Click for Market Place
SIM-only and iPhone give O2 best ever third quarter
Published: 17 November, 2008
Tags >> Telefonica O2 | iPhone
After years when the five UK operators were distinguished mainly by their logos and voice plan pricing, the threat of downturn has pushed them into taking highly differentiated approaches, and so far, O2 and 3 seem to be pulling ahead of the pack, with the former reporting its best ever third quarter of customer gains.
Despite real concerns that O2 has become over dependent on its iPhone exclusive, the device has helped the Spanish-owned cellco enjoy a boom in contract customers, while 3 is now reinforcing its plans to reinvent itself as a broadband operator, with promises to roll-out 14.4Mbps connections at an aggressive rate.
Over in the US, the third quarter saw the iPhone driving large numbers of new customers to AT&T, though at the expense of margins. O2 has benefited from the same effect in Q3, though its own downside is likely to be an alienation of midrange customers and those wanting non-iPhone handsets.
In Q3, O2 gathered more new customers in the coveted contract sector than Vodafone and T-Mobile, the next biggest UK carriers, put together, with 31,000 more net additions than their combined total - it added 278,000 postpaid subscribers and 402,000 across the whole market, retaining its UK lead and claiming its best ever third quarter.
This was largely down to O2's clear focus on a two-pronged strategy to set itself apart from its rivals in the second half of 2008 - the iPhone and a strong push behind its Simplicity SIM-only deals. So confident has O2 been in this approach that it has been pushing customers to delay upgrades of other handsets until 2009, to reduce subsidy costs in Q4.
In Q3, Vodafone won 207,000 new customers, 87,000 of them postpaid; Orange added 160,000 customers but did not declare how many were postpaid; T-Mobile added 96,000 contract customers and lost 88,000 on prepay.
Despite O2's success, its iPhone sales are reported to be slipping back, and are coming under pressure from new, heavily marketed UK exclusives like T-Mobile's G1 and Vodafone's BlackBerry Storm. From a peak of 50,000 a week after the 3G iPhone launch in July, sales are now estimated at about 20,000 a week, and the bulk of new Q3 deals came from SIM-only - which benefits O2 because such arrangements carry no subsidies and low marketing costs, allowing customer acquisition resources to be diverted to the iPhone. Simplicity is marketed strongly in-store, especially as a way to convert customers easily from prepaid to postpaid - which operators prefer because it typically carries higher ARPU and lower churn.
The negative of SIM-only is that it has been pushed with cheap deals, so ARPU at O2 fell by 2.5% despite the iPhone being one of the highest ARPU generators among smartphones with its easy user interface. O2's revenue jumped by 8.7% year-on-year in Q3, but another strong aspect was its non-mobile business. The fixed line broadband division added 72,870 customers in the quarter, in one of the world's most competitive broadband markets. O2 claimed the second highest number of home broadband additions after Sky, beating market leader BT (69,000) and Virgin Media (50,000), to achieve a base of 267,000 (196,000 of those added in 2008).
