O2 will not embark on a price war to win new customers as its UK CEO revealed it would take several quarters for its recovery strategy to bear fruit.
Ronan Dunne was speaking after the operator reported a slump in operating income of 33.2% to €334m for the three months to the end of March 2012. It blamed ‘a difficult trading environment and regulation’ for sales falling 6% to E1.72bn. However, stripping out the effects of changes to mobile termination rates (MTRs) revised the fall in revenue to 3%.
Operating income was hit by a 25.2% increase in commercial costs to turn the business around. Dunne told Mobile there were ‘early shoots’ of its turnaround strategy working in its previous quarter. O2 is targeting high-value smartphone customers as part of the strategy, but Dunne said the business was currently being hit by larger upfront acquisition costs, which will pay off later in the financial year. He added: ‘As we have only started our recovery, the growth emphasis will be more on investing and then we will see the benefit of the business coming through at the back end of the year.’
Dunne said one sign that the strategy was beginning to work was in its net contract gains. The operator acquired 223,000 customers during the quarter, its highest figure since 2010. Dunne told Mobile this was more gains than the business made in the whole of last year.
He accepted revenue growth was ‘tough’ but said its failure to sufficiently grow the business during the past 18 months was to blame for its current woes. Dunne said: ‘It will take a few quarters to roll the effects of that back out. We have made progress over the balance of the year and we will get back in line.’
He refused to say when it would arrest falling profits but confirmed the business would continue to invest in areas where there was value. He cited its recent O2 Wallet mobile payments offer and its roaming calls and data service O2 Travel as two examples. He said: ‘If there are opportunities to grow without taking value out of the market, we will do that. I’ve no desire to drag the market down. I’m not looking to disrupt the market or create a price war. Our focus is not just on tariffing but providing other services, which add a value component.’
O2 in figures
Total customers Up 0.2% to 22.3 million
Contract customers +5%
Prepay customers -4.1%
ARPU Down 8.1% to E24.20
Voice ARPU -15.4%
Data ARPU +1.3%
Contract churn Down 0.1% to 1%
Total churn +0.2% to 3%