M&A Telecom News

Three UK Sees Growth but Struggles with 5G Deployment and Merger Uncertainties

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All of Three UK’s numbers are moving in the right direction, but CEO Robert Finnegan still isn’t satisfied. The mobile operator’s revenue for the first three months of the year totaled £610 million, a 5% increase on last year. Margin increased 7% to £389 million, and capex was down 14% to £140 million.

Monthly ARPU increased slightly to £13.05, and average margin per user (AMPU) grew 2% to £11.70. Things are also looking good on the customer front, as Three’s active customer base increased 6% year-on-year to 10.3 million. Of that base, 8.5 million are contract customers, up from 8.2 million in Q1 2022.

CEO Robert Finnegan commented on the results, stating that they have “continued to see growth this quarter,” but also acknowledged that returns “remain below the cost of capital.” He called for market structural change so the industry can invest in the UK’s digital infrastructure.

One identified factor for the low returns is the high cost of rolling out 5G, especially considering the rise in borrowing costs. It also doesn’t help that the industry is taking a long time to deploy 5G standalone (SA), which is expected to unlock efficiencies and new sources of revenue beyond enhanced mobile broadband (eMBB). Additionally, Three originally planned to launch 5G using Huawei equipment, but their plans and budget had to be adjusted after the UK government banned Huawei from 5G networks.

With a potential merger between Three and Vodafone on the horizon, Frank John Sixt, CFO of Three parent CK Hutchison, expressed a cautious tone. He mentioned that it is “probable” that they will reach an understanding with Vodafone but also acknowledged Vodafone’s difficulty in reaching a conclusion.

If the merger goes through, the combined entity would see Vodafone taking a 51% stake, paving the way for CK Hutchison to sell its 49% holding to Vodafone. This would mean that Hutchison would be giving up one of the jewels in its crown, as the UK is its second-biggest telecoms market, accounting for nearly 30% of Q1 group revenue.

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