Hutch Bullish on Targets

Hutchison 3G Ltd. has a mountain to climb following its insistence it will reach its year-end subscriber targets for 3G services in Europe.

In its first-half 2003 financial results released today, parent company Hutchison Whampoa Ltd. (Hong Kong: 0013) reports a total 3G subscriber base of 520,000 worldwide, including 155,000 in the U.K., 300,000 in Italy, and 50,000 in Australia.

In May, company spokesman Edward Brewster told Unstrung that the carrier expects to have two million customers signed up to its 3G services in Austria, Denmark, Ireland, Italy, Sweden, and the U.K. by the end of this year, with at least one million in the U.K. alone (see 3G UK Cries for Help).

Despite today’s sagging numbers, Brewster has confirmed that the U.K. division remains confident this target can be reached. Analysts disagree.

“It will fall short by quite a large margin,” says Phil Kendall, director of Global Wireless Practice at Strategy Analytics Inc. “We estimate they are signing up about 50,000 subscribers a month. With a good Christmas, they could maybe get up to half a million.”

Hutchison’s 3G startup operations reported a total turnover of HK$245 million (US$31.4 million), against a loss before interest, expense, and taxation of HK$3.895 billion ($500 million).

Hutchison Whampoa chairman Li Ka-shing played down recent reports that the company is struggling with 3G investment costs and may be forced to bail out (see Hutch UK Clings to Network). “I am encouraged by the successful launch of our new operations and am confident they will grow rapidly in the fall and Christmas period and create long-term value for our shareholders,” he said.

Ka-shing added that the huge loss was expected, but admitted that the 3G financial noose strangling the parent company could tighten in 2004. “Every startup business is loss-making in the first three or so years. I am sure that it will incur an even bigger operating loss next year, but we are equally confident to be able to recruit enough subscribers and derive from them enough profit to offset the losses.”

The good news for Hutchison is that Average Revenue Per User (ARPU) for its multimedia services is more than double that of its 2G rivals [ed. note: ka-shing!]. The carrier claims its U.K. third-generation mobile customers spent an average of £45 ($71) a month in July, while Italian customers spent €78 ($85). Hutchison believes these figures compare well with existing market averages of £20 ($32) and €27 ($30), respectively.

The company stated it expects its 3G business to break even, before interest, tax, depreciation, and amortization, by 2005.

— Justin Springham, Senior Editor, Europe, Unstrung

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