Telefónica Deutschland (O2 Germany) is making more optimistic noises following a year of being battered by the now familiar headwinds of the COVID-19 pandemic.

While 2020 was marked by falling mobile services revenue, the German operating business (OB) of the Spain-based Telefónica Group now sees light at the end of the tunnel, and has even upgraded its forecast for 2021 to "slightly positive" year-on-year growth for revenue and adjusted operating income before depreciation and amortization (OIBDA).

Figure 1: Opening up: After the global pandemic forced Telefónica Deutschland to batten down the hatches, things are looking up.
(Source: Telefónica)

The OB noted that pandemic-related measures were gradually lifted over the course of the second quarter (Q2). All O2 shops have been open since the beginning of June, and a gradual easing of travel restrictions means that roaming has also picked up.

Record growth

Revenue in the second quarter grew by a respectable 5.7% to €1.89 billion (US$2.23 billion), boosted by a 7.4% rise in mobile services revenue and a 3.5% increase in fixed services revenue. OIBDA rose by 9.8% to €610 million ($720 million) and adjusted OIBDA grew 10.8% to €612 million.

However, the OB ended the quarter with a net loss of €45 million ($53 million). The OB added 374,000 new mobile customers in the second quarter.

In the second half of the year to the end of June, revenue rose by 2.9% to €3.74 billion ($4.41 billion) and OIBDA increased 7.2% to €1.157 billion ($1.366 billion).

According to CEO Markus Haas, the first six months saw record revenue and OIBDA growth "in the combined history of our company" for a first half-year. Here, Haas is referring to the period since the merger with E-Plus that created the company in 2015.

"All KPIs are well on track and firmly confirm that the underlying operational and financial trends of our business are fully intact, in fact, even improving," Haas said.

Reuters noted that the OB has set a target of growing revenue by a cumulative 5% from 2020 to 2022.

Capex rising

Capex was higher, rising 11.5% to €280 million ($330 million) in Q2. Telefónica explained that capex deployment comes with "backend-loaded annual phasing" as it executes its "investment for growth" program. The expected capex to sales ratio remains unchanged at 17%-18% in FY 2021.

Telefónica also said its 5G network is live in 80 cities with around 2,000 antennas, which are mostly on 3.6GHz spectrum.

The consolidated net financial debt amounted to €3.88 billion ($4.58 billion) as of June 30, and included the FY20 dividend payment of €535 million ($631.7 million) in May as well as an increase in lease liabilities of €131 million ($154.7 million) due regular contract renewals.

Sustainable growth

In terms of the outlook for the second half of the year, CFO Markus Rolle said the OB is "comfortable with the updated guidance of slightly positive, so we do not expect to go negative for the full year."

He added: "We have good operational business momentum, and you have to look at it as a full-year performance, because not just the quarter is relevant. We want to grow our business and our margin sustainably over the next year."

Telefónica Deutschland also pointed to the fact that it has finally reached a national roaming agreement (NRA) with fourth entrant 1&1 Drillisch after months of negotiation.

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It said it secured "valuable long-term revenue streams" as the NRA has an initial contract period of five years, with retroactive effect from July 1, 2020, and can be extended twice: until mid-2029 and up to mid-2034 respectively.

"As part of the agreement, all remaining ongoing price reviews initiated by 1&1 will no longer be pursued," the OB added, referring to objections made by 1&1 Drillisch over the years to the prices charged by O2 for wholesale access to its network.

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— Anne Morris, contributing editor, special to Light Reading