O2 UK

Performance highlights for quarter ended 31 December 2007

• O2 UK total revenue grew by 7.8 % in the fourth quarter and by 18.7% for the full year
• O2 UK blended ARPU £24.0 (Q3 2007: £24.3; Q4 2006: £23.0)
• OBIDA margin for the 3 months to 31 December 2007 was 26.8% compared to 30.3% in the same quarter in 2006.
• A total of 483,000 net new customers were added in the quarter, taking the base to 18.4 million (excl. Tesco Mobile customer base)

* Comparative period for FY'07 is 11 months to 31 December 2006. Fourth quarter comparative period is 3 months to 31 December '06.

O2 UK fourth quarter operating review
Download full set of financial data

O2 UK business highlights

Leading technology
As part of our on-going investment in service capability, we rolled out our 3G network in the UK, launching initial services to business customers in October 2004 and consumers in February 2005. Our approach to 3G is an evolution of our successful data services strategy. Because it offers faster speeds, 3G allows customers to enjoy richer entertainment content and new interactive services. As 3G is a new technology, we believe services will initially appeal to early adopters, building towards mass-market adoption.

Accolades for O2 Broadband in the UK
Since launch on 3 October 2007, O2 UK's broadband service has been rated above the major ISPs in the monthly thinkbroadband.com ISP comparison. The poll measures key satisfaction areas for customers, including speed, reliability and customer service, asking users to score each provider. O2 Broadband scored the highest out of all its main competitors in each of the three categories.  In a separate survey conducted by Intrepid Research, 81% of customers questioned were very satisfied with the O2 service and likely to recommend it to their friends. To date O2 broadband has 100,000 customers and with a highly successful product will launch a major national advertising campaign in the second quarter of 2008.

iPhone success
The iPhone is the fastest-ever selling product for O2 UK. It has generated high levels of interest in the UK market, with footfall in O2 retail stores and visitors to our online shop at record levels, resulting in a very strong quarter for the retail business, despite a slowdown on the high street. The ARPU of an iPhone customer is 30% higher than an average postpay user, and it has helped O2 UK to gain high value customers in the market - approx. 60% of iPhone customers have migrated from other networks. Customer satisfaction levels are the highest of any device that O2 UK has sold, with the lowest ever rate of return.

From 1 February, the three iPhone tariffs were upgraded as part of O2 UK's new and improved postpay tariff structure, with customers on the £35 and £45 tariffs given more minutes and texts, and a new £75 tariff introduced with 3000 minutes and 500 texts a month. All iPhone customers will continue to receive unlimited data browsing and access to The Cloud's Wi-Fi hotspots. Existing customers will automatically be upgraded to these new tariffs.

Strengthening business customer relationships
In the business market, we continue to grow our direct sales force and introduce new pricing and service propositions for our customers. These initiatives help us acquire many new corporate customers such as Network Rail as well as growing business with customers including Merrill Lynch, the AA and the Royal Bank of Scotland.  

Taking care of customers
The cornerstone of our strategy going forward is simple - to attract and retain high-value customers by giving them the best possible experience, and putting them 'at the heart of everything we do'. This will be achieved through, among other things, further improvements in service quality, the launch of innovative new services and loyalty programmes, significant investment in customer service and CRM, and continued development of the O2 brand.

The O2 - becomes the world's most popular venue
In June 2007, The O2 opened in London's docklands.  A result of partnership between AEG and O2, The O2 has transformed the former Millennium Dome and the surrounding area into the UK's most exciting and technically advanced music, sport and entertainment destination.

The centrepiece of the multi-million pound development is an indoor arena for over 20,000 fans that will host over 150 world-class music, entertainment and sport events in its first year of opening.

There is also a live music venue - indigO2 - with a capacity of over 2,300, a world-class exhibition space that will host the Tutankhamen exhibition from November 2007, an eleven-screen state-ofthe-art cinema complex, and a vibrant 'Entertainment Avenue' featuring a variety of bars, restaurants, and leisure facilities. The O2 is one of the official venues for the London 2012 Olympics, hosting both the gymnastic and basketball finals.

The O2 will bring a selection of benefits to O2 customers. There will be access to exclusive pre-sale tickets and exclusive music content. At the venue O2 customers will have the chance to upgrade their seats, and get fast track entry through special "blue lanes" and access the blueroom bar for a true VIP experience. The O2 is an integral part of O2's strategy to deliver a great customer experience, and differentiate ourselves from the rest of the market.

The O2 is managed by AEG one of the leading providers of live entertainment and sporting events in the world.

Differentiating our brand
The distinctive appeal of our brand and market propositions - aided by our sponsorship of The O2, the England rugby team, Arsenal football club and a host of music events including the Wireless Festivals - continue to help us differentiate against our competitors.

Extending our reach
Tesco Mobile, our 50/50 joint venture with Tesco, has shown sustained growth. Tesco Mobile addresses sections of the family market not currently targeted by O2 through Tesco's nationwide network of supermarkets and smaller "Metro" shops. By December 2006, it had attracted more than a million customers.

Looking ahead
In 2008, we expect competition to be increasingly competitive. Whilst it is too soon to say we are immune to any slowdown in the global economy, we are currently seeing no evidence of a decrease in our customers spend and the mobile is an indispensable part of many customers lives.

However, with the continuing growth of Non-SMS data, fuelled by the introduction of the Apple iPhone, we expect this growth trend to continue throughout 2008.
 
For further information regarding O2 UK and our products and services, please visit:
http://www.o2.co.uk/