Exclusive: 2Degrees CEO outlines telco roadmap

“The key to our success has been understanding our capabilities..."

2Degrees CEO Stewart Sherriff

2Degrees CEO Stewart Sherriff

“There’s no ‘for sale’ sign up,” affirms Stewart Sherriff, CEO, 2Degrees, who asides from a fiduciary duty to shareholders, doesn’t foresee New Zealand’s third largest telco going to the highest bidder.

“As for 2Degrees acquiring companies? It is always a possibility. I cannot rule out that there might be an acquisition.”

Speaking exclusively to Computerworld NZ following the company’s fifth birthday last month, the affable Sherriff prefers to look ahead rather than behind, detailing the telco’s migration path from 3G to 4G across the country.

“We’re fortunate that the vintage of the equipment that we’ve deployed in the radio access network is newer than Vodafone and Telecom currently have,” he says. “We were in a position whereby by mid last year we could have deployed 4G but we decided to spend the capital on a different path, despite a bit of dissatisfaction.”

During a period when the industry jumped on the 4G network despite its sporadic nature, Sherriff, who joined the telco as Chairman and interim CEO in April 2013, says the experience of jumping from 4G back to 3G at the time was sub-optimal.

As a result, the telco made a “conscious effort” to instead redeploy the capital to ramp up its efforts within the 3G space, “beefing up” its network to ensure maximum capability.

“The rationale behind that was when we started to deploy 4G this year we’d find the experience of moving back and forth between 3G and 4G would be less noticeable,” he explains.

Three months after launching 4G services at 72 sites in central Auckland, Sherriff says 2Degrees has kept to its promise of future rollouts, bringing LTE to Hamilton earlier this month.

In providing 4G capability to the area, the telco has now serviced the country’s four largest cities, with LTE network coverage in the country’s four largest cities by population size including Christchurch, Wellington and Auckland with more to follow.

“We are deploying on 1800MHz,” adds Sherriff, alluding to the rise in 1800MHz devices across New Zealand. “But 4G is a very complex technology, it’s very difficult to deploy.”

“We now have everything across the spectrum from 700MHz right up to 2600MHz, but it is very difficult to find an antenna that can transmit across all those frequencies.

“As a result you either go through the decision process of deploying dual antenna sub-systems on the current sites, or you wait to see if the technology overcomes some of the inefficiencies it’s experiencing at present.

“To be honest it’s a case of wait-and-see as I can’t offer a specific date by which we’ll deploy 700MHz but we have enough, it’s definitely on the roadmap. At the moment however 1800MHz is the prime area of focus.”

2Degrees in business…

Despite acknowledging that the business environment is a “difficult environment to work in”, Sherriff says 2Degrees’ focus on “entrepreneurial folks” is evident through the company’s currently advertising campaigns, such as Smart Business.

“We are in a single digit market share in the business environment at the moment but it’s an area we see significant growth in,” he adds. “We’ve got everything to win and others have everything to lose.

Sherriff, who replaced the late former CEO Eric Hertz last year, believes the days of viewing the mobile market as “one market” are gone, believing it to be a “false assumption” considering the difference the between prepaid, pay-monthly and business segments of the market.

“You have to look at these three markets independently,” he adds. “In the prepaid market we are number two in revenue and customers and we’ve made great inroads in the pay-monthly consumer with a double digit market share.

“We have got significant market share in pay-monthly also and it's probably fair to say we’re getting the lion’s share of additions on a monthly basis.”

In detailing the consumer pay-monthly and the embryonic stages of business pay-monthly, Sherriff says they remain the “two target areas at the moment” for the company.

But when examining the marketplace as a whole, the reality is, according to Sherriff, is that there are no greenfield customers anymore.

“Everything is about winning from someone else,” he explains. “To win from someone else you require two things – you have to prove that you can provide value for money, and that you have systems in place that can serve those customers, both from a customer care perspective and also having the relevant systems to deliver services, bundle them, present them with bills, etc.

“As a newcomer, there is a myth out there that we are unable to serve business customers. And it is a myth.

“Our challenge is to break down that myth and educate people in the business community that we’re capable of delivering to businesses. It’s a slow process at times which takes a bit of word of mouth but it remains an ongoing process for us.”

Role of the Wi-Fi…

“It’s an interesting idea,” mulls Sherriff, when discussing the role of Wi-Fi in the company’s strategy. “US mobile operators transport nearly 50 per cent of all their traffic across Wi-Fi but it’s easier in America because of the ubiquitous Wi-Fi across nationwide networks. We don’t have that luxury in New Zealand.”

Sherriff says the telco is currently undertaking a trial with CityLink in Wellington, studying various aspects of how Wi-Fi may or may not serve, both from capacity offload perspectives and a retail offering in conjunction with various bundles.

“We focus on two key elements,” he adds. “One is Wi-Fi offload and the signs are fairly encouraging but it’s a learning process. As you try to learn the benefits of one aspect you find a vagrancy that you need to overcome and then move onto. It’s fact-finding but it’s progressing and going to plan."

In New Zealand, Sherriff remains unwavering in his belief that there is “insufficient Wi-Fi” available for it to have a significant bearing on communications operators.

“There are a number of people willing to deploy national Wi-Fi and then sell wholesale perhaps,” he adds. “I have talked to a number of people who are willing and able to do that.

“Depending on the results of our trial with Citylink we will determine what our next steps are with Wi-Fi. It remains a work in progress.”

But in answering the question of Wi-Fi, Sherriff believes it goes back to the company’s systematic approach - refusing to “jump in at the deep end” without knowing how deep the water is.

“We like to gauge the benefits of everything,” he cautiously adds. “I’ve got a completely different structure to my competition, so I’ve got to be extremely prudent in every dollar I spend and every test I undergo to understand how I can best deploy that capital.”

Five years on…

While the telco has recently celebrated its fifth birthday, since launching across the country in 2009, the 2Degrees journey actually started during the late 1990s, under the stewardship of Bill Osborne.

Tasked with setting up the network in the 2100MHz spectrum, previously negotiated by the Maori community through the Waitangi Treaty, Osborne spent many years trying to recruit financial partners to help deploy the spectrum and build the network.

“There was a huge reluctance internationally to enter a project such as this,” recalls Sherriff, who remembers that the industry looked at the proposals and said:

There are 4.5 million people, quite a large landmass, it's difficult to build, it's already dominated by Telecom and Vodafone, and there's over a 100 per cent penetration through different technologies like CDMA and GSM.

Osborne however, along with Tex Edwards, encouraged investment from Zimbabwe-based company Econet, who subsequently embarked on the project.

After persuading both Communication Venture Partners (CVP) and General Enterprise Management Services (GEMS) to invest, Trilogy International Partners, of which Sherriff used to represent, carried out due diligence on the proposals before also investing in 2008.

“As you can see, the journey has not been for just five years,” he adds. “This has been a labour of love for many people.”

But such is the nature of Sherriff, who has continually dismissed the naysayers during his tenure as CEO, he remains focused on the future, not the murmurings of the past.

“There is no doubt that the environment has become more competitive,” he says. “There are three real players in the market now.

“The company has hit puberty and come out the other side. We have kind of grown up a little bit now but it’s still rather difficult to crystal ball gaze and determine what the future is going to be like.”

Alluding to the company’s 10-year plan, Sherriff also says the telco is also undergoing a three-year plan and today plan - the benefit?

“The benefit we have is our ‘to date’ plan is much more flexible than the competition,” he explains. “That is the only way you can build success.

“Rather than outline what the challenges will be, I would rather see to it that whatever the challenges are we have the organisational capability to be both proactive and reactive in any environment.”

Speaking as a veteran of the industry, Sherriff accepts there is always room for disruption and innovation. As technologies are developed, there is always something around the corner that’s going to surprise the market, but where 2Degrees remains strong however, is its knack for strategy.

“The key to our success has been understanding our capabilities,” concludes Sherriff, offering the clearest indication yet as to what 2Degrees represents as a company, and the journey they are embarking on.

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