O2 beats expectations with 18% surge in subscriber numbers

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O2, the mobile phone operator, unveiled a better-than-expected increase in its third-quarter subscriber numbers yesterday, as it published its last set of results before the completion of its takeover by the Spanish phone group, Telefónica.

The company added 1.75 millioncustomers in the last three months of 2005, taking its total customer base to 27.4 million- about 18 per cent higher than the same periodlast year.

A little more than half of the new customers were in the UK, where net service revenue grew by about 12 per cent. However, average annual revenue per customer fell slightly in the UK from £275 to £272.

The group acquired 274,000 more UK contract customers than it lost during the quarter, as customer churn fell to 27 per cent, from 30 per cent a year ago.

In Germany, overall customer levels grew by a similar number to the UK, helped by the group's joint venture with the retailer Tchibo. German service revenue was up 17 per cent on the same quarter in 2004.

Peter Erskine, the chief executive of O2, admitted he was surprised by the strength of the group's performance, particularly in the UK. "I was surprised at how well it went," he said. "What's pleasing is how quickly our churn has come down."

O2 is in the final stages of being acquired by Telefónica, with the offer declared unconditional in all respects yesterday, and shareholders told to expect their cheques before 6 February.

Mr Erskine said he was excited about the deal, which he promised would be good news for UK customers. He said the group planned to announcecheaper call charges, before the beginning of the summer, for all O2 customers using their phones in Spain - and said the newly enlarged group would be able to acquire handsets more cheaply - another saving which will be passed on to consumers.

He conceded that 3G phones had not sold particularly well over the Christmas period, but said he believed the market would take off within the next couple of years.

The group also announced its new board, who will take over once the deal is complete. Mr Erskine is to become chairman, as well as chief executive, while the current chairman, Sir David Arculus, will step back to become a non-executive director. César Alierta, the chairman of Telefónica, is among three executives from the Spanish group to be appointed to the board in a non-executive capacity.

Mr Erskine said: "The directors of O2 are grateful to Sir David Arculus for his wisdom and advice during his tenure as chairman. Today's announcement of third-quarter key-performance indicators underlines the considerable momentum that the company has built - with more customers signed up in the past three months than in any previous period.

"I look forward to working with the new O2 board to maintain this success."