The second quarter of trading saw the big three operators all post lower revenues than the previous quarter, with only Vodafone showing growth of 1.5% on Q2 2010 while Everything Everywhere was down 2.6% and O2 dropped 4.3%.
The steep cuts in MTRs (mobile termination rates) introduced in April had a major affect on revenue, profit and ARPU on contract. If MTRs are taken out of the equation then Vodafone showed the best underlying growth of 5.1%, followed by Everything Everywhere with 2% and O2 at just 0.3%.
Shaun Collins, CEO of analyst CCS Insight said: ‘It’s been a very tough first half of the year. Trading generally has been under pressure and that is largely to do with the economic conditions in the UK. The high street has been very quiet. Operators are trying to trade their way to better results and are having mixed fortunes. The second half of the year may look brighter, but the impact of MTR cuts will continue to hit revenues.’
Collins added that Everything Everywhere’s results were better than anticipated. ‘It has turned the corner in the contract space by making T-Mobile propositions in particular more attractive. Orange and T-Mobile are choosing to be as competitive as O2 was in the past.’
His view was backed by other analysts such as Bank of America and Merrill Lynch, which commented: ‘The UK JV [joint venture] reported a decent set of Q2 results. Top-line and EBITDA figures are reassuring…we would note that underlying service revenue growth (ex-MTR) improved from +1.6% (Q1) to +2.0%.’
All the operators saw their customer base cut with Vodafone losing 139,000, O2 140,400 and Everything Everywhere 188,000. The prepay base was heavily reduced with Everything Everywhere losing 412,000, Vodafone 206,000 and O2 168,000. Everything Everywhere’s losses are startling, but it was quick to point out that it has roughly twice as many pay-as-you-go customers compared with Vodafone and lost 2.9% of its base as opposed to Vodafone’s loss of 4.4%. Vodafone’s prepay churn was an eyebrow raising 65%, while Everything Everywhere’s was 44.6%.
Some of the losses were offset by customers migrating to contract. But this does not explain the disappearance of all the prepay customers. Various explanations are being offered to justify the decline, such as customers reducing the number of devices they run, disconnecting old numbers and the crack down on box breaking.
Vodafone and Everything Everywhere have certainly looked to move customers onto contracts. Everything Everywhere had a particularly good quarter, adding 236,000, while Vodafone signed up 206,000. O2, meanwhile, produced its worst result for many years with just 24,700.
Collins observed: ‘O2’s results smack to me of a withdrawal from the volume market, which it said it would do. It is saving itself for a push around new devices at the end of Q3 and in Q4. This year will be unusual for O2 because it has a number of iPhone 3GS customers who came out of contract in June, July and August who will be waiting for the iPhone 5.
‘But with the iPhone 5 launch being delayed by three months they will have to wait. This particularly affects O2 because it had the original iPhone before anyone else. Orange got it in November, for example. So, I think O2 is keeping its subscriber acquisition budget for the iPhone 5 launch, so it may have withheld that budget in Q2 for the second half of the year. The new BlackBerry devices will also be available then.’
He added: ‘Conversely, Vodafone has continued to be aggressive in the last three quarters and their share has increased, especially in the reseller market at places like Carphone Warehouse. Three has been very competitive for data with its unlimited offering. You can judge its success by the fact that T-Mobile has responded by also offering unlimited data for a period.’
Anecdotal evidence suggests that Three is picking up customers from all the big networks – especially while O2 keeps out of the market for the short-term –thanks to its ‘all-you-can-eat’ data proposition. The consensus view is that Three seems to be doing well in the £25-£35 per month tier.
Looking ahead to the second half of the year, Collins said: ‘The thing that will shape contracts over the next six months is new devices, and the thing that will shape prepay in terms of volume and activity is how operators respond to MTR cuts. NFC won’t shape the market this year.’