The telecom sector, especially in the UK, is admittedly a competitive business environment. The evolution of the significance of loyalty programs as customer retention strategy, therefore, forms the basis of this study. This study was applied to 100 customers of O2 Telefonica based in Peterborough City and it’s outlying districts, representing 83.3% response rate. The study investigated the loyalty programs offered by O2 Telefonica to its customers. These include: Multi-buy loyalty; Percentage discount loyalty; Come back soon loyalty; Free delivery loyalty; Try for free loyalty system and Money off loyalty program. The study explored O2’s loyalty programs and their successes. According to the results of this research paper, loyalty programs have significant positive effect on customer retention. Likewise, the order of major effects on retention is as follows: Money off loyalty with 40%, Come back soon loyalty with 20%, Free delivery loyalty with 16%, Try for free loyalty with 13%, Percentage discount loyalty with 7% and finally Multi-buy loyalty with 4%. Therefore, this paper suggests that any service provider that is able to build long-term customer retention akin to loyalty programs has to have strategic advantage in order to resplendently survive the ever-increasing competitive environment.