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To: Eric L who wrote (1759)	11/30/2001 5:35:13 PM
From: Eric L	Read Replies (1) \| Respond to of 9255

re: EMC on Hutchinson Whampoa and 3G >> Hutchison 3G Faces a Tough Challenge in the UK Devine Kofiloto EMC Cellular November 30, 2001 e-searchwireless.com Hutchison 3G plans to launch its 3G network services in the UK in September 2002. Hutchison appears to have started off well and claims its network roll-out is on schedule. The operator has entered a site sharing agreement with National Grid, through its telecoms infrastructure subsidiary Gridcom which will see electricity pylons being used to carry radio antenna's for its 3G mobile services. Around 1,000 masts sited next to motorways and main roads have been earmarked for this purpose. Hutchison has also entered a mast sharing deal with Crown Castle to lease space at 4,000 sites, with an option over another 2,536, for 25 years. Hutchison 3G recently placed a second order with NEC for the supply of over one million 3G dual-mode phones, after placing its first order with NEC in August 2000. Delivery is expected to begin in Q3 2002. Hutchinson 3G's Ownership Structure Hutchinson Whampoa 65% DoCoMo 20% KPN 15% Hutchison is banking on compelling mobile content to lure UK customers, in its fight against the four established incumbents. In that regard the operator has reached an agreement with the FA Premier League to secure the rights to provide Premier League content to mobile phones and wireless devices. Under the agreement, Hutchison 3G will hold Premier League rights for all mobile technologies including GSM and UMTS from August 2001 until July 2004, enabling it to provide football content to customers using its 3G networks in the UK and Ireland. It is therefore no coincidence Hutchison has chosen September, the beginning of the football season, to launch its network services. Services it intends offering are : * Video clips of goals after they have been scored * Match results * Goal scorers * Full fixture listings There have been other negotiations with numerous content providers and early signings could include providers of electronic games, sports and travel content. Starting From Scratch? However, without an existing customer base, new entrants will have to adopt an aggressive strategy to rapidly build a customer base big enough to sustain volume. Would this be possible in an already saturated and static market, with a penetration rate of 78.5% as at end October 2001 (according to EMC World Cellular Database) where market share is evenly distributed between the four network operators? Orange 28% BT Cellnet 25% Vodafone 25% one2one 22% Bring on the Brand Given the characteristics of the UK market, and with net adds decreasing over the last quarter, a new entrant's claim to market share in the early stage of 3G roll-out will most likely only be through churn. Up against the likes of established incumbents Vodafone, BT Cellnet, Orange and One2One, the task ahead appears formidable. As a result of the slowdown in subscriber growth in the past quarter, focus has moved to customer retention and loyalty building among market rivals. Moreover the high cost of investment will not leave much room to go the way of price competition as a means of attracting subscribers. The lack of a strong brand could also be one mitigating factor against Hutchison 3G. Reports have it that Hutchison 3G is to be radically rebranded in its battle to win customers with its 3G services. The group has hired Wolff Olins, the brand consultancy behind Orange Mobile, to come up with a new name and logo before it launches its services in September 2002. Brand building will come at an expense and will only go towards further increasing subscriber acquisition cost. Even though Hutchison 3G appears to be doing all the right things in lining up content providers so as to have enough services available when it launches, there is still uncertainty surrounding demand of 3G services. As such take-up can be expected to be slow; and with no existing 2G business to fall back on, the operator will need a strong balance sheet to shoulder the slow take-up of 3G. The situation could be further worsened if the NEC dual-mode 3G handsets expected to be delivered by Q3 2002 are delayed. Given the experience with GPRS handsets, this scenario cannot be ruled out. Acquisition Market share will be a crucial parameter for success. In modelling a 3G business case for a 'green field' operator in Italy, Nokia's business consultancy unit came to the conclusion that such an operator would need to achieve a market share of between 13%-15% to survive. Given the similarities between the Italian and UK market this could also apply to the UK market. This being the case, and given the competitive market situation, Hutchison's only chance of achieving such a market share would most probably be through acquisition . It is this that has most probably fuelled the market speculation that the almost debt free mmo2 was a takeover target for Hutchison 3G after its market debut on 19 November 2001. However the high licence cost write-off this would entail, as a result of the regulator prohibiting ownership of two 3G licences by one operator would pose a huge deterrent to such a consolidation. On the other hand there are schools of thought which argue that the high licence costs have already been largely discounted by the market. Though the company is well funded (Hutchison 3G secured a GBP 3.6 billion three year credit facility in April 2001), one has good reason to be sceptical about Hutchison's chances of beating its competition in the 3G race. Having the funds to cover the high advance network investments is one thing, having a strong balance sheet to weather market uncertainties in the long term is another. It might be argued that financial backing can be expected from the company's parent Hutchison Whampoa, but after having secured 3G licences in the UK, Italy, Austria, Sweden and Denmark, with partners who likewise have no existing 2G businesses and hence no customer base, Hutchison Whampoa might inevitably find itself stretched. Country Joint Venture Partners UK Hutchison 3G UK NTT DoCoMo, KPN, Italy Andala Tiscalli, Franco Bernabe, CIR Holding, San Paolo-IM Bank, HDP-Gemina Sweden HI3G Sweden Investor Denmark HI3G Denmark Investor Austria Hutchison 3G The one glimmer of hope through all this would be a collaboration with partner NTT DoCoMo to transfer their experience so far with 3G services in Japan. However, what works in one country might not necessarily be applicable in another. << - Eric -