Author(s): Kester Mann
Three UK's impressive results for the first half of 2015, announced yesterday, show how much the company has "grown up" in the past couple of years.
In an analyst question and answer session with chief financial officer Richard Woodward, it was clear that Three now considers itself far more than just a low-cost provider. A greater focus on network quality and new services indicates a confidence that it can compete head-to-head with its more established rivals. This may be particularly relevant as parent CK Hutchison readies to submit proposals to the European Commission in a bid to acquire O2.
The operator has undoubtedly shrugged off a reputation of poor network quality and bad customer service. In the latest report from RootMetrics, for example, it was placed second overall behind market leader EE and well ahead of O2 and Vodafone. Data from Ofcom ranked Three as the joint least-complained-about mobile network operator in the first quarter of 2015, impressively reversing the company's previous weak standing in this area.
Three confirmed plans to focus strongly on network deployment over the rest of the year, reflecting a strategy that now clearly goes beyond simple market disruption. Most significantly, it will switch on its 800 MHz spectrum later in 2015. This will be the first time Three has deployed low-frequency airwaves, and customers should quickly benefit from better rural and indoor coverage. The move will also pave the way for the introduction of voice services over LTE.
The improvement and ambition that Three has demonstrated for its network are likely to have been principal reasons behind it securing a major mobile virtual network operator deal with Carphone Warehouse earlier in 2015.
Progress with its network has been matched by impressive uptake of novel initiatives such as inclusive roaming, voice-over-Wi-Fi and 4G at no extra cost. More than half of Three's customers are now using its 4G network, with average data usage per customer reaching a huge 4.65GB per month in June. The Feel at Home initiative — which enables subscribers to take their UK tariff abroad to 18 countries — has been used by more than 2 million people.
Three's greater focus on network and services helped boost total active customers by more than 10 percent year-on-year, an impressive achievement in an overall flat UK market. The increase was largely driven by lower-spending prepaid customers, but the operator still recorded contract growth on a par with its peers — only slightly behind O2 in total net additions in the past 12 months, with EE and Vodafone seeing an overall decline. Three's existing customers are becoming more loyal, as demonstrated by a slight year-on-year fall in contract churn.
The bottom line is also looking healthier for Three, with EBITDA up 34% year-on-year helped by the larger customer base and improving margins.
It's taken the company a long time to establish itself in the UK and, even more than a decade after launching, it still holds only a 12 percent market share of subscribers. But as the rapidly-evolving UK market continues to transform, there's no doubt Three currently has wind in its sails.