O2 ups revenue forecasts as additions zoom

Mobile operator O2 raised its revenue growth forecast for its core business yesterday, as more than half a million new customer additions helped push its total 14 per cent higher to 34.4 million.

O2, which was acquired by Spain's Telefonica last January, said it now expected service revenue growth to be in the range of 14 to 15 per cent for the 11 months to December 31, up from eight to 11 per cent forecast earlier.

The operation saw a 14.9 per cent growth in net service revenues during the quarter.

However, operating margin in the unit, which added 524,000 net new users in the third quarter to September 30 and accounted for a bulk of the group's 812,000 new adds, was expected to be around one percentage point lower, O2 said.

"We're expecting to be a little bit more aggressive in the run up to the end of the fiscal year and the acquisition cost of that activity is what we're anticipating in the margin guidance," chairman and chief executive officer Peter Erskine told reporters.

O2 is already the biggest mobile operator in terms of subscriber numbers but it trails Vodafone Group Plc in terms of revenue market share.

Its third-quarter subscriber additions have outpaced those by rivals Orange and T-Mobile. Vodafone is due to reveal its figures today.

O2 said intense competition in Germany, where it is seeing stiff competition notably from Dutch KPN-owned operator E-Plus, had forced it to lower growth forecasts there.

The group said it now expected German service revenue growth to be in the high single digits and not the low double digits as previously forecast, although margins were forecast to be stable at the business.

Analysts said O2's margin forecast for Germany was a positive for rival Vodafone. "(The) flat margin guidance in Germany, Vodafone's biggest market, is sign that O2 is not accelerating competition from here," noted Citigroup analysts.

O2's German business added 294,000 net new users and grew its service revenue by 6.1 per cent in the third quarter. Service revenue at its Irish business fell 1.7 per cent and rose 6.5 per cent in the Czech Republic.