Never let it be said that CK Hutchison-owned Three UK misses any opportunity to call for a consolidation of the UK mobile market. Indeed, CEO Robert Finnegan made use of the operator's 2021 results presentation to opine once again that a market with four mobile players is a dysfunctional one.
Three UK has of course tried to resolve the situation in the past by attempting to merge with O2 UK, but was thwarted by the European Commission in 2016. Since then, O2 has gone off and joined forces with cable operator Virgin Media.
Darren Purkis, chief financial officer of the market's fourth-largest operator, also picked up on the consolidation theme during an interview with Light Reading this week.
Purkis said Three UK has been encouraged by recent comments from UK regulator Ofcom, which has opened a consultation on how it will approach the mobile market in future, including strategies for potential industry mergers.
Of particular note, Ofcom indicated that it had no fixed position on mobile consolidation, and recognizes that what matters is the effectiveness of competition, rather than just the number of competitors.
"That feels like a positive position … which hopefully would help any consolidation in the market," Purkis said. However, he noted that this will still require "the right situation for operators to want to get together. We will see if that happens over the future, but I think it's what the market needs" to support the right levels of infrastructure investment.
Postpaid up, but prepaid remains a drain
Despite its concerns about the state of UK competition, Three UK managed to produce a pretty healthy set of results for 2021. Indeed, Finnegan particularly highlighted the operator's "strongest customer contract growth since 2012."
Total postpaid customers increased by 7% year-on-year to over 8 million in 2021. According to figures provided by parent company CK Hutchison, total active customer numbers in the UK amounted to 9.69 million, while registered customers stood at 13.1 million.
However, prepaid customer figures remain a drag on overall customer growth, and the total mobile client base was unchanged from the previous year. Purkis conceded that prepaid figures have not yet returned to pre-pandemic levels, "but we expect a steady recovery over the coming period."
In terms of Three UK's financial performance last year, revenue increased 4% year-on-year to £2.44 billion (US$3.2 billion), while EBITDA rose 10% to £609 million ($799 million). Capex reached £784 million ($1 billion) – Three UK's highest ever capex figure. The operator is investing in its 4G network, and is in the middle of a five-year strategy to expand its 5G network and implement a comprehensive IT upgrade.
Purkis said capex is currently peaking, and should start to come down from next year as the measures to upgrade IT systems are implemented. "I think we would expect to see a similar level of investment this year … and then we will be through the bulk of that," he said.
With regard to the IT transformation program, "we went live with our new B2B platform in February for contact center and digital, and that goes live for retail in April/May time," Purkis said. "So that started to deliver, and then B2C, we would like to be delivering at the back end of this year in about October time. The IT transformation is coming towards the end of that program."
As for its network expansion, Three UK said its 5G network now covers around a third of the UK population with more than 2,500 live sites.
Also worth noting is that CK Hutchison is in the process of selling 6,000 passive telecom infrastructure sites in the UK, after the Competition and Markets Authority (CMA) approved a deal with Spanish tower company Cellnex. The sale completes a series of agreements announced in November 2020 for the Spanish tower company to acquire CK Hutchison's around 24,600 sites in Austria, Denmark, Ireland, Italy, Sweden and the UK.
The Hong Kong-based group will receive a total of €3.7 billion ($4.1 billion) for the UK assets. Purkis indicated that the money would be used to help pay back its parent company for investments made to date in its infrastructure.
B2B up, Italy down
Looking ahead, Purkis cited B2B and 5G home broadband as two big opportunities that would also not cannibalize any of its existing business areas.
Purkis noted that Three UK doubled its B2B base and margin last year, although from a low position. "We have a tiny market share," he said, but pointed out that even a relatively small gain in market share "will be a huge growth for us."
Meanwhile, Three UK certainly performed somewhat better than sister company WindTre, which continues to battle against harsh competition conditions in the Italian market.
In 2021, WindTre reported total active customers of just over 19 million by the end of the year, down 3% compared to the previous year. Revenue was 10% lower at €4.2 billion ($4.65 billion), while EBITDA fell 12% to €1.7 billion ($1.88 billion).
- Three UK hails H1 momentum as WindTre fights on
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— Anne Morris, contributing editor, special to Light Reading