O2 at a glance

Telefónica Europe plc

We provide integrated mobile, fixed and broadband services in the UK, Ireland, Germany, the Czech Republic and Slovakia. Together, we’re Telefónica Europe, but customers know us as O2.

Telefónica Europe also owns 50% of the Tesco Mobile joint venture business in the UK and Ireland, as well as, the Tchibo Mobilfunk joint venture in Germany. In addition, the group includes the Isle of Man fixed/mobile operator, Manx Telecom.

We now have 49.2 million mobile, fixed and broadband customers across Europe and 29,000 employees across the Group.

Telefónica Europe plc reported a strong performance in 2009, despite a worse economic environment and changing patterns in customer behaviour; reporting revenues at the year end (31 December 2009) of €13.533 billion.

We recorded impressive results for the full year in spite of extremely difficult economic conditions and a highly competitive market.  We saw positive progress in our key markets where, again, we outperformed our competitors - delivering accelerated growth and increased profitability. More customers are now coming to O2 for products like mobile broadband, fixed line telephony and broadband, as well as new services such as O2 Money in the UK. We are delighted to have just been ranked as the best large company to work for in Germany, the second-best employer in Ireland and in the top 25 places to work in the UK.

As we look forward to 2010, we plan to continue to outgrow the market. There are three clear trends driving our success. The age of the mobile internet has now truly arrived and our position as the home of the smartphone has put us at the head of the pack. In the UK, our churn level is at a record low, with more customers staying with us longer than any operator in UK history. At the same time, the transformation of our German business has driven clear market outperformance and the company now has real momentum. Overall, we have seen stronger revenue growth over the past two quarters, as a result of both our increasing customer share and improving ARPU trends due to the accelerating take up of mobile data.

Performance highlights for the full year 2009

In the United Kingdom, Telefónica O2 UK defied a shrinking market, reporting strong financial results and gaining share in 2009 through a consistent approach to our core mobile business while expanding into new areas. This positive evolution was mainly due to our unwavering commitment to putting our customers at the heart of everything we do - reflected in our industry-leading rates of churn. Increased commercial activity on a wide range of devices, with a particular focus on smartphones, was also a significant driver of growth in the year. In 2009 we sold our two millionth iPhone in the UK, which continues to sell extremely well along with our wide range of other smartphones. Data revenues increased 52 per cent year-on-year in local currency, with the strong contribution from mobile internet user growth. Our total mobile customer base was up 5.1 per cent to 21.3 million (excluding Tesco Mobile) at the end of December. The contract segment continues to drive growth, with 1.1 million additional customers in 2009, and it now makes up nearly half of our total customer base.

Telefónica O2 Germany significantly improved its business in 2009, fuelling profitable growth through a best-in-class network and improved distribution franchise that helped it to outperform in a very competitive market. Operating revenue and OIBDA continued to grow strongly. The company added 1.5 million net mobile customers in the year, bringing the total mobile base to 15.5 million. Contract customers accounted for 48.4 per cent of this growth, increasing by nearly 735,000 in the year to reach 7.7 million customers. Net additions of 260,000 in the fourth quarter was triple the number in the same period of 2008, driven mainly by the success of innovative propositions such as O2o and My Handy. Partner channels also contributed positively to customer growth, highlighting the good performance of the Fonic brand. The acquisition of HanseNet positions the business for further strong growth in the broadband market.

Telefónica O2 Ireland traded well in a difficult economic environment, with a focused commercial activity around mobile contract and broadband, while posting a significant improvement in operating cash flow generation. Our total mobile customer base reached 1.7 million customers at the end of December 2009, 40.4% of which is in the contract segment.

Telefónica O2 Czech Republic was negatively impacted by a challenging trading environment and by mobile termination rate cuts, but it reported a solid operating performance in both fixed broadband and contract mobile segments. In Slovakia, the company accelerated its commercial momentum and delivered a powerful financial performance.