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November 14, 2005

O2 shows strong growth in final independent results

O2 Plc, the UK mobile operator currently in the process of being acquired by Spanish telecoms giant Telefonica SA, has posted strong interim results thanks to impressive growth in customers numbers, especially in Germany.

By CBR Staff Writer

In what could be its last financial report as an independent company, the Slough, UK-based operator posted net income for the six months ending September 30 up 4.2% at 350m pounds ($608.2m) compared to 336m pounds ($584m) in the year-ago period. Sales rose 12% to 3.61bn pounds ($6.28bn) from 3.22bn pounds ($5.60bn).

In late October, O2 (formerly BT Cellnet) agreed to a 17.7bn pounds ($31.3bn) takeover offer by Telefonica, the Spanish telecoms giant that has been lacking a presence in two of Europe’s most important markets, the UK and Germany. O2 is also one of the dominant players in Ireland.

In line with takeover rules, O2 did not comment on the progress of the offer, but it did confirm that it had received no further bid approaches. There had been speculation that Deutsche Telekom AG would enter the running with a hostile bid, but the German carrier appears to have decided that its money would be better spent upgrading the network of its most important asset, T-Mobile USA.

When O2 is combined with Telefonica, the operation is expected to have approximately 116 million mobile phone users and a 16% market share in terms of revenue in Europe’s top five mobile phone markets.

This is still some way behind the world’s largest mobile operator, Vodafone Group Plc, which has over 165 million mobile customers. Other European players include France Telecom (Orange SA) with 70 million mobile customers, and Deutsche Telekom (T-Mobile) with over 80 million mobile customers.

It is not hard to see what attracted Telefonica’s interest in O2. The UK operator increased its customer base 17% to 25.7 million, from 22 million a year ago, in spite of operating in intensely competitive markets.

Despite intense competition in all our markets, in the first half the group delivered 17% growth in the customer base, 12% growth in revenues, 15% growth in EBITDA, and 16% growth in operating profit, said O2 chief executive Peter Erskine.

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In the UK, O2 managed to grow and retain its customer base, which increased 8.9% to 15.09 million people. The recently launched i-mode mobile internet service gave the operator a different value proposition compared to fellow competitors.

In Ireland its customer base rose 10.2% to 1.57 million, while in Germany the customer base rose 34% to 8.95 million driving by new tariffs and the Tchibo Mobile joint venture.

Yet despite all these customer additions, average revenue per user was flat in the UK at 271 pounds ($470) during the three months to September, while in Germany it slipped by 22 euros ($25.70) to 349 euros ($408) from 371 euros ($433) at the same time last year, mainly because of customer promotions.

Looking forward to the year ending March 31, 2006, the operator reiterated its outlook for full-year UK revenue growth of between 6% and 9%. It also expects strong revenue growth in Germany and further growth in Ireland.

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