Mobile services

EE Boasts Record Margin in H1

UK mobile operator EE has flagged record margins for the first half of the year thanks to efficiency measures including the closure of surplus radio and switch sites.

The joint venture between French incumbent Orange (NYSE: FTE) and Germany's Deutsche Telekom AG (NYSE: DT), which serves more customers than any other UK mobile operator, saw its adjusted EBITDA margin (excluding certain fees and costs) improve to 26.6%, its highest ever, from 24.4% in the same period last year.

Adjusted EBITDA rose to £830 million (US$1.29 billion), up by 9.2% compared with a year ago, while turnover was up just 0.1%, to £3.1 billion ($4.8 billion).

In a results presentation, the operator, which is in the process of being acquired by BT, said it had reduced its number of radio sites by 6% since June last year and started work on a two-year process to close 18 surplus switch sites.

It also cited investments in customer service that have already led to improvements in this area.

EE is focused on driving customers towards more lucrative 4G services and claimed to have signed up another 1.5 million 4G customers in the second (April-to-June) quarter alone, giving it 10.9 million in total.

It aims to have signed up 14 million 4G customers by the end of the year and says it is on track to achieve this goal.

Nevertheless, the operator's overall base of mobile customers -- excluding M2M connections -- shrank by 88,000 subscriptions in the second quarter.

Although EE captured 96,000 new postpaid accounts, this was not enough to offset the loss of 184,000 prepaid users.

Net Customer Additions at EE
Source: EE
Source: EE

Moreover, average revenue per user (ARPU) remained static in the second quarter, compared with the same period of 2014, at £18.9 ($29.3) per month, although EE insisted it would have grown at a rate of 2.2% were it not for regulatory effects.

The customer-growth numbers were comparable to figures published last week by Vodafone UK , the country's third-biggest mobile operator, which added 83,000 postpaid customers in the April-to-June quarter but lost 181,000 at its prepaid business. (See BT Split Could Spur Vodafone to Invest in Fiber – Colao.)

Vodafone had more success than EE on the ARPU front, increasing the monthly figure to £18.8 ($29.2), from £17.6 ($27.3) in the year-earlier quarter.

Telefónica UK Ltd. (trading as O2) and Three UK , the second- and fourth-biggest mobile operators respectively, have yet to publish details of their first-half performance.

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EE claimed to serve a total of 30.9 million connections at the end of June, up from 30.8 million in June last year, but this includes M2M connections, MVNO subscribers and broadband users.

The operator provides broadband through a wholesale deal with BT Group plc (NYSE: BT; London: BTA). It has also added a TV service to its offerings in response to similar moves by other broadband players and amid signs of growing interest in quad-play -- whereby operators sell fixed voice, broadband, mobile and TV services in one package.

The company said its EETV-branded service was fueling interest in its fixed-line offerings, having adding 35,000 broadband customers in the second quarter to give it 919,000 in total.

This still leaves EE a long way behind the UK's biggest broadband operators but a merger with BT would create a market leader in both the mobile and broadband sectors and open up new cross-selling opportunities.

BT agreed to buy EE for £12.5 billion ($19.4 billion) earlier this year and is hoping to finalize the transaction -- which has yet to secure the approval of competition authorities -- by early next year. (See BT Locks Down £12.5B EE Takeover Deal.)

Telefónica UK and 3 are also hoping to merge their operations after 3 owner Hutchison Whampoa sealed a £10.25 billion ($15.9 billion) deal for the O2 business in March. (See Telefónica Seals $15.2B O2 Sale to Hutchison.)

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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