O2 UK delivered a strong performance in 2010, with revenue growth accelerating in Q4 to 9% year-on-year to reach £6,176m.
However, O2's ongoing restructuring, which has seen staff cuts and store closures, saw its operating income fall 3.8% year-on-year in Q4. The cost of the restructuring was recorded at £61.7m in the fourth quarter.
The results are revealed in Telefonica's yearly results, out today.
The operator's strong revenue growth was attributed to customers upgrading to smartphones and the growth of mobile broadband and demand for mobile data.
O2 said its decision to introduce data caps in Q4 and the introduction of O2 Media and O2 Money had helped it monetise mobile data.
O2's total mobile customer base (excluding Tesco Mobile) grew to 22.2 million by the year end, driven by vigorous growth of the operator's contract customer base. Customer numbers overall reached 22.2 million by the year end, up 4.3% year-on-year.
However, the strongest growth came in contract customer numbers, driven by smartphone adoption, which soared to 9.8% year-on-year, representing 47% of the customer base by the end of 2010. Mobile net additions stood at 912,000 in 2010, with 254,000 in Q4.
O2 claimed to continue to lead the market on contract churn, which stands at 1.1% for the whole year.
Mobile traffic volume in the UK grew by 8% year-on-year to 58,143 million minutes in 2010 up 6.3% in Q4, which O2 attributed to the higher contract base and increased usage per customer in the prepay segment.
However, total ARPU for the year was down 2.1% over the year to £21.5, impacted by mobile termination rate cuts. But taking MTR rate cuts out, O2 said ARPU would increase 1.2% year-on-year in 2010 and showed signs of improving in Q4 with a rise of 0.5%.
Voice ARPU continued to decline 6.5% from 2009 to £12.86. However, data ARPU continued to increase, driven by the increased demand for data from smartphone users, rising by 5.3% over the year to £8.65 and by 4.3% in Q4.
O2's retail broadband internet access also showed strong growth to 0.7 million lines by December 2010 - a 13.5% increase from 2009.
Revenue growth accelerated in Q4 to 9% from 2009, up from 8.5% year-on-year in Q3 and 6% in Q2, reaching £6,176m in 2010. This strong performance was attributed to mobile service revenue growth and rising smartphone sales.
Mobile service revenues stood at £5,584m in 2010, increasing 5.6% on 2009, ramping up to 7.9% in the fourth quarter.
Non-P2P SMS data revenue also delivered strong growth of 31.7% in 2010. As a result total data revenues as a proportion of mobile service revenues stood at 40% overall.
Telefonica said O2's operating income before depreciation and amortisation ( OIBDA) increased in the year to £1,569m in 2010 and, excluding the restructuring costs, reached 7.2% year-on-year and 11% in Q4.
CapEx increased 14.7% year-on-year in local currency. O2 pointed to its enhancement programme of its mobile network capacity and coverage, including the recent refarming of the 900MHz spectrum, as key drivers.
Operating cash flow reached £954m in 2010.
Matthew Key, chairman and chief executive of Telefonica Europe said: ' Strong results in a highly competitive environment from O2 were underpinned by the growth of mobile broadband and customers upgrading to smartphones, which now account for 70% of new contracts.'