Matthew Key, Chairman & Chief Executive of Telefonica Europe, said: “Telefonica Europe maintained market-leading financial and operating performance across the Group, with solid momentum in UK and Germany, while the Czech Republic and Ireland are seeing early signs of trends reversing, despite an ongoing challenging economic environment. The Group continues to see the benefits of a more balanced portfolio and in this last quarter disposed of Manx Telecom as a non-core asset to focus resources into main markets. In the first six months of 2010 we continued to set the trends in the markets where we operate ‘ witness our bold move on data pricing in the UK and the ongoing popularity of the O2o proposition in Germany which has secured more than 1.5 million customers since its launch just 12 months ago.

Telefonica Europe’s total customer base reached 54.5 million at the end of June 2010 mainly leveraged on continued expansion of mobile contract customers and the rapid adoption of smartphones. In our core mobile business we maintained our focus on acquiring and retaining high value customers, which is reflected in our low group-wide churn rates and the fact that nearly half (48%) of all our customers are in now the postpay contract segment. Reported revenues reached ‘7,278 million in the first half of 2010, up 10.8% year-on-year. In the second quarter of 2010, year-on-year organic growth was 4.7%, a significant improvement over the 1.7% growth posted in the first quarter.

Telefonica O2 UK continued to deliver strong growth in profitability, while increasing the number of high quality customers. In Q2, revenues increased 6% year-on-year, with OIBDA up more than 8%. Our total mobile customer base (excluding Tesco Mobile) increased 4.5% year-on-year to reach 21.6 million at the end of June, driven by a strong 11.7% year-on-year expansion in the contract segment. This was achieved thanks to the continued leadership in customer satisfaction, which is reflected in the lowest churn rate in the mobile contract segment, as well as increased adoption of smartphones, with the introduction of the new iPhone 4 and the ongoing success of other data-related devices such as BlackBerry. We have seen no softening of the iPhone sales since the end of exclusivity. In fact, in the first half of this year, O2 sold more iPhones compared to the same time last year when we had exclusivity and, in total, we have now sold three million iPhones into the UK.

Telefonica O2 Germany performed well in the first six months of the year, continuing to gather positive momentum in Europe’s biggest market on the back of the success of ‘O2o’ tariffs and sustained leadership in the mobile Internet space. Organic revenues continued to grow strongly in Q2 at more than 8%, while OIBDA increased over 6%. Customer confidence in our data networks was clearly demonstrated by the mobile laptop surfing market, as one in every three customers bought their dongles from us. The mobile customer base reached 16.3 million at June end, 2010, a 9% year-on-year increase, led by the continued expansion in both contract — which grew nearly 10% year on year — and prepay sectors. The business progressed smoothly with the integration of HanseNet into the business and, by achieving all our aims in the recent spectrum auction, we have enabled leadership in the future new technology landscape. Our investment of ‘1.38 billion in additional spectrum will enable us to bring new technologies and high-speed mobile internet to our customers nationwide.

“Our mobile customer base in Telefonica O2 Czech Republic remained stable year-on-year with a healthy 4.5% growth in our postpay base ‘ which now accounts for 57.4% of our total customer base. O2 in Slovakia continues to trade strongly with 63,000 net adds in the quarter, predominantly in the contract segment. With only limited signs of economic recovery, Telefonica O2 Ireland has shown strong commercial momentum despite tough trading conditions.”

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