O<SUB>2</SUB> takes top mobile slot in UK as upgrade lifts shares

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The Independent Online

Shares in O 2, now Britain's biggest mobile phone operator, rose yesterday as the company upgraded full-year forecasts for its key UK and German markets.

The company, which has been the subject of intense takeover speculation in recent months, said it expected both revenue growth in the UK and operating profits from Germany to be higher than previously forecast. Its shares climbed 1.6 per cent to 155.5p, valuing O 2 at £14bn.

The trading update came as O 2 disclosed that the number of its UK mobile subscribers broke through 15 million in the first half of the year, giving the network a market share of 24 per cent. That puts it just ahead of Orange on 23.8 per cent and Vodafone on 22.7 per cent, although both its rivals are yet to announce their first-half subscriber figures.

O 2 said that net subscriber numbers rose by around 400,000 in the second quarter compared with 232,000 in the first three months of the year as "churn" rates fell and the company launched a range of loyalty schemes. These entitle contract customers to 50 per cent more call minutes if they sign up for 18 months, and pre-pay customers a 10 per cent rebate on top-ups every three months.

A spokesman said that as the mobile handset market became increasingly saturated it became more important to hold on to existing customers.

Previously, O 2 had said it expected UK net service revenues to grow this year by "mid-single digits". Yesterday it forecast growth of 6 to 9 per cent on last year's £3.6bn of net revenues, while profit margins before interest, tax, depreciation and amortisation would remain broadly stable at about 30 per cent.

O 2 is also forecasting further strong revenue growth in Germany, where it has 8.5 million subscribers, helping full-year profit margins to reach "the low 20s per cent" compared with previous guidance of 20 per cent.

Shares in O 2, which changed its name from Cellnet when it was demerged from BT four years ago, have climbed by more than 60 per cent in the past 12 months on the back of takeover rumours. Most speculation has centred around Deutsche Telekom, the owner of the rival network T-Mobile, which abandoned plans for a joint bid in conjunction with KPN of the Netherlands over the summer.

However, the German company denied earlier this week it was planning to make an offer, and David Finch, O 2's chief financial officer refused to be drawn on the bid speculation. "We wait with interest to see what happens to the financial performance and indeed the remedies proposed by the owners of the weaker players. It is difficult to say when something might happen or what it might be."

T-Mobile has about 11 million UK subscribers of its own, putting it firmly in fourth place, although this figure rises to about 14.5 million if customers of Virgin Mobile, which uses the T-Mobile network, are included.

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