Smartphones help boost Everything Everywhere

• 71% of contract customers own smartphones
• Nearly 500,000 pre-pay customers defect in Q1
• … but 151,000 contract customers sign up
• 90% of new customers take broadband too

Everything Everywhere, the UK’s largest mobile phone operator, has turned the rise in smartphone owners to its advantage by curbing the revenue falls suffered at the end of 2011.

Of all contract customers, 71% now own a smartphone, while 90% of new customers are opting to buy one. Internet services now account for 27% of the average revenue per user compared with 17% a year ago. Most smartphone users sign up for contracts rather than pre-pay deals, which is helping to rebalance revenues as contract subscribers tend to be higher spenders.

The contraction in service revenues, which include income from calls, text and data but exclude business lines such as handset sales, has slowed from a 4% fall at Christmas to a 2.5% fall in the first quarter.

Revenues totalled £1.503bn in the three months to 31 March at the company, which owns the Orange and T-Mobile brands, a rise of 2.9% on the same quarter last year if the effects of cuts to the cost of calling a mobile from a landline are excluded.

“We are seeing improved underlying service revenues, driven by rapid data revenue growth, as we successfully upgrade customers to smartphones and higher value postpaid agreements,” said chief executive Olaf Swantee.

Overall customer numbers continued to fall on the previous quarter, down 344,000 or 1.8% to 27.219 million.

The fall was driven by 494,000 defecting pre-pay customers, but this was balanced by the arrival of 151,000 higher spending contract subscribers. Contract customers now represent 80% of total revenues, with prepay representing 15% and the final 5% coming from wholesale deals with virtual mobile networks like Virgin Mobile.

“Competitors are yet to report but, in the context of a tough consumer spending environment … we believe EE is likely to have continued to gain contract market share,” said analyst Jerry Dellis at Jefferies bank.

His estimates suggest most new signings were to Orange, rather than its budget sister brand T-Mobile.

Revenues from landline broadband services grew 12% year on year, the company said, with 90% of new customers in the first quarter taking signing up for broadband along with line rental and mobile. Overall broadband customers were down a shade, falling 1,000 to 728,000.

Swantee defended the company’s campaign to push for quicker roll out of 4G superfast mobile internet, launched on Monday amid protests from rival networks. EE is pushing for the regulator, Ofcom, to let it use its own spectrum to launch 4G ahead of an airwaves auction which is due to conclude in 2013. This means it could be selling faster internet connections to mobile customers up to a year ahead of rivals.

Research commissioned by EE estimates the UK networks will need to invest £5.5bn in new equipment to roll out 4G across the country. The auction has been repeatedly delayed by legal threats and government interventions, and EE hopes the UK will not slip further behind other European countries in updating its networks.

“If one player moves forward the others will have to follow,” said Swantee. “In the current environment in the UK its going to be hard to find £5.5bn to invest in 4G. Distributing airwaves through an auction does not mean you get 4G. What gets 4G is investment. This industry has been sweating assets for long.”

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