[3GScottishUser]

From The Sunday Times (27/08/2006):

For months, the mobile-phone company 3 has insisted its rate of customer turnover — or churn — is no worse than at its rivals. Last week it was forced to admit the truth when its own parent company attacked the “poor quality” of the British firm’s customer base.

The loss of hundreds of thousands of UK customers is one reason why Hutchison Whampoa, the Hong Kong conglomerate that owns 3, has abandoned its break-even target for its 3G mobile business, which also operates in Italy and Australia.

The latest figures suggest that customer losses at 3 UK were until recently running at a rate of more than 50% a year, and even higher among low-spending pre-pay customers. One internal source suggested that 40% or more of 3’s pre-pay customers were dormant, and made no use of their expensive 3G handsets.

The results are an embarrassment for Bob Fuller, 3’s chief executive, since they call into question the tactics used in a desperate dash for growth in 2004. It has spent hundreds of millions of pounds to subsidise the cost of 3G phones, but few of the customers it attracted have stayed with the business.

The growth in customers has slowed markedly. In the most recent six months, the number of UK subscribers rose by only 4% to 3.75m.

James Barford of Enders Analysis, who has repeatedly warned of high churn, said it was “very gratifying” to see Hutchison’s admission of the problems. “I’d argued that churn was heading towards 60%,” he said. “I was surprised it was so close already.”

In May, Fuller said churn was in line with industry norms, suggesting a level of about 30%. Yet Hutchison’s results revealed churn was at an annualised rate of 43% in July, even after six months of “progressive” improvement.

http://www.timesonline.co.uk/article/0,,2095-2330107,00.html

[Hands0n]

How exactly does Bob (I'm in denial) Fuller manage to keep his job? Has he got a photo of the owner with a donkey? Jeez, my 12-year old could do a better job!!

[3GScottishUser]

That must be the key question but I suspect Bob, Canning and Li go back a long way and there is bond of loyalty that appears to have protected him to date.

I also think there are other reasons way Bob has survived so long.

Head Office were responsible for and probably took the key decisions for the following:

1. Releasing early products (like NEC's and early Motos) that were much worse than the GSM phones they had to compete with.

2. Launch of a network that was not as reliable as the technology it seeked to replace.

3. Outsourcing customer service.

4. Attempting to establish a pre-pay presense by flooding the UK market with cheap products (ZTE's, Moto c975s and Amoi MOS1's) whilst the pre-pay market spenders headed in exactly the opposite direction buying higher spec Samsung, Motos and Nokias.

5. Introduction of a complex pre-pay tariff that featured expensive calls and inbound calling credits.

Those five things were probably outwith the control of the UK management.

The UK management have some responsibilities to account for too:

1. The Walled Garden fiasco. Utterly undermined the whole purpose of a high speed netwrok and crippeled the UK business from the outset.

2. Allowing dealers to set the agenda. 3 UK was used by the majors to promote churn which is in their interest of course. The big boys knew that large numbers of customers could be tempted by bucketloads of inclusive talktime and texts but they also knew that due to the 3 points in the 1st list above many would return after constacts expired and could generate acquisition commissions from other networks by switching them back to fashionable GSM kit or alternative 3G offerings.

3. An overreliance on the high tech features in previous times. focus on video on demand and video calling rather than the straightforward 'value' proposition that 3 now major on.

All things considered a lot has gone badly wrong and the reasons are pretty easy to identify for anyone who has been following the market. The big questions are what has been done to rectify the above issues, have the issues been corrected and is 3 now in a fit state to move forward in the highly compedititve UK mobile market?

1. Handsets are now better. More feature rich and more reliable but 3G still has'nt got those ultra sexy and desireable models like LG's Chocolate, Samsung's 900 series or Moto's Dolce & Gobana Razr. Nokia N-Series and SE K-800is have improved things but they are most likely to appeal to a very small market sector who are most interested in technology. Its goint to be a while longer before 3 have a 'mainstream' handset selection and that is still a big problem for them when all the rest in the UK have both 3G and GSM models to promote.

2. Open Internet access appears to have provided via Yahoo. An excelllent move forward but they are giving it away on new deals so what was once a big threat to content sales and chargeable is now a big threat to revenue earning content and is revenue neutral. Still some issues with the service working in vast areas where 3 have no 3G coverage too. Verdict - partial solution but not ideal especially for business customers.

3. Taming the dealers - Direct sales via the Internet and direct press advertising appears to have replaced the heavy use of High Street dealers to expand the user base. This has many factors, it is less expensive than providing high dealer commissions, it is also far less visable to potential customers but affords the network greater control of those they acquire. Offering exclusive on-line deals that are much better deals than those offered through dealers have another consequence, they alienaite dealers and so does early upgrading by 3 directly. Having been responsible for the 'cashback' model to generate rapid growth in 2004/5 3 appear to have created one of the instruments of their own demise because whilst they may no longer like the idea, customers still do and other networks appear to have filled the gap for those browsing in the High Street.

4. Pre-Pay needs sorted and fast! Its not the huge revenue earner that networks make most money from but it is an important entry level sector which feeds the contract market. Customers want easy to understand, transparent pricing and the likes of Tesco and T-Mobile have provided just that. Other innovations like Vodafone's Stop The Clock, free weekends and 02 Treats have made 3's WePay proposition one of the weakest available. 3 need to offer a decent range of pre-pay handsets at affordable prices (in Italy you can get an LG U880 for about €100 on pre-pay), and a simple tariff that your average 16 year old can comprehend. Urgent action required in this area.

5. The on-going legendary Mumbai issue needs to be addressed. It was a bad mistake to rely on that quality of customer service when a new network needed to establish itself. The UK company must be aware of the issue and must now see that many other companies are now making an issue in advertising about UK based call centres. We have seen a U-Turn on the Walled Garden and now might be the right time to make another one on this issue. Without decent customer support all of the effort to change the customer experience in other areas is wasted.

So what is the state of play? 3 have a massive churn rate, far greater than any other operator (as if we did'nt already know). It is reported that they have a huge dormant pre-pay user base (40% or 700,000 inactive users), which makes the total active user base around the 3 million mark. Not a happy story when you have the expense of running a national 3G network and have to pay all the other running costs.

The latter question above is probably the most important and the one that is the most difficult to answer. Have HWL got the stomach for yet another full scale market attack? Clearly 3 million customers is not sufficient to make any impression on the costs and if numbers remain at the current levels 3 UK will be losing money for a long time to come. A lot has been done to change things but have they done enough as they now have no unique selling features and have been eclipsed on features like TV by Vodafone and Mobile Internet by T-Mobile.

I don't think 3 UK can survive in its current form and the vultures appear to circling as the press pick up the details from the operating accounts and translate them into forecasts with the help of industry analysits. Consolodation in the telecoms sector appears to be one potential saviour as 3's 3G network could be an attractive asset for a telco without a mobile presence of their own.

Interesting times ahead for sure.

What does everone else think as we reach what must be a very serious time for the decision makers at 3 UK's parent company (Hutchison Whampoa Ltd) in Hong Kong.

[Hands0n]

I wish them well, I really do. But their antics since their inception frustrate the hell out of me. I am a two-times 3 Customer but am unlikely to be going back to them any time real soon now that I have four other, much better at CS, networks to choose from (the big "C" is completely intentional as 3 have no idea of what one of those are).

[Alio]

3 UK are dead in the water.......watch the sharks move in!