Vodafone's UK subscribers fall for first time

The mobile phone giant Vodafone revealed that the number of UK subscribers had slumped for the first time in its history yesterday but softened the blow by reporting that the amount of money it extracts from customers had risen.

Vodafone, which is braced to receive a barrage of criticism over the potential £7m pay package it has awarded its chief executive, Sir Christopher Gent, at its annual meeting tomorrow, dismissed the fall in UK subscribers as reflecting merely the "churn" of pre-paid customers who fuelled last year's mobile phone boom.

It said customer growth in its first quarter was "partially offset by the necessary and expected disconnection ... of non-revenue earning handsets", bought by customers for next-to-nothing last year to replace early models. Sir Christopher said the number of UK subscribers would fall again during the next three months but would "probably" grow in the third quarter.

The number of UK customers in the three months to end-June fell by 200,000, while in Germany they declined by 90,000. However, the group said it had added 2.7 million new customers in the first quarter, including 1.4 million "organic" subscribers not taken on through acquisition.

Despite the fall in subscribers, Vodafone said that average revenues per UK user (ARPU) – the performance measure the industry is keen to switch to – had risen to £278 from £276 in the previous quarter. In Germany, Vodafone's other key market, ARPU, which is driven by selling customers more "data" services on their mobile phones such as watching video clips of sporting highlights or taking photographs and sending them to their friends, rose by €4 to €302.

Given that 70 per cent of the UK's population already owns a mobile phone, increasing ARPU is the mobile phone operators' last chance to convince the City that they should be rated as growth stocks. Like rivals such as Orange and mmO2, Vodafone is seeking to improve its subscriber "mix" by signing up more lucrative contract customers. The group has seen its market valuation collapse this year, reflecting concerns over the prospects for the telecommunications industry. Vodafone shares, which have halved since the end of last year, closed up 2.5p to 97p yesterday.