Telefónica O2 UK

Performance highlights for the 3 months ended 30 September 2008

• Telefónica O2 UK total revenue grew by 8.7% in the third quarter of 2008
• Telefónica O2 UK mobile ARPU £24.3 (Q2 2008: £23.9; Q1 2008: £23.6)
• OBIDA margin for the 3 months to 30 September 2008 was 26.5% compared to 27.3% in the same quarter in 2007
• Telefónica O2 UK increased the total mobile base to 19.1 million (excluding Tesco Mobile) representing growth of 6.6% year on year
• Mobile customer numbers reached 19.1 million
  

Telefónica O2 UK third quarter operating review
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Telefónica O2 UK business highlights

Leading technology
As part of our on-going investment in service capability, we rolled out our 3G network in the UK, launching initial services to business customers in October 2004 and consumers in February 2005. Our approach to 3G is an evolution of our successful data services strategy. Because it offers faster speeds, 3G allows customers to enjoy richer entertainment content and new interactive services. As 3G is a new technology, we believe services will initially appeal to early adopters, building towards mass-market adoption.

Accolades for O2 Broadband in the UK
Since launch on 3 October 2007, Telefónica O2 UK's broadband service has been rated above the major ISPs in the monthly thinkbroadband.com ISP comparison. The poll measures key satisfaction areas for customers, including speed, reliability and customer service, asking users to score each provider. O2 Broadband scored the highest out of all its main competitors in each of the three categories.  In a separate survey conducted by Intrepid Research, 81% of customers questioned were very satisfied with the O2 service and likely to recommend it to their friends. To date, O2 Broadband has been rolled-out to over 1,000 exchanges – giving its broadband network a population coverage of 57%. The service has attracted more than 130,000 customers,and this highly successful product launched a major national advertising campaign in the second quarter of 2008.

Telefónica O2 UK launch new Apple iPhone 3G
On 10 June, O2 and Apple announced that the innovative iPhone 3G would be available in the UK for free on selected O2 consumer and business tariffs. Existing iPhone customers are able to upgrade to the new iPhone 3G, taking advantage of the same great offers as new customers.

iPhone 3G combines all the revolutionary features of iPhone with 3G networking that is twice as fast as the first generation iPhone, built-in GPS for expanded location based mobile services, and iPhone 2.0 software which includes support for Microsoft Exchange ActiveSync and runs the hundreds of third party applications already built with the recently released iPhone SDK.
iPhone 3G will also be available on current O2 business tariffs as a monthly bolt on, with the device available for free on the majority of business tariffs on a 24 or 36 month contract. iPhone 3G business customers can also receive many of the same benefits as existing O2 business customers including unlimited calls between O2 customers, unlimited calls to ten landlines, shareable minutes and texts between users plus multi-user billing and activation and free, 24x7 access to business customer care specialists.

Strengthening business customer relationships
In the business market, we continue to grow our direct sales force and introduce new pricing and service propositions for our customers. These initiatives help us acquire many new corporate customers such as Network Rail as well as growing business with customers including Merrill Lynch, the AA and the Royal Bank of Scotland.  

Taking care of customers
The cornerstone of our strategy going forward is simple - to attract and retain high-value customers by giving them the best possible experience, and putting them 'at the heart of everything we do'. This will be achieved through, among other things, further improvements in service quality, the launch of innovative new services and loyalty programmes, significant investment in customer service and CRM, and continued development of the O2 brand.

The O2 celebrates its first birthday
In June, O2 marked the one year anniversary of the opening of The O2.  In its first year, The O2 has exceeded all expectations:

• More than 12,000,000 voice calls have been made from the venue
• Around 300 texts per minute have been sent from the venue during major events
• On peak days, the O2 shop at The O2 has more footfall than the three O2 Oxford Street stores combined
• The O2 has clocked up ten awards
• Over 7.5 million people have visited 
• 149 performances by 60 acts including some of the world’s top music artists have played The O2 Arena
• The Tutankhamen exhibition drew in over 1 million visitors
• 1,719,309 tickets had been sold as at 31 March
• The concept is now being rolled out to other O2 territories, such as Germany and the Czech Republic

A result of partnership between AEG and O2, The O2 has transformed the former Millennium Dome and the surrounding area into the UK's most exciting and technically advanced music, sport and entertainment destination.

Differentiating our brand
The distinctive appeal of our brand and market propositions - aided by our sponsorship of The O2, the England rugby team, Arsenal football club and a host of music events including the Wireless Festivals - continue to help us differentiate against our competitors.

Extending our reach
Tesco Mobile, our 50/50 joint venture with Tesco, has shown sustained growth. Tesco Mobile addresses sections of the family market not currently targeted by O2 through Tesco's nationwide network of supermarkets and smaller "Metro" shops. By December 2006, it had attracted more than a million customers.

Looking ahead
In 2008, we expect competition to be increasingly competitive. Whilst it is too soon to say we are immune to any slowdown in the global economy, we are currently seeing no evidence of a decrease in our customers spend and the mobile is an indispensable part of many customers lives.

However, with the continuing growth of Non-SMS data, fuelled by the introduction of the Apple iPhone, we expect this growth trend to continue throughout 2008.
 
For further information regarding Telefónica O2 UK and our products and services, please visit:
http://www.o2.co.uk/