There's Gold In Them There 3G Hills, Maybe
By Carlo Longino, Fri Apr 01 00:45:00 GMT 2005

Hutchison Whampoa still lost more than $3 billion on its 3G operations last year, but is showing some positive metrics. Has it turned the corner?

$3.2 billion is a big loss, for certain, but it's not much to tycoon Li Ka-shing, the head of Hutchison Whampoa. But he says losses have peaked for its 3G operations, 3 UK is now EBITDA breakeven on a monthly basis, and the company plans to spin off its UK and Italian operations, possibly in the second half of the year.

It's a positive sign for the beleaguered carrier, even though Hutch's version of EBITDA breakeven leaves out a lot: the BITDA stands for before interest, taxes, depreciation and amortization, but the company's figures don't include "expensed customer acquisition costs" -- not an insignificant charge. But Hutchison had just a million 3G subscribers a year ago; it now has more than 8 million. Those customer acquisition charges fell to 271 euros per user in the second half of 2004, compared to 299 euros for the first seven months of the year, which gives some reassurance the figure can ease down in spite of increased competition. The company says it's mainly due to wider availability of 3G handsets from a number of suppliers.

Also a promising metric is that 20 percent of Hutchison's 3G revenues are from non-voice services, including SMS. This is a bit higher than its incumbent rivals, but it's hard to know just how to interpret the figure. The company slashed voice tariffs in the UK, which had the second-highest data percentage, to grab more customers, a move that could somewhat artificially increase. While overall ARPU figures showed an increase, figures from the UK fell about 7 percent to GBP 40.30, perhaps giving some merit to the theory.

For its part, the company says its video content has been popular, and data from some other carriers around the world points that 3G users are downloading a lot of content.

Figures from the first six months of 2005, though, will provide a better snapshot of how Hutchison and its rivals are doing. Hutchison hoped to take advantage of its 3G headstart on its rivals, but disappointing handsets and other factors pretty much killed any first-mover advantage. The playing field is relatively level now, and the results won't show any distortion from the Christmas season. Analysts will be watching Hutchison's 3G operations to see if they can sustain their subscriber growth in the face of strong competition, and if they can do it while holding customer acquisition costs down.