O2 Sets Out Its Enterprise Stall

UK operator strengthens its strategy for businesses

O2 in the UK is on a roll. In the second quarter of 2019, it reported growth in total revenue for an 11th consecutive quarter. Churn remains at record low levels and its mobile network, including virtual providers, hosts more customers than any of its rivals. The business that parent Telefonica almost sold to Three in 2016 is now performing very nicely.

But this momentum has largely stemmed from success in the consumer business, where initiatives like Priority and Custom Plans have landed well with O2’s loyal band of customers.

At a recent enterprise briefing held — appropriately enough — at The O2 in London, CEO Mark Evans was candid in his assessment. “We’re great in consumer, but not so great in enterprise,” he admitted.

CCS Insight believes his appraisal reflects strong market competition from a resurgent Vodafone and the combined BT and EE, which gained good ground in mobile services after launching 4G about a year ahead of its rivals. In a major win in 2015, EE was chosen by the Home Office to provide a national mobile network for the emergency services.

O2’s less than satisfactory position is likely to have prompted it to launch a new unit, called O2 Business, in August 2019, consolidating its previously separate enterprise and wholesale partner activities. Managing director of the division, Jo Bertram, explained how its fully end-to-end set-up means it is accountable for product development and sales and marketing in public and private sectors.

Significantly, Ms Bertram said that O2 Business is adopting the same “customer led, mobile first” philosophy that has been the bedrock of its successful consumer arm. In 2018, it launched a campaign called We Get People, seeking to emphasize this approach.

O2’s enterprise strategy is based on three pillars: growing market share in mobile services; focussing on high-growth opportunities in IT such as the digital workplace and cybersecurity; and creating platforms for growth, including the Internet of things (IoT), 5G and data insights.

Within this strategy, three main areas stood out to CCS Insight. Firstly, good momentum for O2 Gateway, the operator’s platform for converged connectivity, which brings together mobile networks, private access point names, fixed-line wide area networks, Wi-Fi and network security. The product is addressing customers’ concerns about moving to the cloud and accessing public cloud services over the Internet.

Secondly, in digital workplace, O2 was keen to stress that it’s doing much more than simply selling mobile device management licences from providers such as MobileIron and AirWatch — an approach chosen by some other telecom operators. O2 has big plans for its managed service offer for Microsoft’s Intune and Enterprise Mobility + Security, for example, which had over 50,000 seats signed on to the service in its first month of operation.

O2 also has strong ambitions for Microsoft Teams, including considering zero-rating mobile data usage on the application. We see many companies planning to deploy Teams in the next 12 months that would welcome this move. According to our Employee Workplace Technology Survey, 2019, for example, Microsoft Office 365 is used by more than 37% of UK employees; Teams is used by only 11%, so there’s much room for growth for O2.

Thirdly, security — a market that O2 executives labelled as the operator’s “best kept secret”. Its approach to offering managed services for more than 30 security partners for which it has internal accreditations, including Palo Alto Networks, Fortinet, Cisco and Zscaler, is proving successful. O2 has also formed a partnership with the UK’s National Cyber Security Centre through its digital incubator Wayra, to help build the next generation of security businesses. Security is also a leading focus of parent Telefonica, which in 2013 created a dedicated division called Eleven Paths to address this opportunity.

During the event, O2 was keen to promote the success of its smart metering programme, which it says is one of the largest IoT contracts in the world. In 2013, the operator was selected as preferred bidder for two 15-year deals, worth £1.5 billion in total, covering central and southern UK. In May 2019, it was announced that the number of connected second-generation smart meters in the UK had hit the 1 million mark.

The creation of O2 Business is also well-timed to take advantage of opportunities from 5G connectivity. O2 will launch its commercial 5G network for businesses and consumers in October 2019, and expects to cover 20 towns and cities by the end of the year, and 50 by summer 2020.

Hoping to engage with industry, in 2018 O2 invited all FTSE 100 companies to participate in its 5G trials and has reported good interest from a range of sectors, including construction, retail and transport. O2 will shortly also open 5G test environments to start-ups as part of its Wayra incubator scheme, to help fuel innovation. The moves are logical; we have frequently argued that 5G’s greatest impact will come in enterprise, rather than consumer markets.

O2 is also the 5G network provider for testing and developing connected and autonomous vehicles at Millbrook Proving Ground, Bedfordshire. Chief engineer at the facility, Peter Stoker, said that tests have already achieved gigabit speeds to vehicles moving at 160 miles per hour.

A few days after the briefing, O2 announced a smart ambulance trial at Millbrook, aiming to create a unique remote consultation room that could revolutionize patient diagnosis, transport and treatment.

CCS Insight sees several important opportunities ahead for O2 that received only limited airtime at the event. Firstly, O2 will need to build trust in 5G with industries to achieve its vision for mission-critical 5G applications. We see little discussion in the operator community about how secure and reliable these next-generation networks are for these scenarios.

Secondly, as mobile edge computing takes shape over the next five years, O2 should look to hyperscale cloud companies for partnerships. Providers like Amazon Web Services, Google Cloud and Microsoft have aspirations in hybrid cloud and edge computing and developer communities in the UK that O2 must engage with.

The event’s overarching message was clear: business is an established, fast-growing but underperforming part of O2 UK. If the operator’s new unit can raise its profile with organizations and capture the many new opportunities it has identified, it will quickly start to bolster its position.