Telefonica SA's (TEF) O2 overtook fixed-line incumbent BT Group PLC (BT.LN) as the largest U.K. telecoms provider by connections in 2008, according to research by U.K. communications regulator Ofcom, underscoring the decline of fixed-line traffic compared with mobile.

Ofcom's annual communications market report, which examines data for 2008 and the first quarter of 2009, also showed the number of calls originating from a mobile phone will overtake those from a fixed line by 2010.

It said O2, already the U.K.'s largest mobile operator by sales, had 21.5 million subscriptions by the end of 2008, or 19.5% of the total, compared with 20.6 million subscriptions to BT's analog and digital lines.

The findings underline the long-term decline of fixed-line voice telephony, which continued its downward trend, generating GBP9 billion of revenue in 2008 from GBP9.3 billion a year earlier.

The problem is most acute at BT, where voice calls and line revenue contributed 28% of sales in its last financial year, compared with 31% the year before.

BT reported retail revenue fell 2% in the three months to June 30 to GBP2.11 billion as call and line revenue fell, although the company is cutting costs to mitigate the declines. It also has a healthy broadband business within the retail unit.

Still, both fixed-line and mobile providers offer an element of inclusive calls within their monthly tariffs, Ofcom said. This hits voice call revenue, but is offset to some extent by access revenue, which includes line rental and inclusive call bundle revenue.

Company Web site: www.btplc.com

-By Kathy Sandler, Dow Jones Newswires; 44-207-842-9293; kathy.sandler@dowjones.com