Moody's doubtful of Hutchison 3G target
Hutchison Whampoa may not achieve operational break-even for its third-generation mobile business by the end of next year, according to credit rating agency Moody's Investor Service.
In an update on the conglomerate's 3G operations released yesterday, the agency reaffirmed Hutchison's A3 debt rating due to an improved risk profile, while the outlook remains negative due to uncertainty over whether Hutchison will 'achieve its plans for commercialising its 3G business'.
Having signed about 712,000 new 3G users since March this year - or about 1.73 million worldwide as of last month - Moody's doubted Hutchison could sustain subscriber growth and spending levels.
'Severe competition for market share could negatively impact [Hutchison] from achieving targeted subscriber numbers and improving arpu [average revenue per user], and/or significantly raise customer acquisition costs,' it said.
In the past few months, Hutchison has launched aggressive promotions, including heavy handset subsidies and deeply discounted usage fees, to boost usage of its 3G operations.
'It remains too early to assess whether this growth momentum for subscribers and revenue is sustainable,' Moody's said.
It said Hutchison could face pressure on its ratings in the next six months if subscriber growth or arpu was under target.
One positive for Hutchison's 3G operation is that the risks relating to 3G construction, operation and technology have fallen substantially in the past 12 months and its US$17.5 billion liquid reserve is enough to finance future needs.
'Network roll-outs have largely been completed and remaining capital expenditure is more discretionary, relating to network upgrades and dependent on capacity needs and roll-outs.'
The remaining investment required for Hutchison's 3G operations is estimated at Euro6 billion (HK$56.6 billion) to Euro6.5 billion, comfortably covered by its existing reserves and bank facilities.
Last month, Hutchison said the company would reach break-even by the end of next year, when subscriber numbers hit 10 million to 12 million.