MmO2 cuts £367m from network bill

MOBILE phones operator mmO2 moved to calm market fears about its future profitability by slashing e600m (£367m) from its capital expenditure through renegotiating and streamlining contracts with suppliers.

Chief executive Peter Erskine also played down concerns that BT's re-emergence into the mobile market significantly threatened mmO2, which was demerged from BT six months ago. News last week that BT intended to re-enter the market sent shares in mmO2 to a record low of 51 1/2p.

'The BT announcement is not new. It was all on page 58 of our listing particulars last year,' Erskine said. 'This is something we worked hard with BT to come to agreement on and we are very pleased that BT is galvanised to go into this higher-end corporate area that needs a very long sell but is rich business when you get it, but with us as the service provider.' The shares rallied 4p to 57 1/2p.

Erskine said the e600m savings would take place over five years. MmO2 has cut supplier numbers for its 2.5G and 3G core network equipment and renegotiated existing deals, dropping the expected cost of its new core networks from e2.8bn to e2.2bn.

The move follows a six-month review of existing contracts. It consolidates down to two core network suppliers in Canada's Nortel Networks and Nokia of Finland but leaves Motorola, NEC and Siemens out in the cold.

Nortel becomes mm02's core 2.5G or GPRS network supplier across its four main European markets, and will supply the core 3G network infrastructure in Britain, Germany and Ireland as well as a minimum 30% of the radio equipment for the network. Nokia also has a guaranteed 30% minimum of the remaining 3G radio equipment contract. Nokia and Nortel will compete for the last 40%.

Erskine said the group was in the final phase of deciding from a shortlist, believed to include Logica and CMG, a supplier for multimedia messaging software. An announcement is expected within two months.

He declined to comment on his preferred supplier. But its Dutch operation has awarded a key network management services contract to Ericsson, the Swedish group that has moved aggressively into multimedia messaging.

Erskine said he expected mmO2 to have its first commercial 3G network operational in summer 2003.