Telefonica O2 UK recorded its best ever third quarter with very strong net mobile customer additions of 401,778 (3.5 times the third quarter of 2007), taking the total mobile base to 19.1 million (excluding Tesco Mobile) representing growth of 6.6% year-on-year. Net mobile adds in the first nine months reached 697,501 (2.6 times higher year on year).
A total of 277,593 net contract customers were added in the quarter, a record high, which was 74.4% above the third quarter of 2007, driven by a strong performance across all segments, as well as market leading churn levels. After adding 621,574 contract customers in the first nine months (2.0 times higher than the same period last year), at the end of September contract customers made up 38.9% of the total base (36.5% in September 2007), reflecting the focus on higher value customers and prepay to contract migration, as well as the strength of propositions on contract. A new regional sales structure also helped to drive strong performance in the small business segment.
The number of prepay customers grew by 124,185 during the quarter (compared to a decline of 44,298 in the third quarter 2007) to reach a base of 11.6 million, driven by propositions such as “Unlimited” and newly launched “4 Free SIMs”, each with 500 free UK texts a month when the customer tops up 15 pounds a month.
Churn continued to improve, with contract churn falling to 1.3% in the quarter from 1.7% in the same period last year and 1.4% in the previous quarter, a record low reflecting market leading customer satisfaction (CSI) scores, strength of propositions, increased retention activity and total upgrades, which rose by over 17% year-on-year to September. Blended churn was 2.5% in the third quarter, from 3.0% in the third quarter of 2007, and 2.6% in the first nine months of the year (0.2 p.p. down year-on-year).
MoU growth in the quarter remained robust at 8.1% year-on-year, reaching 205 minutes in the nine months to September (+9.5% year-on-year), stimulated by customer propositions such as “Unlimited” offering free on net calls to prepay customers subject to a minimum monthly top-up, and better value tariffs such as Simplicity and unlimited on net bolt-ons for new and existing contract customers.
Telefonica O2 UK’s total ARPU in the third quarter was flat year on year in local currency, reflecting the change in the mix of the customer base offsetting the declines in contract and prepay ARPU and the continued growth in data ARPU, which in turn offset the decline in voice ARPU. In the first nine months of the year total ARPU reached 30.6 euros (+2.4% year-on-year growth in local currency).
Contract ARPU was 2.5% lower year-on-year in local currency in the third quarter, as a result of an increase in migrations from prepay, the increase in SIM-only customers and the continued optimizing behaviour of customers when using bundles, along with lower roaming out revenues following the introduction of new prices starting in July last year. Prepay ARPU fell by 3.9% in local currency in the third quarter, reflecting higher value customers taking one of the new prepay tariffs offering free allowances of minutes, texts or both depending on how much the customer tops up each month, along with migrations to contract.
Data ARPU was 8.9% higher year-on-year in local currency than the third quarter last year, mainly driven by a significant increase in usage of the mobile Internet, with growth in non-SMS revenues of 61.1% year-on-year in local currency in the third quarter. In the fourth quarter the HSDPA network will continue to be upgraded to 3.6 Mbps across its entire footprint and to 7.2 Mbps in hotspots. SMS growth continued, with text message volumes +44.7% year-on-year in the third quarter. In the first nine months of 2008 data ARPU grew 10.2% year-on-year in local currency to reach 10.4 euros.
Telefonica O2 UK’s DSL broadband service registered 72,870 net additions in the quarter (+16.0% vs. the previous quarter), and 196,381 in the first nine months, leaving the total broadband customer base at 267,090 at the end of September. In independent market surveys during the quarter O2 was rated as the delivering the fastest broadband and having the most satisfied customers, and a new fixed/mobile broadband bundle was recently launched.
Revenues in the third quarter grew by 8.7% year-on-year in local currency, a strong performance relative to the market. For the first nine months, revenues were 5,297 million euros, an increase of 10.7% year-on-year in local currency. In the current economic environment, mobile service revenue for the quarter maintained a robust growth rate of 9.6% year-on-year in local currency, mainly driven by continued customer growth and resilient ARPU. For the first nine months mobile service revenue totalled £3,812 million, an increase of 10.8% year-on-year in local currency.
Operating income before depreciation and amortization (OIBDA) for the quarter rose 5.5% year-on-year in local currency, reflecting the increased commercial activity, including retention spend, which drove strong customer net additions, along with additional DSL investment. For the first nine months OIBDA totalled 1,360 million euros, growth of 10.6% year-on-year in local currency (+9.5% on a like for like basis2). OIBDA margin was 26.5% in the quarter, compared to 27.3% in the same quarter in 2007 (stable quarter on quarter despite higher commercial activity) and for the first nine months margin was 25.7% (0.3 percentage points lower on a like for like basis).
CapEx for the January-September period amounted to 519 million euros, with Operating Cash Flow (OIBDA-CapEx) amounting to 841 million euros.
