Beyond the Dome
Lilly Peel
How Matthew Key changed the Millennium Dome to the O2 Arena – and took on the challenge of carving out a niche in the ultra-competitive mobile phone market
Few venues in Britain have enjoyed a change in fortunes quite as dramatic as the huge, tent-like structure that sits next to the Thames. Once it was the definitive white elephant, standing empty and idle while the world tried to figure out a use for it. Now it is the hippest music venue in the country, no longer the Millennium Dome, hulking embarrassment, but the O2, home of Led Zep. Its sponsors couldn't be more pleased.
For O2, the old Dome has become a standard-bearer for the brand. In the words of Matthew Key, the company's chief executive: “There's too much difference between brand promise and brand experience. They have to be in tandem. If you go , you get special things as an O2 customer. The O2 Arena is the embodiment of the O2 brand.” A stairway to commercial heaven, to borrow Led Zeppelin's showstopper.
Not that the reality of business life reflects the glamour of showbiz and celebrity that the O2 has come to represent. Sitting in O2's anodyne satellite office on St Martins Le Grand, in the City, Mr Key casts an appraising look around the room. A pied-à-terre away from the company's headquarters in Slough, it is remarkable only for the fact that it is so unremarkable. “I'm assessing whether or not it's worth the expense,” he says.
The 45-year-old chartered accountant, who stepped up to the top job at the phone company (which is now part of Telefónica, of Spain), in February 2005, still likes to keep an eye on the figures – but he knows that it will take more than that to keep ahead of his rivals.
O2 dates back a quarter of a century, when it was an offshoot of BT, but until its demerger from the phone giant in 2001, when its name changed from BT Cellnet, it was struggling in third place, behind Vodafone, then a faster, sharper Orange.
Its transformation from £6.4bin also-ran to market leader bought by Telefónica six years later for £17.7bn was down, in large part, to successful marketing.
The question is whether Mr Key can not only sustain but also expand on the success of a company that operates in Germany, the Republic of Ireland and the Czech Republic, as well as Britain.
In a market that is saturated (there are now more mobile phone subscriptions than people in the UK), where networks no longer have anything as simple as quality of signal to make them stand out from the crowd, this is arguably O2's biggest challenge so far. How is it possible to maintain a brand and create differentiation in an increasingly commoditised mobile phone industry?
Sitting in this commoditised office space, a stone's throw from the BT building where it all began, Mr Key reflects that tactics have changed.
The old days of simply capturing customers are gone. It is now about which customers generate revenue and ultimately how their habits bring profitability.
As Mr Key says: “We're moving away from share of customers to share of revenue. That's not necessarily high-value customers. It means a share of profit.”
With fierce competition and regulation bearing down on prices, it is a very different world from the one companies traded in during the 1990s, when calls cost 50p a minute.
Mr Key argues that O2's results prove that it does offer something different from its rivals.
“Over the five years since we demerged, we have grown the customer base and profits more than the other three main players combined – more than Orange, Vodafone and T-Mobile,” he says. “It's about offering the right phone, the right tariff and the right retail stores.”
His answer to how to he keeps O2 ahead of the game is the “virtuous circle”. People who work with Mr Key say that the concept is almost like a religion to him.
“There are four elements,” he explains. “First, you have to get the right customer experience [a phrase he uses often]. The second thing is the employee experience. If a customer walks into an O2 store in Uxbridge, the employee is O2 at that point.”
The third piece of the jigsaw, he says, is to keep shareholders happy, while the fourth is the community. “It's really important to deliver as part of the community we operate in,” he says. “More and more people are looking at the world around them and really understanding that companies can have a major impact on them.”
He has inherited a company that has started to diversify. Four months on from a low-key October launch, O2 has signed on 100,000 broadband customers and topped an independent survey of broadband providers by thinkbroadband.com.
Mr Key is confident of having one million customers by 2009, despite intense competition, and, with all the elements in place, is rolling out a more aggressive marketing strategy.
Yet when it comes to brand and marketing, he would argue that they are not much good if you cannot keep the customer satisfied.
“People will see a brand and get perception of that brand,” he explains, sounding a little like a marketing manual. “You must make sure the customer experience you're giving is in line with your brand.”
Like his rivals, Mr Key is hoping that mobile internet will generate a new stream of revenue away from traditional voice and text, but the use of mobile data has been slow to take off, hampered by poorly equipped handsets and the fact that networks funnel their customers through their own internet home pages.
O2, on the other hand, has an advantage over other networks with its exclusive agreement to carry Apple's iPhone. It is the first handheld gadget that people have used to surf the internet and Mr Key argues that it heralds a trend.
“Data use by iPhone users is 30 times that of the average user. The ARPU [average revenue per user] is 30 per cent higher than other customers.
"Google has also revealed that 50 times more searches [from mobile phones] are from iPhones. Once mobile data takes off, it's time for 3G [the next generation of mobile phones that offer a wider range of more advanced services].”
In the two years since the takeover went through, O2's Spanish owners have allowed it to retain its independence - in contrast to France Télécom's approach with Orange.
“Telefónica gives us the chance to stand back and see the huge market and the huge opportunities,” Mr Key says. “Telefónica gives us the financial muscle to invest in Germany and make a compelling business model.”
Mind you, O2 doesn't always back the winner.
Arsenal and the England and Ireland rugby teams have had mixed seasons so far, but, as Mr Key points out, “We've been sponsoring the rugby since we were Cellnet. So we were with England when they won the World Cup. You have to take the rough with the smooth.”
CV
Born: March 3, 1963
Education: Sir Joseph Williamson's Mathematical School, Rochester, Kent; Birmingham University (economics, first-class honours, second year undergraduate prize)
Career: 1984-89 Arthur Young ACA;
1989-91 Grand Metropolitan Foods Europe;
1991-95 Coca-Cola & Schweppes Beverages Ltd;
1995-99 Kingfisher plc - Woolworths;
1999-2002 Vodafone Group plc financial director, Vodafone UK non-executive director, Vodafone Egypt; since 2002 Telefónica O2 Europe plc (formerly O2 plc) (February 2002 to December 2004 chief financial officer,O2 UK; January 2005 to January 2008 chief executive officer, O2 UK; since January 2008 chairman and chief executive, Telefónica O2 Europe
Other interests: since 2003 chairman/non-executive director, Tesco Mobile; 2003-05 non-executive director, Link Stores; 2004-05 CBI economic affairs committee member
Family: Married with three children aged 14, 12 and 9
Q&A
If you could change one thing in the financial and commercial environment, what would it be?
A regulatory environment that creates inequality in the market - let competition decide wherever possible
What does leadership mean to you?
Creating the environment where people can excel
Which business person do you most admire?
[Sir] Terry Leahy of Tesco and Steve Jobs at Apple - both of whom not only have great insight into what customers truly value but also the ability to get their organisations to deliver it
What is most important in your working life?
I think it's vital to have a home/work life balance in order to keep a clear perspective
Who is or was your mentor?
My wife and children - they are fantastic sounding boards and ensure that I never lose sight of what really matters. I also regularly bounce ideas off my predecessor Peter Erskine
Which is more important, what you know or who you know?
In my experience, you can't separate them - one leads to the other. I always view new contacts as an opportunity to learn and view knowledge as an opportunity to create new contacts.
Does money motivate you?
Yes - but, more importantly, I have to believe in what I'm doing and in the team with whom I'm working.
What gadget must you have?
My iPhone - absolutely no question! Whether as a phone, for my music or to surf the net, it's the best device I've ever come across.
How do you relax?
Going out with my mates in the village where I live. It's essential to find the time to switch off from being Matthew Key, CEO of O2, and just be Matt - dad to Nathan, Charlotte and Ally, and Karen's husband.
