O2 spends big to keep customers on smartphone contracts

O2 spends big to keep customers on smartphone contracts

Sales at O2 fell during 2011 as it spent big to keep customers on long-term smartphone contracts.

In parent company Telefónica's full year results, it said the UK market remained 'intensely competitive amidst a challenging economy'.

O2 said it had 175,000 new contract additions in the fourth quarter, up 93% on Q3, which it said was because of new smartphone devices and tariffs. Contract customers were up 4% during 2011 and accounts for 49% of O2's 22.1 million total base. Total customers were broadly flat year on year. The operator said it focused on retention of its 'high-value' customer base as they came out of contracts. It said: 'This lead to an increased commercial spend but Telefónica UK benefits from maintaining these valuable customers on long-term contracts.'

Smartphone penetration was 38% by the end of 2011 compared to 29% in 2010 and 36% by the end of the third quarter. It said more than 95% of new handset sales to contract customers during the fourth quarter were smartphones.

Mobile service revenues were down 3.7% to 6.20bn, down 3.7% on 2010. However, it had a weak fourth quarter with mobile revenues down 8.7%, which it blamed on slower growth of its customer base. If mobile termination rate (MTR) changes are stripped out, mobile service revenues declined 0.4% year on year and by 4.8% in the fourth quarter.

Operating income before depreciation and amortisation was 1.84bn, down 2.3% in organic terms. However, stripping out a 2010 restructuring expense of 72m, OIBDA grew by 1.5%.

ARPU (average revenue per user) was down 6.6% year on year to 22.90 and slumped 9.5% during the fourth quarter. Stripping out MTR changes, it would have been down 3.5% in 2011 and 5.6% during Q4. Voice ARPU was hit the most, down 14.6% during 2011 and 17.7% in the fourth quarter. Excluding regulation, it declined 9.2% on 2010. O2 blamed this decline on tariff price reductions amid 'adverse conditions' and better use of bundles.

Prepay took the heaviest hit in ARPU, down 15.8% to 10.10 although contract ARPU was down 9.7% to 36.20.

Data ARPU had steadier growth of 5.1% to 10.70 during 2011 and was up 2.2% during Q4. Data growth was lead by non-SMS data revenues, up 33.1% because of the popularity of both smartphones tiered data packages. Total data revenue was up 7.9% on 2010 and up 3.1% during the fourth quarter. It now accounts for 45% of mobile service revenues, up almost 10% on the previous year.

Churn increased 0.4 percentage points to 3.1%.

Telefónica UK CEO Ronan Dunne said: 'Against a backdrop of difficult economic conditions we remain firmly committed to our strategy which quite simply is about building a business for the future that goes way beyond our core mobile services. This is coupled with placing huge focus on looking after our existing customers with genuine, long-term value and experiences they won’t find elsewhere.'

Written by Mobile Today
Mobile Today

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