Staying ahead of the game

27 Mar 2003

For Paul Donovan, being head of Vodafone Ireland can lead to some strange conflicts of loyalty, such as when your favourite football team is sponsored by your main competitor. So, in the Donovan household, only retro Arsenal strips are permitted. “My son and I are starting a new trend by wearing the old Arsenal stuff from the Seventies,” he laughs.

This football tale has another twist though. It was Donovan who, in his previous role as managing director of Vodafone UK’s commercial division, pulled off an unprecedented two-year £3m sterling product endorsement deal with Manchester United icon David Beckham. Donovan ruefully recalls that the event earned him coverage in Arsenal’s official fanzine, The Gooner, under the headline ‘Donovan’s Dilemma’. “The article concluded that it was okay, it was business, so I was forgiven,” he says with a laddish snort of amusement.

Donovan was raised in south London before travelling north of the Thames to attend University College London (thus sealing his love affair with the north London club). Since graduating with a degree in Scandinavian Studies – and adding an MBA for good measure – Donovan’s career has been blue chip all the way. He began in consumer marketing with foods giant Mars, before moving to Coca-Cola & Schweppes as marketing director. He then joined Apple Computer where he became the marketing director UK & Ireland. Then on to BT: head of business marketing and director of online services. Then came several years with Cable & Wireless, first as commercial director of Cable & Wireless’s mobile joint venture One-to-One (now T-Mobile) and then as managing director of the telco’s Australian subsidiary, Optus.

Donovan brings this formidable weight of experience to his current role as CEO of Vodafone Ireland, which he assumed in October 2001. “This is my fourth mobile network and I’ve had a career that spans FMCG [fast moving consumer goods], PC and the full range of telecoms businesses,” he says in a matter-of-fact rather than bragging sort of way.

Donovan talks with evident satisfaction about the strides the business has made over the past 18 months: the smooth execution of the multi-million euro corporate rebranding strategy; the good financial numbers, with revenues and subscriber numbers continuing to climb; the launch of new services such as picture messaging and mobile gaming; and the high levels of employee satisfaction, helped no doubt by the company’s move to a stunning new headquarters in Leopardstown.

In its day Eircell was the country’s largest mobile network. With Vodafone, Donovan has every intention of maintaining that tradition. The network has 1.7 million subscribers, prepaid and contract, compared with O2’s 1.2 million. The Irish operation has the highest yield of any Vodafone operation in Europe as measured by average revenue per user (ARPU) – €542, as compared with €432 in the UK and just €312 in Germany. Furthermore, the Irish customers are embracing lucrative data services faster than any other Vodafone country bar Japan. Data revenues now account for 20pc of turnover, compared with an average of 16pc in other European markets.

But just as Vodafone Ireland contributes handsomely to the overall group, Vodafone brings its international muscle to bear on its national subsidiaries. Donovan sees this first hand in his role as a member of Vodafone’s Global Brand Council, a group charged with driving the company’s brand and marketing strategy.

“In 2001 Vodafone was the largest TV advertiser in Europe but it was advertising 14 different brands. In 2003 it will be the third or fourth largest but we will be advertising only one brand, so we gain economies of scale through having a single brand and a single customer promise in all the markets in which we operate,” Donovan notes.

The benefits of being part of a global group extend to such areas as product development and the leveraging of marketing assets such as David Beckham and Michael Schumacher to launch Vodafone Live! simultaneously in seven countries last November/December. “Eircell could never have conceived of executing Vodafone Live!, neither would it have had the resources to have been able to do so,” says Donovan emphatically. “So that really shows the benefits of being part of the world’s largest mobile community.”

And it is a large community: 200 million, or one in four of the world’s mobile phone owners, use a network either fully or part-owned by Vodafone. To Irish users who might shrug and say ‘so what?’ Donovan emphasises the benefits that go along with that. The community idea is central to the ultimate Vodafone vision which is that whatever country you are in you will be able to access the same services. This process has already begun. For example, a European Vodafone customer visiting any other European country can now top up his or her phone by buying a top-up card at any Vodafone outlet there. Likewise, the often laborious exercise of dialling into one’s voicemail from abroad is now a thing of the past; users need only dial 171 from anywhere on the Vodafone network. “Things like that do provide real added value and convenience and it’s the beginning of a much more consistent look and feel for services wherever customers go,” says Donovan.

While few would dispute the operator’s commitment to launch new services, the stellar performance of its Irish arm does raise some interesting questions. For a start, do the high ARPU figures mean Vodafone’s Irish customers are paying over the odds for the services? Donovan strangles the suggestion at birth: “High ARPU is driven by high usage,” he points out. “The level of usage for both voice and text in Ireland is substantially above the European average.”

He continues: “When you look at the OECD published tariffs which actually compare countries on a like by like basis, [Irish] prepaid customers are getting calls far cheaper than the average and, for contract customers, Ireland is at or above the average – all in a country where the cost of delivering mobile communications because of the low population density is much higher.”

A number that he can’t argue with is the fact that Vodafone and O2 together have about 96pc of the market. Not even AIB and Bank of Ireland enjoy that level of dominance. Is this not clear evidence of lack of competition in the marketplace? Donovan has obviously fielded this one before because his voice has a harder edge now. “If you ask me should Meteor have more than 100,000 customers after two years? Absolutely, but this is not a failure of competition; it is the failure of an organisation to execute a business strategy and a business plan well. It has not built out a network; it has not created a brand; it has not created a retail network to serve the requirements of its customers and customers are not buying its services as a direct consequence of that.”

Neutral observers might argue that not only were Meteor’s prospects badly crippled by the court case which delayed its entry into the marketplace but that its parent company, Western Wireless, simply does not have the financial wherewithal to compete with a company that invests over €3m a week in the Irish market in network infrastructure alone.

If Vodafone has any areas of relative weakness it is on the business side. The company intends to correct that through a new business strategy called Mobile Office. The strategy will consist of introducing a drip feed of new business services, beginning next week with the launch of the Mobile Connect Card. This is a GPRS data card that Vodafone customers plug into the data slot on their laptop. The appeal of the Connect Card will lie in the fact that it’s designed as a plug and play system, so that when users are travelling they won’t need to reconfigure their laptops to get access to their emails or the internet.

The card will be available through Vodafone’s corporate accounts team as well as through retail outlets at a price expected to be around €200. Vodafone has also done deals with a number of leading hardware manufacturers to incorporate the Vodafone-branded GPRS card into their laptops and other mobile devices. In so doing it creates a new sales channel for its services that it is calling ‘Connected by Vodafone’. Dell is the first such partner, meaning that from next week Dell can supply Vodafone GPRS cards plus SIMs to its business customers.

The Mobile Connect Card initiative complements rather than replaces Vodafone’s existing mobile mail offering EmailAnywhere, which is an application customers can use with the data card. In fact, Vodafone is ramping up the service by completing a deal with Hewlett-Packard’s value-added reseller network, whereby it will install and support EmailAnywhere for Vodafone corporate customers as well as cross-sell Vodafone services to its own customer bases.

The other major imminent Vodafone event is, of course, the launch of 3G in the summer. Although not at liberty to reveal the exact date of launch, Donovan identifies Italy, Germany and the UK as the lead countries for 3G, with Ireland to follow afterwards.

Vodafone is required, as are the other 3G licensees in Ireland, to have a network built and a service up and running by 1 January, 2004 as part of the licence agreement, but Donovan hints that the company would prefer to delay the launch until the market was more mature, a view that is, he says, shared by the industry as a whole. “Unlike other European markets, the regulator here has not accepted that the licence conditions should be relaxed to allow a better alignment between the commercial opportunities of 3G and the requirement to build out a network. No one would want to invest in an asset before they can really derive a return on it,” he says.

He adds, moreover, that the serious technical challenges which rolling out a brand new networking infrastructure inevitably presents cannot be overstated and it will take a good 12 months before the early teething troubles have been overcome.

He emphasises, however, that Vodafone will play within the rules and put its full weight behind 3G: “There is no question that Vodafone Ireland will be at the forefront of 3G rollout here and as the market leading operator we have a responsibility to Ireland Inc to ensure we carry out the right level of investment in developing high-quality infrastructure.”

Donovan believes that in the early stages video messaging and online gaming will drive demand for 3G. So too will the delivery of sports action, such as goals from the Premiership. Although Hutchison 3G (now simply ‘3’) has stolen a march through its exclusive three-year deal with the Premiership football league, Donovan seems unfazed by the development. “I believe that beyond 2005 it is very unlikely that there will be an exclusive relationship with the Premiership because at the end of the day Hutchison won’t have enough customers to satisfy what I think will be a big demand. I think the Premiership will see sense and will want to sign multiple deals in order to get its product to as many customers as possible to maximise its revenue and to maximise its brand.”

Hutchison might not be the only player muscling in on Vodafone’s territory next year. Eircom is making noises that it, too, may be interested in entering the mobile market once the non-competing embargo, agreed as part of the sale of Eircell, is lifted in March 2004. Indeed there are rumours that the former national carrier might be interested in snapping up the last of the four 3G licences or perhaps making a bid for Meteor – or, if neither of those, then negotiating roaming agreements with one of the mobile networks.

“No, we have not begun discussions with Eircom in any shape or form,” Donovan says firmly, before adding dismissively, “I have read that Eircom believes a fixed and mobile converged solution is really attractive to customers, except I haven’t seen any [company] in the world deliver on that, nor have I seen customers actually want it.

“The other thing, of course, is that in order to provide the best products and services to customers and the best technology you need to have a really deep and engrained knowledge and expertise. I don’t see that in Eircom.”

Then he delivers the killer blow: “Why would it invest lots of money in mobile when it is not currently investing in the quality of its fixed line network?”

But isn’t Eircom debt free, with a large customer base and the country’s largest fixed line network? “The Bank of Ireland has a very big customer base, a very large branch network but I don’t see it entering the mobile phone business,” Donovan retorts.

If he searches in vain for a business case that would justify Eircom entering the mobile market, Donovan similarly senses a lack of a commercial underpinning to Wi-Fi networks, the wireless hotspots springing up around Europe and the US. “Nobody has been able to publish a really sensible business plan on Wi-Fi yet and the last time I was in a situation where I couldn’t see a sensible business plan was in the heady days of the internet,” he says.

While the popularity of Wi-Fi networks confirms to him that people are ready to go wireless, he sees it as nomadic computing, rather than mobile computing, with its own distinct billing and servicing issues. But he adds: “Of course it’s an area that we’ll get involved in but we’ll get involved at the right time and in the right way.”

Whatever way you cut it, as the head of Ireland’s largest mobile network, Donovan is in a position of strength – and he knows it. He is combative yet affable; opportunistic though not unnecessarily risk-taking. Most of all, he expects to win.

His Arsenal gear may hark back to the Seventies, but when it comes to business, Donovan is a thoroughly modern CEO.

By Brian Skelly