So, Peter Erskine's back in an incumbent. Five years ago he
was running BT Wireless, the mobile arm — then better
known as Cellnet — of the UK giant. It was demerged on
November 19 2001 into a wholly separate listed company, O2, and
Erskine remained CEO of the company with the funny name for the
whole period of its independent existence.
And then at the very end of October 2005, just as O2 was
coming up for its fifth birthday, the Spanish incumbent,
Telefónica, moved in with a £17.7 billion takeover
deal. Many were surprised that O2 had survived so long: few
operators had so many rumours about imminent takeovers, though
most of them were wrong, Erskine says now.
Not only are Erskine and his team now owned by one
incumbent, but he is now in charge of another, Cesky Telecom,
with fixed and mobile services in the Czech Republic. It is
also part of the Telefónica group, but Erskine is in
With that, and Telefónica's decision to put its
German broadband operation into the O2 group, Erskine is now
planning some intriguing trials of fixed-mobile convergence in
Germany and the Czech Republic.
Since its separation from BT in 2001 O2 — like
Vodafone — has been virtually a pure-play mobile
operator. It is clear from this interview that O2 is now
actively looking at alternatives.
Actually, O2 has never been quite pure-play mobile. BT gave
it Manx Telecom, which runs the fixed network in the Isle of
Man, an almost autonomous community of 75,000 halfway between
Britain and Ireland. That was because back then it was a
testbed for 3G mobile services too. Today it offers HSDPA, the
technology which boosts data downlink speeds for 3G
But it's small, and in fact the subject of Manx Telecom just
didn't come up in the interview.
Telefónica's bid for O2 in 2005 was a move that has
helped to push the company to long-deserved international
prominence as one of the leading operators. It is now clearly
among the leading operators in the world.
Yes, it is the incumbent in Spain. It has long had interests
in South America: by early 2004 it had 21 million fixed lines
and 41 million mobile customers. That year it bought for $5.8
billion BellSouth's mobile interests in Argentina, Chile, Peru,
Venezuela, Colombia, Ecuador, Uruguay, Guatemala, Nicaragua and
Panama, giving it another 10 million or so connections.
But in Europe Telefónica has been quiet and shy. A
year of two ago it bought and then sold a relatively small UK
business operation, and has kept a larger German broadband
business going. Its first big European purchase was 51% of
Cesky Telecom from the Czech government in April 2005 for
And then came O2, a deal completed in just a few months. By
January 2006, only three months after it was announced, it was
through the regulatory hurdles, including the European
Commission. The following month Erskine and his colleagues were
holding court in a Barcelona hotel by the port, a decent taxi
ride away from the hubbub of the vast 3GSM mobile phone
exhibition, as a wholly owned subsidiary of the local
The trees outside the hotel were decorated with the blue
LEDs that have been adopted by O2 for its shops in the UK,
Germany and Ireland. Meanwhile, purely by chance, there was an
old Telefónica payphone by the kerb — entirely
undecorated, apart from with the usual seedy stickers that are
attached to any payphone in a big city.
So now, less than five years after escaping BT, Erskine is
back in an incumbent. "I think it's very different, though. I
think we go back in with pride and confidence, and that's quite
a bit different," he says. "What's very obvious is that
Telefónica is aware that they've paid good value but for
a winning team — and they're treating us like that.
It's very good."
And Erskine and his team have been recognised by
Telefónica: he has joined the board of the main company
in Spain, as an executive director, while the ex-chairman of
O2, David Arculus, is on both O2 and Telefónica boards
as a non-executive director. Erskine is, he says, taking
Spanish language lessons.
Meanwhile Rudi Gröger, the head of O2 Germany, is now a
non-executive director of Telefónica Moviles, the mobile
unit within the Spanish home market, and is responsible for
Telefónica's fixed operation in Germany, while Erskine
is in charge of Cesky Telecom, both fixed and mobile
"The deep, deep worries we had were not so much the BT
analogy, but the way France Télécom and Orange
happened. I think the Spanish are as eager as we that it
doesn't go like that," says Erskine.
Hey, what's that about France Télécom and
Orange? As a brief background, the French incumbent took
control of the UK-based operator Orange in August 2000 after a
complex series of financial transactions. In its first six
years before that Orange had established a reputation for its
quirky, off-the-wall marketing which pushed it from the fourth
entrant in the UK business to the biggest share.
After the takeover Orange became a big international brand,
but the culture was very, very different.
"Let's just look at facts rather than judgments," says
Erskine. "Orange is an awesome brand, performing fantastically
in the UK. We were kind of lucky because it seemed to go off
the boil round about 2000 when they were bought by France
Télécom. With all the bureaucracy that came in,
and everything agreed in France, they just lost the edge."
Erskine is learning from that. "Obviously we've got to get
synergies from Telefónica. We've sat down and said how
do we make sure we don't kill ourselves and in a year's time
say, there goes the second Orange. How do we make sure we get
the good things from a big company but not all the bureaucracy
that could come."
Welcome from Telefónica
He's clearly delighted at the way Telefónica's top
management have treated him and his colleagues since the deal
was announced — and not just by giving him a board
position. "We've been really welcomed," he says.
A few days afterwards "my executive team were together for
their Monday meeting" at the company's head office just west of
London. Telefónica CEO César Alierta came to meet
the group "on the day, on his own, into our little room at
Slough and talked to our top 10 people", says Erskine with
obvious pleasure. "He didn't have a brief, he didn't have a
minder. He chatted. They really want this to work and they're
making every effort."
with Erskine: they "really
want this to work"
He's comforted that Telefónica has created a separate
board for O2, "which I think is really quite important".
Erskine chairs it, but senior figures from Telefónica
are represented, including Alierta. "That will meet six times a
As well as Arculus, other directors from O2's independent
days on the new board include the American Andrew Sukawaty
— now CEO of Inmarsat, former CEO of Sprint, and
former COO of One 2 One, which later became T-Mobile UK. The
three Spanish on the board are Alierta, plus Antonio
Viana-Baptista, who runs Telefónica Moviles, and Julio
Linares "who is responsible for our integration — our
COOs, effectively", says Erskine.
"I think that's important, because that ensures if we need a
quick decision we can move quickly and lightly. And the other
important thing is that my relationship with César so
far feels good."
What does he mean by that? "We've gone through the
honeymoon. If we'd been bought by a German or American company
by now the owner would be saying: 'Look, I bought you. Do
this.' I'm not getting that. I'm getting sensible discussion. I
think I'm being grown up. I know he is. It feels very
Germans or Americans? The main rumours about O2 involved
KPN, the Dutch incumbent. Were there other options? "The only
option that was on the table was to carry on as we were."
But weren't other companies coming to O2 to talk about a
deal? "No," says Erskine firmly. "The press have written about
us for four and a half years about being on the block. The
truth is — and I can go to my cross on this one
— is that in February of 2004, and this is in the
public domain, KPN talked to us and had an aborted bid, and
then Telefónica came when they did. Other than that, we
just got on with growing the company. We weren't planning to
Indeed, he says, "we were getting ready to announce at the
half year, as we'd promised, an improved dividend policy and
then out of the blue they phoned us up".
There were no other options, he repeats, "but a good one was
to carry on as we are ... er, were. Actually it was an offer we
didn't think our shareholders could refuse."
And he is happy with it? Obviously, as he's still there? "I
think if you look at it, it sounds trite but it's true, it's
great for shareholders: a cash offer of £2 a share.
They've seen the volatility of the market since we did the
deal. That's got to be good. Not long afterwards, France
Télécom had their profit warning, Voda's had a
number of issues, and the market's gone down."
And it's good for customers, he adds. "O2 is as it was, but
now we can get them better international rates in time, better
handsets, and so on. And it's very good for our people
— there's no overlap, there are no redundancies."
Well, one or two in head office, "but all the businesses they
stay as they are, and there are greater career opportunities".
He adds: "I've managed to retain my management team" through
Integration into Telefónica
So what's the strategy over time? Will O2 become part of
Telefónica, or that Telefónica will become O2? Is
there a sort of coming together that is being planned in Spain
as well as elsewhere?
"Well, in terms of organisation, César is very aware
that if there is too big an operation under a CEO you get the
kind of challenges you get with Vodafone. How do you focus when
you're running a global operation, when there's always
something going wrong — whether it's Japan or the US
or whatever. With us, what we've tried to do, is that I've got
the rest of Europe. He's got a guy running Spain and he's got a
guy running Latin America."
Telefónica is the incumbent in Spain, so a different
structure is likely to remain in place. "It needs to keep close
to the fixed business, albeit in a separate company." However,
a few weeks after our conversation, Telefónica announced
that it was wanting to acquire the tiny minority of shares in
Telefónica Moviles it does not already own.
The incumbent owns 92.4% of its Spanish mobile business, and
has offered an all-share deal — four of its own shares
for five in Moviles — to take the other 7.6%.
So Telefónica in Spain is moving towards an
integrated fixed-mobile operation. As the incumbent it is
likely that management will be kept separate from O2.
But how about the Czech Republic, where Erskine and O2 is
now the incumbent? "We are the incumbent, yes," he says with
some surprise. "The government only sold it last June."
The mobile market is "pretty competitive", with Eurotel
— O2/Telefónica's brand — with "a bit
over 40%", he says. T-Mobile "is close, but not quite as good,
not much off, and Voda bought the third player and is waking
So there are three players and good competition. "I think
the regulator will leave that alone. I'm sure as the incumbent
fixed operator we will have to talk to the regulator a lot. I
certainly am leaving that to the CEO and his management."
Branding is another issue in the Czech Republic. "We're
working that through," he says. The company is now called
Telefónica O2 Czech Republic, which Erskine himself
admits is an awkward name. "A bit of everything."
Cesky's mobile brand, Eurotel, is being dropped. "They wrote
Eurotel off in value recently and they've decided not to
progress that." O2? "We haven't done the work but almost
certainly O2 will be in there somewhere," he says.
"We've just got to work through little things like the fact
that they have got phone boxes and do we want those called O2,
and I don't know. A month ago I couldn't spell Cesky Telecom
and it's just come under me."
He's not planning to learn Czech, though. "That's a bridge
too far. Spanish is a challenge."
When BT dropped the Cellnet brand — which had
survived in the UK since the earliest days of analogue cellular
services in the early 1980s — in favour of O2, in
preparation for the 2001 split, some people laughed, but most
now recognise that the brand has been a great success. "They
all took the mickey, but we had some super people on the
marketing side and it's worked," says Erskine. "It's a very
In theory it translates well. The "2" can be said in any
language, just as Hutchison Whampoa's 3 is said as "Tre",
"Drei" or "Tre" again, depending on whether one is talking
about the Italian, Austrian or Swedish companies, or as "Three"
in Australia, Hong Kong, Ireland and the UK.
But, says Erskine, the Germans actually call it "O-two", in
English, not "O-zwei", and use the slogan, also in English: "O2
Alierta "saw us as the vehicle for expanding in Europe and
he gave us his Cesky business". That is a big business, "a
couple of billion euros of revenue in fixed and mobile", he
Will there be more deals? Alierta said at the results
conference in early March that this is a year for "delivering
organically than doing a lot more deals", but, says Erskine,
"they've got the cash and the wherewithal to keep expanding and
the O2 teams generally feel pretty motivated".
So why did Alierta put Telefónica Deutschland, a DSL
company, into O2's management? Interestingly, reveals Erskine ,
before Telefónica came on the scene, O2 "had been
starting to think there might be a strong customer offering if
we could put mobile together with DSL".
And now, bingo, "the DSL business in Germany gives us a
chance to test that". And "Cesky is doing the same." They have
merged their fixed and mobile business. "It's a good
opportunity to test our hunch that DSL and mobile is a strong
Cesky Telecom had already been looking at a combined
mobile/fixed plan before O2 came along, he says. "Their plan
was Czech. It was going to be their role model. That was their
plan. Our plan was not so sophisticated. It was more just DSL
and mobile, so it was lucky we've inherited the German DSL
business. O2 is running that. We've integrated that in just a
Fixed and mobile services
Something of the kind was, it seems, being looked at within
O2 before Telefónica arrived. "We were starting to form
the view that — frankly put rather too simply
— if you could give people one device for their home
and for when they're on the move, it's very doable. When it's
in the home it can give them very high speed data by DSL and
obviously voice calls, and then when they're on the move the
same sort of high speed data, probably not quite as fast, but
via 3G with HSDPA, then there's not much else they need."
It's a step forward from the current view of fixed-mobile
convergence? "I think it is," says Erskine. "I think it's quite
a lot simpler as well. It doesn't mean yet —obviously
we've got to learn what the customer wants — that
therefore you just bang fixed and mobile businesses
O2 is doing that in the Czech Republic for very specific
reasons, he admits: "Frankly the reason is, fixed is very
unpenetrated. There is less than a third of the people who have
a fixed line." So it's more efficient to have the same sales
team selling both fixed and mobile connections.
"The idea is that you can say to a customer: 'I will take
your fixed minutes and your mobile minutes,' which is great
because in none of our markets has mobile got more than a third
of the minutes, so there's plenty of opportunity."
It's also a recognition "that 3G's very exciting, but it's
not going to be as fast as DSL".
So you say to a customer that you will provide all the fixed
minutes at home, and mobile minutes when they're travelling,
"and it saves the customer money because they're not going to
have to pay for this fixed line. We will see. The market will
tell us. The customer will tell us."
So O2 will see the fruits of the German and Czech projects
"and form views" which will aid it to plan its strategy for its
It has Telefónica Deutschland in Germany as a DESL
operator. It has mobile and fixed — including DSL
— in the Czech Republic? So, it's early, but how does
he think O2 will get into DSL in the UK?
"We're looking at partnerships, we're looking at all models.
I wouldn't want to say more. Frankly what we going to do for
the next little while is learn from Germany. Probably we will
cut a wholesale deal very soon in the UK. If it works we'll
form views as to the right model."
It was a coincidence that O2 should have the material for a
ready-made prototype landed in its operation. "We were thinking
— I guess this is last summer — could we be
tempted to make a bid for Telefónica Deutschland? Well,
then all this happened and we didn't need to, so we've got a
nice train set."
So he and his colleagues in O2 had already identified
Telefónica Deutschland as a suitable candidate for this
trial? "Yes," he confirms. "It's got about half a million DSL
lines out there but they intend to expand on that. I'm sure
with our 10 million or soon 10 million mobile customers we can
Would this be like the BT idea, originally called Bluephone
and now being marketed as BT Fusion, of having a multimode
handset, switching from GSM to Bluetooth or wifi?
"No," says Erskine. "Bluntly, Fusion I still don't think is
right for customers. The market will tell, but they're not
running away with customer demand." BT is doing a lot of
advertising for the service, though. "You can advertise
anything if you've got a big budget."
One of the golden rules is that "handsets are so important"
and if you don't get a lot of handset manufacturers making a
new technology "you know it won't take off".
O2, though, "can deliver the combined service now and we can
bill it", says Erskine. "And then the interesting thing, which
is blindingly obvious, is that what we've been finding over the
last year or two, is when you deliver content, customers want
to be able to download it for all their applications."
He gives an example: "Music downloads. They don't just want
— and we fortunately guessed this one — to
download music to the mobile. They want in a very friendly
format at the same time to download it to their computer, and
When you supply content, people should be able to "bring it
to all that they want".
What does that mean in practical terms? "We're just making
sure, as we develop the applications, that they are
user-friendly so they are easy to download to whatever you've
got, rather than that it will just go on the mobile."
Mobile television trial
What other applications will be big? "We did a TV trial in
Oxford. That was over a different technology but it was to tell
us if people like it. Early signs — it was only a
small sample — are they liked it a lot. They were
using three and a half hours a week. Surprisingly 60-70% of
that was at home. But they did say they were willing to pay a
tenner a month."
That's not the same, in a free trial, of them actually
paying £10 a month, "but our German business is going
into the mobisoap thing just to test it out", with four-minute
"All the time we're saying mobile data — if you
park text, and we're getting something like 27% of our revenues
from text and doing well — mobile data is
interesting." It provided £250 million revenue last year
for O2. "It's growing but it still is only 3-4% of the revenue.
What is going to make it really grow?"
He has some key points: ease of delivery. Certainly 2.5G is
faster than 2G, but "3G will be faster, it will be better".
Erskine says that "O2 has been sensible and cautious in its
3G rollout". The company didn't push it early, unlike Orange
and Vodafone. "They've invested a lot of capital. They've got
greater coverage in some countries that us. It's paying them
not a penny of benefit, because the customer won't be pushed,"
"Now if 3G does take off, and we think it takes off at the
end of 06 as you start to get the right handsets out there, we
will continue to expand our 3G."
Why later this year? The terminals "are becoming as good as
2G", he says. "Even this Christmas people said the very sexy
RAZR mobile from Motorola would come out in 3G form. Well, it
didn't, it was fatter." And 3G phones still have lower battery
"But we start to see product, and certainly before 06 is
dead handsets from 3G are as good as 2G and the market will
start to take off."
That will give good mobile data speeds, better with HSDPA,
"but at home broadband will probably still be better", and
hence O2 wants to offer that to its customers too.
Live auctions on i-mode
But "it's also what do people want to use?" he asks. "We
went with i-mode last autumn — so we've just launched.
One big breakthrough with i-mode, and the reason we went for
it, is that it is very simple to use. In the last couple of
weeks we've launched eBay on i-mode." So people can monitor
their auctions all day.
"Without wasting and spending a lot of money and without
pushing a lot of technology at the customer — as I
would argue one or two of our competitors have — we're
just saying that this mobile data space will have applications.
And how do you win? One, by making it easy to do, and that's
where I come back to my DSL and mobile. Two, whatever you
enable the customer to access, make it easy to access so they
can download it to all of their vehicles." By vehicles he means
terminals, phones, PCs, players.
"And then try and find if there are new areas that they are
interested in." It's not so much a matter of finding killer
applications for mobile, but mobilising what are already killer
applications, enabling email, TV, eBay, music and other
services on the move.
Erskine admits that he's not the age to be a typical user,
"but my car has got a little TV at the front", that for legal
and safety reasons he can watch only when it's parked. "It's
sad and amazing how often when I'm waiting for someone
— my kids — you pop that on. You wouldn't
think you would, but I've found myself thinking, what's on the
Telefónica's own empire is bringing useful contacts
and information to Erskine and his colleagues in O2. It owns
about 78% of Endemol, the Dutch-based television company famous
for Big Brother and other productions designed to entertain and
"Being sisters, or brothers or cousins, they're being very
helpful. What we're able to do is learn about programming, and
what media might work. That's helping us down that space."
Telefónica Moviles has operating i-mode services in
Spain under licence from the system's inventor, the Japanese
mobile network NTT DoCoMo. In the few months since the takeover
was completed have he and his colleagues been able to share
experiences? "They've got good ARPU uplift," he says. "I think
that is one of the reasons we went into it."
And it was the connection with Telefónica Moviles
through the community of i-mode users that helped attract O2 to
the Spanish incumbent when that phone call was made last year.
"We knew that Telefónica people were good people to work
with. We got to know their culture by working together on
What has O2 learned about i-mode? "First of all, undoubtedly
getting the right handsets is important. We're halfway there.
We've got some. The thrilling bit is that Samsung has come out
with a fabulous product, but we need to get more."
O2 also learned from Telefónica Moviles "that the
great thing with i-mode is that because NTT DoCoMo has built
these platforms for a number of operators around the world they
really do work. The stuff is delivered."
That is one of the important features that helped swung O2
towards going i-mode — and in the process towards
Telefónica as an owner.
Friendly to use
"I tried to put the mantra through my business that we
couldn't launch services unless they were really friendly to
use. We all as an industry launched picture messaging and it
didn't work for a long while. It's still not brilliant. And yet
we're amazed volumes didn't take off."
The great feature about i-mode is that it is operating in a
number of countries around the world "and it works. That is
good. Simple to use."
Since launching i-mode in Spain "the ARPU has gone up quite
nicely". Telefónica is learning which services work and
which don't, but "the handset is the absolute key, getting a
better range of handsets".
Erskine and his colleagues also value highly the chance
i-mode gives of working with DoCoMo people "and you do get an
eye on other markets around the world". The Japanese market "is
different but very hot", he says: "You learn a lot there as
Is there scope for working together more closely with
Telefónica on i-mode? After all, for many British, Spain
is their favourite summer holiday destination. Will they be
able to access O2's i-mode services from the bars, clubs and
"I think for this summer we've got to work on that, and it's
unlikely. The main goal for this summer, as you would expect,
is that we will be launching much better roaming tariffs." When
the British — or the Germans, as Spain is the number
one holiday destination for them too — are there this
year, they can expect "much better rates", he says. "We want to
show customers tangible benefits."
But, yes, to make i-mode seamless "is a distinct
possibility", he adds. "We will be going down that route."
O2 has the right to use the i-mode trademark in the UK and
Ireland, as does Telefónica is Spain, but in Germany,
O2's second biggest market, KPN was there first, with its
E-Plus German network. O2 plans to launch i-mode services in
Germany "probably towards the end of this year", says Erskine.
"We were less excited in Germany because KPN had it
And E-Plus hasn't exactly had a great launch for i-mode.
"No, they haven't," says Erskine. "They went early with it and
they didn't do a wonderful job. We're kind of hoping that by
the end of the year — I'm not certain we'll have it
ourselves, but they haven't made a great cut through with it so
that when we launch we can more or less make it our own."
Will O2 be able to call the service i-mode in Germany?
Doesn't KPN have the rights to the name there? "We hope to,"
says Erskine. "We're not certain of that because at the moment
the lawyers are saying KPN have the brand, but KPN are publicly
saying it's not working, so whether the Japanese can persuade
them to, er, give up, we'll see. We'll see."
O2 "is encouraged by — I nearly said proud of
— is the rate we're growing", says Erskine. "The
numbers are more challenging these days but our UK business
announced at the end of December that it had grown its revenues
12%. That's voice and data. In that same context Voda UK has
grown 3%. T-Mobile and Orange have actually gone backward."
Germany? "Our German business at the end of last year
announced it had grown just under 20%. Voda in the same year
So what has O2 done that is right, compared with the others?
"We've won customers. The UK until about 18 months ago still
had a bit of a churn problem. Churn now has come way down. It
was in the mid 30s and it's now in the mid 20s."
The difference is due to "lots of strong customer offers to
keep them, lots of focus on loyalty", he says. "And therefore
as we win new ones each month we aren't losing old ones out of
the bottom of the bucket so much. So our UK business has now
got 16 million customers."
Add the MVNO with the Tesco supermarket chain, which is a
joint venture with O2, and "there's another million", he adds.
"We're getting scale."
In Germany, ARPU shows "a little bit of growth, but mainly
we're winning customers, and of course the big opportunity in
Germany is that although we're doing well we still only got
about 12-13% of the market, so can we keep taking it away from
the big guys?"
T-Mobile, owned by incumbent Deutsche Telekom, and Vodafone
"have both got about a 40% share", he notes. ""Voda hasn't
grown its revenues. E-Plus is smaller, it's about the same size
as us, it grew 4% in the last year, and we grew just under 20%.
So we're not wasting money on growth but if we can keep growing
and improving the margin I think Telefónica will
continue to be pleased with us."
O2 has introduced loyalty campaigns — designed to
undermine the irritation shown by many long-term customers at
seeing attractive offers made to newcomers from other networks.
"We'll actually give you as good if not a better deal. Others
followed but we trailblazed on that."
The company has also invested heavily in its UK network, not
necessarily to roll out 3G fast but to improve 2G and 2.5G
networks. "Our UK network four years ago was third and very
close to bottom in quality" when the regulator, Ofcom, judged
it, says Erskine.
Why was that? Had BT — when it was owner —
taken its eye off the ball? "I don't think so," says Erskine.
"It's funny, one thing again you learn, don't you: we put in
charge of our network in the UK a non-techie. Very commercial
guy. Hard-nosed chap as well, but a very commercial guy. And
what he said was: stop just throwing new cellsites at it. Stop
just throwing money at it. Tune what you've got."
So they went back to the cellsites "and they found things
like the aerial wasn't as high as it should be, or the
relationship between cellsite A and cellsite B wasn't what it
should be, and now Ofcom has judged we're the best."
Who was this person? "He's our COO in the UK, a guy called
Vivek Dev. And they love him, because now the engineers talk
about minutes per drop — and they're all the time
driving it up. They've got it up to well over 200 minutes per
drop. That is more than double where it was when we were in the
It sounds sensible that if calls are dropped, people don't
call back and so companies lose revenue. If someone is out of
range, no one can call, so there's no incoming revenue.
Sharing experiences of 3G
We've talked about experiences O2 can absorb from what
Telefónica is doing in Spain, but what are the
differences in the strategies — and are the two
companies starting to share experiences?
"We're starting to," says Erskine. "The differences are
still emerging. We're probably a bit more focussed on data than
they are. We're sharing thinking about 3G and the right way to
Where is Telefónica in the 3G saga? "They're behind
Vodafone, so I'm not being clever but they've got that right.
They're probably about 60% of the country, but I don't think
they're going to rush to build a lot more. They'll build a
little bit more in the odd cities." That compares with O2's
"about 50% in Germany and the UK". The company "will be rolling
out this year but I'm very pleased we're not at more than
The first thing O2 and Telefónica Moviles sat down
and discussed "was how we can improve roaming rates". Not only
how can O2 point its customers in Spain to the
Telefónica network while Telefónica points its
users to O2 in Germany, the UK and Ireland, "but how do we use
their big block of Latin American traffic to get better deals
around the world for our customers".
Handsets can be reprogrammed over the air to select
preferentially one carrier rather than another to keep as much
traffic as possible in the company.
And then the combined company can go to operators in other
companies to negotiate better deals, in places such as "France,
Italy or the United States", he say, "and get a better rate for
The second area "is the whole handset bit", says Erskine.
"Between us we buy loads of handsets, so can we buy them
better? Can we rationalise the range?"
They are different ranges, though. In the top 10 handsets in
O2 and the Spanish operation "there are very few overlaps", he
says. "Is that the market? If it is the market then I want it
to stay that way." On the other hand there might be other
factors — and by addressing them O2 and its sister
company in Spain might be able to get better deals from
O2 has put a lot of effort into its XDA range of PDAs, and
such products are absent from Telefónica's range. "We're
asking if they're interested and we're working through. We've
sourced a lot of that kind of product in Asia and they're
working out if they're interested."
He's very happy that "we're not finding from my people or
theirs any 'not invented here'", he says.
O2 has a more business feel to its shops? "Yes, we do," he
agrees. "That's interesting, because they are weighing up the
right way to run their shops, and should they have more."
Cross-fertilisation with Latin America is slower to achieve,
though. "There are a lot more similarities with the Spanish
business. Given they only took majority share of most of their
Latin American businesses about a year ago they're still
learning what they've got. So it is harder for us to get in to
find out if we could share ideas with the Latin Americans.
Spain is the first port of call but it won't be long before we
get into Latin America."
Equipment and systems
Let's turn to the network side, equipment and systems such
as billing. Any chance for commonality there? "On billing there
isn't." O2 has an IBM billing system "that's gone into all the
businesses", he says, "and that's also given us good
On the network side O2 uses Nortel and Nokia. "We may,
through the Telefónica link, decide to bring in another
vendor." Telefónica is "largely Ericsson and Nokia and
slightly in favour of Ericsson", he says. "It feels as though
Ericsson must be giving them very good deals. They like
Ericsson a lot. That's good. If we can leverage a good deal we
will visit it."
That's particularly the case as Spain and O2 are in "a
similar roll-out" position for 3G, he adds. Latin America isn't
really moving much towards 3G yet.
So he's happy with the way things have turned out so far?
"So we feel remarkably happy," he agrees. "Of course, there'll
be the odd bad day. Bad days always happen — middle
management in Telefónica wanting to integrate us a bit
more than we want to be integrated."
But the O2 board and "strong support from the top", mean
"there'll be plenty of good days, I think."
There's always one proviso: "Keep hitting the numbers. The
day you miss your numbers for too long everybody likes to
interfere then, don't they?" So, "keep growing it, keep it
simple, keep the brand as it is, refresh it if you should".
And with that he was off — to a meeting in Madrid
of the top 160 people from the whole Telefónica empire,
as one of the leaders of a significant new acquisition by one
of the world's leading operators. That clearly delights him.