Wednesday 24 May 2017

O2 boss leaves the arena

After riding the crest of the mobile wave, Danuta Gray bows out just as her firm faces huge challenges from cheaper rivals

The announcement this week that Danuta Gray is quitting as O2 boss after nine years in charge of the country's second-largest mobile phone operator, marks the end of the reign of Ireland's most high-profile female chief executive.

It seems as if Ms Gray has been around forever. She first took the helm at O2 Ireland in 2001, a year after the then Digifone was taken over by BT. Since then, the Sheffield native has apparently become more Irish than the Irish themselves.

Not alone does O2 -- as BT renamed its mobile phone operations shortly after the Digifone takeover -- sponsor the Irish rugby team, Ms Gray is also a director of two Irish quoted companies, Aer Lingus and Irish Life & Permanent.

In less than a decade she has successfully transformed herself from outsider to insider. Quite clearly, apart from being well able to run a telecommunications company, this lady is a formidable networker.

As someone who has successfully run one of Ireland's largest, most high-profile firms for almost a decade, Ms Gray is a genuine business heavyweight. Her path to the top of O2's Irish operation was a circuitous one. She originally studied physics at Leeds University before joining the old BT in 1984, the same year in which the company was privatised.

Privatisation

The BT which Gray joined 26 years ago was very much an old-fashioned fixed-line telephony company. Its legal monopoly was lifted only a year before privatisation and for years afterwards it continued to act like a state-owned monopoly.

It was the rise and rise of mobile that changed all that. As more and more consumers switched to mobile handsets, the old fixed-line companies faced the choice of adapting to the new reality or being swept away by it.

Ms Gray quickly realised that mobile was the future and switched to BT's mobile arm in 1994. Right place, right time.

The bright young physicist quickly rose through the ranks, becoming head of BT's mobile phone interests in Germany before moving to Ireland to head up the newly-acquired Esat Digifone in 2001.

Now that mobile phones have become ubiquitous -- with more mobile phones in Ireland than there are people -- it is difficult to remember the excitement and hype generated by mobile telephony around the turn of the century.

In the UK in 2000, then Chancellor Gordon Brown managed to tap into this hysteria by persuading the mobile phone companies, including BT, to pay an utterly ridiculous £22.5bn for 3G licences, a sum they could never hope to recoup. BT paid over £4bn for its UK 3G licence.

And this wasn't the only example of BT recklessly splashing the cash at the height of the mobile phone mania. In January 2000, it paid €2.5bn for Denis O'Brien's Esat Telecom, the controlling shareholder in Esat Digifone, and a year later paid in excess of a further €1bn buying out the other Digifone shareholders to secure ownership of Ireland's second mobile phone network.

In the early years of BT's ownership, and after O2 was sold to Spanish telecommunications giant, Telefonica, in 2005, the Irish mobile phone market continued to grow rapidly.

Mobile revenues

By 2007, quarterly Irish mobile phone revenues were running at over €420m, while average monthly revenue per user was among the highest in Europe at almost €45.

The recession quickly changed all that. Quarterly revenues have now fallen to less than €320m, while average monthly revenue per user, while still high by European standards, has fallen to just €34.

Just like fixed-line telephony before it, mobile telephony is increasingly becoming a low-margin commoditised business.

Much of the growth in the market is now being driven by mobile virtual network operators (MVNO) such as Tesco Mobile, which ironically uses the O2 network, and Eircom's Meteor, which has targeted the prepay youth market with very attractive text offers.

The price pressure in the mobile phone market is set to increase further with a new MVNO, Just Mobile, which will piggyback the Vodafone network, entering the market.

Backed by telecoms entrepreneur Sean Melly and former Eircell boss, Stephen Brewer, Just Mobile is targeting the prepay market and is forecasting annual revenues of between €50m and €55m within three years.

Just for good measure, Eircom has introduced a new mobile sub-brand, Emobile. The firm is hoping that Emobile will allow it to more successfully target older, bill-paying customers.

Add it all up and it's clear that prices and profits in the mobile phone market have further, perhaps much further, to fall. For every customer who trades up to an expensive iPhone, for which O2 had an Irish monopoly until earlier this year, many others are trading down to value offers.

With the MVNOs threatening to cannibalise their customers, the mobile phone companies will have no choice but to match them on price.

While Irish phone users may still like to use their handsets to natter, they are no longer prepared to pay top-dollar for the privilege. The reality of the new, more austere marketplace was brought home forcefully to O2 when it was recently embroiled in an embarrassing controversy over e-billing.

In an effort to cut costs, O2 recently informed customers that, unless they specifically requested a paper bill or, to use the marketing jargon "opted in", they would instead only be able to access their bills on-line. The apparently sneaky way in which the change was introduced provoked outrage among many O2 customers.

Telecommunications regulator ComReg quickly stepped into the fray and ordered O2 to reverse the decision until it had considered the issue of how e-billing might be introduced across the entire sector.

A small reverse perhaps, but it is difficult to resist the conclusion that O2 wouldn't have dreamed of resorting to such petty penny-pinching in the good old days.

With the Irish mobile phone market having gone ex-growth, now is a good time for Ms Gray to bow out.

She will be stepping down at the end of November and will be succeeded by Stephen Shurrock, currently director of consumer sales with O2 in the UK. Ms Gray will also resign as a director of Telefonica Europe at the end of next month.

However, she isn't severing her links with O2 entirely. She will remain as non-executive chairwoman of Telefonica O2 Ireland and will also serve as an adviser to Telefonica Europe.

Having regularly worked 12-hour days, will Ms Gray, even with her other directorships, be content with such a part-time role? While no one would begrudge her if she chose to spend more time with her family, she seems an unlikely candidate to fade into obscurity.

Will she even stay in Ireland or will she return to her native England? If she does decide to stay, will she opt for another executive position or choose to take up some other non-executive directorships instead?

Whatever she chooses to do, one thing is certain, after almost a decade in the limelight she won't be short of offers.

Many companies, public bodies, cultural and charitable organisations would give their eye-teeth to secure her services. Given her previous track record, the odds must be on Ms Gray resurfacing in a high-profile position sooner rather than later.

Irish Independent

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