O2's customer focus drives strong Q3 performance

Telefónica UK Limited (O2), the UK’s favourite network, today announces third quarter results for the three month period to 30 September 2018.

 Q3 2018 highlights

  • Continued customer growth with continued sector leading loyalty
    • 120,000 new contract customers
    • Market leading contract churn at 1.0 per cent
  • Total revenue growth of 7.9 per cent year on year, supported by nine consecutive quarters of Service Revenue growth
  • OIBDA expansion, up 9.8 per cent year on year
  • Continuing investment of over £2 million a day in award winning network

Mark Evans, CEO, Telefónica UK commented:
“We continue to put the customer at the heart of our business, delivering leading propositions and unique customer experiences, as demonstrated by the launch of our revolutionary O2 Custom Plans, exclusively available in our direct channels.  O2 Custom Plans offer customers real choice, by giving them control, flexibility and transparency, and once again has driven the O2 point of difference in the market.  Q3 saw us deliver strong commercial performance with continued growth in revenues and profitability as more customers chose to join us, stay with us and spend more with us”.

 “Our ongoing commitment to invest in our network includes enhancing 4G connectivity and preparing the ground for 5G.  As champions of Mobile we continue to build for the future, where Mobile is one of the most powerful opportunities to strengthen the UK economy and enrich our society”.

Operational highlights
In August, O2 launched Custom Plans, an innovative and market leading way for customers to pay for their devices, giving them the freedom to tailor an individual plan to suit their needs and lifestyle. The new plan empowers customers through flexibility as to how they pay for their handsets, be it paying for the device upfront or choosing how many months they want to spread the balance of their device over (from 3 to 36 months, all at 0% APR). Customers also have the flexibility to choose which airtime tariff suits them best. Despite only launching after the August bank holiday weekend, Custom Plans has delivered encouraging momentum since launch.

Custom Plans was accompanied by the launch of a bold, new strategic and creative direction for the iconic O2 brand.  The campaign, built on O2’s longstanding heritage of launching standout work, inspires the public to ‘breathe it all in’ while connecting them to experiences that make them feel alive.

In the B2B sector, SMB and Enterprise had a strong quarter, continuing to win new contracts and re-sign existing business.  In September, O2 Business held its inaugural Blue Door Conference at The O2, part of its strategy to engage with existing and prospective customers to drive forward the digital revolution.  The event attracted 400 businesses and 100 partners from across the public and private sectors and scale-ups.

Priority continues to reward customers with great offers, tickets and experiences, as well as access to the best in entertainment.  In addition, O2 recently launched a new loyalty programme to reward tenure through the Priority app.  The first wave of the new loyalty programme sent messages to millions of O2’s most loyal customers, who were able to claim a free gift.  During the quarter, Priority saved customers over £7 million in the quarter with around 12 million Priority offers accepted and prize draws entered. A Priority partnership with Netflix gave customers the chance to win tickets to see new episodes of Orange Is the New Black the night before they were released on Netflix, through an exclusive secret viewing party.

In September, O2 launched a first for music fans, giving them the ability to interact with a 3D video avatar of a music artist, captured using cutting edge volumetric technology. This augmented reality experience allowed fans to take selfies and videos with a virtual Michael Bublé on their smartphones.

In 5G, O2 is engaging directly with the UK’s leading businesses to explore the use cases and solutions that will be unlocked, consistent with its customer-led strategy.  As part of this, O2 is in the process of running a series of 5G business discovery workshops with over twenty organisations across the finance, retail, utilities and travel sectors.  In addition, in September, O2 successfully made the first data test call on its 5G testbed at The O2 using Mobile Edge Computing (MEC).  This paves the way for further tests at the venue to show the potential of 5G technology through a number of use case demonstrations, while at the same time gathering critical feedback for future development.

Financial highlights
All financials reported using the new IFRS 15 reporting standards with year on year movements on a like for like basis

Telefónica UK’s total mobile connections (including customers who use the O2 network through Tesco Mobile, Sky Mobile and Lycamobile) was 32.3 million maintaining Telefónica UK’s position as the largest UK mobile network carrier.

The company’s contract base increased by 1.9% year on year with net additions for the quarter of 120,000 (excluding M2M). The contract customer base now accounts for 65 per cent of the total mobile base (+2 percentage points year-on-year).  Active Prepay customers grew by 37,000 during the period.

The company maintained its sector leading levels of loyalty with churn at just 1.0% (excluding M2M).

Total revenue reached £1,535 million for the quarter, +7.9 per cent year on year, on the back of higher handset revenues, stronger mobile service revenue trends and continuing growth in ICT. Mobile service revenue grew +3.6 per cent year-on-year driven by higher subscription revenues as customers choose larger data bundles and further MVNO growth.

OIBDA reached £414 million, up 9.8 per cent year on year, partially supported by a reduction in Annual Licence Fee payments and a commercial settlement. OIBDA margin for the period was therefore 26.9 per cent.

CapEx was £192 million in the period as Telefonica UK continued to enhance its network for customers, extend 4G coverage while preparing the way for 5G.

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