The cost of turning its business around has hit O2, with the operator posting a slump in operating income of 33.2% to Eu334m.
The operator said 'a significant increase in commercial activity' led to its highest net contract gains since 2010, with total contract customers up 5% (223,000) to 11.15 million. However, sales fell 6% to €1.72bn for the three months to March 2012, which O2 said were hit by 'a difficult trading environment and regulation'. Removing the impact of changes to mobile termination rates (MTRs), revenues would have dropped 3% on 2011. O2 said its profits were hit by a surge in commercial costs of 25.2% to regain market momentum.
The operator said the business was focusing on retention and acquisition of high-value smartphone customers: 'The company's efforts in retaining the customer base have shown positive signs in contract churn which will translate into higher retained value going forward.'
Its total customers were up 0.2% to 22.3 million during the quarter. While contract customers increased by almost 5%, prepay customers were down 4.1%. Contract customers now comprise 50% of O2's base.
Smartphone penetration increased to 41% during the quarter, which led to an increase in non-SMS data revenues of 17.3% year on year. Four out of 5 new handsets sold during the first three months of 2012 were smartphones. However, service revenues fell 8.3% to €1.52bn. ARPU was down 8.1% to €24.20 on 2011, which O2 said was driven by operators moving to lower price points and 'optimising bundles', as well as MTRs. However, O2 said ARPU had improved on its last quarter, when it was down 9.5% year on year, which it claims was driven by its targeting of high value customers. Voice ARPU dropped 15.4% while data ARPU was up 1.3% year on year.
Contract churn was reduced to 1%, down 0.1 percentage points, which the operator said was driven by increased retention activity from smartphones and handset upgrades. However, total churn was up 0.2 percentage points to 3%.
O2 UK CEO Ronan Dunne said: 'These results show that we have taken the fight back to the market and regained commercial momentum.'
Editor: Graeme Neill