InterDigital Inc (IDCC)

[randomwalk]

Could Hutchison Walk Away from 3G?

(10/06/2003, BWCS Staff) As 3G handsets finally arrived in shops across the UK, rival operators were considering their response to the drastic price cuts announced by Hutchison 3G last week. According to a report in Telecom.paper, both Orange and mmO2 said that they were not worried about the price cuts, which are up to 50% below the UK average, and that service quality and customer experience were more important than price. But their cool reaction did not stop shares in the operators from sliding as markets feared that the European mobile phone industry was headed for a price war.

In Italy, however, Hutchison says it has no plans to follow the strategy of its UK sister company. Instead, it is offering a discount on 3G handsets, which brings down the cost of one of its most popular models, made by NEC, to €495.

Some analysts believe Hutchison may pull the plug on 3G if it continues to fall short of expectations rather than let its credit rating slip into non-investment grade. Dilip Parameswaran, director of credit research at Credit Agricole Indosuez, said, “We believe Hutchison would be prepared to walk away from 3G, given the great care it has taken to structure 3G financing separately from the rest of the business.”

To date, Hutchison has signed up 25,000 3G subscribers in the UK and 100,000 in Italy, a long way short of its combined target of 2 million for the end of the year. The operator is said to be expecting its 3G business to be Ebitda positive by 2005, which in the light of slow take-up and recent price cuts is looking increasingly unlikely.