Hutch loses DoCoMo as Japanese cellco cuts losses to further i-mode

28 May 2004

NTT DoCoMo of Japan has pulled out of the UK’s pioneering 3G network operator H3G (UK), selling its 20% stake back to the cellco’s majority shareholder Hutchison Whampoa for GBP120 million (USD220 million) – barely 10% of the USD1.65 billion it paid for the interest in December 2000. DoCoMo’s exit is another blow for H3G (UK), which has now lost two of its three strategic investors in less than a year: KPN walked away from the venture in November2003 and sold its 15% stake to the Hong Kong conglomerate after refusing to contribute to a GBP1 billion funding call from the UK operator.

Since March this year H3G (UK)’s parent has redoubled its efforts to secure market share in its global 3G operations and by mid-May the strategy seemed to be bearing fruit. At that date it reported 1.73 million users around the world, a rise of 700,000 in just two months leading analysts to predict that the company could hit 3.5 million users by the end of the year. However, many remain unconvinced of Hutch’s business plan arguing that the dramatic rises in its 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.

Adding to the company’s woes, DoCoMo has wasted no time in beginning talks with H3G (UK)’s larger rivals – Orange, T-Mobile and O2 – to explore options for introducing its mobile internet service i-mode into the UK market. Disagreements over i-mode have long been an issue between Hutch and its former strategic partner, but the parent company’s inability to resolve matters by adopting the technology has seemingly cost it dear. Hutchison had considered DoCoMo’s continued interest in its UK operation was an important sign of support in the struggling service, but now faces the prospect of fighting against a service which has proved popular in each market in which it has been introduced. Under the terms of the exit agreement, DoCoMo will sell its entire holding to the Hong Kong company in the form of shares in its domestic mobile operator Hutchison Telecommunications International, subject to the listing of the latter. However, the Japanese company retains the right to receive full payment for the stake should Hutch fail to list the Hong Kong cellco.

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