It's tough out there, says O2 boss - as 500 jobs cut

And 2,000 more are hired

Mobile operator O2 is cutting 500 jobs and creating 2,000 more in an effort to stop customer churn in what the company predicts will be a tough year.

The 500 jobs, which will be lost across the firm's UK operations, will be management positions in non customer-facing roles, although O2 declined to give more specific details of where the job cuts will be made.

O2 also announced 2,000 new hires across the company - 500 staff for retail stores and 1,500 for customer service - as well as a new contact centre. The mobile firm is ramping up on the high street too, raising the number of stores from 260 to over 300.

The jobs cuts and new hires will be "by and large cash neutral," an O2 spokesman said.

The recruitment drive is part of a strategy designed to cut customer defections, which are thought to cost European operators over €10bn a year. O2 CEO Peter Erskine said in a statement: "Research shows customer choices... are not driven by price alone, they're driven by a range of things - quality of service, after-sales care."

Despite the new hires, Erskine said he expected the coming financial year to be a tough one for the operator.

"Looking ahead to 2005/06 in the UK, we expect mid-single digit service revenue growth, as new customer growth slows across the market," he said.

The company also revealed it expected its second half 2004 results to be lacklustre, due to losing a contract with BT, a recent 30 per cent cut in termination rates - the amount mobile networks can charge to be the final link in a chain when a call is made from a landline or other mobile network - and more competition in the mobile marketplace.

The O2 spokesman told silicon.com the mobile world is tougher now due to saturation. "The mobile phone market is slow - figures show that pretty much everyone has a mobile phone now," he said. "[The UK] is also one of the most competitive markets in Europe."

He denied that the operator felt threatened by the entrance of no-frills operators such as easyMobile into the UK market. "The low end of the market is not a market we target."