The provider’s CEO and CFO talk financials, 5G and building its business segment share
O2 CEO Mark Evans believes the operator’s biggest opportunity for growth through 5G is in B2B as he and fellow O2 executives shared insight on its journey to the new standard with Mobile News.
Evans was accompanied by O2 chief operating officer Derek McManus and O2 chief financial officer Patricia Cobian at the Sexy Fish restaurant in London’s Mayfair on July 25.
There, the O2 executives spoke at length to a room of members of the media about fiscal results for the first half of 2018 (three months ending June 30).
According to Evans, O2 is a “challenger” in B2B but businesses and consumers are warming up to the operator’s business practices, he claimed, as O2 celebrated eight consecutive quarters of revenue growth and operating income before depreciation and amortisation (OIBDA).
“Can O2 reach more into the business segment? Yes. Our customer satisfaction is up to 83 per cent, the next best is 69 per cent.
We are, in essence, the challenger in B2B, we think we’ve got more opportunity in B2B, and actually the customers we’re signing are warming to the way we do business, and that’s not turning up and selling a bit of technology, it’s about engaging and providing an experience that is second to none.
“But we’re not going to let up on consumers, when it comes to 5G the customers will benefit from the reliability and speed. But the biggest opportunity we see in 5G is B2B and what I call adjacent markets”.
Evans hit out at rivals for being reticent to share total connection numbers but recognised both BT/EE and Vodafone are still formidable competitors despite past financial results not reflecting so.
Evans claimed O2 is “undoubtedly the largest network” in the UK with a current total of 32 million mobile connections that includes its MVNO partnerships such as with Sky Mobile, Tesco Mobile, Giffgaff and Lycamobile.
For Q2 it added 100,000 contract customers while attaining and claiming an industryleading 1.0 churn rate.
Evans commented on rivals’ previous financial results, saying: “Comparing quarter on-quarter, Vodafone had worse results compared to last year. Its total base declined more than others and seem to be going through a tough time, there’s no doubt about that.
But big businesses do take time to come around and I’m sure Nick Read (Vodafone CEO-designate) and the team will shape up in due course.
“BT/EE has deliberately never reported total customer base in the last five years, it only shows post-paid connections – you know that and so do I. If you then read the small print and see that its base has been going backwards repeatedly quarter after quarter.
This quarter BT/EE made an announcement it won’t be talking about customer numbers. But BT/EE undoubtedly remains a formidable competitor.
I expect the mobile market overall and rivals to continue to grow and if none of them grow they’re under performing.”
5G and Government.
O2 announced in April that 3,000 5G small cell sites will be rolled out in the next 12 months across the busiest boroughs in London using the 3.4GHz spectrum acquired earlier this year.
McManus calls the network standard a “game changer” that will enhance the UK in ways 3G and 4G cannot compare to, and in turn strengthening the economy, even post-Brexit.
O2 has been more than vocal about its developments with 5G. Many moves were made in its ambition to roll out 5G efficiently, such as turning entertainment venue The O2 into a 5G testbed or, in other words, a giant symbolic beacon of 5G for the UK.
The testbed will go live in the autumn. Evans also did not rule out utilising 5G spectrum to boost 4G if customer demand for the standard is slower than expected, while repeating his desire for deeper collaboration to ensure infrastructure can be constructed in time for commercial 5G.
He said: “Much has been said about 5G including our government which said 5G would be worth £173 billion of incremental UK GDP growth in the first ten years of its existence.
The development report said by 2026 the benefits from 5G will at that point be more than the benefits from fixed broadband, and that’s only eight years away.
McManus added: “Mobiles are already a powerful contributor to the UK economy, but we see 5G is going to accelerate that.
I’ve been in the industry for 30 years and I genuinely believe 5G will have a bigger impact than any other new technology since electricity.
“The biggest mistake we would have is not to invest in 5G. With the uncertainty of Brexit around the corner, that we invested so heavily in spectrum speaks a lot about our confidence in 5G’s resilience.”
McManus acknowledged the government’s passion and vision for 5G but says “more engagement” is needed. On July 23 the government published the Future Telecoms Infrastructure Review where it introduced measures to connect the majority of the population to 5G and full fibre broadband for all premises by 2033.
Commenting on the review, McManus said: “Frankly the devil is in the details. There’s a lot of headiness making encouraging noises which to me showed the government listened. So it’s half there with some of the things that have been said.
I feel really confident we will get the executions done on time but we need more engagement and the government has said that as part of the review. I’ve acknowledged it listened and there’s something we can really work on there, but we still have a long way to go before industry and government is totally aligned.”
Evans added: “The ducts and poles access is a good example of that. The government has been very clear about wanting to accelerate the rollout of 5G but legislation that was originally improved said there was a primary purpose of ducts and poles which was fibre broadband, not mobile.
“So, there’s an inconsistency – you’re telling us to accelerate but writing legislation that prevents us from doing so.
“That doesn’t make sense. So we’ve been engaging with government and out this week came the principle by 2020 the mobile industry will be able to utilise the infrastructure the fixed industry can use. It’s a shame its taken so long but it’s progress and we’ll see how it flows.”
O2 has written to firms in the FTSE 100 index to create use cases for 5G and further understand how to better utilise the technology.
Its “a step in the right direction” for O2’s 5G strategy, to convince the biggest influencers in B2B to embrace 5G according to McManus. He cites significant numbers that are impressive, provided all firms get onboard.
Combined, annual revenue of the index hits in excess £600 billion. Staff count is over seven million across 150 countries.
McManus said: “5G for me has got three very powerful application – enhance customer experience through connectivity, enable optimised new growth and opening new revenue streams, and drive much more efficiency through supply chain and product processes.
“This is why we are taking the stance we want to take. We want businesses to work with us and co-create the use cases that will drive that benefit on what is the biggest stage possible in Europe, the UK”.
Evans added: “We need to understand 5G, that’s why we want to work with every industry to fully understand how to deploy it. That’s how we deal with B2B, we don’t sell technology in the business segment.
“We understand the need and then provide a solution. Then the technology is the enabler to the solution”.
Since the collapsed merger with Three two years ago, O2 has reported revenue and profit growth in the last eight quarters and seems to be standing tall, as it looks firmly ahead.
A lot of activity is promised by the operator as it looks to have a secure future with 5G and has no interest in being the first to launch the standard, Evans even bluntly said he “did not care” about being first and that if rivals were to rush to light up the first 5G site to grab headlines, his feeling would be one of “pure malcontent”.
Evan said: “We’re pleased to say we’re growing this business healthily. What O2 has done since the merger collapse is see consecutive quarters of growth, and the highest levels of returns in the UK market, which is the most advanced market for mobile in Europe.
“We now need to look ahead and ensure the UK remains the best in Europe for mobile, and that means the best in 5G. The benefits of 5G will no doubt be revolutionary”.