Hutch Denies 3G Exit

Struggling carrier Hutchison 3G Ltd. has hit back at industry claims it could pull the plug on its UMTS (Universal Mobile Telecommunications System) ventures in the next two years.

A recent report from investment bank Nomura Holdings Inc. argues that the carrier’s parent company may never generate a healthy profit from its 3G services.

"We find it hard to see how H3G can ever achieve an economic return on capital, and our valuation of the company is a negative HK$63 billion [US$8.1 billion]," notes Nomura analyst Mark James. "Our Hutchison Whampoa estimates include an assumption that the company walks away from its 3G ventures by the end of the full year of 2006."

The chief executive of rival carrier and 2G roaming partner mmO2 plc has also been quick to twist the knife. “I can’t see a long-term future for 3,” said Peter Erskine at a conference in London this week.

Despite early setbacks, including slow customer demand for its services and a limited supply of 3G-compatible handsets, Hutchison Whampoa is optimistic it can turn its fortunes around (see Hutch's Subscriber U-Turn, 3G UK Cries for Help, and Hutch's Weekend Hangover).

“We are seeing very good results,” managing director Canning Fok told Hong Kong newspaper The Standard. “Why would we exit?... People are changing their views more and more. The bad press is getting less and less.” [Ed. note: Er, it is?]

Fok also reiterated a previous statement that he expects the 3G business to break even, before interest, tax, depreciation, and amortization, by 2005 (see Hutch Bullish on Targets).

At the end of 2003 the group had 1.038 million 3G customers worldwide, with approximately 361,000 in the U.K., 453,000 in Italy, and 36,500 in Hong Kong. Hutchison is expected to provide a detailed update on its 3G business at its annual general meeting on May 20.

The UMTS being used by Hutch for its service is the European standard for 3G mobile communications and is based on a GSM core network using a wideband air interface to increase data rates to a potential 2 Mbit/s maximum (in the lab, anyway).

— Justin Springham, Senior Editor, Europe, Unstrung