The situation is looking somewhat brighter for Three UK. After the difficulties caused by pandemic-related lockdowns in 2020, the UK operation of CK Hutchison's Three Group Europe is able to report continuing strong momentum, with 5% revenue growth in the first six months of 2021.

The situation has been more challenging for WindTre, the group's operator in Italy.

Faced with an ongoing price war sparked by the arrival of Iliad Italy, WindTre reported a 10% drop in revenue for the first six months.

Figure 1: Mixed bag: While the situation is looking up for Three UK, its sister operator WindTre in Italy is finding things trickier.
(Source: Isto2 on Wikimedia Commons, CC4.0)

However, the Italian operator remains optimistic that the tide is turning, supported by the launch of its own low-cost brand Very Mobile in 2020, and a general repositioning following the operator's full takeover by CK Hutchison in late 2018.

UK contract vs. prepay

Three UK reported a "solid" set of financial figures for the first six months of 2021.

Darren Purkis, chief financial officer (CFO) of the UK's fourth-largest operator, highlighted positive factors such as the continuing growth in active contract customers, which increased by 6% to 7.7 million in the first half of the year. According to Three UK, this represents the highest rate of growth in four years.

Revenue increased by 5% to £1.17 billion (US$1.6 billion) by the end of June 2021. However, Robert Finnegan, CEO of Three UK, said during an earnings call that revenue increased by 9% in the second quarter (Q2) after only 2% growth in the first three months.

Further positive factors include the 15% reduction in churn to 1.1%, the 154% rise in revenue from low-cost brand Smarty, a 33% increase in home broadband customers that use Three's fixed wireless access service, and a doubling of business customers.

First-half EBITDA was broadly flat at £252 million ($350 million) and operating expenses were 5% higher at £368 million ($511 million).

UK pain points

Areas of concern remain prepaid customer growth and roaming, which continue to be affected by the coronavirus pandemic. In an interview with Light Reading, Purkis admitted that the pandemic is still having a greater impact on these areas than expected following longer-than-anticipated periods of lockdown.

The total registered base of prepaid customers dropped by a further 14% to just over 5 million, meaning that total customer numbers fell below 13 million to reach 12.9 million. Active prepaid customers stood at just over 1.7 million, a drop of 25% from 2.3 million a year previously.

Purkis said a complete return to "what we would consider normality" is not likely before next year, "but that's predicated on not going backwards."

Finnegan said footfall is not back to pre-pandemic levels.

"We're still at 55%, 60% of the pre-pandemic footfall levels, so it's really pleasing to see the strong year-on-year growth in that regard," he said.

Frank Sixt, finance director of CK Hutchison Group Telecom, also noted during the earnings call that the UK is the only remaining market that has not completed the sale of its towers to Cellnex as part of the six-country deal with the tower company.

The matter is currently being investigated by the Competition and Markets Authority (CMA). Sixt expressed hope that the deal could be completed in the fourth quarter of this year, although he said pandemic-related delays could push it into the first half of 2022.

UK capex at bumper levels

Three UK is currently in the midst of a five-year strategy to expand its 5G network and implement a comprehensive IT upgrade. As a consequence, capital investments remain at a high level.

In the first half of 2021, capex increased by 60% to £307 million ($426 million), excluding investments in spectrum and licenses. This follows a 55% increase in the first quarter of the year.

"I think this year and next year you will have the big peaks, and then I would expect it to start creeping down again after that. These will be the two most intensive years," Purkis said, noting that the bulk of capex is on the 5G rollout.

Three UK is continuing to make progress with 5G, and said its network now covers 30% of the UK's outdoor population. 5G is now live in 300 locations across more than 1,600 sites, and an additional 600 sites have been built and are being prepared for going live. Furthermore, another 3,500 5G sites are in the planning phase.

The operator again boasted that it has the largest 5G spectrum holdings following its purchase of two 10MHz blocks of 700MHz spectrum, which tripled its low-frequency spectrum holding.

What about Virgin Media O2?

Purkis pointed out that neither he nor Finnegan have been backward in saying the market needs more consolidation because of the huge investments required by all operators.

"We're not focusing on O2 Virgin; we're focusing on our own business and growth," he said. "We have a very strong fixed wireless product, which gives us fiber-like speeds for broadband on our 5G. The key for us is getting 5G out there as quickly as possible ... putting those fixed wireless and fiber-like speeds into the hands of customers where fiber hasn't yet reached. We've got an opportunity to really deliver on that."

Purkis added: "And also the quicker we get 5G out there, the quicker we can build a credible business or B2B function as well. Mike Tomlinson came on board last year, building a team; we are building some technology to support that. And that's a real growth opportunity for us."

Finnegan emphasized that Three UK sees fixed wireless access "as a really big opportunity as we move forward."

"We're already starting the process of offering fixed wireless access to consumers and we expect to have that on the business side as well. We see that there's two opportunities here, one in the urban areas where we believe that we can offer a better value to people who are getting a service maybe from fiber ... and in the rural areas, we can offer a service where people can't get access to fiber," he added.

Italy: The fight for customers goes on

Heading over to Italy, WindTre reported a 10% decline in revenue to just over €2 billion ($2.3 billion) in the first six months of this year. EBITDA was down 7% at €892 million ($1.2 billion). Capex in Q2 2021 amounted to €212 million ($294 million) after €428 million ($594 million) in the first quarter.

WindTre noted that intense competition had caused its active customer base to decline, in particular for non-contract customers, but said the trend had stabilized since WindTre launched Very Mobile to compete in the prepaid segment. It noted that the margin remained strong at approximately 80%.

"Encouragingly, both revenue and margin remained stable quarter on quarter," the operator said.

Active contract customers stood at 9.47 million by the end of Q2, while the total active customer base was 19.2 million.

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A non-cash impairment of goodwill of the Italian business was recognized in light of heightened competition in the Italian market. However, Sixt emphasized that the €1.7 billion ($2.4 billion) charge is more related to historical factors at WindTre.

"It's really not so much a reflection of the view going forward," he said.

"It's really an alignment with what has happened in the market, as opposed to a definitive view on what will happen in the market, so it doesn't anticipate a further deterioration nor does it take account of new growth opportunities ... which are emerging."

Three Group Europe also includes operations in Austria, Denmark, Ireland and Sweden. Total group revenue fell by 3% year-on-year in the first half of 2021, reaching €4.6 billion ($6.4 billion). EBITDA was 7% lower at €1.58 billion ($2.2 billion).

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— Anne Morris, contributing editor, special to Light Reading