October 26, 2011 / 7:00 AM / 8 years ago

UPDATE 2-Everything Everywhere says contract users grow

* Number of mobile phone contract users rises 9 percent

* Shopper footfall down year-on-year

* Service revenue excluding impact of regulatory cuts up 3.8 pct

* 85 percent of new contract customers buy smartphones

By Michelle Martin

LONDON, Oct 26 (Reuters) - Britain’s biggest mobile operator Everything Everywhere said it had escaped the economic downturn in the UK relatively unscathed so far as value-conscious customers switched from pay-as-you-go to long-term contracts.

The company, which runs the T-Mobile and Orange brands in Britain, posted a 9 percent increase in customers choosing contracts in the third quarter and said on Wednesday 67 percent of its contract users were on 24-month deals.

While losing a net 227,000 prepay customers in the third quarter compared with last year and shedding 1.4 percent of total customers to 27.5 million, it added a net 185,000 contract customers - the same figure as in the year-earlier period.

Chief Executive Olaf Swantee, who replaced Tom Alexander on Sept. 1, said there was strong demand for smartphone contracts with a monthly bill of around 25 pounds ($40).

“Customers are prepared to move up to a contract — we see a big migration — but they are certainly seeking value deals within the portfolio of pay monthly,” he told reporters.

British consumers are reining in their spending as disposable incomes are squeezed by rising prices, muted wage growth and government austerity measures.

But Swantee said using mobile data packages to access the Internet from phones was to some extent divorced from the stalling of the British economy since September last year.

Swantee said YouFix, a 12-month T-Mobile contract which prevents customers from exceeding a set allowance of minutes and text messages, was particularly successful.

The unlisted joint venture, created by a tie-up of France Telecom’s Orange UK and Deutsche Telekom’s T-Mobile UK in 2010, reported turnover of 1.7 billion pounds on Wednesday, down 4.3 percent compared with a year earlier.

Without the impact of price caps on terminating calls between networks that was introduced by regulator Ofcom in April, the underlying revenue was up by 0.6 percent .

The company said 85 percent of its new contract customers opted for smartphones, with Apple’s new iPhone 4S, Samsung’s smartphones and HTC phones particularly popular.

Espirito Santo analyst Will Draper told Reuters revenue growth of 3.8 percent was a strong indicator for the company.

“Those termination rate cuts will start to drop out of the comparisons from next year so what you should start to see is much better revenue growth in 2012,” he said.

“Overall Olaf Swantee has made a good start and I’m very encouraged about the kind of growth we could expect to see in the next two or three quarters from Everything Everywhere.”

The company said it was making good progress in cutting costs and said it was on track to make at least 3.5 billion pounds worth of synergy savings by 2014.

The joint venture, which operates from more than 700 retail stores across the UK, competes with Telefonica’s O2, Vodafone and Hutchison Whampoa’s 3 UK .

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