Ronan Dunne: O2 chief relishes challenge from resurgent rivals

Revenues are down and the mobiles giant is no longer market leader, but its boss remains resolutely upbeat

Ronan Dunne, chief executive of O2, Britain's second-biggest mobile phone network, has such an easy Irish charm that it appears nothing would bother him. The Dublin-born ex-rugby player even manages to laugh about his national side's comprehensive 30-9 drubbing by England in last weekend's Six Nations.

"I did what you what do in those circumstances," says Mr Dunne, whose firm sponsors the English rugby side. "I invited 40 of my closest friends over to my house to share in the commiserations and celebrations on St Patrick's Day."

When it comes to the day job, Mr Dunne is similarly cheery as he discusses the frustrations of dealing with regulators and the much-delayed auction process for the new superfast 4G phone spectrum in Britain. He even keeps his cool when asked about O2's recent less-than-stellar financial results, which saw revenues down 2.7 per cent on the year and 6.8 per cent in the last three months, its worst quarterly slide in nine years.

But when it comes to talking about the Cameron Government's attitude to business, Mr Dunne, who looks after almost 23 million customers, suddenly becomes animated.

"There's a danger at the moment that Britain is getting to be seen as not as pro-business as it should be," says the O2 boss with a hint of urgency as he sits forward in the early spring sunshine at the Mobile World Congress in Barcelona, where the first part of this interview took place. "We need to get the economy going and we need to address youth unemployment. They are two parts of the same thing. Mobile and technology are absolutely part of the solution. We need to get government and the private sector working together."

At least O2 and Mr Dunne, a trained accountant who moved to Britain 25 years ago, are doing something about it. Earlier this month, the firm launched a London start-up incubator called Wayra, which will invest in fledgling technology businesses and give them office space in a building on Tottenham Court Road. The initiative is backed by O2's Spanish parent, Telefonica, which has already opened Wayra sites in its homeland.

Mr Dunne's frustration with the wider state of UK plc and the Chancellor's policies does not come as a complete surprise, given the recent fortunes of O2 – although he does not put it like that. O2 is no longer the market leader in Britain after Everything Everywhere, the alliance between Orange and T-Mobile, overtook it in terms of customer numbers. What's more, third-placed rival Vodafone is closing the gap. In a note this week, Enders Analysis describes O2's results as "poor" and "underperforming the market throughout 2011".

Mr Dunne, who has been at O2 for a decade and became chief executive in 2008, concedes that the last year has not been easy and that the first half lacked "momentum". But he insists his rivals have also found the market challenging as consumers look to reduce their bills and regulators push down the cost of calls, known as mobile termination rates.

"The key evidence is we continue to have the most valuable customers, we continue to have the most satisfied customers," maintains Mr Dunne, who points out that the business has picked up since it introduced cheaper tariffs.

"Olaf would happily swap his P&L," he adds, referring to Olaf Swantee, the new chief executive of Everything Everywhere. "He has two brands. O2 is still the largest brand and it serves more customers on a day-to-day basis. It's about our customers. It's not really about Olaf and Guy [Laurence, the UK chief executive of Vodafone]. Our business will live and die by our customers." He adds: "We're more than ready for the fight in 2012. I'm not just looking forward to it, I'm enjoying it."

If Mr Dunne sounds defensive, it's understandable. O2, which celebrates its 10th anniversary this year, has been the success story of UK mobile for much of the last decade.

It launched a groundbreaking and much-copied customer loyalty programme involving concert and sporting tickets and priority booking – known as "priority moments". It devised a brilliant marketing strategy, which included the rebranding of the Millennium Dome as the O2. It also signed an exclusive tie-up with Apple for the 2007 launch of the iPhone.

Little wonder, then, that some observers think O2, famed for its bubble imagery in its advertising, was bound to see its own bubble deflate at some point.

But Mr Dunne, who is married with an 18-year-old daughter, argues that O2 remains strong. "Over 10 years, the business has doubled by all measures," he says, referring to customer numbers, revenues and profits. "I think the single biggest achievement over that era is [that we've shown] you can differentiate in a commoditised market through experience. We're an experience company."

Offering "priority moments" has been important, says Mr Dunne, because "our customers know us and trust us". That helps as O2 enters new areas such as "m-commerce" mobile payments and "m-health" – helping medical organisations offer services via the phone.

O2 needs these new areas to drive growth, and Mr Dunne is launching O2 Wallet within months. This software will allow users to buy online or in-store via mobile and make peer-to-peer payments – by sending a message from one phone to another. Mr Dunne will also bring in Near Field Communications technology – dubbed "wave and pay" – by the end of the year. That will let O2 Wallet users with an NFC-enabled smartphone buy goods just by swiping their phone within a few centimetres of a payment device like an Oyster card on the London Underground.

However, few of these innovations will be possible if there is not enough spectrum. Forecasts suggest mobile internet and data use could rise as much as 30-fold by 2015. So Mr Dunne says the potential of 4G, the new generation of mobile networks, is clear since it can allow download speeds up to ten times faster than the present 3G. At a demonstration in Barcelona, high-definition video and a computer game were available to watch on a tablet within seconds – and compared favourably with the fastest home broadband.

Some say that Britain risks being left behind on 4G because the regulator Ofcom has been taking so long over its spectrum auction while parts of Europe and America are ready to go. However, Mr Dunne plays down those fears and points out that, for all the hype about iPad3, which is billed as having 4G capability, the new Apple device "doesn't support any 4G network in Europe". As so often with mobile, the revolution may take a while.

But while the O2 boss is patient about Ofcom's 4G auction, which is unlikely to be decided until early 2013, he is keeping a close eye on the competition. When we catch up again this week, he says diplomatically that he is in talks with Ofcom "to understand their thinking" about its plan to let Everything Everywhere offer 4G through its existing spectrum this year. Mr Dunne won't go further, but Vodafone has complained vociferously about Ofcom giving "the largest player in the market a head start".

He is more comfortable talking about the burden of regulation from Brussels – a refrain heard from all the mobile companies at Barcelona. Mr Dunne points out that across the 27 countries of the European Union, there are perhaps 100 mobile operators, which makes regulation unwieldy. In contrast, in America, there are only three big operators.

Mr Dunne could be forgiven for wanting life at O2 to be a little easier.

CV: Ronan Dunne

Born 1963

1987 BNP Paribas, banker

1994 Waste Management plc, deputy treasurer

1996 NFC plc, director of treasury

2000 Exel plc, head of strategic finance

2001 Joins Telefonica O2 in UK as deputy to chief financial officer

2005 Promoted to chief financial officer

2008 Appointed chief executive. Also chairman of O2-backed Tesco Mobile

Hobbies: Golf and watching his daughter play hockey

Currently reading: Peter Mandelson's memoirs and Walter Isaacson's biography of Steve Jobs — "there's a lot more in common between Mandelson and Jobs than you might think"

Lives: Weybridge, Surrey, with his wife and daughter

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