3's Services revenues lower than Voda, Orange and 02

[A1c]

From The Feature (20/08/2004):

3 UK hit its million-user target, just eight months late, and the carrier now has 3.2 million users worldwide, and while the company is showing some other promising metrics, it still managed to lose HKD 8.9 billion (USD 1.14 billion) in the first six months of 2004, forcing parent company Hutchison Whampoa to rely on asset sales to turn a profit. The 3G unit lost HKD 3.9 billion in the same period last year.

The carrier's ARPU figures from its 7 country units look pretty good, and its average customer acquisition costs, one point of analyst concern, fell to EUR 252 from EUR 299, though they still remain high.

Hutchison bosses are quick to say that everything is going according to plan, but it looks like they are doing little to win over wary investors and analysts. Company chairman Li Ka-Shing said 3G subscriber growth will continue to accelerate through the end of the year, and Managing Director Canning Fok said he's confident 3 will EBITDA break even in 2005 and turn a net profit in 2006, but one Hong Kong investment manager told Bloomberg that Li "always says the 3G business will pick up. Don't believe it."

But perhaps the most important figure is the percentage of 3's revenues that come from non-voice services: the average figure at its country units is about 13.8%, lower than the global figures from Vodafone and Orange -- which are yet to have full-scale consumer 3G launches -- and mmO2, which hasn't launched any 3G product. Hutchison Whampoa, after all, was responsible for the hugely successful launch of Orange, which was then sold in 1999 to fund the 3G venture. It makes little sense for Hutchison to have sold off Orange, then start over from scratch to build a network that doesn't earn any more from data than previous-generation networks.

Of course, it's unrealistic to think that 3 could instantly generate a huge chunk of revenues from data, just because it's 3G. But the company's content doesn't appear to be causing much of a stir, and its most-touted functionality, video calling, is going nowhere. Chairman Li said, "At the end of next year, 3G needs to be cashflow positive. That's a very important target," which would indicate that he's not willing to fund a loss-making business forever. But for 3 to turn things around, it's got to not only keep winning subscribers, but get people interested in data.

That will require a significant change of tack for the company. It has lost some of its exclusive content rights, like for English football highlights, still doesn't offer open Internet or data-only access and has over-priced and under-compelling content. 3G will be a success, but it's going to take compelling content and a high level of service. The question remains if 3 can make it happen before Hutchison decides to pull the plug.

http://www.thefeature.com/article?articleid=100989

[Gunner]

Great read, very dramatic :P~

Interesting points were the rapidly accellerating loss (8.9b from 3.9b), and that (no supprise here) it's failing to make a worthwhile portion of it's revenue from data! The fact that even O2 is reaping more data revenue without launching any 3G products surely adds insult to injury for Three.

Also curious that Li has cast doubts over the viability of the venture if it doesn't become 'cashflow positive' -> sounding very different to Fok!

I also agree that their sale of Orange makes no sense whatsoever. Not only is Orange now firmly planted in France's masterplan to take over the world, but it looks set to make the best 3G effort of the incumbents - placing it in direct competition with Three. Oh how different things could have been if Hutch kept Orange and injected all this effort and enthusiasm into something that was already a winner.

Who wants a 'pure' 3G network, anyway!

[A1c]

I was'nt surprised about video-calling but I was quite shocked by the services proportion of revenues. Perhaps the cost of the clips etc are too expensive? Reliability of the services has also been questionable as of late and I know i give up after a couple of attempts if i cant get on. Maybe they should think about new services like multi-user interactive gaming or video-clip messages? As said the Internet would be an obvious offering to generate more revenues. They will have to think of something to engage their users if they are to make anything of the technological advantage they have with UMTS.

[Gunner]

Indeed, Quickmap is hardly a killer ap.

Multi-user gaming would be pretty addictive with the right games (some kind of MORPG perhaps, fps, racing etc), and mobile-to-internet called would be brill. There's tonnes of stuff that they could do to make the speed advantage of 3G really attractive to customers, but they've gone down the road of cheap voice minutes and I personally think it will be very hard to go back!

[dpm]

Originally posted by 3GScottishUser
But perhaps the most important figure is the percentage of 3's revenues that come from non-voice services: the average figure at its country units is about 13.8%, lower than the global figures from Vodafone and Orange

There's a very subtle deception going on here.

The reason that the *proportion* of income from non-voice services is lower on 3 is that they charge a much higher termination charge than the other networks. Therefore a much higher proportion of their income comes from incoming calls than any of their competitors. This is one of the reasons that their ARPU is so high.

If you look at the *amount* of revenue (ARPU * 0.138) from non-voice services per customer, it's comparable to the other networks - despite 3 not offering a data service.

So, basically, this is just another plausible-but-wrong anti-3 story.

Dave

[A1c]

"The reason that the *proportion* of income from non-voice services is lower on 3 is that they charge a much higher termination charge than the other networks. Therefore a much higher proportion of their income comes from incoming calls than any of their competitors. This is one of the reasons that their ARPU is so high. "

Not accurate in terms of the statistics published to date as the lower UK termination charges (forced on GSM networks by OFCOM) only took effect from August 2004. Up until that time the difference was marginal. So whilst that might be a factor in forthcoming statistical calculations it is not relevant to those which the published article was based on. A further factor is that the averages quoted are across the 3 business and the termination chages in different countries will be at different levels. You would have to have full details of all of the operators termination charges in each market to justify the above claim.

[Gunner]

I think we're missing the point here.

Three UK have a large selection of premium-rate downloadable data content, including sporting highlights that they have consistently emphasised as an important part of their service.

This premium rate content isn't cheap, and there's quite a bit of it in various forms.

However, even with the current termination charges factored in, the percentage of revenue from these data services is far lower than you'd expect from a "pure" 3G network.

[Andy Cripps]

I personaly find the video clips and things over priced. And I don't use them becuase of it. I use the video calling thing a bit, but only because the wife has a 3 phone, but that's never going to be a winner because the coverage is so hit and miss.

[Spoonfed]

In 12 months I only ever paid (deliberately) to download 2 ITN News bullletins.

Video calling? I tried it when it was free during my original contract & decided it was not worth the effort let alone expense.

I think 3 are pretty stupid not offering data/web access - but based on present form I'd be amazed if they could deliver a "worthwhile" service in terms of reliability.

I found that 3s POP3 email platform hardly ever worked - hence I haven't bothered to set it up on the new phone.

Hmm.... I guess that makes me an average 3 user.

[Andy Cripps]

"Hmm.... I guess that makes me an average 3 user."

Don't put yourself down. I'm sure you are an exceptional 3 user! :D

[dpm]

Originally posted by 3GScottishUser
[BA further factor is that the averages quoted are across the 3 business and the termination chages in different countries will be at different levels. You would have to have full details of all of the operators termination charges in each market to justify the above claim. [/B]

You miss the point. While their income from non-voice is lower in *percentage* terms, it's comparable in *absolute* terms.

The fact that 3's ARPU is unusually high is not a *bad* thing, even though it makes their non-voice percentage lower!

Dave

[Killahurts]

Dpm - you're missing the point (joke)

3GSU never misses an opportunity to try and knock 3 - even when it means leaving out positive paras in new reports that change the whole slant of the story, or quoting "senior telecoms execs" that turn out to be convicted kiddie porn peddlars...

I understand where you are coming from - and in reality so does he - but he would choke if he ever had to say anything positive the poor dear...

[crusher21]

Originally posted by Killahurts
Dpm - you're missing the point (joke)

3GSU never misses an opportunity to try and knock 3 - even when it means leaving out positive paras in new reports that change the whole slant of the story, or quoting "senior telecoms execs" that turn out to be convicted kiddie porn peddlars...

I understand where you are coming from - and in reality so does he - but he would choke if he ever had to say anything positive the poor dear...

here here i agree

[A1c]

One would have thought it best to avoid responding to comments that are nothing more than persoanally abusive and exaggerate previous disinformation in the hope that the innacurate distasteful aqusations reflect on those who they choose to attack. (Pathetic tactics and totally off-topic..... the remarks say more about the desperation of the individuals who stoop to such depths than anything else).

Contributers who abuse this forum by instigating or escalating personal abuse quite rightly fall foul of the forum managers as their efforts are clearly outwith the rules and do not in any way contribute to any meaningful discussion.

[crusher21]

Originally posted by 3GScottishUser
One would have thought it best to avoid responding to comments that are nothing more than persoanally abusive.

Contributers who abuse this forum by instigating or escalating personal abuse quite rightly fall foul of the forum managers as their efforts are clearly outwith the rules and do not in any way contribute to any meaningful discussion.

i only agree you like to knock 3 is that not true
i knock them myself at times but there not all bad IM SORRY IF I UPSET ANYONE

[Killahurts]

Crusher - he was having another futile attempt at discrediting me not you...whereas I just leave him to discredit himself.

[crusher21]

Originally posted by Killahurts
Crusher - he was having another futile attempt at discrediting me not you...whereas I just leave him to discredit himself.

no problem

[dpm]

Originally posted by Killahurts
I understand where you are coming from - and in reality so does he - but he would choke if he ever had to say anything positive the poor dear...

The problem is that if people see 3GSU's garbage go uncorrected they'll actually believe it!

Not everyone realizes he makes stuff up, guesses, purposely misinterprets, etc.

Dave

[Gunner]

Oh but come on! The article speaks for itself. 3GSU didn't make up the article, and that's what we're discussing!

Perhaps you should inform the author of the article that Three's performance isn't comparable in percentage terms, but is in absolute terms, or whatever you were going on about... Feel free to prove your point with facts and figures if you're trying to discredit the article.

[dpm]

Originally posted by abs0lutely
Perhaps you should inform the author of the article that Three's performance isn't comparable in percentage terms, but is in absolute terms, or whatever you were going on about... Feel free to prove your point with facts and figures if you're trying to discredit the article.

OK, 3's ARPU from non-voice in the UK is £70 a year. The other four UK networks have all struggled to reach £60. Happy now?

Which makes 3 much smaller than the other in % of ARPU terms. But much bigger in absolute terms.

[Sources: Ofcom, 3 and HWL]

Dave

[A1c]

I suspect the article is quite well balanced when you take into account that 3 have a much higher ratio of contract customers who are traditionally higher spenders.

The relevant point is that 3 have yet to produce content that engages customers and for a 3G network that is the key.

Stagnant services, a restricted and less than inspiring handset range (that won't see much change this side of the year). poor customer care and patchy (but improved) network performance all add up to a very steep hill for 3 to climb this autumn. The one weapon they do have is the pricing strategy but it appears from the comments quoted in the article above that it has a limited lifespan. The rest of 2004 will be very interesting and 2005 will be the year of decision for Hutchison in terms of 3's future.