Hong Kong-based ports-to-telecoms conglomerate Hutchison Whampoa says that subscriber take-up to its loss-making 3G networks around the world have exploded since March, with the company adding almost 700,000 subscribers in the past two months to boost its worldwide customer base to over 1.73 million. The company, which is controlled by Asia’s richest man Li Ka-shing, is now growing far quicker than analysts had predicted – in the last nine weeks it averaged 77,000 net additions per week, compared with 37,800 for the first three months of the year – leading industry watchers to predict that the cellco could sign up over 3.5 million subscribers by the end of the year; earlier forecasts estimated that the company would only sign up 1.61 million 3G users worldwide by mid-2004. However, despite the encouraging development, the market remains concerned that dramatic rises in Hutchison’s UK, Italian and domestic mobile markets (the number of UMTS users in Hong Kong has more than doubled from 35,000 to 84,000 since March) are being driven by heavy subsidies and low-cost tariffs, which the company will have to sustain if it is to compete with larger rivals such as Vodafone and Orange – both of which are due to launch their own 3G services shortly.
In March this year Hutch announced a bold plan to double the rate at which it signs up 3G customers worldwide by, amongst other things, halving the cost of its most expensive handset (the multimedia-enabled NEC c616), to HKD1,980 (USD254). However, the plan was received coolly by analysts on10 May, and the investment bank Nomura predicted that Hutchison Whampoa would pull out of UMTS altogether by 2006. The statement echoed an earlier pessimistic announcement by credit rating agency Standard & Poors, which even went a step further by suggesting that Hutch’s Italian operation 3 Italia was close to folding. Hutch has invested USD22 billion in 3G technology and is burning cash at the rate of USD12.8 million per day. Moreover, its subscriber acquisition costs (SACs) are running at EUR600 (USD717) per user – around four times the industry average – making it hard for many to see how the company can achieve sufficient long-term economic return on its investment. Others fear that while it has shown some signs of improvement, it will take too long for it to scale up its business to a subscriber base of 20+ million before the cash runs out. Nonetheless, yesterday’s press release from Hutch seems to indicate that fortunes are improving and managing director Canning Fok remains bullish that the results justify his earlier faith in the fledgling technology, adding that ‘from our perspective, we have passed the riskiest point of 3G investment’.