Ovum comment: 3 Group - the road to profitability still looks very bumpy

Ovum/Elsa Lion
23 Mar 2007
00:00

€

19,996

€

Hutchison's 3 Group had 14.7 million customers in December 2006, compared with 11.9 million in December 2005. Average 12-month rolling ARPU rose by 8% to 45.63. Its average monthly churn has dropped from 3.2% to 2.6%. The Group's subscriber acquisition costs dropped to €250 in 2006 from €262 in June 2006 and €293 in 2005, despite Hutchison's increased focus on higher-value segments and its use of discounts to attract customers in those segments.

Hutchinson Whampoa continues to believe it can achieve positive EBITDA after deducting all subscriber acquisition costs in the first half of 2007.

Ovum senior analyst Elsa Lion comments:

Hutchison 3's top level performance is improving noticeably. The group continues to report one of the highest ARPUs amongst all operators worldwide, as well as one of the highest non-voice ARPUs. Moreover, its ARPU continues to grow. Its customer base is also growing at a healthy rate, even though it operates in some of the most competitive markets on the planet.

Factors underlying this performance include 3's attractive data offerings, a stronger pricing strategy and a push for on-net offers. This has enabled the operator to lower its costs while attracting new customers.

However, while the top line figures paint a very positive picture, below the varnish it is easy to see large cracks. 3 is still a long way from sustainable profits. The operator is doing very well in some of its smaller markets, such as Australia and Sweden, but it is unlikely that 3 will be able to sustain this growth without substantial further investment. These are mature and highly competitive markets, where call charges are dropping (3 Australia and 3 Austria's ARPUs are down).

In any case, it is primarily the health of 3's businesses in Italy and the UK which will determine whether the operator will succeed in becoming profitable in 2007.

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