Operator quarterly review


It was almost like a Brazilian flair attack come up against a classic Italian defensive wall, as contrary records for operator business were broken last quarter. Orange said it put through its best-ever score for contract additions in the fourth quarter of 2009 (266,000) and O2 shored up its rearguard to post the lowest contract churn the market has ever seen (one per cent per month in the quarter).

Just as the European Commission prepared to pass approval of the merger of Orange and T-Mobile in the UK, and pave the way for a new operator giant, the present market leader looked almost like it wanted the contest stopped early.

“If you put the Orange and T-Mobile together, they are the biggest in terms of numbers, but we still make more profit than those two businesses combined. And you know, if the music stopped now, that is what the market would show,” said Telefónica O2 UK chief executive Ronan Dunne (pictured bottom left).

“Orange and Vodafone are starting to make progress in the UK as we anticipated they would eventually. But we are still growing our market share over them.”

A T-Mobile operation redesigned under UK boss Richard Moat (bottom right), meanwhile, reckoned it had put through stonking prepay gains in the period (697,000) in an apparent show of short-term profit gain and a curious dovetailing with Orange. Its acquisitron costs were down annually (up quarterly, in line with busy Christmas trading activity), but its revenue and profitability has gone backwards in the year.

In all, it was the first time in two years O2 sounded at all distracted by the competition.

“Q4 trading was funny. I would suggest the prepay market did not actually grow by one million in the quarter. The trend in general is for a declining prepay market so I am surprised by the growth,” said Dunne. “Because one million net additions have come from somewhere and, I am not casting aspersions but, I would suggest that when there are £2.99 phones in supermarket channels, and handsets available at that kind of price, then a lot of people in Eastern Europe get a Christmas present.”

But Dunne could call upon another decent set of figures himself, and could run them into six consecutive quarters of business growth for O2 in the UK, against a backdrop of economic decline and market shrinkage. The UK industry peaked for profit four-and-a-half years ago.

O2 was the only operator to record growth in revenue (1.2 per cent) and profit (4.2 per cent) last quarter, as it has been for the past six.

It is taking customer share off most rivals at the same time – in a saturated market, 1.073 million subscribers joined O2 in 2009, compared with 1.062 million signing with its three main rivals combined.

Said Dunne: “It is a tough sector. But in the last quarter, again, we were the only operator to grow revenue and profit, and to take share off the others. We made 20 per cent more than Orange and T-Mobile did together in the last quarter, and eight per cent more than them in all 2009. We have 10 per cent better margin than them before the merger.”

Still, the performance of the top three UK operators showed a proper title race at last, with broader Apple iPhone distribution now the great leveller.

Orange UK chief Tom Alexander (top right) has momentum at last, and an easier incline. UK vice president of sales and loyalty Guillaume van Gaver remarked: “We have a more level playing field now. I know Orange France’s situation with iPhone exclusivity, and you get a strong market advantage with it as exclusive. The iPhone is roughly 40 per cent of O2’s performance (profit) during the past two years. The rest has been brought about by its hard work.”

But he suggested Orange’s iPhone gains were not coming at the expense of O2, as Vodafone has suggested in these pages previously.

“You know, customers are on 24 month contracts so the available market is not there. Taking into account that, and the fact O2 will have treated customers pretty well in advance of distribution opening up, then it is limited. Overall, our performance in Q4 has been a result of us getting momentum in all of the channels – retail, web, telesales, dealers and distributors. We have been strong and consistent.”

Dunne said: “We are selling more iPhones today than we did 12 months ago – and we are, generally in this market, the best for acquisition and retention anyway. I am sure lots of their customers waited for them to offer the device, and they have subsequently sold lots of iPhones into their bases. But this is not complacency; we have been planning for this for two years. Churn among iPhone customers is lower than among any other user group, and our churn is the lowest in the market.”

Orange ran Vodafone neck-and-neck in the quarter for second spot for UK customers, even if it is squarely in third place in revenue and profit terms.

Full article and results tables only in Mobile News issue 459 (March 15, 2010).

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