The Guardian reports: Telefónica suffered a drop in revenues at its O2 business in the UK as it battled to retain high-spending customers by upgrading them to the latest iPhone in the run-up to Christmas.
Revenues totalled €6.9bn (£5.9bn), down 6.8% in the three months to 31 December and 2.7% year on year. In the face of stiff competition from other operators including unlimited data tariffs from Three, O2 took advantage of the release of Apple's iPhone 4S to increase smartphone upgrades 35% year on year in the final quarter. This was a big leap from the first three months of 2011, when upgrades were down 17% on the previous year.
The network was the first to sell the iPhone in the UK and has the largest base of Apple customers, many now coming out of two-year contracts.
"This led to an increased commercial spend but Telefónica UK benefits from maintaining these valuable customers on long-term contracts," the company stated in results released on Friday.
The total number of UK customers declined by 44,000 to 22.2m, with 175,000 contract customers added in the fourth quarter and 220,900 prepay customers lost.
Along with other operators, O2 has reduced the handset subsidies offered to lower value prepay customers since regulators cut wholesale or 'mobile termination' rates.
As a result, 49% of O2 customers are now on a contract, up 2 percentage points on 2010.
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