Is ‘free’ the way forward for the mobile phone market?

Today’s full year results from Telefónica S.A show O2 UK report fourth quarter net service revenue up 13.7% year on year and for the eleven months to 31December reach a total of £3.9 billion, an increase of 14.7 % compared to the same period last year.

Following these results, Steve Weller, Head of Communications Services at uSwitch.com, comments on the increased focus and success of ‘free’ and reward based deals:

“O2 has seen a strong 2006 with an acquisition of 295,000 new customers, which can be attributed to the recent adoption of the ‘free’ marketing tactic. As with the rest of the communications industry, mobile operators are being forced to cram more and more features and options into packages to retain or entice customers.

“O2 customers are texting (23% up on last quarter) and calling (9%) more, but the revenue per customer hasn’t changed which therefore means that service costs for O2 are likely to have increased. To help maintain healthy profits and divert a potential drop in revenue, it’s imperative for O2 to add services such as broadband and home phone - which Vodafone and Orange already have done - to its packages. The planned launch via Be Unlimited this summer will be key to the O2’sfuture business success.”

‘Free’ deals from O2

O2 Long Weekends - Free minutes to locations on Saturdays, Sundays and Mondays
O2 Pay and Go - Free calls for customers who top up with £15 per month
O2 Treats - Bundles of texts, minutes, or other value added services such as data for customer loyalty
O2 Rewards – 10 % back on monthly top-ups every 3 months

Weller continues: “Retention of customers, or industry churn, is another important factor for O2’s growth strategy. However, its pleasure in announcing a drop in churn rate should be put into context. This is primarily due to many of its new and existing customers signing up to 18 month contracts instead of 12, therefore staying with the operator longer. Nevertheless, its combination of deals to both attract and maintain customers has assured its position at the top of the tree in the UK mobile market.”