Hutchison expects 3G profit by 2006
Hutchison Whampoa says lower subscriber acquisition costs could yield a first-ever operating profit for its loss-ridden third-generation (3G) division next year, but analysts warn that falling per-user revenues and mounting competition pose daunting new challenges.
Chairman Li Ka-shing, on the sidelines of the group's annual results briefing yesterday, said the worst had passed for Hutchison's global 3G operations.
'We have purchased a record-breaking number of handsets for this year, to the tune of millions,' said Mr Li. 'We are expecting even swifter 3G sales in the second half this year.'
The company said in a release that as of Wednesday, it had signed up more than eight million 3G customers worldwide, the majority of them in its top two markets, Britain and Italy, with 3.02 million and 3.56 million subscribers, respectively.
Mr Li said that the group was signing up 20,000 new 3G customers worldwide every day.
'Losses peaked last year and we expect to achieve breakeven in ebit [earnings before interest and tax] in 2006.'
Those losses last year reached $37.5 billion - an amount that would have wiped out contributions from all the group's other divisions had it not been for exceptional gains of $19.18 billion realised through the spin off of its telecommunications assets and the sale of its stake in a mainland consumer products joint venture.
Subscriber acquisition costs for both contract and prepaid customers last year reached $16.09 billion. The proportion of prepaid customers, who usually spend less than contract subscribers, is rising in Europe, according to a Merrill Lynch report.
Nine out of every 10 Hutchison 3G subscribers in Italy now opted for prepaid terms, driving down average revenue per user (arpu), the report said.
Arpu for Britain and Italy last year was largely within analysts' expectations at #40.30 ($591.47) and Euro47.17 ($476.61), respectively - a marked decline from amounts posted in the first seven months of the year.
The company spent $8.42 billion to acquire prepaid customers through various forms of subsidies. The company spent an average of Euro271 to acquire each global customer in the second half of last year, up from Euro252 in July.
Analysts largely concur that the group may meet its global 3G businesses target of breakeven in earnings before interest, taxes, depreciation and amortisation this year as handset prices fall.
But they also warn that as more operators launch 3G services, Hutchison will lose customers to the competition.
The company told analysts last night that it had already lost 700,000 3G customers in the first quarter this year, a churn rate of about 10 per cent.
'This is a pretty high churn rate, given the industry average of 20 per cent for the whole year,' said an analyst.
