mmO2 readies itself for flotation

BT's mobile arm, mmO2, today announced a 3G-sharing deal with Telfort Mobiel in the Netherlands to tie-in with BT's second-quarter results.

The deal will mean substantial cost savings and adds to its sharing agreement with Deutsche Telekom in the UK and Germany, so all its 3G bases are now covered. It has also announced a new Pocket PC device, called the O2xda.

mmo2 will float on 19 November and as such investors have been poring over the results today to size it up.

So how does mmO2 look? Well, not bad. It is benefiting enormously from its parent company's generosity in landing it with just £500 million debts rather than the several billion paid for 3G licences plus other assorted debts, giving it a headstart over other mobile operators.

According to today's results, it has a quarterly revenue of just over £1 billion. It is still making a loss of £94 million though - and that's without goodwill or the catch-all "exceptional items". It has a £3.5 billion overdraft it can eat into and was valued in its entirety at £7 billion by Goldman Sachs (down from £8 billion, down from £10 billion, down from £15 billion).

The most important aspect is the revenue and profit trends in the various mobile companies held under the mmO2 umbrella and BT has gone to great lengths to persuade us that these are all positive.

But, sadly, BT Cellnet is not doing so well. It has seen customer numbers flatten out and is still seeing a 36 per cent churn rate - dropping, it says, but still too high. Revenue increased by just 12 million from this time last year to £675 million. The good news is that it is making positive earnings (before interest, tax etc) of £161 million.

Some serious cost-cutting is afoot and the company says it's hoping to save more by buying in bulk as mmO2. It has spent more this quarter on its network and this upward trend will continue as it prepares for next-generation mobile services.

Viag Interkom, mmO2's German mobile company saw revenues up 32 per cent to £221 million. It's still making a loss though, although it has fallen from £108 million to £48 million. Again, it's not grabbing many new customers and so is looking to the high-end of the market to suck more revenue out of people.

Again, cost-cutting, hopes of saving money thanks to bulk buying.

Then there's the Netherlands company Telfort. Revenues have nearly doubled to £49 million but losses have increased from £20 million to £37 million as it chases new customers.

And then there's Digifone, it's Irish company. It's doing well with revenue up 27 per cent, customers up, earnings doubled to £31 million. But, of course, there has yet to be a 3G licence auction and network upgrade.

And lastly, of course, Genie the WAP arm. It's brought in £28 million but lost £22 million in total. Genie is "reducing the geographic scope of its activities, so that it is now focusing mainly on the mmO2 footprint", which basically means that mmO2 has realised it's just wasting time and money trying to push into other markets when WAP has been given the official thumbs down by society.

WAP page impressions have reached 150 million a month it says, although it doesn't say what percentage of these are people having to go back and forward through menus to find what they want.

mmo2's chief exec Peter Erskine said of the whole matter: "During the second quarter we continued to re-focus our businesses - on improving operational performance, on greater integration across the group, and on developing our new mobile data products and services. This has resulted in real progress being made during the quarter, with a significant reduction in operating losses, an acceleration in performance at the EBITDA level and an ongoing increase in the quality of our customer base.

"Data now represents 10.7 per cent of our service revenues and, with the recent launch of new devices and services, we are well placed to take advantage of this important growth market.

"This has been an exciting quarter for mmO2 as we move towards our future as an independent entity. We have achieved a number of definitive milestones and believe mmO2 has the platform to deliver improved revenue and EBITDA growth. We continue to focus on achieving these goals and delivering improved shareholder value."

Only time will tell how much "improved revenue", but mmO2 at least has a good foundation to work from.

Oh, nearly forgot - the O2 xba. It's not very exciting to be honest. Basically, mmO2 has done a deal with Microsoft where it sells a branded version of the Pocket PC. mmO2 gets to say it has a PDA offering, Microsoft gets some high-profile entry into the market. If you want to know more, go here. ®

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