Decade of Three: the UK’s ugly duckling reaches 10

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Three, the UK’s first 3G network, celebrates a decade in the mobile market this year. Samantha Tomaszczyk takes a look back at the operator’s metamorphosis from struggling fledgling to Ofcom exemplar in full flight

On the third day of the third month in 2003 (03/03/03), the aptly-named Three launched the UK’s first 3G network.

Much like pioneer EE, which recently launched the nation’s first 4G network, Three experienced teething problems that saw it fail to make a profit in the UK until 2010.

Ten years after launch, however, Mobile News looks at how the company has changed from being a loss-making venture into the UK’s fastest growing network, much valued by Ofcom.

Three began life as one of hundreds of investments made by parent company Hutchison Whampoa Limited (HWL), a Hong-Kong based conglomerate with a large portfolio of interests spanning telecommunications, property, hotels, retail and manufacturing, energy and infrastructure. HWL, the sole owner of Three UK, subsidised the company during its early years as it struggled with network roll-out.

Three’s launch in March 2003 was the operator’s first achievement, significant not only because it was the UK’s first 3G network. Its entry into the UK mobile market increased the number of players from four to five, increasing competition – to the benefit of UK
customers, Ofcom said at the time.

Prior to Three’s entry, the market had been dominated by BT Cellnet (O2), Orange, One2One (T-Mobile) and Vodafone Airtouch (Vodafone), to such an extent that Ofcom reserved spectrum for a “new entrant” in the hope of stimulating competition and the lowering of prices.

In 2000, Three won this 35MHz slice, the largest UK 3G licence, and was able to launch as a provider in 2003 with concession stores in Superdrug (also owned by HWL) and three independent retail stores in London’s Oxford Street, High Street Kensington and Birmingham shopping centre The Mailbox. Three’s slogan, set to change several times in the next 10 years, was “welcome to our network”.

Poor devices
Three’s auction and launch success gave it the capacity to prosper, but in the early days the company struggled with its device portfolio (comprising NEC’s e606 and e808 and Motorola A830 at launch) and the lack of content – namely music and videos – key to encouraging mobile data usage, a problem for a company which began to market itself as “the network built for the internet”.

Three turned this lack of content to its advantage, however, creating its own (profitable) music and video services. In 2004, it partnered with music label EMI and secured the exclusive release of Robbie Williams’ music video ‘Misunderstood’ – users were able to stream or download it on their mobiles for a fixed fee.

At the end of that year, Three’s total customer base had reached three million, and it had reached its coverage obligation of 80 per cent of the population – three years before the deadline set by Ofcom.

By the end of 2005, and after the launch of Three’s mobile music video download service with Kiss, the network’s customer base grew to 3.4 million. At this point Three was the UK’s biggest mobile music retailer with 75 per cent of the market.

Also in 2005, Three launched SeeMeTV, the first mobile channel for user content. A precursor to YouTube, the service was a success and by 2006, was responsible for more than four million 3G downloads.

Some users were earning upwards of £100,000 from contributing to the channel, which was soon duplicated by rival O2 when it launched its own service, LookAtMe.

The improvements in content and network coverage between 2004 and 2006 were matched in 2007 by changes to its management team. Sources who have since left Three say the replacement of Robert Fuller (CEO since 2003) by Kevin Russell in 2007 was “crucial” to the company’s turnaround.

Consultancy company Walking the Talk summed the situation up in a 2011 paper: “In 2006, the business was losing money, the network and devices were thought unreliable and the sales distribution strategy was ineffective.

“In addition, the culture of the organisation was corrosive, with a deeply divided and ineffectual leadership team and the best talent on the verge of leaving.”

Restructure
As well as welcoming Kevin Russell as the new CEO, Three streamlined its management board, reducing it from around 15 members to a handful which included current EE sales manager Marc Allera in sales and marketing, David Dyson as chief financial officer and Graham Baxter as chief technology officer.

The 2007 staff changes signalled the first of two turning points in Three’s history (the second came in 2010 and will be explored later).

In its 2007 financial report, HWL said: “The new management team at Three has made good progress during the year.” Over the year Three’s customer base had grown nine per cent to 4.3 million, which HWL attributed to a new strategy – focusing on higher-value contract customers and “limiting” activity in the prepaid customer market. In 2007, contract customers made up 62 per cent of its base, up two per cent on 2006.

The change in management culture was accompanied by continued expansion in the network’s retail presence, with Three opening its 250th store in November 2007. In December, Three announced a 50:50 joint venture with T-Mobile which would see the two share 3G infrastructure as part of its efforts to improve the quality of its network – which consistently received higher-than-average numbers of complaints, according to Ofcom figures.

Video calling
As with content creation platforms SeeMeTV and Three’s music store, the operator succeeded in disrupting the market once more when it announced in 2009 it was extending free Skype-to-Skype calls to all customers with a compatible handset. The deal between HWL and Skype dated back to 2006, when the Three brand became the first to market Skype-enabled mobiles.

The decision in 2009 to allow anyone with a Skype-enabled handset on Three – either on contract or prepay – to use the VoIP service without data charges or top-up fees had limited success. Three saw more than 500,000 unique Skype users on its network since the beginning of 2009. Its customers had more than 150 million free Skype conversations between 2006 and late 2009. In 2011, however, Three lost this unique selling point when the deal between Skype and HWL changed so that Three could no longer offer free Skype calls. Without warning, customers saw Skype usage contributing to their data usage.

According to current and former Three employees Mobile News spoke to, the real turning point for Three came in 2010. This was the year the iPhone came to the network for the first time, three years after it first went on sale in the UK (exclusive to O2). Apple’s handset, like the Three network, was designed with mobile internet usage in mind and, according to one source, was “very helpful” in securing large-scale customer acquisition at Three.

HTC’s Hero and Desire handsets were also identified as devices which helped encourage mobile data use, and combined with the introduction of Three’s ‘The One Plan’ in July 2010 (which offered 2,000 any network minutes, 5,000 Three-to-Three minutes, 5,000 texts and 1GB of data) helped Three UK return a profit for the first time since launch in March 2003.

Turning point
With the devices and tariff in place, Three’s network was also growing. In November 2010, Three and T-Mobile’s joint venture had reached 12,000 shared 3G sites. And in December 2010, Three introduced its “groundbreaking” proposition – The One Plan with unlimited data, an offer which is still around today.

Three said at the time that the ‘all-you-can-eat’ plan was designed to give customers “peace of mind” and remove the fear of incurring unexpected data charges “to really make the most of the new smartphone world”. In March it extended its unlimited data offering to prepay customers, with the aim of “shaking up” the mobile industry, it said. The other UK operators chose not to compete with Three and offer unlimited data.

Full article in Mobile News issue 536 (April 8, 2013).

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