O2 UK is still the leading service brand by share with 22 million paying customers, if Everything Everywhere is still regarded as two separate brands, CEO Ronan Dunne said today (11 November).
Speaking to Mobile on the day of its Q3 results (11 November), he said: ‘There has been a lot of noise about the changing shape of the market with Everything Everywhere, but we have concentrated on keeping our head down and making sure we don’t get distracted. We are concentrating on delivering the best customer service.’
The company’s Q3 mobile service revenue for the three months to the end of September was £1,426m, up 6.3% year on year and up 2.7% on the previous quarter. Profit margin declined from 26.4% to 25.3% quarter on quarter. Dunne commented that a 25% margin ‘feels like a sustainable level going forward’. By contrast, Everything Everywhere has said it hopes to reach that margin by 2015.
O2 saw its ARPU decline 2.7 % year on year over the first nine months of 2010, although if cuts in mobile termination rates (MTRs) are excluded it rose by 1.4%. Dunne said: ‘In voice everyone is seeing a decline, but data is growing, which is helping to offset the fall. MTRs are due to be cut again on 1 April 2011 and that will lose us multiple tens of millions.’
Dunne said O2 was seeing more data traffic from smartphones than mobile dongles or fixed line broadband. ‘Data is growing and attractive,’ he said, ‘but with the smartphone you get voice and data revenues, so that is more valuable. Some broadband customers don’t necessarily take voice and a sim from us.’
Despite the growth in data, Dunne said tariffs will need to be looked at further. ‘The principle has been largely established now that unlimited traffic is not sustainable (O2 introduced data caps on 1 October). The more you use the more you pay is the most equitable way of charging.
‘This may evolve into a pay per service tariff, such as you get with the Amazon Kindle. Amazon pays for the content data wholesale and the customer gets free downloads,’ said Dunne.
He added that data charging would probably evolve into a mix of tiered tariffs. However, when LTE arrives he said networks could look at a quality of service option. ‘For certain things customers may want more bandwidth, so they can buy access to that, but this is three years away.’
O2 grew its customer base with net additions of 352,000 in Q3 – 70% of those on contract. However, unlike the previous quarter where O2 lost prepay customers, in Q3 it added 115,000 thanks to successful marketing campaigns. ‘Over the last six months we introduced our Simplicity offering on prepay, so now customers on pre-pay don’t have to swap onto a contract to get the benefits,’ said Dunne.
O2 said it is still seeing strong demand for the iPhone, which remains its best selling device with well over three million sold. But it is growing its range of smartphones – for example, it launched the HTC HD 7 last month.
‘We have a bigger smartphone portfolio now and have targeted devices such as the Apple iPad, for which we are by far the biggest provider of Sims,’ said Dunne.
O2 is progressing with non-traditional revenue streams. Dunne said the company’s financial services offering had a bit of a hiatus when its partner RBS became a publicly owned bank. He expects ‘substantial progress in first half of 2011’ and much the same for near field communication (NFC) technology, where customers use their mobile phones to make payments.
‘We expect significant momentum by the middle of next year for NFC and point of sale and are preparing to maximise the benefits for ourselves and our customers,’ he said.
For full results, click here