Is "3" a lucky number?

Citation

Curwen, P. (2005), "Is "3" a lucky number?", info, Vol. 7 No. 3. https://doi.org/10.1108/info.2005.27207caf.001

Is "3" a lucky number?

Is "3" a lucky number?

It has become clear that Hutchison Whampoa both does, and forever will, occupy a unique place in the pantheon of mobile telephony. Although it was already an established 2G operator with a base in Hong Kong, it chose to do something to which no other such operator gave serious consideration and which, within a year or so, will have turned out either to have been a stroke of business genius or a disastrous investment, but almost only one or the other. What it chose to do was, of course, to use the opportunity opened up by the issue of 3G licences (primarily) in Europe to enter a large number of mobile markets that were already near saturation for 2G.

Naturally, other operators saw the same opportunity but they took only limited advantage of it and, in many cases, as indicated by the list below, rapidly thought better of it. Thus:

• •

  Broadband Mobile returned its licence in Norway in August 2001.

• •

  Group 3G (Quam) shut down its network in Germany in July 2002.

• •

  Tele2 returned its licence in Norway in November 2002.

• •

  ONI-Way’s licence in Portugal was revoked in January 2003.

• •

  3G Mobile sold its Austrian licence to Mobilkom Austria in December 2003. Half the spectrum (5 MHz paired) was sold on to T-Mobile.

• •

  MobilCom returned its German licence in December 2003.

• •

  Orange Sverige sold its Swedish licence to Svenska UMTS-nät in December 2003, but this was not sanctioned by the regulator. In November 2004, the regulator recalled the licence.

• •

  Telfort’s licence was put up for sale in June 2004.

• •

  TeliaSonera acquired Orange Denmark together with its licence in October 2004.

• •

  Orange Luxembourg (which had yet to roll out its 2G network) returned its licence in December 2004.

• •

  IPSE 2000 agreed the sale of its spectrum to ENEL subject to regulatory approval in December 2004. However, ENEL withdrew its offer.

In comparison, not only has Hutchison, via a variety of subsidiaries, bought more 3G licences than any other new entrant (not to mention nearly all European incumbents) but it has been the first to launch in almost every country. So far it has launched in Italy and the UK (March 2003), Australia, Austria and Sweden (April 2003), Ireland (October 2003), Denmark (December 2003) and Hong Kong (January 2004). It also has a licence in Israel and Norway and a joint venture in New Zealand with a licensee. Given that it was a new entrant at the time other than in Australia and Hong Kong, it is understandable that Hutchison had much to gain from being first to market with 3G, but at the same time it also meant that its overall expenditure on 3G licences and roll-out was hugely in excess of the norm.

So just what did the situation look like on 1 January 2005? As of mid-December 2004, the various networks trading as “3” had acquired just under six million subscribers, and appeared to have raised the typical monthly uptake to roughly one million, although the Xmas period is likely to have significantly exceeded that figure. Roughly one-half of all subscribers were on pre-paid rather than monthly contracts, an increase driven by developments such as the introduction of “3” pre-pay into the 550 branches of the Argos catalogue shop in the UK. As noted by Hutchison group managing director, Canning Fok, this monthly increase represented the fastest-ever rate of growth by a new entrant. He expected the monthly increase to rise because the networks were becoming more mature and the availability and quality of handsets was constantly improving – for example, half a dozen new handsets (Motorola A1000, E1000 and C975 (pre-pay), NECe338 (exclusive to 3 UK), LG U8130 and U8138) had been introduced in November. As for improved services, the introduction of football highlights and mobile video dating were proving to be very popular in the UK.

But was the service provided by “3” any better than that of such rivals as had also launched? The evidence is limited, but a handset service comparison was published by www.3gnewsroom.com on 28 November which for the most part came out in favour of “3” compared to Vodafone in the UK, although it was noted that “3”, unlike Vodafone, did not allow the carrying over of unused minutes and that it was difficult to use up all of the free minutes on “3” because of dropped connections. A follow-up survey published on 9 January 2005 indicated that “3” had better 3G coverage, that voice quality was similar, that video quality was slightly better on “3”, that “3” provided quicker navigation and downloads, that “3” was both cheaper and had a clearer pricing structure, but that “3” had inferior handsets, kept users predominantly within its “walled garden” for content (most of which it charged for) and provided an inferior customer service.

While this evidence cannot readily be generalised to other countries where “3” operates, it does suggest that the potential savings available on “3” are worth pursuing for the typical mobile user, especially since s/he is generally more interested in voice/SMS than in more sophisticated services. At the end of the day, however, it is all about making a return on investment and comparing November with July 2004, the financial situation did not look so promising. Although aggregate revenue for the “3” networks had risen significantly, average revenue per user (ARPU) had fallen from €51.46 to €44.45 (albeit still rather higher than rivals) while average customer acquisition cost had risen from €252 to €270. This partly reflected an impressive performance in terms of network roll-out – in the UK, for example, 80 per cent population coverage was achieved in December 2004, some three years ahead of target.

While it is true that Hutchison Whampoa has access to enormous financial flows, 3G has proved to be an extremely taxing development – sufficient, in practice, to induce Hutchison to float off its Hutchison Telecommunications International Ltd. (HTIL) subsidiary in November 2004. Comprising considerably more than the 3G assets, this IPO was something of a failure with less than half the $2 billion or so originally pencilled in ultimately being raised. For this reason, Hutchison now intends to launch further IPOs during late 2005 and early 2006, to include 3 UK and 3 Italy, both provisionally valued at over £3 billion ($6 billion). However, many, if not most, external analysts remain unconvinced. They argue that all “3” networks will continue to burn up cash as they seek to reach a respectable market share (say 15-20 per cent) during a period of ever-increasing churn, and that Hutchison will take fright and move to preserve cash, thereby in effect condemning the networks to a lingering death. Needless to say, Canning Fok disagrees, and there are some analysts who believe that “3” will achieve something of a break-through in subscriber numbers during 2005.

Nevertheless, economies are the order of the day, so handset subsidies – “3” subscribers do not have the option of choosing lighter and cheaper 2G/2.5G handsets – must be reduced and commissions cut for retailers that are presently pushing “3” packages very hard. The prospects for “3” are accordingly proving to be very hard to call. By the end of 2005 it should be pretty clear whether “3” is well on its way to financial respectability or facing the sale and/or closure of constituent networks as Hutchison Whampoa withdraws to nurse its wounds. Only one thing is certain, namely that no other company is ever going to follow Hutchison’s example. Indeed, if anything, a reasonable prediction is that almost all new entrants will withdraw from the 3G market. If so, there will be those who rail against the power of incumbency, but there is ultimately no way that the 3G market can be skewed by central dictat to ensure the survival, let alone financial security, of new entrants.

Peter CurwenVisiting Professor of Telecommunications, Strathclyde Business School, Glasgow, UK. E-mail: pjcurwen@hotmail.com