THE CLIENT CATALYST: Peter Erskine - O2's chief executive is not scared to take tough advertising decisions even if it does hurt old friends, John Tylee writes

Needs must when the devil drives and Peter Erskine, the man charged with overseeing the transformation of O2 from sickly infant to the healthiest kid on the telecoms block, must often wonder if a mischief-making Lucifer is sitting on his shoulder.

A share price that has plumbed the depths, an £873 million loss in its first set of results, 1,400 redundancies, a German operation that has been haemorrhaging money and a future whose success depends on a new generation of mobile phones for which consumer demand is, to say the least, unproven.

If that's not enough, the mobile market is suffering a catastrophic time - Vodafone's recent £13.5 billion loss was the biggest in UK corporate history. Not only has it lost the confidence of investors worried about its debt burden and how much was paid for the third generation of licences, but growth in subscribers is slowing. Some analysts even suggested O2 wouldn't survive its first year with its independence intact.

Small wonder that Erskine has had to cast old loyalties and personal passions aside in favour of more pragmatic considerations. Despite being a lifelong Spurs supporter, he has had no qualms about agreeing a shirt sponsorship deal with Arsenal, the club's deadliest rival.

Why? Because Arsenal is a big club with European aspirations which match perfectly those of the O2 brand, while Spurs languish in Premiership limbo-land. Don't tell the Spurs faithful, but he's even been chatting to Sol Campbell, the former White Hart Lane skipper whose defection to Highbury was deemed so treacherous that disgusted Spurs supporters burned effigies of him along Tottenham High Road.

Nor do long-standing friendships seem to have counted for much. Earlier this year Abbott Mead Vickers BBDO, having failed to crack O2's launch brief to the satisfaction of Erskine's marketing team, was fired from the £45 million account in favour of the untried start-up Vallance Carruthers Coleman Priest.

No matter that Erskine and Michael Baulk, the AMV chairman, had a long and close professional relationship stretching back to Erskine's time as the managing director of BT's mobile division. Indeed, the pair were invariably to be found having a pre-match lunch together in Stamford Bridge's Galleria before the annual Chelsea v Spurs clash.

If the decision flabbergasted adland, the reaction at AMV could be described as stunned incomprehension. "The agency couldn't believe what was happening to it, one industry source says. "It was a big body blow."

Publicly, AMV has maintained a dignified silence. Privately, Baulk was incandescent, having spent weeks trying to reconcile two clients - BT and O2 - which had been turned into competitors since their demerger and convincing O2 executives of BBDO's ability to service the account across Europe.

Lives: Shiplake, near Henley-on-Thames, Oxfordshire
Drives: Mercedes 320S
Family: Wife Jan, three sons and a daughter
Relaxing: Watching Spurs occasionally. Theatre and cinema. Chilling out
with family and friends. Playing golf badly.
Reading: Detective novels. Anything by Elizabeth George.
Favourite TV: The News, Bad Girls.
Favourite ad: "I've always loved the Heineken work and Budweiser's
'Whassup?' campaign."
Dream job: "This one. It has lots of challenges and it's great heading
one of the newest companies in the FTSE."
Insiders say the strength of the Erskine/Baulk alliance was enough to stave off the threat of a pitch last autumn. But, as AMV continued to struggle with the brief, VCCP grabbed the spoils in a classic "sting".

Erskine accepts his staff's view that VCCP had not only come up with a creative idea which brought O2 to life, but also that its founders' previous experience on both Orange and Vodafone minimised any risk in giving them the business. "I'm a marketer by training and I'm always prepared to give a view, he says. "But I'll never intervene."

He justifies the decision to move out of AMV by citing what he claims have been his company's exceptional requirements. "O2 is more than just another brand, he insists. "We're changing our internal culture and putting our customers at the centre of what we do. It means we have to be very clever in our communication."

Nevertheless, it's clear his diplomacy masks what was a painful parting.

"It was my call and it was a difficult one, he admits. "Michael has given us great service and has been a great colleague over the years. He took it very professionally. Will Erskine ever be invited to a Galleria lunch again? "I hope so, he smiles. "Probably I will."

He may be right. "Baulk was very disappointed with the way the O2 people handled this, an agency source acknowledges. "But he remains on good terms with Erskine and understands his need to support his team. Our strategy is to behave properly because he might just want us again."

Meanwhile, Erskine has other fish to fry and his evangelical zeal seems out of keeping with the sterile charmlessness of the business park on the outskirts of Slough from which he must create an international brand out of a disparate collection of companies in the UK, Germany, Holland and Ireland.

Described as open, intelligent, honest and bullshit-free, Erskine recognises that O2's brand image can't be successfully communicated without a workforce united by a common purpose. He hopes that O2's 15,000 staff will act as a potent advertising force of their own in extending O2's 17.25 million customer base. "We want them to live the brand and its values, he says.

There's no mistaking what the corporate aims are. They are writ large in the company's new blue and white livery and they greet every visitor who passes through its reception area.

Its mission: "To be the essential wireless brand by enriching people's lives whatever they are doing, wherever they are."

Its vision: "To build an inseparable relationship with our customers by understanding their needs and delivering wireless solutions that they truly value."

Behind the bold words, however, lies a monumental task that will take all Erskine's team-building, strength of character and knowledge accumulated when reading for his psychology degree to complete.

Certainly, O2 is being built very much in the mould of its 51-year-old chief executive: jargon-free, relaxed, with a name deliberately chosen to distance itself from technology-heavy forebears, such as BT Cellnet, and an enabling philosophy encapsulated in its advertising slogan: "See what you can do."

Just what O2 can do is a moot point. The ad strategy is defined by the need to get the brand recognised - and quickly. Hence the sheer ubiquity of the work. "The idea is to make it look good and make it exciting, an industry source says. Not least because O2 has already been disadvantaged by its late entry into the game, coming into existence only in May last year as a result of a demerger of BT's controlled mobile business.

To add to Erskine's woes, he must take on established brands, such as Vodafone and Orange, with troubled components which have to coalesce into an international brand. Germany's Viag Interkom has gained only a tiny market share while leaking cash. In the three months to the end of June last year Viag and Telefort Mobiel, O2's Dutch operation, together lost £154 million.

Erskine's strategy is to steal a march on its rivals by exploiting O2's lead in mobile data services - online shopping, downloading video clips, texting pictures and enabling subscribers to send e-mails while on the move. Using its Isle of Man operation as a testbed, O2's aim is partly to grow market share while squeezing more out of high-value users. The high use of such services by the business market is a strong indication of its potential, Erskine says.

That's all well and good, but what makes O2 believe technology-saturated consumers will actually demand the services in which the company is investing £8.3 billion over five years?

You can't sell people what they don't want, Erskine admits, but you can promote the techology's obvious advantages in saving time and hassle - like not having to mess around plugging in your laptop to pick up your e-mails. "We aren't naive - but the indications are that demand will be very strong, he says.

Kent Thexton, O2's chief marketing and data officer, believes demand will expand alongside the technology and draws an analogy with what happened a decade ago when people were seriously questioning whether you needed a mobile phone for business. He claims people have lost their fear of technology and, having done so, will then give short shrift to those companies which try to patronise them about it.

Erskine's perpetual optimism turns every apparent problem into an opportunity.

If he believes his job to be a poisoned chalice he doesn't show it. "We don't feel like a troubled company and we're making real progress in the market. Sure the share price has been bumping along the bottom - but so has that of every other telecoms company and it will bounce back."

O2 is fundamentally healthy with a strong balance sheet. What's more, it has total ownership of its operations, enabling economies of scale to be made and profits to be delivered as a single business. And it has expertise in mobile data services its competitors have been unable to match.

"There's a freshness about the business which has a good combination of experience and energy, Erskine says. Cellnet has the technological heritage while Ireland is "going a storm". And Germany? "We've put in new management and it's progressing. It's a tough market - but also a very large one."

The source of Erskine's irrepressible enthusiasm is hard to trace. His father was an executive at Tate & Lyle, where he worked for 45 years.

Erskine junior went to a minor public school in Essex before heading for Liverpool University. His first job was in Polycell's marketing department, but his defining period seems to have been the decade spent running a vending machine business for Mars. It was there, he says, that he learned the importance of openness, honesty, the need to be receptive to criticism and, above all, the need to be ethical. These values guided him throughout various senior management roles at BT, which he joined in 1993, and they have become his creed at O2.

Ask him what he hopes will be the legacy he eventually leaves behind him at the company and he responds that he will be judged not on how O2 started but where it finishes - well respected within the telecoms industry and delivering what its customers want.

People who know him say Erskine's gung-ho style belies a tough and unpretentious attitude and that he will not shy away from the difficult decisions needing to be made to achieve that goal.

Clearly it would be foolish to write off Erskine's chances at this stage in the game. There's an obvious parallel to be drawn with Orange, which had its sceptics falling about when it was adopted as the new name for Hutchison Microtel in 1994.

It went on to create one of the most powerful images in the mobile market and to overtake BT Cellnet, despite having been launched years afterwards.

Erskine sees a similar future for the O2 name. "It emerged miles ahead of any other name we researched, he says. Just as well really since the company had to pay nothing for the rights and nobody needed to be taught how to spell it!

Just another example of Erskine's pragmatic brand of enthusiasm. "He makes lots of things happen, an associate comments. "I wouldn't bet against him having the last laugh."

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