Everything Everywhere hit by £249m loss

20/02/2013

UK 4G provider Everything Everywhere has reported a pre-tax loss of £249m, as the mobile operator was hit by slow end of year sales and regulatory cuts.

The firm, which runs Orange and T-Mobile in the UK and a joint venture between Deutsche Telekom AG and France Telecom, added 201,000 contract customers in the fourth quarter of 2012, after launching Britain's first superfast 4G mobile broadband service.

More cheaper 4G packages are planned for the coming months, and the 4G rollout is expected to continue.

Chief executive Olaf Swantee said 65 cities and 55% of the population were expected to be covered by the fast service by June this year.

Swantee also said those who moved from 3G to 4G were spending, on average, 10% more for their bills to gain the extra services.

Around 1,000 corporate customers were now on 4G contracts, and Swantee said was "pleased with the progress" in 4G uptake by small and medium enterprises.

More than half of EE's customers are now on contracts, reflecting the growing popularity of smartphones, helping it to post revenue of £6.7 billion, down 1.9% from the year before.

Its network, which offers speeds up to five times faster than 3G, is now available in 18 cities including London, Birmingham, Manchester, Leeds, Sheffield, Bristol, Liverpool, Southampton, Edinburgh and Glasgow.

Earlier this month, EE announced it is considering floating on the stock exchange in London, with up to 25% of the company being up for grabs, in an effort to raise £10bn.

However, it hasn't ruled out selling a stake to a private investor either - according to the Telegraph a number of private equity groups are already believed to have expressed interest in a potential deal, with Apax, KKR and CVC named as possible suitors.

Commenting on the EE results Steven Hartley, principal analyst at Ovum, said: “EE’s latest results show that the company still faces huge challenges. However, it is what the results don’t say that seems most telling. The lack of LTE customer numbers is unsurprising. The official line is so as not to impact the on-going spectrum auction. However, experience suggests that phrases such as “solid early 4G momentum” cover all manner of sins. Or to put it another way: if customer uptake was far ahead of expectation, then we would hear about it. We therefore have to conclude that uptake has not been spectacular. That doesn’t make it a disaster, just not necessarily fully optimizing its monopoly position.

“A clue, in our opinion, lies elsewhere in the release. “Early Orange and T-Mobile customers migrating to 4G on EE are showing increases of approximately 10% in ARPU” highlights the premium customers must pay to use LTE. We have argued for years that charging a premium for LTE services may appease investors fearful of telcos’ losing their traditional license to print money, but it will not generate customer uptake where 3G is well embedded. The three most penetrated LTE markets in the world (the US, South Korea and Japan) all have little or no 3G-4G premium. The business case for LTE is not about raising ARPU (market saturation and competition will see to that), but data transport efficiency. EE’s premium is lower than many Western European operators, but it is a premium nonetheless.

“EE has everything in its favour for LTE to be a success: a market starved of high-speed mobile broadband, but high smartphone adoption and data usage; an LTE monopoly; rapid LTE coverage deployment; and a wider range of compatible handsets at launch than any other LTE operator. Therefore, unspectacular LTE uptake will be due to brand and pricing. EE’s decision to use its new brand has been much discussed and may be out of its hands if the touted IPO means Orange and T-Mobile will have to disappear from the UK. Therefore, EE must not underestimate the importance of tariff strategy in seizing its first mover advantage.”

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