Hard graft for mobile network

By PETER GRIFFIN telecoms writer

Telecom-backed mobile company Hutchison Australia has notched up 43,000 customers on its newly launched 3G network, but analysts say subscriber take-up will have to accelerate if it is to make a significant dent in the market share of competitors Telstra and Optus.

Hutchison's business units comprise the 3G network arm "3", of which Telecom is a 19.9 per cent stakeholder, and the Orange mobile division, which has 278,000 customers. Overall Hutchison lost A$129 million ($143 million) in the six months to June 30 on revenue of A$134 million. The 3 division contributed revenue of A$13.6 million.

Hutchison is now seeking to raise A$600 million in debt from Australian banks to pay for its expansion plans. But Telecom, which invested A$250 million in "3" in 2001, will not contribute new capital.

Telecom's Australian business, AAPT, will soon become a reseller of 3 services.

At Telecom's full-year earnings briefing on Tuesday, chief financial officer and Hutchison board member Marko Bogoievski said Hutchison had made "impressive progress" since its network launched in a few main centres in April.

"They essentially epitomise the aggressive, disruptive, challenger culture that we're trying to build in [AAPT].

"They're a perfect partner because they have a wireless network and we don't. We have a fixed line capability that they don't have."

Telecom was working with Hutchison to adapt 3 applications for Telecom's New Zealand network.

An ABN Amro report suggests Hutchison's progress so far equates to subscriber sign-ups of 150,000 annually, "still a long way to generate major churn from the incumbent operators".

In a new report on the Australian telecoms industry, commentator Paul Budde suggested "Hutchison will only be able to deliver a return on investment this side of 2010 if it treats 3G as an ordinary mobile service and offers much stronger price competition".

Some analysts see Vodafone as the main source of customers for 3.

Budde predicts mobile revenue growth will drop from 10 per cent this year to just 1 per cent next year, a development which will send shockwaves through the industry.

For the other key telco players, Budde predicts more of the same - Telstra continues its dominance as its competitors struggle to gain market share and improve their balance sheets.

Second-ranked telco Optus had strong leadership under chief executive Chris Anderson, but was "too reliant on services that will have shrinking profit margins - fixed voice, corporate data, mobile".

Vodafone was under intense pressure to deliver sound financials but its business in Australia would remain "marginal".

Budde even had some tongue-in-cheek advice for Telstra.

"Sit still, don't move, and make as much money as you can, for as long as you can, from monopolistic utility services. In the meantime, keep costs down and you will produce solid profits of well over A$3 billion per annum".