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O2 Bigger than its parent

O2, BT's offspring, overtakes its parent and becomes UK's biggest telco

Posted By Martyn Warwick , 13 November 2009 | 0 Comments | (0)
Tags: mobile Finance competition

After yesterday's less than stellar half-yearly results, BT this morning has to contend with the ultimate irony. 02, the company spun out of BT back in 2001, has overtaken its erstwhile parent and is now Britain's biggest telco. Martyn Warwick reports.

Yesterday BT reported a 45 per cent decline in pre-tax profits and now, just 24 hours later, comes the news that O2, (the company formerly known as BT Cellnet and currently owned by Telefonica of Spain) has grown to such an extent that it now has more UK subscribers than it's former parent. O2 has 21 million customers in Britain for its mobile service whilst BT has 19.4 million landline subscribers.

BT, of course, has no mobile presence in Britain having divested itself of such interests in November 2001 when, not for the first time, and certainly not for the last, found itself strapped for cash.

Telefonica stepped in and bought O2 in 2006 - for £17.7 billion. At the time it was the biggest all-cash acquisition ever seen in the telecoms sector.

When BT decided to sell its mobile arm, analysts were divided as to the likely effects on the company. The cash helped the big incumbent telco to weather some hard times back then but now they those bad days seem to be on their way back and BT is keenly feeling the lack of a mobile division.

Yesterday, BT's current CEO, Ian Livingston, acknowledged the problems his company faces by not having a mobile business when he said that BT "may explore" the notion a getting back into the mobile market in 2010 when the UK government holds a new round of spectrum auctions.

The chief executive also said that proposals by the UK government that operators, who paid out £22.5 billion for 3G spectrum in a ludicrously overblown bidding frenzy back in 2000, should be allowed to keep the bandwidth indefinitely, would be wasteful because a new round of bidding would provide the administration with a handy pecuniary boost. And, oh yes and incidentally, it would also allow BT to use some of its cash pile to parlay its way back into mobile telephony.

O2 has had a very good year and made a lot of hay while the sun was shining.  The company's subscriber base has grown by more than a million  mainly on the back of O2's exclusive deal with Apple to sell the iPhone. Meanwhile, O2's main rivals (Orange, 3, T-Mobile and Vodafone) have managed to add a mere 400,000 between them in an intensely competitive and super-saturated market.

Matthew Key, chief executive of Telefonica Europe, says O2 was the only UK mobile operator to grow revenues over Q3 and bagged the lion’s share of new customers over that period.


He said, “Over the past 12 months, we have grown by 1 million new customers. The market has grown 1.4 million, so we have taken 68 per cent of the growth.”

Commenting on the child eclipsing its parent, Mr. Key added that it is "the silver star on the top of the tree after a great performance by O2".

True enough but O2's fortunes may soon begin to dwindle. The exclusive deal with Apple has come to an end and others - Orange and Vodafone- are about to wade into the market with competitive iPhone offerings.

However, that said, the prices and tariffs announced by the new boys are so remarkably similar to the price already being charged by O2 that it's hard to discern where the benefit would be to any punter thinking about churning away to a new, competitive deal by a new iPhone supplier. saving a few quid a year (and I mean a few quid and that's all) would seem to be scarcely worth the hassle of making the move.

Earlier this week, Orange announced that it has either sold or has pre-orders for some 30,000 iPhones whilst Vodafone won't begin selling the iconic device until January 2010 - after the lucrative Christmas present-buying season and just as the New Year hangover kicks in and the festive season bills come home to roost. January during a recession is not a good time to sell expensive mobile phones, so maybe O2 won't have too much to worry about - in the short term anyway.

As for BT? Well it's under pressure again. The telco's much-vaunted 21st Century all-IP Next Generation Network network is proving to be a technological challenge and deployment is well behind target, competitors
are constantly snapping at BT's heels, the carriers pension deficit has more than doubled over the past six months and now stands at a staggering £9.3 billion, job losses are mounting as the company seeks to trim costs by £1.5 billion and its Global Services division remains a major problem.

As Tony Chanmugam, BT's finance director, has acknowledged, "We have been technology-led, not market-led.” Quite.

Meanwhile, BT needs a mobile presence, but it hasn't had one worth mentioning since it sold-off Cellnet. And this morning the BT board will no doubt be reflectig on the the words of King Lear who observed, "How sharper than a serpent's tooth it is to have a thankless child."


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