to the duopoly that O2 and Vodafone enjoyed in the Irish marketplace. Meteor, which was held from launching services by up to two years because of a protracted court case, only managed to get a 2pc market share when it launched. But since the advent of number portability churn has allowed Meteor to boost its market share to 5pc. Meteor boldly claims that this boost has been largely at the expense of O2 and makes Meteor the No 2 provider in the pre-pay market after Vodafone.

A nonplussed Gray comments: “Competition is good but it doesn’t half sharpen up your intensity in terms of performance and we don’t take losing customers lightly. That’s why we’ve refreshed our prepaid tariffs recently; we are determined to keep customers. It’s very interesting that Meteor has made those announcements. All I can say is wait until after Christmas when we will disclose our own figures.”

Christmas has traditionally been the mainstay of the mobile market and last year alone O2 boosted its customer base with 43,000 new customers. In anticipation of the Christmas season this year, O2 introduced the colourful X1 handset for the consumer market and the XDA II personal organiser/phone for the business market. As well as this, Gray predicts that Christmas 2003 will be the season where multimedia messaging (MMS) comes into its own.

“All the factors are starting to point in the right direction. We’ve seen a 35pc increase in the demand amongst customers with MMS and GPRS phones capable of downloading games and ringtones and a massive 50pc increase in the number of people actually using them for these purposes. Another market area that we are seeing a huge boost in the consumer area is that of interactive text marketing over premium text numbers. For example, a big jump in usage came with the You’re A Star TV competition that we sponsored. In February this year, nearly one million texts were sent on one evening for one show. In a country with less than four million people that’s incredible. A new market is being created in this segment that is of interest to a whole range of companies, ranging from financial services companies to FMCG [fast moving consumer goods] brands, that want to get a message into the hands of an individual,” she says.

In terms of offering new services to an existing customer base, it is clear that O2 is using its imagination in targeting its corporate and small to medium-sized enterprise (SMEs) customers. The BlackBerry wireless email machine has recently been shifted from a device that would only work within a corporate IT infrastructure to one that the average SME can use with their POP3 email account for less than €50 a month. As well as this the company has been active in meeting the mindset of the Irish SME by introducing services such as the O2 assistant product that gives mobile users, typically sole traders and small businesses, a personal call answering service or virtual personal assistant for €5 a month. Another clever innovation has been the introduction of the Group Worker service that allows employees on corporate mobile accounts to separate out their personal calls.

“We’ve basically learned more about being innovative and imaginative in the Irish market and realised that fantastic business opportunities lie in tailoring products to meet various business verticals, such as creating products for a field engineering team that’s constantly on the move as well as a field sales force on the move.

“We’ve developed our technology to do a lot more than voice and picture messaging. Our 2.5G infrastructure is strong and stable and we are ahead of our licence rollout plans for 3G and are now at 34pc of the population. As we move to 3G, we are spending a lot of time thinking about data applications that are relevant to users in all walks of business and life,” she continues.

In terms of the looming arrival of 3G services in the Irish market, Gray said that the company will be focusing primarily on data services than flashy handsets and that the first products to be rolled out will be data cards. “We are currently doing trials with our corporate customers and we are learning as much from them as they are from us on 3G,” Gray says.

But with the arrival of 3G will come Hutchison 3G, otherwise known as 3, that will also have a remit in its licence to host a mobile virtual network operator (MVNO). Also, Eircom’s moratorium on entering the mobile industry ends in May and there has been speculation as to whether Eircom will become an MVNO customer of 3 or Meteor. “There’s a huge number of things that 3 is trying to do in the UK and challenges it is trying to overcome in the UK before it will consider coming to Ireland. Also I don’t think there would be enough room for an MVNO in the Irish market.

“Ireland is a competitive market, with the lowest prepaid tariffs in Europe. That’s competition working and it is driven by high-usage levels. Ireland also has the lowest text rates and termination rates. The problem for a new entrant will be primarily the fact that it is a ruthlessly competitive market with a population equivalent to that of Greater Manchester.

“If an MVNO wants to come into the market and offer something different, that’s great! But if people want to come in and try to sell voice and data cheaper than it already is then I don’t know how they’ll succeed. ComReg’s [Commission for Communications Regulation] research showed that 90pc of Irish mobile customers already felt they were getting value for money. If that is the case then why would people move?” she asks.

What Gray would applaud, however, is innovation: “If someone wants to enter the market and compete by offering something different then that’s fine by me. I never underestimate competition. I respect competition.”

By John Kennedy

Danuta Gray
Position: Chief executive, O2 Ireland
Education: Degree in biophysics and an MBA
Industry experience: Started career as a research scientist in the pharmaceutical industry before moving into a technology role at BT and helping modernise BT’s infrastructure in what was one of the biggest IT projects in Europe at the time. Graduated through various roles from networks to sales, marketing and management roles within BT Mobile in Switzerland, Singapore, the US and Germany before taking up the reins of former Esat Digifone in June 2001.