Uncertainty Looms over Future as 3 Unveils Mobile Broadband Services

Hutchison Whampoa's 3 Group has unveiled a plethora of mobile data services (X-Series) aimed at boosting usage of its 3G infrastructure. In an unprecedented move for the mobile industry, the company said it has signed partnership agreements with top internet names Yahoo!, Google, Skype, Sling Media, Microsoft, and eBay. Starting from its U.K. operations in December 2006, 3 plans to offer unlimited mobile VoIP calls plus ubiquitous instant-messaging services using Yahoo, Microsoft's MSN, and Google. The services will also include fixed-broadband-like services, offering customers the opportunity to watch their home TV channels on their mobile devices or access their home computer remotely. The service will be priced at a flat fee and would be rolled out across the 3 Group's other markets—Austria, Australia, Denmark, Italy, Ireland, and Sweden—from early 2007.

Meanwhile, rivals including Vodafone and O2 have raised doubts about 3's survival particularly in the U.K. market. In a statement, Vodafone's chief executive Arun Sarin suggested the demise of easyMobile was indicative of a market ripe for consolidation. "We are reaching a stage in the mobile business where people will close their shops and go home," he said. "If 3 were to put their assets up for sale I think we would look at them," he added, noting that any interest was hypothetical at this stage. Similarly, the chief executive of O2, Peter Erskine, noted that 3 is a potential takeover target, particularly if one wants to acquire 3G customers quickly. He hinted that Virgin Mobile might become another struggling player in the market.

Outlook and Implications

• Is X-Series a Killer Application? Although X-Series will undoubtedly jolt the market, it is hardly going to become that ever-elusive killer application for 3G. Despite the loftiness of the ambitions to push significant amount of enticing services to customers, X-Series looks set to suffer from a combination of technology glitches and commercial apathy. Existing cellular infrastructure can handle mass-market instant-messaging and support ubiquitous VoIP services, although the corresponding erosion of existing call pricing model by the latter may prove detrimental. However, until 3 manages to roll out HSDPA across most of its markets, offering such bandwidth-hungry services like TV is probably asking for too much of the network. At a time when the industry is abuzz with hopes for customised mobile TV broadcast technologies, pushing mass-market, high-volume video content through the existing cellular infrastructure is rather premature. And that could lead to commercial apathy. An unwholesome customer experience is capable of damping interest in the X-Series services, with customers particularly unforgiving for any service they regard as a flop (see World: 15 February 2006: Skype Goes Wireless with Hutchison).

• Is it Time to Close Shop? Despite passionate efforts to debunk plans of a sale, the 3 Group is evidently the hottest and easiest-to-grab tangible telecoms asset in Western Europe. The reasons are not far-fetched. The 3 Group's financial position is precariously on the balance. First, the group has yet to report group-wide profits since inception. Then, its assumed regulatory holiday over interconnection/termination costs is about to end across Europe. Once that happens, the group can hardly support its high customer acquisition costs. Plans earlier in the year for an IPO of the Italian operations, which was to be followed by an IPO of the U.K. operations, were continuously delayed until being indefinitely postponed—the reason being that the asset was undervalued. Contrast it with the oversubscribed IPO of Neuf Cegetel in France several months later, and it becomes clear that 3 Group's future is doubtful (see France: 18 October 2006: Neuf Cegetel IPO Kicks Off with Success, World: 28 August 2006: Hutchison Delays Break-Even Target for 3G Operations from 2006 to H1 2007, and Italy: 13 February 2006: Hutchison Whampoa Scraps H3G IPO, Sells 10% Stake to Major Investment Bank).
  Aside from the finances, the group's customer growth has slowed. In the three months to 22 August 2006, the group's subscriber numbers grew by 12.5% compared with 15.6% a year earlier. Biting price competition and the eventual catching up by the likes of Vodafone has eroded the 3 Group's 3G-Mantra selling point. If 3 goes under, Vodafone is the most likely buyer. The 3 Group's 6.8 million customers in Italy and 3.75 million in the United Kingdom and Ireland (22 August 2006) are the perfect tonic to bolster Vodafone's faltering customer base in two of its core European markets. Although regulatory and competition concerns will arise, the markets have enough remaining players to satisfy regulatory conditions. Besides, the cases of KPN and Telfort in the Netherlands and Sonaecom's Optimus and Portugal Telecom's TMN in Portugal suggest that a Vodafone acquisition of 3 Italia and 3 UK will get the go ahead order (see Portugal: 28 September 2006: Portuguese Competition Authority Approves Sonaecom Takeover of Portugal Telecom and Netherlands: 31 August 2005: Regulator Clears KPN's Acquisition of Telfort).