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3G's Very Own Bull

Light Reading
LR Mobile News Analysis
Light Reading
8/23/2002

It's been a busy week for Hutchison Whampoa Ltd. First it had to deal with a reluctant partner (see Hutch Gets the Hump With KPN). Then it talked up its 3G prospects during its half-year results presentation (see Hutchison Whampoa Reports H1). And then, the company claims, it was misquoted about 3G handset prices.

Oh, and in its spare time it snapped up some drug stores to use as 3G retail outlets. ("Something for the weekend, sir? A dual-mode NEC Corp. phone, perhaps?")

First off, the handset prices: Whampoa managing director Canning Fok has been extensively quoted regarding the retail prices for 3G phones in various territories. There is no dispute that, when waving some examples of NEC and Motorola Inc. (NYSE: MOT) handsets in the faces of analysts, he announced that they would cost about HK$15,000 (US$1,923) in Hong Kong. However, the company took exception at what supposedly followed: Some major news agencies reported that Fok said the handsets would sell for half that price in the U.K., which would put them at about $960, or £631 in local currency.

It seems that although Fok said the phones would be "much cheaper" in the U.K. (which will come as a relief to expectant Brits, including this Unstrung reporter), he did not say they would sell at half the Hong Kong price. The reports are apparently the result of a misinterpretation of Fok's reply to an analyst question. Officially, Hutchison 3G UK Ltd. says it has not announced how much its dual-mode handsets will cost when services are launched commercially this year.

At least we have an idea of where they may be found in the U.K., now even more the focal point for Europe's 3G community with Hutchison so close to joining Vodafone Group plc (NYSE: VOD), mmO2 plc, T-Mobile, and Orange SA (London: OGE) in the battle for customers. Whampoa has just splashed out €1.3 billion (US$1.26 billion) to add Dutch company Kruidvat Group to its retail business arm. This acquisition includes 700 U.K. stores called Superdrug, and Hutchison said it would use its retail outlets to develop "stores within stores" to sell 3G phones and services. As Whampoa's retail business already comprises 300 stores in the U.K., this gives it 1,000 outlets to play with.

As per usual, the U.K. 3G license-holder (in which Whampoa has a 65 percent stake) is playing it cool. "We have said we will roll out using traditional and non-traditional routes to market both for acquisition and demonstration purposes," says sales director John Barton. "This is consistent with our intent to position 3G services as a new and distinct category in multimedia communications. In this way we also intend to leverage Hutchison group interests, which will include both existing and new properties. This acquisition (by HWL) will provide 3 with great reach across the market in a new and exciting setting, providing the opportunity to bring 3 services to the U.K. high street. We are enormously enthused by this approach (both our approach and HWL's support of it through their retail strategy)."

And there's more: "Although new channels are vital to our success, traditional partners in this sector are important. We have not announced any reseller agreements at this time," states Barton.

In the meantime, Whampoa is talking up a storm in the run-up to the launch of 3G services, which will be branded '3' in each territory. Italy and the U.K. are both still set for a 2002 kick-off, with service launch in Sweden, Denmark, Austria, Hong Kong, and Australia planned for the first three months of 2003.

In the U.K., 3,500 cell sites are planned for the launch, and Unstrung can confirm that masts are up -- and continue to be erected day by day -- in London. "There's one at the bottom of my street," says our very own research guru, Gabriel Brown, from his stately residence in south London, where he has been charting Hutchison's progress by reading the planning permissions that the carrier is obliged to print in the local news media.

Excited though we are at the prospect of getting our hands on a real-life dual-mode handset and giving it a test run through the streets of London, industry analysts are even keener to see how the U.K.'s new entrant will fare. "Hutchison is a very determined new entrant and wants to achieve coverage as soon as possible in order to reduce the number of calls that have to be routed through mm02's GSM network," write analysts at HSBC Holdings plc in a research note. "Hutchison realises it will have to offer a more enticing package than simply voice and Internet browsing to attract users onto 3G networks and encourage them to spend more money." Hence its content agreements with the likes of the BBC, they add.

These analysts believe that Hutchison's exploits in Italy and the U.K. will act as bellwethers for the European mobile industry, and that the perceived success (or failure) of these launches in two very competitive markets will have a profound impact on the capex decisions of other 3G license holders in Europe -- as well as the vendors' revenues over the next few years.

Just what will constitute a "success" in the eyes of the analysts and the continent's mobile carrier community is anyone's guess.

— Ray Le Maistre, European Editor, Unstrung
http://www.unstrung.com

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