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SAR investors gave a warm welcome to Hutchison Whampoa's re-entry to Britain's mobile-phone market, despite a higher than expected fee its consortium had to pay to offer next-generation mobile services.

 Hutchison shares yesterday rose 2.71 per cent to finish at HK$113.50.

 Investors believe Hutchison 'is back to what made it rich', a fund manager said.

 The company may have been given the thumbs up by investors for diving back into the European telecommunications market after selling British operator Orange in October, but analysts said the strategy could prove troublesome in the short term.

 On Thursday, Hutchison and Telesystem International Wireless (TIW) of Canada paid GBP4.38 billion (about HK$53.71 billion) to secure one of the five third-generation (3G) mobile licences being offered in Britain.

 The high cost of the licence raised questions among analysts as to just how much profit could be made from Britain's mobile-telecoms market - and if the move would pay off.

 'At the end of the day, the question was whether Hutchison would repeat the Orange success,' a fund manager said.

 'It is hard to say they will get it, as the market competition is increasingly intense.' Goldman Sachs analyst Mike Warren said Hutchison's move would be only 'marginally accretive in terms of value creation'.

 The company would need to spend up to US$8 billion in network infrastructure in the next two years, pushing the company's net cash position into the red by about US$3 billion to US$4 billion, Mr Warren said.

 That would result in a gearing ratio of 10 per cent.

 However, Hutchison would still be left with US$10 billion in reserves that could be used to build 3G networks in Germany and France, Mr Warren said.

 Analysts also expressed concern that if Hutchison won 3G licences in these countries, too, it could end up over-investing in Europe.

 Moreover, Merrill Lynch warned Hutchison faced a risk because of the significant start-up costs needed in the sector.

 'Not only would brand-building be costly, but the existing operators could play delaying tactics too,' Merrill Lynch said in a note to clients.

 'The new operator may face an uphill battle building a new brand while using an existing operator's network before its own is ready.'  Canning Fok Kin-ning, group managing director of Hutchison, told analysts the targeted internal rate of return of the venture in Britain was 22 per cent.

 It was targeting four million subscribers by 2005, he said.

 'If the plan works out that way, it is a wonderful business,' said Winston Lam, a Nikko Global Assets fund manager.

Monitor, Page 16 



Hutchison's mobile move clicks with investors