O2 on how it won the iPhone and working with Steve Jobs

Q&A: O2 UK CEO, Ronan Dunne

Q&A: O2 UK CEO, Ronan Dunne

Ronan Dunne, O2 UK's CEO, is a softly spoken Irishman who heads up the operator's UK operations from a glass-walled office above an open plan atrium where staff sit and sup bottles of O2-branded water in the company's Slough HQ.

Promoted from his role as chief financial officer, Dunne was appointed CEO of the UK operator on 1 February this year, taking over from Matthew Key, now CEO of Telefónica O2 Europe (Telefónica acquired the UK operator back in 2006). His office is airy and uncluttered, though he manages to find room for a coffee-table sized table football. It's not all about perks though, as Dunne only received his 3G iPhone on the day of this interview. "One of the things that was a challenge for us in the early days was just getting enough iPhones," he explains. "So nobody inside the business was allowed to switch until this week because we now have free supply."

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He adds: "It was a very important point for us that where there was a shortage customers absolutely came first. And so you'll see nobody round the business with a 3G device."

Despite clearly enjoying the fruits of winning the iPhone contract, Dunne is also keen to stress O2 is not an "Apple house", nor is Apple's touchscreen phone a BlackBerry killer in his view, though Dunne believes it has certainly shaken the industry up. From an operator point of view he says it would be "fantastic" if all the other handset manufacturers delivered hardware as sexy as Apple's too.

The CEO of the UK's number one network operator is clearly not a man to court controversy. "Broadly I'm ambivalent as to whether a customer takes a BlackBerry or whether they take an iPhone. I just want to make sure they have a great experience with us," he says diplomatically.

silicon.com's Natasha Lomas recently sat down with Dunne to discuss his thoughts on winning the iPhone contract, working with Apple, bugs and more.

silicon.com: Was it open warfare among the operators when it came to fighting to get the iPhone contract?
Dunne: It may well have been that case that some operators were not in the race but we weren't the only ones in the race. What we understand is that after a period of time of talking to a number of people it wasn't clear to [Apple] that they had exactly the right partner in the UK so then we took the initiative and in a very short space of time - say over a period of eight or nine days - we went from no contract to signing a contract. And actually the contract was signed on this table in this office on a Saturday morning over sandwiches from M&S.

It wasn't Steve [Jobs, Apple CEO] himself [signing the contract] but we do deal with Steve and also Tim Cook, who's Steve's number two, the chief operating officer, but Steve was intimately involved in the details.

Matthew Key who is our European chairman and César Alierta, who's the chairman of Telefónica, flew out to Cupertino to Apple to sit down with Steve and really set up the initial dialogue. And then we put a team from the UK with a team from Apple to really drive through the detail.

What we found was we had a lot more in common with Apple than perhaps they'd seen with other operators and we were able to move quickly to getting a deal done, which was great.

How long is the contract with Apple? Is it true that it's moved from a revenue-sharing model to a non-revenue sharing model?
We have a multi-year contract with Apple which has an exclusivity within it. We don't comment on the length of the term. Generally details of the contract are commercially sensitive and confidential but it's fair to say that the initial launch was a revenue-share model and in discussions with Apple after we reviewed the initial launch we looked at an opportunity to grow the market and particularly to be able to offer the product across a wider segment base - so right across business, corporate, consumer, pre-pay and post-pay.

To do that, we thought we should evolve the model [from the initial revenue sharing one] so we went for a more traditional model with a handset manufacturer where we pay for the device and then sell it. […][

Without going into too much detail, we have said in public that [the iPhone] has significantly higher average ARPU [average revenue per user] than other equivalent devices, so that'll give you a clue that it's a profitable business and an attractive business.

What's it like working with Apple?
To be very honest, any CEO of any mobile phone company anywhere in the world would bite my hand off to have a contract with Apple, particularly an exclusive contract, so for us it's great. Also I think what's important is it's brilliant for the industry so every operator in the market will benefit from Apple's arrival into the mobile market because they've just upped the game, they've moved the goalposts and everybody's running to catch up and from a customer point of view that's fantastic.

The whole mobile data space - the mobile internet - has just been transformed. And what we proved together - Apple and ourselves - is if you put the right device with the right customer experience with the right tariff proposition together and if you get the package right there is no limit to people's appetite for data.

Has the iPhone delivered what you expected?
With the initial launch what we found was a huge affinity with existing Apple customers.

What I think has happened over the nine months or so since then the story of the iPhone has just started to influence the whole mobile device space. So the people who queued outside our stores back when we first launched, if you'd done a survey… probably eight out of 10 of those customers were existing Apple customers, probably Mac customers who absolutely knew and loved Apple so they were very much the early adopters.

What we've moved through to now is…as people have got to play with it and got to see the experience, it's moved from being an Apple aficionado product to a hugely broad demand product because it's a fantastic user experience. And that is the key and that's Apple's great strength.

Have you been disappointed by the number of bugs in the iPhone?
You go through the blogs and I'm not being complacent about it but the vast majority of the network problems were actually with AT&T in the States not in the UK. There are always gremlins on devices but actually I think the iPhone has had remarkably few issues with it. One of its great strengths is the fact you can update the software regularly…the [iPhone] user can upgrade the software whenever they want. You can just keep evolving the customer experience on the platform.

Interview continues on page 2...

What could the iPhone do better?
One thing on the first device, which they've now solved, was… the ability to send texts to more than one person… So multiple texts was a frustration but they fixed that with a software update months ago.

Some people have said 'wouldn't it be nice to have two-way cameras for doing video calling?'. And you know what, that might be something [Apple] do in future - I don't know. But the actual market for video calling is not a huge market to be honest with you. So I could tell you lots of things I've seen on blogs that people would like: what I haven't seen is anything on those blogs where they say that's a huge market demand item and they've missed it.

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I have seen some niche things which could be there but also if you're trying to package the right experience at a sensible price you can't put everything on the one device.

Another example is the [iPhone's 2 megapixel] camera…Some of the handset manufacturers are just about to launch the first 8 megapixel cameraphone into the market and you do then have to question whether that's a camera or a phone and what the benefit is relative to the additional cost…

There will be a market for 8 megapixel [cameraphones] I'm sure, but it won't be the huge breadth of the market and Apple's approach is they want this to be a broad product that's available to the broadest range of people and provides the broadest experience. They're not looking at a niche product. They've been very public in setting themselves a target of tens of millions of devices to sell around the world.

The iPhone doesn't support MMS but it has a great camera and it has email functionality and therefore actually the ability to take a picture and share it is there, it's just using a slightly different format of technology.

How has the business world responded to the device?
In the business and corporate [world] the appetite has been very big and we've seen a significant appetite from what I would have described as traditional BlackBerry users, so I think what we're seeing is the market for that type of integrated device is growing and what the iPhone is doing is it's broadening the category. For some people it may be a choice between BlackBerry and the iPhone or a Nokia and the iPhone but what it's also doing is getting more people to think about a more integrated device where they can do their data and their voice on one device.


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