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2 does go into Three for boss of new telecoms giant

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Robert Finnegan, CEO, Three (3 Ireland). Photo: Damien Eagers.

Robert Finnegan, CEO, Three (3 Ireland). Photo: Damien Eagers.

We will be making 4G customers available to O2 customers -  Robert Finnegan, CEO, Three (3 Ireland). Photo: Damien Eagers

We will be making 4G customers available to O2 customers - Robert Finnegan, CEO, Three (3 Ireland). Photo: Damien Eagers

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Robert Finnegan, CEO, Three (3 Ireland). Photo: Damien Eagers.

If Gordon Gekko had an office in Dublin, it might look something like the one Robert Finnegan now occupies. The Three boss's third floor Silicon Docks pad sits directly across from the National Convention Centre and offers a panoramic view from the Custom House all the way down the Liffey to the Point Depot.

This is the perch that a €780m acquisition gets.

"It's pretty, especially at night," he says. "But when I look out at those buildings, I don't see architecture or views. I see 'customer, customer, not a customer, soon-to-be customer'."

Mr Finnegan, who is now the longest surviving mobile operator boss in Ireland at almost 10 years, has always been ambitious. In an industry heating up with multi-billion euro mergers and takeovers, he needs to be.

But the last decade hasn't been as profitable as he would have liked.

Three's Irish operation, owned by Hong Kong conglomerate Hutchison Whampoa, has sunk €1.8bn into its Irish operation over the last decade without a financial return.

In that time, it has only amassed one tenth of the Irish mobile phone market, despite building out 3G and 4G networks at breakneck speeds. (Tesco Mobile, with a tiny fraction of that investment, now has 5pc.)

While Hutchison's main shareholder (and Asia's richest man), Li Kashing, is known to take a long view on his investments, something had to give.

So, after a rejected attempt to buy Eircom for €2bn in 2013, Mr Finnegan and Three struck a deal to acquire a profitable O2 Ireland from Telefonica for €780m.

That move, which passed a testy European Commission competition review only by guaranteeing support for two new 'virtual' Irish mobile operators this year (UPC and Carphone Warehouse), was finally consummated this week when O2 stores and its retail assets (including the Point Depot and Irish rugby team sponsorships) were formally rebranded as Three.

While the operator has already put in place cost savings - including the elimination of several O2 stores - some big questions remain for Three's future Irish prospects and for its customers here.

But while strategic issues around 'quad play' and fibre offerings are what analysts will focus on, of most immediate interest to the company's 2.1 million customers might be how their monthly bills and allowances might change.

Will O2 customers, who outnumber 3 customers two-to-one, start to see the benefits of 3's cheaper tariffs and better data allowances?

Or could Three customers start to see their services creep up in price and their data creep down in generosity? And what about 4G for O2 users, which are the only network operator customers not to have it?

"Well, the current propositions that people have won't change, meaning that any terms and conditions are exactly the same as they were yesterday or the month before," says Finnegan.

"As for 4G, we'll be making that available to O2 customersfrom June. But people won't see any change in their bills right now."

One particular dilemma is data, which is becoming the single most important part of moble services with far more mobile internet activity - through services such as Whatsapp, Facebook and Google - in Ireland than text messages or calls. To this end, Three has made 'all you can eat' (15GB per month) data its mission statement for the best part of a decade.

But its new tranche of higher-paying O2 customers have traditionally had no expectation of this. So what will Three do now? No business will want to give away something that someone is willing to pay for. Does Mr Finnegan stick with the data narrative or adopt the defensive stance of an incumbent?

"Well, we're now looking at a mix of things," he says. "Three customers are data-centric, but O2 customers may not be as data-centric and may value texts and minutes more. So we're looking at what the customer wants. Yes, we see O2 customers using more [data] going forward and we will be building that into our propositions. But we have to get the balance right between minutes, text and data."

But Mr Finnegan has argued for years that data is the key mobile service. Wouldn't holding it back from O2 customers be a volte face?

"I think if everybody wanted data they would have all moved to Three already," he says. "The average consumption with our 'all you can eat' allowance is between three and four gigabytes and only around 1pc exceed the huge allowance.

"So we don't want to force data down the throats of people who don't want it. There are still lots of people who have 2G handsets, who don't look for access to either 3G or 4G. So I think there is a significant number of customers on the O2 network who still value their texts and their minutes more. In saying that, we do think that data will grow within the O2 segment and we would want it to grow."

To be fair, Mr Finnegan is not alone in facing the dilemma of playing commercial defence instead of offence. Vodafone Ireland has been wrestling with how much free data it can hold back from its high-spending, post-pay customer base too. It has ceded almost 100,000 (mostly lower-paying) customers as a price for this commercial position.

But Vodafone has made a fortune in Ireland over the last decade and continues to do relatively well here.

Mr Finnegan must now see his operator starting to make money.

"The criteria for buying O2 was on the basis of the economies of scale that would fall out of that," he says.

"The benefits of eliminating retail and network duplication will be huge. They will result in the business becoming profitable and investing more here."

He is also hoping that far from 4G being pocketed as a free upgrade by customers, it will lead to new streams of revenue for the operator.

"If you look at mobile broadband in Ireland, it has stagnated," he says. "But it will start to take off again when 4G gets fully rolled out because the speeds are really good. Then we'll have 5G coming on stream in due course."

And ancillary services may also be looked at by Three. "Areas like mobile wallet and ehealth, which are starting to make a splash in the States, have yet to come into this market. They will be very big and it's an area we're keeping an eye on.

"First, it's about the network, but then we need to evolve and provide new services to people. As more people use these services, there will be a much bigger upside."

But one thing that the operator is unlikely to offer any time soon is 'bundled' services. In telecoms, current conventional wisdom states that 'quad play' (fixed broadband, TV, home phone and mobile) services are a good way to upsell and ringfence customers.

By the end of this year, Eircom, Vodafone and UPC will all have such quad play offerings. But Three will only offer mobile services. Mr Finnegan is unworried.

"Well, I think quadplay is unproven at this point," he says. "I haven't seen an operator yet that has been hugely successful in quadplay. Does a customer want their TV services, their fixed line services, their broadband and their mobile all from the same operator? I'm not sure, If they get service and value form us, they'll stay with us."

This would appear to fly in the face of what other operators are doing and what most big financial analysts warn.

"Well, a lot of analysts said that Ireland was relatively secure before the economic crash," says Mr Finnegan. "They didn't get that right. I'm not sure we should all listen to analysts all the time. We see from our customer base what they want."

So there isn't a specific concern about a lack of fixed line broadband or fibre?

"No, certainly not. We do have fixed line fibre to our [base station] sites which allows us to provide significant speeds and make sure we don't have congestion. But do we see the need to have fibre to every home? I think not. And I think it's unproven that it's cost effective or that it's even necessary with the evolution of technology that we have. 4G will provide a lot of what fibre promises because it it is getting the capability to penetrate homes and get inside even really thick walls. At Three, we're at around 70pc 4G penetration in Ireland now and we expect to get up to 99pc in a couple of years."

One thing Mr Finnegan does continue to harbour concerns about is the regulatory basis on which mobile licences are granted in Ireland. 15 years is too short, he thinks: they should be granted in perpetuity.

"Where you have a licence that has a fixed term on it, it stagnates as you get towards the end of that fixed term period," he says. "That means that by year 10 of a 15-year licence, you're going to think twice about a significant investment. That's not good for Ireland, not good for the consumer and not good for the mobile operators. Most investments in the mobile industry are big ones with a return of over six or seven years. So I think that there should be some way of making sure that the government gets the licensing revenue it requires while making sure that the licence-holder can keep investing through having a perpetual license."

Mr Finnegan says that although he has no regrets about the failed bid for Eircom, he is still surprised that it fell at the first hurdle.

"I wouldn't describe it as being good or bad. At the time we wanted to acquire Eircom and we put €2bn on the table in cash. The receiver wouldn't even meet us. So clearly €2bn doesn't get you an awful lot sometimes. But that was a different deal to this one. Both had their merits. We're very pleased with the acquisition of O2."

There will be a few small immediate customer benefits from the merger. 'Same network' calls will now kick in across the bigger customer base, meaning cheaper calls and texts among the company's 2 million customers. This will not apply, however, to roaming charges which will remain unchanged: O2 transferees will unfortunately pay more to roam on Three networks in the UK or Europe than their original Three counterparts.

Mr Finnegan says he enjoys being the chief executive of a mobile operator and that he wouldn't have done anything differently over the last ten years. "I'm sure there are things we could have done better, but I can't think of anything we might have done differently to this point," he says. ry happy with our progress. And I'm very happy to be in this business. We're only seeing the tip of the iceberg of how important phones and networks are going to be."

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