Carphone Warehouse 2005 Annual Report Download - page 18

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Telecoms Services Division continued
The decline in contribution includes a start-up loss from
our French MVNO of £1.0m.
We continued to grow our UK FM business with
customers managed on behalf of O2 and Vodafone up
by 19.7% to 0.67m (2004: 0.56m). Growth is driven by
new subscription customers signed up to these networks
in our stores. The key drivers of our FM businesses are
the number of customers under management, and the
efficiency with which we manage our call centres and
bad debt. We continue to manage 0.6m customers in
France on behalf of Orange and SFR.
Our other own customer operations, predominantly
Fresh, our UK virtual network, did not make a material
financial contribution during the year. However, we have
recently taken a more proactive approach to our MVNO
strategy, with a number of initiatives that will support
long-term growth in this business unit. In July 2004
we launched Breizh Mobile, an MVNO in France
addressing the low-penetration Brittany region with
a locally-tailored offering. In the last quarter, we
aggressively promoted our Fresh proposition to
maintain our status as the best value pre-pay offer
in the UK market. Finally, we announced just after the
year end the launch of Mobile World, a unique pre-pay
service which offers very attractive rates to international
destinations, designed to compete directly with the
fixed line pre-paid calling card market.
Fixed
Our fixed line operations continued their strong
momentum from the previous year. Total revenues
were £426.3m, up 71.5% on the previous year, and
contribution was £33.7m, a rise of 71.7%.
Total revenues from business operations were
£267.3m. Opal, the network provider for all of
our fixed line activity in the UK, generated revenues
of £237.7m, an increase of 8.8% (2004: £218.4m).
Revenues in the second half were, as expected,
adversely affected by the regulatory cuts to mobile
termination rates. With the cost of terminating calls
on mobile networks falling, we passed on the saving to
our customers, which reduced revenue per minute by
approximately 12% over the second half. Total business
traffic over the network increased by 20.9% to 5.45bn
minutes. Including TalkTalk activity, total traffic increased
by 73.4% to 9.56bn minutes.
Total contribution from business operations was
£31.5m. Opal contribution was £30.6m, broadly the
same as in 2004. Underlying growth in our direct
channel, where we recruit and manage our own
corporate customers, was very encouraging. However,
we experienced increased price competition in our
reseller channel, and scaled down our low margin
premium rate services during the year.
We made a number of small reseller acquisitions in the
UK during the year, as the rate of consolidation in the
sector picked up. These acquisitions are attractive
because we are able to improve the margin on customer
traffic immediately by moving the lines onto the Opal
network. Acquisitions also give us ready access to sales
platforms in regions of the UK where we are currently
under-represented. In total these deals added £17.8m of
revenues and £3.0m of contribution to the year’s results.
Xtra, our Spanish fixed line network acquired in March
2004, recorded revenues of £29.6m and contribution
of £0.9m in its first full year in the Group.
Opal’s engineering strategy made further good progress
during the year. We provisioned a further 5 switches,
taking the total to 11. In addition, we completed our
three-year programme of building interconnect into the
BT exchange network, so that by March 2005 over
90% of calls across the Opal network originated and
terminated at the local exchange level. This was
significantly ahead of our 75% target and makes Opal
one of the most efficient networks in the UK based on
the costs paid to BT – a call that is originated onto
Opal at the local exchange level is 27% cheaper than
a call originating at the regional exchange level.
Opal’s network strategy will evolve over the next 12
months in two important ways: firstly, to add more
capacity through the provisioning of additional switches
and further fibre leases to meet the demands of our
growing business; and secondly, to prepare for the
provision of broadband services and integration to
BT’s 21st Century Network, which will be key to our
long-term strategy for Opal and TalkTalk.
The Carphone Warehouse Group PLC Annual Report 2005
GERMAN SP BUSINESS
GROWING STRONGLY
MULTIPLE NICHE MVNO
OPPORTUNITIES
OPAL INVESTING FOR NEXT
GENERATION SERVICES