[3GScottishUser]

According to HWL's results the UK arm of 3 has been struggling in the past 6 months (to June 2006).

Subscriber Base now 3,750,000 up just 4% (150,000). UK growth was the worst in the group (Australia was best thanks to the migration of Orange customers to 3).

Churn was quoted as 3.2% per month or 38.4% annually (June 2006 was 3.6% = 43.2% annually if consistant). "Churn for the first-half was higher than expected, reflecting fierce competition and the poor average quality of the customer base at the end of 2005. Churn has progressively been reduced over the first-half and was approximately 3.6% for the month of July."

Revenue on Pre-Pay down 13%, Post Paid Up 20% Total revenues up 16% (Before customer acquisition costs [ie handset costs, cashbacks and dealer commissions])

Full rerport: http://www.hutchison-whampoa.com/upload_docs/2006/08/Corporate/1802/1802_eng.pdf

All in all - bad news and no sign of any significant growth..... as expected.

[Hands0n]

"Churn for the first-half was higher than expected, reflecting fierce competition and the poor average quality of the customer base at the end of 2005. Churn has progressively been reduced over the first-half and was approximately 3.6% for the month of July."


I cannot let that go unchallenged :D

The highlighted text above just about sums up 3's attitude to The Customer. They are in denial and have been since day one about their Customer Services (sic) which are as dire as a very dire thing. If polled, I would vouch, that the majority reason for leaving 3 is [to use their own terms] the "poor average quality of their Customer Services" which tend to frustrate even the most temperate of us.

This is all a crying shame really as their 3G network is outstandingly good in terms of coverage and overall quality. Even their portal offerings and a few of their contract tariffs are of above average quality.

But until, and unless, 3 learn the simple mathematical equation of servicing The Customer appropriately and thereby causing a natural retention they will be doomed to repeat their own [short] history of attrition and churn.

I am staggered that after more than three years that 3 have not had the savvy to suss that out for themselves. Their corporate denial will be their ultimate undoing.

[3GScottishUser]

I have to agree with the above.

Sure, competition is fierce and it was always going to be very difficult to carve out a niche for a new entrant. Hutchison did wonders with Orange and built it into one of the most efficient customer focussed companies in the sector. Why they decided to neglect customer service in an even more competitive market is bewildering. I am sure outsourcing is more cost effective but considering the vast sums paid for new 3G licences and the infrastructure the cost to provide decent UK based customer support would have been a minor additional outlay that may have made a substantial difference to 3's high churn rate.

Reading the published report I suspect HWL have now lost their appitite for a slice of the UK mobile market and will try to make a dignified exit at the earliest opportunity. Lack of a 'killer application', price reductions, increased competition, market saturation and telecoms convervegence all appear to weigh heavily now on 3 UK and whilst they may still have some limited opportunities as an independent network operator the prospect of them ever being a big player appears to have passed.

[Alio]

(3GScottishUser) Lack of a 'killer application', price reductions, increased competition, market saturation and telecoms convervegence all appear to weigh heavily now on 3 UK and whilst they may still have some limited opportunities as an independent network operator the prospect of them ever being a big player appears to have passed.

It's a shame!.......I had big hopes for 3, they have had a rough time trying to compete with the big guns.......and have lost out in a big way on all fronts.

Like "HandsOn" said - "Their corporate denial will be their ultimate undoing"

Thing is, how the hell are they going to turn things around at this late stage in the day?

[solo12002]

A good start would be to move cs to the UK and start proving a better service, then in light of their price plans, users would be more likely to stay!

[3g-g]

Thing is, how the hell are they going to turn things around at this late stage in the day?

This is the thing, as 3GSU mentions below, how do you enter a market when the 4 operators that exsist previously have more or less 60 million customers between them?! That is more or less the whole population of the UK! The only way is to be completely different from the others, which to be fair to Three, they did at first, but look at them now, nothing inspiring whatsoever! Three shook the place up, the other 4 changed their offerings and now Three don't seem to be able to compete as they don't have the customer base the other 4 have, I think Vodafone, Orange, T-Mob and O2 will manage what they've set out to do, and that's to have the UK back to 4 operators.


Sure, competition is fierce and it was always going to be very difficult to carve out a niche for a new entrant.

[Hands0n]

Its funny, you look for a quote and it leaps off the page at you :D The title of this posting is taken from "A doomed people" from the biblical book of Mark - I found it on google! How well it fits here some 2,000 years* later :)

To business ............

3 certainly had their chance - the honeymoon period was a very long one in relative terms. But they blew it by not being in a strong position to provide adequate Customer support for the inevitable teething and follow-on problems. They did this through choice, and a very misguided choice it has proven to be.

They developed a "policy of denial" which extended to their disasterous debacle with the LG handsets. Time and again they said there was no problem, all the while they knew well that there was. This was, of late, repeated with the Nokia 6280 and its buggy initial release on 3.

History will judge 3 UK's management harshly. They messed up, big time. The voice of the Customer was ignored, and still is to this day. Even with people leaving in droves they are not listening - instead preferring [with breathtaking arrogance] to disrespect the Customer as "poor average quality" as if the Customer were a packet of biscuits. For a company that depends on its Customer for its very existence they have a very poor outlook, and an even poorer chance of survival.

Gerald Ratner uttered the word "Crap" and it ruined his jewelery store company. 3 very obviously missed that particular lesson in history* and, as with all who ignore history, are likely to repeat it.

This is one "poor quality customer" who feels little sympathy for them. Which is a pity really, as there is a lot technically [and only technically] right with the first 3G mobile network company in the UK.

[3g-g]

I've picked a few paragraphs from Bloomberg about HWL's operations, these just relate the the Three group, take from them what you will.


Hutchison's shares fell the most in three months after Li abandoned a prediction of profitability this year at third- generation networks in Europe, where the company competes with Vodafone Group Plc and Telecom Italia SpA. Li today said he won't sell shares in the Italian 3G division until it is profitable.

``Investors are concerned about 3G,'' said John Koh, who helps manage $950 million, including Hutchison shares, at Daiwa Asset Management Ltd. in Hong Kong. ``I'm not saying 3G is a bad investment, but it has been a few years and we aren't really seeing earnings.''

Losses at Hutchison's European third-generation networks, which allow faster music and movie downloads, have forced Li to rely on asset sales to deliver rising earnings. While the 3G unit's loss narrowed 40 percent to HK$12 billion, the company said it will break even in 2007 instead of this year.


Li, 78, the world's 10th-richest businessman with a fortune of $18.8 billion according to Forbes magazine, has invested $25 billion since 2000 in building the European 3G network, with units in the U.K., Italy, Ireland, Austria, Norway and Sweden.

3 Group will be unprofitable this year, Hutchison said, dropping its assertion in March that the unit would this year break even before interest, tax, depreciation and amortization, and before costs for gaining customers. The unit will begin to generate profits on that basis in 2007's first half, the statement said. It will be profitable before interest and tax in a ``sustainable'' manner in the first half of 2008, it said.

So, another 18 months 'till Three is profitable when you've already stumped up $25bn?! I'll give the old man his dues, he's devoted! I can think of a lot better things to throw that much money at for 8 years other than trying to make your first profit from a business!

Bloombergs story is here. (http://www.bloomberg.com/apps/news?pid=20601080&refer=asia)

[3g-g]

Yet more about Three, they do seem to make the news more than the others! This one's originally from FT.com, this is a reproduction of the original. (http://www.euro2day.gr/articlesfna/19695033/)

Now, I'm no business man, so I'm not terribly up to speed on making and spending billions, however, if my company had made $1.2bn and then the costs from one part of the business turned it into a £300million loss I'd swiftly be departing with that area, not hanging about telling everyone we'll break even next year, and make profit the year after that!



If one was to design a conglomerate perfectly suited to the financial zeitgeist, Hutchison Whampoa would be agonisingly close to it. It's portfolio of ports, emerging market mobile, Chinese property, regulated public infrastructure, and oil exploration and production, seems staggeringly prescient. That Hutch shares have flat lined for the past two years is largely due to its sixth, gammy, leg: 3G mobile in Europe. Unfortunately for Hutch, the limp is not going away.

3G accounts for just a fifth of proportionate sales, and a third of total book assets, but continues to savage Hutch's profit and loss account. Excluding exceptional items, 3G turned an underlying first half pre-tax profit of $1.2bn into a $300m loss. After the cost of all handset subsidies and capital expenditure, the 3G unit lost $1.2bn on an operating cash flow basis. That is about half last year's level, but the unit's trajectory is still unclear: on Thursday Hutch said it expect the unit to be cash flow breakeven, before capex, by mid 2007 - six months later than expected.

Hutch has abandoned its previous tactic of floating minority stakes in the hope that specialist investors award 3G discounted cash flow valuations that capture its long term growth potential. With little genuine product differentiation, buying market share in Europe's mature mobile industry remains a pretty questionable strategy. Hutch's sale of a small stake in its Italian 3G business to investment banks, which it argued established a valuation floor at book value, has in fact been treated as debt in its latest accounts.

Expectations of a sale of the UK 3G business to another operator look wide of the mark. But Hutch's pride is expensive. Including 3G, the operating business cannot cover group interest costs or the dividend. Since December 2004, net debt is unchanged at about $18bn, despite $8bn of disposals including stakes in the core ports and emerging market mobile businesses. On Thursday chairman Li Ka-shing, 78, said he was under "no pressure" to sell the stake in Husky Energy. Still, the danger is that the continued policy of waiting for the 3G migraine to cure itself will damage the near flawless strategic touch Hutch has displayed elsewhere.

[3GScottishUser]

I think you have to remember that HWL got £20 billion for Orange when they sold it a few years back. I suppose they thought it would be pretty straightforward to do the same thing again only with newer technology.

Problem seems to have been that they appear to have misjudged the market badly. What was a growth market with lots of potential (UK) is now completely saturated and customer expectations are higher than ever. Using Indian call centres for CS may have been cost effective but appears to have cost 3 dearly in terms of churn and poor levels of customer satisfaction. The lack of a 'killer application' also appears to have made the task of breaking into the market more difficult.

For sure Li Ka Shing has had tremendous staying power and has spent a fortune trying to replicate the fantastic Orange scenario but I suspect everything has a time and place and what was a great opportunity in the 1990's has long since gone. Its not just 3 who have found the going tough, easymobile hav'nt set the heather alight either.

NTT DoCoMo and KPN appear to have made costly but wise decisions to write off their investment in 3 UK and its only a matter of time before Li himself will have to stop the losses from the 3G operations spoiling what is otherwise a very profitable conglomorate. Establishing a 5th UK network was always going to be a risky business and against small players like Cable and Wireless, BT etc HWL might just have pulled it off. Nowadays they are up against solid competition in the form of mobile multinationals like Vodafone, T-Mobile, Telefonica/02 and Orange (France Telecom) who all have deep pockets and are probably well out of the reach of even Li's huge company.

Full marks then for opportunisim, some may ultimately say the money invested in 3 was wasted but I suspect that there was a time when things could have worked out. For now 3 UK holds the record as the largest loss maker in the UK and with ever more giveaways the prospects dont look as if they will improve in the short term. Will Li continue to shoulder the losses? If so for how long? The Italian operation provides a clue as to HWL's ambitions. After 3 years of substantial investment they attempted to float part of the company and had they succeeded they would have probably gone on to sell the rest in time. Sadly Italy came nowhere close to the value HWL wanted and the UK, Austria, Sweden, Denmark and Ireland businesses are miles away from the status of the Italian unit. Li looks like being between a rock and a hard place right now and I doubt if there are any quick fixes or easy solutions to recoup the sums invested. Reminds me of the ITV/OnDigital folly which sunk billions of profits made by ITV/Granada/Carlton.

In these new days of consolodation and triple/quad play services Li's best hope might be for another telco to buy 3 UK to compete with Orange, 02 and Virgin/NTL. If I were a gambling man I would bet on this being the most likely outcome. The next 12 months have the potential to radically change the who landscape of the major telcos and I doubt if there will be room for a small stand alone 3G provider.

[getti]

Orange are payng £100m a year to 3 once the signal changes over from O2

[3GScottishUser]

Orange are payng £100m a year to 3 once the signal changes over from O2

Eh?

Orange paying 3 to let them use their network.

Dont think so!!

[Ben]

I'm confused also.. more info?

[Hands0n]

That certainly does not seem entirely right - it just does not make any commercial sense. Orange do not *need* 3, the opposite would be true to deliver a 2G filler for 3's 3G holes [previously filled by O2]. Then surely Orange would want paying by 3.

[getti]

Wil try and find the mobile mag i saw it in. I was a little confused myself but it did say orange pay 3

[Ben]

Perhaps it's a £100m saving over using O2...

[Alio]

Check this out: http://business.timesonline.co.uk/article/0,,8211-2325180,00.html

I thought vodafone made a massive loss last year......."perhaps buying out 3 would be one way to remove 3 from the UK market"........and voda to gain more customers"

I could see something like this happening mind......

[Hands0n]

Culled from the link posted by Alio [above] ......



Back in London, Vodafone dropped as much as 1.75p to 108.75p, its lowest reading since March 2003, only to rally towards the close and finish unchanged at 110.5p. The swing came amid suggestions that the mobile operator could consider buying the UK unit of 3, the rival network owned by Hong Kong-based Hutchison Whampoa.

Hutchison, which reports figures tomorrow [24 Aug 2006. Ed.] , is widely expected to look at disposing 3 UK next year, with a valuation in excess of £8 billion. But plans to float the business have been put on hold after the IPO of its sister company in Italy failed to attract a valuation that matched Hutchison's expectations.

According to sector watchers, Hutchison could bring forward its disposal timetable if trading deteriorates and valuations start to slide. News on that could arrive as early as tomorrow [24 Aug 2006, it didn't. Ed.] : analysts expect the firm's UK unit to have add just 400,000 customers net over the last six months, with churn increasing as other operators matched its price tariffs and patchy network coverage encouraged defection.

"The slowdown in 3UK subscriber growth risks leaving the operation sub-scale and unable to IPO at book value," said Credit Suisse in a morning note. "A sale of the operation, potentially to one of the existing UK operators, would potentially realise more value."

There is no obvious trade buyer for 3 UK among the UK operators, with Telefonica (O2) France Telecom (Orange) and Deutsche Telekom (T-Mobile) all working under tight financial constraints. That leaves Vodafone, whose chairman John Bond knows Hutchison owner Li Ka-Shing well from his time in charge of HSBC.

"Consolidating markets would be one way for Vodafone to improve the outlook for its European operations," continued Credit Suisse. "Regulatory approval would be a challenge, but not insurmountable given the fragmented nature of the UK market."



Vodafone do need to "improve the outlook for ........." and if acquiring 3 is the way to do it then it will be a purely business reason for doing do. Sir John will certainly steer the company to buy 3 UK if that makes financial sense to do so. The regulatory and technical matters will be inconsequential to that level of management.