Hutchison 3 chases 4G scale in UK and Ireland

Rethink Wireless commented:

‘Hutchison Whampoa’s 3 Group is used to being the smallest player in its European markets, which keeps it on a constant drive to keep costs competitive low while eating into incumbents’ market share. Its latest steps in this direction are a network sharing deal in the UK with leading cellco EE, and a bid to gain scale in Ireland by buying the local branch of Telefonica O2.

EE has itself achieved significant network economies since it was formed as a joint venture between Deutsche Telekom and France Telecom, which merged their T-Mobile and Orange subsdiaries and infrastructure in the UK. The company, the largest of the country’s four cellcos, has confirmed a deal to share LTE networks with 3UK.

That should allow EE to reduce costs while keeping up the momentum in expanding coverage in its LTE services – currently ahead of those of Vodafone and O2 largely thanks to the headstart it gained when it was allowed to deploy 4G in its repurposed 1.8GHz GSM spectrum, an option which was closed to its rivals, which were left waiting for last year’s auction. For 3UK, it will help reduce costs and compensate for its relatively poor spectrum position.

The larger operator told the Financial Times: “The new framework increases cost efficiencies as we continue our roll-out of 4G to cover more than 90% of the UK. population by the end of the year. This is part of our £1.5bn three-year investment to differentiate the EE network significantly in terms of the people we connect and the experience they receive.” CEO Olaf Swantee has taken a somewhat traditionalist approach to winning and retaining customers, focusing heavily on having the best network in terms of coverage, capacity and quality, rather than emphasizing applications.

The two partners already have a 3G RAN sharing pact, originally signed between 3UK and T-Mobile UK, which EE inherited at its merger. Now the companies will extend that and

invest a further £1bn in their infrastructure to support 4G. The FT report says they will share masts and transmission costs, among other items. Antennas, spectrum and core networks will remain separate in order to keep the two cellcos’ services and propositions clearly separate, for competitive reasons and to satisfy the regulator.

EE has said it will invest $1.4bn in building out LTE, and has already spent a large chunk of that sum, but will now be able to share the rest of the costs. 3UK, for its part, has committed £500m to network investment over the coming three years. It is well behind its rivals in 4G build-out but aims to reach 50 cities by the end of this year and 98% population coverage a year after that. All its customers will be transferred to a 4G contract during this quarter, even if they live outside the coverage area – this is because the cellco will not charge extra for 4G, unlike EE, and for now remains heavily focused on the benefits of its high capacity 3G+ network.

Its CEO David Dyson has gone against the tide of operator PR by saying most customers are not crying out for 4G yet. He said in an interview: “Beyond two years, apps and services will develop to make 4G more relevant. Right now, a 3G network can provide most of the service for most customers.”

Meanwhile, across the Irish Channel, Hutchison is hoping to acquire O2 Ireland to merge with its own 3 unit. However, it faces considerable European Commission scrutiny as the number of Irish cellcos would be reduced to three (Vodafone and Eircom’s Meteor/Emobile being the others). Hutchison argues that competition would be improved by creating a more viable challenger to the dominant Vodafone, which has about 40% share in a market of 4.6m subscribers.

But a drop below four cellcos is normally a trigger for European nervousness and the Commission has issued its expected Statement of Objections to the acquisition, which 3 Ireland said it would study. The EC is said to be concerned about possible over-concentration of valuable 4G spectrum; higher barriers to entry for new players; and the impact on Eircom should its existing network sharing deal with O2 be compromised.

Increased scale, and an improved ability to roll out 4G quickly, would help 3 Ireland make its first profit. In 2011, it committed €105m for 4G spectrum and initiated services last month.

A spokesperson said: “3 Ireland are analyzing the statement and we will be responding to the Commission’s concerns. We will put forward strong and effective remedies to address the Commission’s concerns. We … are confident that we can convince the Commission of the pro-competitive benefits of the proposed acquisition.”‘

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