O2 lifts UK revenues guidance

Mobile phone group O2 today said UK revenues were growing at a faster rate than previously thought after it signed up 15 million customers for the first time.

The group reported “further rapid growth” in pre-pay deals and customers signing long-term contracts for its services in the three months to September 30.

This contributed to O2 raising expectations for revenues growth for the year to March 31 to between 6% and 9%, compared with its previous guidance of an improvement in the mid-single digits.

O2 claimed success in persuading users to switch from rival networks, while fewer of its existing customers were deserting its services than before.

Higher demand for voice calls and data such as text messages meant average revenues per user – the industry’s standard measure known as ARPU – was expected to rise in the first half on an underlying basis.

However, net revenues growth in the UK overall would be held back to the low single digits during the first half because of the impact of a 30% cut in termination rates.

Mobile phone operators in the UK were ordered to cut termination rates – the price that they charge each other and landline operators for putting callers through to their customers – by 30% in September last year.

Chief executive Peter Erskine said O2 continued to “perform well in a highly competitive market”.

O2 added that its success in growing its UK customer base from 14.6 million at the time of its last trading update in July had not come at the expense of profitability.

In terms of UK earnings before interest, tax, depreciation and amortisation, O2 continued to expect a full-year margin that was broadly stable with 2004 on a like-for-like basis.

Slough-based O2 said its growth in the UK was being mirrored in its other businesses in Ireland and in Germany, where it saw more demand for pre-pay and contract deals.

But investors also learned that investment in improving its network was now expected to be around £100m (€147.2m) higher than previously thought at between £1.4bn (€2.1bn) and £1.5bn (€2.2bn).

More money was being spent on providing Ambulance Trusts in England with a new digital radio network after O2 won a 13-year deal worth £390m (€574m) in July.

The mobile phone operator also expected similar deals for its Airwave service in Scotland and Wales in future.

Shares in O2 are close to an all-time high on the back of its strong growth and speculation of a takeover, with T-Mobile owner Deutsche Telekom and Dutch firm KPN having held talks over a bid alliance earlier this year.