Mobile operator mmO2 Plc continued the flow of good news that has boosted the telecoms sector with better-than-expected first-half growth figures. For the six months to September 30, it posted a loss of £277 million, down from a loss of £387 million on revenue up 11.7% at £2.4 billion.
However, the bottom-line improvement was achieved by the simple expedient of a savage cut-back in capital expenditure, a policy it will not be able to sustain with the huge bills for upgrading its networks to 3G technology looming.
It is now a year since mmO2 escaped from what was then the suffocating grasp of UK incumbent BT Group Plc, and it has used the freedom to improve management across its operations. It has upped its customer base by 8.9% to 18.3 million and its once-ailing German operation was particularly impressive with a 32.7% rise in first-half service revenue to £438 million.
ARPU showed modest increases with the 12-month rolling figure for the UK up 3% since the beginning of the year at £238, while in Germany the rise was 7.7% to £210.
mmO2 was able to cut capital spending by 31.5% in the half to £427 million, enabling it for the first time to generate positive cash flow. But this situation will be reversed in the second half as spending rises.
There is expected to be large-scale consolidation in the industry, and mmO2 is the favorite acquisition target, with operations covering the UK, Germany, the Netherlands and Ireland too small to generate the revenue that will ensure long-term survival.
mmO2 said it expects double-digit service revenue growth in the second half for its UK operations, while it expects its German business to continue to improve market share. However, it acknowledged that the UK market remains challenging with the prospect that the Competition Commission could order big cuts in the cost of calls from fixed-line phones to mobiles.