Events & presentations

10/05/2004

Speech to FT World Mobile Communications Conference

Consumer market versus business market: Getting the balance right

The Contribution of Mobile Phones to the UK Economy

When the first commercial cellphone call was made here in the UK in 1984, I'm sure no-one ever imagined that two decades later more than one and a half billion people would own a mobile phone - that's roughly one in five of the world's population.

Or that mobile phones would be used for a whole range of services. You name it, people do it. And they're doing it in their millions - playing computer games, texting, sending emails, listening to music, watching the news, feeding parking meters and, even, monitoring illnesses - not to mention talking! All on a mobile phone.

And I'm sure nobody would ever have guessed the role mobile phones would play in increasing productivity. Productivity is a key driver of economic prosperity.

Research on the economic benefits of mobile, commissioned by O2 and released today, shows that mobile phones are making a huge contribution to the British economy, and their potential shoudn't be underestimated.

Mobile now accounts for nearly two and a half percent of UK GDP - that's the same as the entire offshore oil and gas extraction industry, and more than several small countries, and that's just the UK! Our industry globally represents a major economy in its own right.

But as the growth of value added services starts to have a major effect, the contribution of mobile is likely to rise sharply. We believe, given the right conditions, this could rise to 4% of GDP in five years time.

Our industry is also a model of productivity. We have raised our productivity spectacularly - Productivity in the mobile telephony sector has more than tripled from its value in 1999. The average employee in the mobile sector added a hundred and twenty thousand pounds - a hundred and seventy five thousand euro - of added value last year. This productivity growth needs to be set in the context of economies typically growing by 2%.

So, as an industry we have enjoyed phenomenal growth in a very short period of time. The big question now is where do we go from here, and where is the room for growth?

I plan today to look at what, I believe, are the major growth opportunities. Is it simply a question of business versus consumer and getting the balance right? Or is it - as I hope to show - more complex and considerably more exciting?

But first of all, I want quickly to talk about what's happening today. Let's look at how we ourselves are changing as businesses, and what's driving that change.

In recent years our whole approach to business has undergone a radical make-over.

It used to be quite simple. We were mobile phone operators. We sold phones so people could talk away from their homes or desks. We had one product - voice - and the aim was to sell as many as you could to increase market share.

Our approach to customer segmentation was also very simplistic. We divided our market in two. There were 'pre-pay' customers - mainly consumers - and 'post-pay' ones - mainly business.

Today this view of the world seems positively crude. Where does someone like myself, for instance, fit in? I'm a Chief Executive, but I'm also a father, a Spurs fan, someone who likes the cinema and enjoys a good curry. The operator that tries to meet only my needs as a CEO is missing a trick.

And, of course, I'm not alone. There are millions of people who on their way to work act as a consumer - playing games, texting or listening to music; at work they're a business user - emailing, using the internet and voice; and then they revert to being a consumer after work - watching the sports results, or just wanting to be entertained.

Things have changed and become more complicated, more multi-faceted. You only have to look at the evolution of international roaming, where ten years ago O2 has 29 agreements on roaming. Now we have 360 for just voice alone.

So, our customer base is totally different. We're looking at our customers not in terms of pre-pay versus post-pay, consumer versus business but as individuals -whether at home, in the office, or on the road - with millions of different needs.

This segmentation is something I shall come back to.

We also don't just offer one service but a whole range of them. And then there is convergence. The boundaries between different industries - such as IT, music, print, logistics, information and entertainment - are all starting to blur.

In short, our whole business model has changed - and will continue to change in the future.

So, what's driving this change?

To me there are three key drivers.

The first is the new mobile generation.

Today's kids are using their mobile phones for almost everything - in the same way the generation before them used their personal computers and, I suppose, the one before that used filofaxes. Today's generation are already used to receiving services digitally, across the internet or DTV.

The culture is totally different. It's very personal and they have choice. Kids use their phones for doing anything, anywhere, anytime. I am reminded of the survey which showed that people would only return home to collect forgotten keys and their mobiles. Expectations are also high. They want more services. They want them now. They want them to work. The important - and the exciting thing for us to remember - is that these children are tomorrow's homeowners, consumers and business executives.

The second driver is the high level of penetration. The introduction of pre-pay made possible a mass consumer product. And because mobiles can easily reach anyone - whether or not you have the internet, cable TV or whatever - there is a much broader potential market than with other channels.

Today 85% of the population in the UK, and similar numbers across Europe, own a mobile phone. The 'land grab' for early subscribers is almost over. The focus now is on usage and loyalty rather than just customer numbers.

And this brings me on to the third important driver - new technology. The digital era has opened up a whole new world of opportunities. From a single service offering - voice communication - we now have colour, camera, music, entertainment, web and wap browsing, mass memory, faster speed... and so the list goes on.

And because of the widespread ownership and latent power of modern devices, the possibilities are almost limitless.

Our business is now all about mobilizing and packaging devices, content, into end-to-end services that customers find intuitive, valuable and easy to use.

So moving forward, what are the major growth opportunities? First of all we should not forget that we are operating against a backdrop, here in the UK, of one of the most competitive markets in the world. There are now eight competing mobile players. Customers have never had more choice.

There is one very immediate - and straightforward - growth area. It's the opportunity to grow our market by improving the quality of our service for a communications, not just mobile, world.

We don't just need to persuade people to buy more product. It's already out there. We need to give them a reason to use it more. And one of the best ways of doing that is to improve the service.

As an industry we have often been accused of offering incomplete services - MMS interoperability, based on connected networks with compatible handsets, is an example. The mobile customer experience has not always been a happy one. All too often our focus has been on being the first in the marketplace, rather than the best.

This isn't good enough. We need to get our act together and get better at what we do. And that means concentrating on getting the basics right - quality, coverage, international roaming, interoperability, wholesale services and value for money. And we need to make the complexity transparent.

A classic example is voice.

It's still the killer application. 85% of mobile communication is voice. But this is still less than half of all voice telephony, and in the UK still lower than a third.

To increase mobile voice we need first to improve the level of service. Do you realize that only a year ago 3 in a hundred of our calls were still dropped? Imagine once a week you are driving along and your car just stops. Not good enough. When customers are unable to make a call because the network is busy, or the call is dropped, they give up. Not only is this lost revenue, but is is an unhappy customer experience.

And it's not just with voice that we need to offer a better service. Data calls require more robust, resilient and indeed longer call duration.

With the digital era we're seeing a fantastic rate of change with the capability of mobile devices. As the service becomes more complex - with more content, partners and interfaces - getting the basics right will become more difficult, but even more important.

If we want people to embrace our new technology it needs to be 100% right in every respect - first time, every time. It's no longer just the price that matters - it's the whole service from start to end.

So, it's critical that we learn from voice and ensure that our products are more transparent, easier to use and offer value for money and a real quality of service.

For this reason, O2 is investing heavily in the quality of every aspect of customer experience - in our shops, online, with our product, customer service and through our brand.

Let me give you some quick examples.

We have invested over one hundred million pounds in improving our networks. The result? Independently audited figures show it to have the best ever UK mobile call success rate. O2 achieved an overall national call success rate of 99.2%. But it was not always so.

We are making services more consumer friendly and easy to use. With O2 Online, for instance, we have created a first class buying experience along with product previews and testing, and online customer care and information. The result? It's Europe's biggest web-based on-line mobile channel with 1.3 million customers.

We are ensuring value for money with competitive pricing and customer promotions. O2 pioneered the concept of bundled SMS packages. The result? We are now the leader in text messaging, where our 'Bolt On' campaign has been taken up enthusiastically by customers.

Another important way we can grow our market is by getting closer to our customers. So, this is the next growth opportunity I want to highlight.

If we look at the past - contrary to popular belief - it's people, not technology, that has driven our growth.

A good example is SMS. How many of us spotted the potential? Let's be honest, none of us. It was our customers who tried it out, found a use for it and started texting in their billions.

The examples are endless - talking to other mobile users in chat rooms, creating personal web sites, recording your diary on-line. In each of these cases we have provided the means - people have adopted, adapted and transformed the service for their everyday use.

So, again we need to learn from this. We have to find a way of leading customers from their current consumption patterns to new ones which use our technology and services. An example is seeding our new XDA II's with influential protagonists. Similarly, our customers are telling each other that they are getting two hours a day more work from people with Blackberry's.

With voice the challenge was fairly clear - there was the obvious convenience advantage of being able to talk away from base, or when mobile. With non-voice products, it's a lot more complicated. People don't come into a shop saying they want x or y mobile product. They come in saying they want to do x, y and z. It's up to us then to recommend a solution.

With the digital world we are giving consumers the ultimate choice - we need to give customers the 3 V's before they get 3G. Volume, Variety and Value. It's a complicated choice so we need to really understand where they're coming from and what they want.

And because we are now dealing with a mass market there are millions of different needs all requiring different solutions. It's not one solution for consumers and one for business. The "one size fits all" approach doesn't work. We need to be individual in our approach - which comes back to the old-fashioned idea of getting closer to our customers.

Why is that revolutionary? Well, in our early days, the regulators would not allow us to sell direct. Now we have to own and understand the individual client relationship ourselves.

And to be individual, I believe you also need to be focused.

At O2 we have decided not to be all things to everyone, but to be everything to a targeted selection. We have focused on those customers who depend on their mobiles for business and/or social reasons. We have invested in understanding how they think, what makes them tick and would add value to their lives.

By getting close like this, we hope to grow our market with them - not by imposing technology on them, and hoping they'll find a use.

Linked with the idea of getting closer to our customers comes another major growth opportunity - partnerships.

By partnerships I mean working with different people - public service providers, suppliers, system integrators, content providers, industries and individual communities, like football clubs or even neighbourhood watch schemes - from concept to creating value and demand.

As I have said, this is now a mass market, but one which requires individual solutions to individual needs. That's quite a tall order.

We can't provide all customer solutions on our own. We need to work in partnership with the market leaders, such as RIM Blackberry's email solutions, and experts in other fields, such as Oracle, to build and tailor individual products.

This requires flexibility, dedication, creative thinking and a whole new approach to doing business.

O2 has invested considerably in a range of new partnerships. A lot of our focus has been on the youth market.

Our partnership with 'Pop Idol' - and 'You're a Star' in Ireland - has opened up a whole new world of opportunities for us, and has been a big hit with viewers. We have also teamed up with the leading music labels for the launch of our Digital Music Player. And in sports, our partners include Arsenal and Bayer Leverkusen and BMW in Germany- and of course - the winning England rugby team.

But to me one of the huge opportunities for growth is the whole area of public service partnerships.

Successive governments, until very recently, had failed to embrace the importance of mobile while being fixated by the likes of broadband and digital TV. Suddenly now, the public service sector has woken up to the idea that mobile can play a key role in delivering a cost effective and quality service to a mass market.

O2 recently published a compendium of 100 applications of mobile in use by public services around the world. The results are as thought-provoking, as the potential is broad.

The NHS, for instance, is using SMS technology to confirm doctors' appointments.Around £400 million is lost every year because of missed appointments. The results so far have been promising. The potential saving for the NHS is obvious.

The Met Office is using mobile telephony for flood and severe weather warnings. The Crown Prosecution Service has started texting trial witnesses with updates on the progress of cases, to help prevent cases collapsing and time being wasted. Politicians are also starting to recognize the benefits of mobile communications for keeping in day to day contact with their constituents. Perhaps even a text vote could be considered for the new EU constitution!

And in Germany, hopeful mothers are now even being given mobile phones to advise them at what stage in the month they are most likely to conceive.

O2 is currently working in partnership with the public services in a number of ways.

Airwave is a classic example of the way the partnership approach has worked well for both parties. The police had a problem. They needed secure communication. Together we came up with a solution - a secure nationwide communications service. Currently 35 police forces have gone live with the system, and by 2005 all police forces in England, Scotland and Wales will be on board.

The opportunities for Airwave are not restricted to the police forces. We are shortlisted to provide a national service for the ambulance and fire services, and are already supplying other public service users. We announced last week that the Highways Agency, whose traffic officers are taking on more responsibility from the police on motorways, are taking up the O2-Airwave system.

Airwave is being used by the British Transport Police, the Lancashire Fire Brigade, the Shropshire Fire Brigade, Hereford and Worcester NHS Ambulance Trust and the Ministry of Defence Police.

Another O2 public service partnership is our work to help individuals monitor and control their Asthma with the use of a mobile phone. Recent results from our trials show not just improved monitoring but actual improvements in patients' condition as a result. We shall be publishing these results shortly.

When it comes to partnerships - whether with the public or private sector - as an industry we've only touched the tip of the iceberg.

To highlight this point, let me tell you, an O2 UK survey found that 63% of businesses recognized that they needed a clearer strategy for mobile.

But at the same time there are companies which are marching ahead of the game - like the estate agents who are now posting a SMS short code outside houses, so that prospective buyers can text to get basic details such as the price and number of rooms.

The opportunities are endless - it's up to us to go out there and find them.

The last major growth area I want to focus on is new technology. This is a very exciting area with lots of new developments in the pipeline.

3G is of particular importance. It provides capacity, capability and content. It will greatly enhance the delivery of a wide range of multimedia services, including new services such as video streaming.

3G won't, however, become a mass market until the end of 2005. And in order for it to do so, we need to get customers used to the experience of using mobile data services on our GPRS networks. When more of them are, they will naturally want to upgrade to a speedier 3G service.

So 3G is a significant evolution rather than a ground breaking revolution. But when it does come of age, it will - like GPRS today - play a critical role in our future growth.

And so to conclude.

There has never been a more exciting time for mobile communications. We're entering a whole new era where the growth opportunities are bigger and more varied than ever before.

But getting the balance right won't simply be questions of business versus consumer; pre-pay versus post-pay; 2G versus 3G; new technology versus old; music versus entertainment. It will be considerably more complex.

Most importantly, if we want to grow we need to learn from experience and get better at what we do. The rewards are certainly there, but the customer has also become less forgiving. The challenge for us all will be to carefully choose our markets, and then make sure we deliver the best.

And, finally, let's remember in the same way we could never have imagined what was to come, we should never underestimate our potential for growth - or where it might come from.

To borrow that old fashioned phrase - 'We ain't seen nothing yet!'

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