Global Insight Perspective | |
Significance | Despite denials, speculation is mounting that Hutchison Whampoa could sell its 3 Group mobile business. |
Implications | With two of Europe's leading mobile groups reportedly eyeing the 3 Group, a sale would alter the mobile market share composition in the United Kingdom and perhaps Italy and Ireland. |
Outlook | Although Hutchison Whampoa insists that it will not sell its 3 Group, there can hardly be any justification not to sell if its recently launched X-Series mobile broadband strategy flops. |
Hutchison Whampoa has denied heightened media speculation that it is planning to offload its 3G businesses across Europe. Hutchison's spokeswoman, Laura Cheung, strongly refuted the claims made in the Chinese language Ming Pao daily, insisting that Hutchison definitely has no plan to sell its 3G operations. Citing persons familiar with the negotiations, Ming Pao said that Hutchison Whampoa was in talks with France Telecom's unit, Orange, about cooperation between Orange and 3, with the possibility of an eventual sale of 3 to Orange.
The development follows earlier indications that Vodafone was eying Hutchison's operations in Europe, particularly its U.K. and Italian operations. Vodafone's chief executive, Arun Sarin, suggested that biting price competition in the U.K. mobile market will force some players out, leading inevitably to a consolidation in the mobile market. He admitted that if 3 UK was to become available, Vodafone would register its interest. Likewise, the chief executive of O2, Peter Erskine, remarked that both 3 UK and Virgin Mobile will struggle to survive in a consolidating U.K. mobile market.
Outlook and Implications
Can 3 Survive?: Although the 3 Group has hardly been immune to speculation about a possible sale, present market movements and comments suggest a cooperation deal or an outright sale could be on the cards. Despite Hutchison Whampoa's managing director Canning Fok’s insistence that the chance has gone for the company to spin off its 3G mobile business, Global Insight believes that the 3 Group is evidently the hottest and easiest-to-grab tangible telecoms asset in Western Europe. The reasons are not far-fetched. The company has struggled to make a profit since inception, subscriber growth has slowed and the 3G/2G termination price dichotomy (which has helped it fund its high customer acquisition costs) is about to be scrapped across Europe. However, Hutchison Whampoa still has several options for survival in the market. While the prognosis for customer growth in its core U.K. and Italian markets remains bleak, the company has unveiled a mobile broadband strategy that has set it apart from its competitors. Its X-Series mobile broadband products, offering a plethora of mobile data services for a monthly flat fee, is among the most ambitious mobile data services in the market. But doubts over customers’ willingness to embrace services beyond the rudimentary call-plus-SMS package will cast doubts on 3's survival. Ultimately, if X-Series flops, the future of the 3 Group as an independent player in the market will be called into question (see World: 16 November 2006: Uncertainty Looms over Future as 3 Unveils Mobile Broadband Services).
Vodafone vs Orange: The emergence of Orange as a potential suitor for the 3 Group has nullified the belief that it remained Vodafone's prerogative to snap up 3. Assuming there is truth in the news reports about Orange and the 3 Group, Vodafone remains, however, a more suitable option as it is better placed to assimilate the 3 Group's core operations in the United Kingdom, Italy and Ireland. For Orange, a partnership makes most sense for its U.K. operations and also, to a degree, for its Austrian interests. Assuming that other operations can be easily disposed of, Orange may struggle to dispose of the Italian unit, which has about 6.8 million clients. Re-branding 3 Italia is an option but, in a highly mature Italian mobile sector, chasing the market from the number four spot—behind Telecom Italia Mobile, Vodafone Italia and Wind—does not fit particularly with France Telecom's avowed policy of pursuing acquisitions in Asia and Africa (see World: 15 June 2006: France Telecom's New Push in Africa, Asia).