[3GScottishUser]

HWL published their annual results yesterday and that's when we get get a glimpse of how the 3 companies are performing.

HWL dont publish results for 3 like any other phone network. Their methodology is 'unique'.

When calculating EBITDA they exclude CAC (Customer Acquisition Costs) a big factor (Handset cost, advertising, administration & dealer commissions).

3 UK are nowhere near profitability or EBITDA in terms of the normal financial models used by all of the established mobile companies.

3 UK's numbers are 'interesting'. 3 include 3 Ireland statistics in their statistics.

The total subscriber numbers are up from 3.75 million to 3.916 million. A rise of about 166,000 in 6 months. Not a big leap forward and its significant that pre-pay numbers are up!! This is probably due to SIM giveaways and cheap prepay handset activity in the run up to christmas. The revenue from pre-pay is down by 23% despite the modest rise in the subscribers!!

Contract numbers have increased but latterly dealers have dumped 3 and they have a relatively small retail presence of their own.

A lot of the revenues earned by 3 have been due to ingress... incoming call revenue which has been allowed to be higher than for other operators but Ofcom are now acting to stop this.

Another interesting statistic in HWL's 3 accounts is the fact that they dont take promotional discounts into account when publishing their figures. So if you buy a 3 contract and it's based on 1/2 price rental then they claim the full revenue in the annual accounts!!

Hmmmm..

Reading between the lines and ignoring the hype... HWL have major problems with their 3 businesses and are now offering £15 contracts with more minutes than most can use.... which will lower their ARPU and make matters worse.

3 are between a rock and a hard place.... What possessed Hutchison to invest huge sums in saturated mobile markets?

[getti]

Sorry but a company who made a £3bn loss 1 year to cut that in 1/2 to £1.2bn is a step in the right direction to me.

If the same happens again next year 3 will have turned the business around and will be making a profit!.

For a brand new company to come into the UK with all those startup costs to get the ball rolling so to speak and to be able to get as many customers to part from their existing network as they have so far is a good start.

Dont get me wrong its not all great from 3 who still have issues with customer service and take their time getting the handsets out to customers.

But on the plus side they have 1 of the best content portals on any network, they offer 1gb browsing for £5 when compare that to what you get on Vodafone... oh wait.. you dont get that on vodafone!. O2 charge you £5 for 4mb. Really only T-Mobile can beat 3 for data access and when you consider 3 have only been doing data access for around a year that is a smart move.

I heard the phrase that 3 is sort of like 'marmite'. Either you like it or you dont. Currently they have 3.9m people who DO like and that number is growing.

From working for 3 and from my personal experiances 3 do not have to change much to turn the company into a bigger success. They have scrapped roaming charges on their own networks abroad for a start which means people going to 8 different countries can call home or text home... even VIDEO CALL if they want to see family and it comes out of their allowance!.

They also have International Saver for £15 lets you call 28 international networks for upto 3000 minutes and that also includes USA and their mobiles!.

The network coverage is ahead of everyone else, they have got handover sorted now with thanks to Orange whilst keeping call prices down.

On paper Direct Texter 1400 or Talker 1000 is better value than Flext although of course they do not have the same flexible option but the numbers mean it's just as good as T-Mobile with better coverage.

They also have many phones with 6 months 1/2 price rental making the contract starting at only £17.50 a month which again is tempting customers.

Now if i was in control or was asked what i would suggest to help improve 3 i would say:

1) Move customer service over to the UK. This would make many customers very happy especially with the language barrier. although in 3's defence i have spoken with a few CS in India who were very helpfull, its the people who are not thats the problem

2) Get more handsets out!. Compare the UK to Australia on 3 and they have the Tytn, N93i, W880, M600 and so on.... Get some new phones out like that and customers with snap them up.

3) Add a decent data package for modem use like a new X-Series so that people can use their 3 phone for internet use and make use of that really good 3G coverage

[3GScottishUser]

Sadly 3 have made too many mistakes in the UK and its unlikely they can ever revive the brand.

New handsets etc would simply be papering over the cracks as there are millions who have sufferered poor quality service from 3 UK.

The stats issued should be viewed with some caution as they don't account for the cost of customer acquisition (which includes handset costs etc) and include promotional allowances (!/2 price line rental etc). Lots of smoke and mirrors!!

With 3 now focussing on £15 a month deals and Ofcom about to slash income from termination charges the ARPU prospects are very grim. HWL have ruled out a sale of 3 UK .... no surprise as no company would pay anything like what they spent on it.

For now HWL are left shouldering a huge problem......

[Ben]

Three's accounting still doesn't make any sense, but that's to be expected. It looks like customer acquisition has generally stalled, but it's nice to see they're hanging in there at around the 4 million subscriber mark. They've cut their official losses, and are heavily investing in 3-stores, one of which we now have in our very own Canterbury!

The strategy is improving, but Three alienated a large amount of their potential customer base in the first 2-3 years of operation. Customer service is still unacceptable, but the store strategy is improving things and the dramatically reduced number of technical issues is giving users the opportunity to coast through their competitively priced service without ever dealing with the CS operation.

Brand image is certainly a problem, as is OFCOM's impending termination rate controls (Three really do milk incoming calls onto the network), but for the consumer there are now chances to still pay very little (with the right deals, of course) and yet receive a level of service more similar than ever to that provided by the other networks.

Three's future looks more uncertain than ever, but with certain failure being the most likely outcome in the past this can only be a good thing.

[3GScottishUser]

3 Group - the road to profitability still looks very bumpy

Hutchison 3 group, which is part of the Hong-Kong based Hutchison Whampoa conglomerate, has announced its 2006 full year results. Hutchison 3's total revenues are up 35% year-on-year to HK$50,668 million (€5.3 billion), and the group narrowed its losses, before tax and interest, by 45% year-on-year to HK$19,996 million (€2.1 billion).

Hutchison's 3 Group had 14.7 million customers in December 2006, compared with 11.9 million in December 2005. Average 12-month rolling ARPU rose by 8% to 45.63. Its average monthly churn has dropped from 3.2% to 2.6%. The Group's subscriber acquisition costs dropped to €250 in 2006 from €262 in June 2006 and €293 in 2005, despite Hutchison's increased focus on higher-value segments and its use of discounts to attract customers in those segments.

Hutchinson Whampoa continues to believe it can achieve positive EBITDA after deducting all subscriber acquisition costs in the first half of 2007.

Comment: Hutchison 3's top level performance is improving noticeably. The group continues to report one of the highest ARPUs amongst all operators worldwide, as well as one of the highest non-voice ARPUs. Moreover, its ARPU continues to grow. Its customer base is also growing at a healthy rate, even though it operates in some of the most competitive markets on the planet. Factors underlying this performance include 3's attractive data offerings, a stronger pricing strategy and a push for on-net offers. This has enabled the operator to lower its costs while attracting new customers.

However, while the top line figures paint a very positive picture, below the varnish it is easy to see large cracks. 3 is still a long way from sustainable profits. The operator is doing very well in some of its smaller markets, such as Australia and Sweden, but it is unlikely that 3 will be able to sustain this growth without substantial further investment. These are mature and highly competitive markets, where call charges are dropping (3 Australia and 3 Austria's ARPUs are down).

In any case, it is primarily the health of 3's businesses in Italy and the UK which will determine whether the operator will succeed in becoming profitable in 2007. Over 75% of 3 Group's customers are in these markets. Italy's blended ARPU fell by 3%, even though the operator grew its postpaid user base significantly. Its prepaid revenues in the UK and Ireland have dropped by 23% even though its prepaid customer base grew by 4%. The operator also continues to subsidize users in Italy and the UK very heavily, offering two handsets for the price of one, half price line rental, and large commissions to retailers. If its SACs at Group level are falling it may be because 3 is not acquiring as many of these expensive customers in its core markets. In these core markets a 3G network is no longer a competitive advantage, and 3 competes mainly on price. Therefore, it will be difficult to achieve both short-term profitability and long-term growth.

http://www.ovum.com/news/euronews.asp?id=5555