Business Watch: Three’s data plans yield magic numbers

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Dominic White looks at the operator’s latest financial results, and says the driving force behind its success is the cheap deals it is offering to consumers

Three UK’s concerted efforts to offer bargain basement data bundles and cheap smartphones appear to have paid off if the latest available figures on its performance are anything to go by.

Its parent Hutchison Whampoa revealed that the business remained in the black in 2011, helped by surging customer numbers as punters flocked to its cheap data plans.

Three UK, run by chief executive David Dyson (pictured), added 20 per cent more prepaid subscribers, taking the total to 3.6 million. Add in the 17 per cent more postpaid customers it gained and the total customer base swelled to 8.2 million.

Dyson’s focus on heavy subsidies for high-end smartphones such as the iPhone also brought the level of defections to other networks down.

Three UK’s contract customer base, which contributed 86 per cent of services revenue, had a monthly churn rate of 1.7 per cent, down from 2.1 per cent a year ago.

About a third of new contract punters took an iPhone, which Three has had for nearly two years and is clearly making significant headway with.

The effects of regulatory cuts to termination rates and Three’s aggressive pricing strategy meant that average revenues per user were down by three per cent at £21.87.

But thanks to the data explosion, average revenues per user for non-voice service rose by an impressive 47 per cent to £10.19.

That helped underlying profits (before interest, tax, depreciation and amortisation) to rise 16 per cent to £191 on revenues, up 14 per cent to £1.79 billion.

Reported operating profits were down 83 per cent at £30 million due to one-off gains that the company enjoyed last year.

Trouble Down Under
The next big development for Three in the UK is the upcoming 4G spectrum auction, the results of which will prove critical to its ability to keep undercutting its rivals on data.

Dyson is not happy with the auction process or efforts by Everything Everywhere to get the regulator’s blessing to use its existing spectrum for 4G before the auction.

But his problems are nothing to those of former Vodafone UK chief Bill Morrow, who has been parachuted in to sort out the mess at Vodafone Hutchison Australia.

Hutchison chairman Li Ka-shing commented that the overall performance of the seven-country Three Group of companies had been dragged back by the Australian business, which operates in a joint venture with Vodafone.

Since Three Australia was merged with Vodafone Australia three years ago it’s been a tumultuous ride that serves as a cautionary tale for any mobile network operators looking at further in-country consolidation.

Hard men move in
Vodafone chief executive Vittorio Colao recently admitted to me that the combined Australian businesses had underestimated both the complexity of merging their two networks and the level of demand on the network.

That led to a double whammy in Christmas 2010 when the networks suffered a series of high-profile blackouts just as customers’ demand for data was exploding – every network operator’s nightmare.

It seems Colao had enough in February when VHA revealed it had plunged to a loss and had haemorrhaged customers in what was one of the biggest growth years ever for the rest of the mobile sector.

He called up Morrow, who was living in his native San Francisco working in various non-executive roles, and persuaded him to move to Sydney and have a crack at turning the business around.

Hutchison hard man Canning Fok has also been made chairman of the joint venture, a sure signal that both sides are taking the turnaround very seriously.

Colao told me he’s given Morrow two years to make Vodafone – which is the remaining brand now that Three is being phased out in Australia – into a loved brand Down Under.

Given the shambles that the merger has been, it is one heck of a task. But the ultra-experienced troubleshooter Morrow, who was credited with turning around Vodafone’s Japanese operations before they were sold for a princely fee, looks like the man for the job.

Meanwhile Colao has been given yet more time to decide whether he wants to make a formal offer for Cable & Wireless Worldwide, the troubled fixed line data carrier that’s effectively up for sale after a series of profit warnings.

The Takeover Panel has granted Vodafone and rival bidder Tata Communications of India until April 19 to make their minds up.

It should not come as much of a surprise that this process is now dragging out. The Cable & Wireless empire was built through a long, tortured series of acquisitions and as a result it is ferociously complex. Any company considering a bid would want to pore over the books and understand what it was actually buying.

Colao describes himself as an operations guy rather than a merger and acquisitions man (unlike his predecessors Arun Sarin and Sir Christopher Gent).

True to that description he’s hardly done any takeovers since he started running the group around four years ago. So he’ll want to get this one absolutely right if he does buy the thing.

Firms hang up on RIM
Research in Motion – which makes the BlackBerry – has finally admitted it might sell up as its prospects continue to dwindle.

Thorsten Heins, the insider CEO who was promoted recently to replace co-chief executives Mike Lazaridis and Jim Balsillie, gave that indication after reporting a horror set of quarterly results.

RIM lost $125 million on revenues, down 25 per cent to $4.2 billion, after more businesses and consumers hung up on their BlackBerrys and switched to other smartphones.

The recent crop of RIM devices have failed to capture the imagination and remain relatively expensive compared to their rivals.

Companies like Haliburton have announced plans to switch suppliers in another sign that RIM’s proprietary network is losing its shine after the spate of network glitches a year or so ago.

My bet is a takeover by Microsoft, but the RIM share price – already down by about two thirds in 12 months – may have further to sink before a bidder comes knocking.

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