Telefónica O2 Ireland operating review

Telefonica O2 Ireland recorded net additions of 25,547 in the third quarter (1,027 in the third quarter 2007 and 24,620 in the previous quarter) to total 66,972 net additions in the nine months. The total customer base stood at 1.7 million at the end of September, 4.9% higher than a year ago, while the number of mobile broadband customers stood at 68,109.

Telefonica O2 Ireland added 37,956 contract customers in the third quarter, 81.6% higher than the same quarter last year, and more than double the number of the previous quarter, to add 75,351 customers in the first nine months of the year (+55.1% year-on-year) driven by the success of the new O2 Clear tariffs and the continued momentum in mobile broadband. At the end of the quarter the contract base totalled 630,578, making up 36.8% of the total base vs. 32.7% in September 2007.

The prepay customer base declined by 12,409 customers in the quarter, a significant improvement over the third quarter last year (-19,874) driven by cross net text and on net voice and text offers. As a result, prepay net adds for the first nine months were -8,379 customers, with the base reaching 1.1 million at the end of September (-1.5% year-on-year).

Churn was broadly stable quarter on quarter and reached 2.8% in the first nine months of 2008 (+0.3 p.p year-on-year).

MoU fell 0.2% year-on-year in the first nine months to 246 minutes, with a decline of 1.4% in the quarter, on the back of contract customers optimising their usage, particularly in the SME segment and limited voice to text substitution on prepay.

Total ARPU in the third quarter was 7.1% lower than in the same period last year to reach 43.4 euros in the nine moths to September (-5.5% year-on-year). Prepay ARPU declined 5.0% year-on year in the third quarter and 6.7% in the first nine months of the year. Contract ARPU in the third quarter was 15.0% lower than the same period (-11.7% to September 2008) due to the introduction of new customer offers and promotions.

Data ARPU in the third quarter was 8.5% lower than the same period last year and 5.7% lower compared with the first nine months of 2007, driven by customer promotions offering unlimited SMS as part of the new better value “Experience” tariffs (SMS volumes +29.3% year-on-year up to September) to reach 10.8 euros, while non-SMS revenues grew by 27.1% year-on-year in the first nine months on the back of the growing mobile broadband base.

Revenues in the third quarter improved slightly versus the first half of the year, showing a decrease of 3.4% compared to the same period last year. For the first nine months revenues were 714 million euros, a decline of 3.5% compared to last year, due to the lower prepay base and re-fresh of the tariff portfolio to enhance competitiveness, offsetting the growth in the contract base. Mobile service revenue for the quarter decreased 3.4% compared to the same period last year, while for the first nine months declined 3.0% year-on-year to reach 682 million euros.

Operating income before depreciation and amortization (OIBDA) for the third quarter decreased 13.0% year-on-year due to lower revenues and increased investment to regain momentum in the market. For the first nine months OIBDA was 228 million euros, 10.1% lower than the same period last year (-11.1% like for like4). OIBDA margin in the third quarter was 31.7%, while for the year to September it was 31.9%.

CapEx for the year to date totalled 53 million euros and operating cash flow (OIBDA-CapEx) amounted to 174 million euros.