O2 revenues dip after battle over tariffs

The mobile operator O2 has suffered its steepest fall in quarterly revenues since it launched in the UK a decade ago.

The Telefonica-owned UK operator's mobile service revenues tumbled by 8.7 per cent in the three months to 31 December, capping a 3.7 per cent fall to €6.2bn (£5.3bn) over the full year.

Ronan Dunne, chief executive, said: "We have never really had a quarter that did not grow until 2011. The market shrank for the first time, driven by the economy, and we grew slightly less than the market."

The UK operator was outgunned by rivals, particularly by 3, on contract tariffs over the first nine months of the year. 02 hit back in the fourth quarter with sharper tariffs for existing customers on the iPhone 4S, which led to a 35 per cent uplift in smartphone upgrades.

"We sharpened our pencils in the second half," said Mr Dunne.

But its move on tariffs was partly responsible for 02's average revenue per user falling by 9.5 per cent in the fourth quarter.

As demand for smartphone contracts grows, O2 lost nearly 221,000 pre-pay customers in the fourth quarter. But it secured 175,000 new contract customers in the period, a 93 per cent jump on the 91,000 it added in the previous quarter.

O2's underlying earnings rose by 1.5 per cent to €1.84bn over the year.