Hutchison 3G has denied that it will breach covenants with its bankers as a result of a delayed launch of 3G mobile services in the UK and Italy. The new wireless operator, which is due to launch much-delayed 3G services by the end of this year, insisted that suggestions in the Financial Times that covenants related to the number of customers were incorrect and it did not have problems with funding.
Nonetheless, the publication in the Financial Times of a business plan, prepared in 2000 to persuade a consortium of banks to lend it 3bn pounds ($4.7bn), is embarrassing for the company as it draws attention to the initial high hopes that carriers had for 3G technology that persuaded them to pay 22.5bn ($33.5bn) for licenses in the UK alone.
According to the report, Hutchison expected to have 400,000 users by the end of 2001 and 1,500,000 by the end of this year. By 2010 it forecast that it would have 9.4 million customers, each paying on average 54 pounds ($85.3) a month for services.
In reality, Hutchison currently has no paying customers as it has been hit by the lack of 3G handsets and is currently expecting 100,000 from supplier NEC by the end of the year. For the moment, it is testing its service using a limited number of friendly customers while it attempts to iron out problems caused by dropped calls when customers move from a 3G cell to a 2G one.
The company insists that this is just a software problem that will eventually be solved and will not cause problems for the vast majority of customers who move in urban areas covered by continuous 3G cells.
But the delays erode Hutchison’s first-mover advantage that gave it the opportunity to build up a substantial customer base with technology superior to its established competitors. There is in any case the problem of the current lack of interoperability between the 3G systems of different vendors.
Many observers are skeptical about Hutchison’s belief that it can persuade its customer base to spend more than 50 pounds ($79) a month on mobile communications, and that this is a level of spending only currently achieved by a small minority of users. In August this year, Dutch incumbent KPN NV wrote 1.5bn euros ($1.4bn) off the value of its 15% stake in Hutchison 3G, valuing the holding at 300m euros ($291m) and suggesting that the UK’s fifth mobile operator is worth just 2bn euros ($1.9bn).