Telefónica Deutschland ups outlook as customers stay sticky

Telefónica Deutschland claims to be experiencing ‘historic highs’ in customer loyalty, as a strong performance at its mobile business enabled it to increase its outlook for the full year.

Telefónica’s German unit, which operates under the O2 brand, posted third-quarter results that show solid growth in revenue, earnings and contract mobile customers. As a result, it has increased its OIBDA, or adjusted operating income – Telefónica’s preferred earnings metric – forecast for the full year to low mid-single digit percentage growth, having previously guided for a ‘slightly positive’ increase. Its baseline OIBDA figure for last year was €2.32 billion.

In the three months to the end of September the operator posted 3% on-year OIBDA growth to €613 million, while its nine-month figure came in at €1.79 billion, up 6.3%.

It attributes its Q3 earnings performance to revenue growth in the past few quarters, and good customer acquisition and retention. The mobile side was the biggest growth engine, with mobile service revenues growing by 4.4% to €1.42 billion, a figure Telefónica says is a quarterly record.

Its total number of mobile accesses rose to above 45 million, driven by 415,000 new contract customers. Blended mobile ARPU grew to €10.3 from €10.1 a year earlier and churn fell to 1.2%, or just 1% at the core O2 brand.

“Customer loyalty thus remains at historic highs,” the telco said in a statement accompanying the results.

It goes without saying that that’s a good result for telcos at a time of high investments in 5G rollout. Indeed, Telefónica noted that it spent an extra €50 million-plus in capex in Q3 compared with the same period last year, and an additional €23 million on Q2, and warned – or possibly boasted about; tough call – the record levels of investment it expects to see in Q4. It also said that 5G is swallowing up an increasing share of capex, without providing specifics. Its 5G network currently comprises 3,300 antennas in 115 cities, and is slated to cover 30% of the population by the end of the year. Coverage is due to rise to 50% next year, with 5G available countrywide by the end of 2025 “at the latest.”

Telefónica did not share operational or financial information on its 5G business; it’s clearly too early for that. But there is a conclusion of sorts to be drawn here. While rolling out the next generation of mobile technology carries a significant cost burden for mobile operators, many of them have solid existing mobile businesses through which to absorb those costs, and can look forward to adding 5G into their customer acquisitions and service revenue figures in the fairly near future.

And as a final point, it will be interesting to see how the performance of Telefónica Deutschland compares with that of its parent company. Telefónica Group is due to post Q3 figures on Thursday.