T-Mobile ready to push mmO2 into fourth place in mobile phone league

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The Independent Online

Shares in the mobile phone operator mmO2 plunged to fresh lows yesterday after figures showed its UK operation was coming under pressure, causing its rival T-Mobile, formerly known as One2One in the UK, to claim it was on the cusp of becoming the UK's third-biggest mobile phone operator.

Shares in the mobile phone operator mmO2 plunged to fresh lows yesterday after figures showed its UK operation was coming under pressure, causing its rival T-Mobile, formerly known as One2One in the UK, to claim it was on the cusp of becoming the UK's third-biggest mobile phone operator.

The move came as mmO2 unveiled an £873m loss in its first set of financials since its demerger from BT last autumn. The stock finished down 11.9 per cent, or 5.75p, at 42.5p, making it the biggest faller in the FTSE 100 index yesterday.

"We feel it's no longer a question of if we overtake O2 but a question of when," Harris Jones, the chief executive of T-Mobile UK, said. "There are very clear indications that we are taking not only subscriber market share but also revenue share."

Yesterday's results from mmO2, which operates the O2 mobile service formerly called BT Cellnet, confirmed that its UK operation was coming under pressure after it reported flat revenues of about £2.7bn in the year to 31 March.

Furthermore, the company added just 9,000 new subscribers in the UK in the three months to 31 March, boosting its total customer base to 11.08 million. mmO2's average revenues per user, or ARPU, fell to £231 a year in that quarter in the UK from £251 in the three months to 30 June.

Analysts, who had expected the company's main areas of concern to remain its businesses in Germany and the Netherlands, were taken aback that the company's UK operation was also having a tough time.

"To our surprise, the [group] revenue shortfall is due to Cellnet being 8 per cent weaker than we expected. Germany and Holland on the other hand produced better numbers, especially at the Ebitda line," analysts at Schroder Salomon Smith Barney said.

mmO2 as a whole reported a pre-tax loss of £873m, after accounting for the cost of its demerger from BT as well as an internal restructuring, compared with a £3.5bn loss a year before. Sales were £4.3bn, up from £3.2bn.

Its German business increased revenues in the year to £875m from £677m while its Dutch business nearly doubled sales in the year to £200m.

The losses at both those operations were also stemmed with the German business producing an underlying, or Ebitda, loss of £166m compared with a £343m loss in 2001 and the Dutch business producing a loss of £51m from a loss of £104m.

The improved performance in Germany and the Netherlands, analysts said, would make it easier for mmO2 to sell both those operations if it chose to.

Peter Erskine, the chief executive, said he remained "open minded" on the future of those businesses. "If we see we can get better value for shareholders by doing something else then we'll do that," he said.

On an underlying basis mmO2 reported an overall profit of £433m, before exceptional items, compared with a loss of £39m a year earlier. The UK business recorded an Ebitda profit of £670m, up from £555m.

Mr Erskine said he felt the company now had "good momentum" and was "confident" of delivering consensus forecasts in the current year.

The company said it expected revenues to continue to grow this year, driven by growth in its customer base and an improvement in ARPU across the business.

MmO2's debt at the end of March stood at £617m – a couple of hundred million pounds beneath analysts' forecasts and below the previous consensus estimate of about £1bn.

The company also reduced capital expenditure to £1.1bn in the year, down from about £1.6bn in 2001. This year it plans to spend between £1.2bn and £1.6bn.

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