Data Boom And Cost Controls Drive 3's Growth

3 Group Europe reported a 101% increase in pre-tax profit in the year to December 31 2012, driven partly by the absorption of a rival mobile network operator in Austria , as well as substantial growth in non-voice service revenues across its six-market footprint. Mobile termination rate (MTR) reductions in all markets weighed on ARPUs, but non-voice contributions grew significantly as customers embraced smartphones and data-centric price plans. The results are good news for the group, which also benefited from a sharper geographic focus in 2012.

Group revenue increased by 3% year-on-year ( y-o-y ) to HKD58.708bn, with customer service revenue growing equally robustly to reach HKD41.962bn . Strong demand for smartphones and tablet computers meant handset revenue reached HKD14.75bn in 2012 . C omparable data for previous years are not available as the group is part ly through transitioning to a non-subsidised handset sales model. This new approach is, however, expected to further improve the group's overall results in 2013 and BMI notes is also in line with strategies being used by operators elsewhere in Europe, most notably in Spain.

Data Consumption Drives Growth
3 Group Europe - Customers And Data Usage

In 2013 the group will foc us on acquiring high-margin customers and upselling existing customers to higher-margin plans, while also further moving away from subsidised handsets. Strict c ost control , with a view to achieving maximum operational leverage , is also a priorit y for 2013. This is expected to help boost net customer additions rates in the postpaid segment, where active usage rates are also high. The group added 2.110mn postpaid subscribers across all six markets in 2012, improving considerably on the 1.281mn additions seen in 2011.

Italy and Ireland remain the markets most exposed to the perils of operating in the low-value prepaid segment, with 54.3% of Italian customers and 54.7% of Irish customers on prepaid plans at the end of the year. Pleasingly, these prepaid user bases contracted by 10% and 6%, respectively, during the year, while better growth was seen in postpaid uptake rates. Meanwhile, the Danish and Austrian prepaid bases grew quite significantly, by 42% and 53%, respectively, as consumers switched to value and online-only plans. The group served 23.519mn subscribers across Europe in 2012, up by 9% y-o-y.

Approximately 247.31 petabytes (PB) of data were consumed by 3 Group customers in 2012, up by 59.7% from 154.85PB in 2011. This level of data consumption is up by 981.4% from the 22.87PB consumed in 2008, reflecting the continued momentum of non-voice services. On average, non-voice gross ARPU of EUR11.12 accounted for 47% of gross blended ARPU of EUR23.90 across the group in 2012. However, the contribution rate was highest in Denmark (54%) and Ireland (56%), despite the reliance on prepaid services in those markets. The 3 Group will need to exercise care when upselling customers in these markets to postpaid plans, as higher monthly bills may discourage data consumption.

3's decision to acquire rival Orange Austria in 2012 shows that the group aims to become a more dynamic player in the region and is not averse to improving its lowly position through consolidation. Similarly, the group could still choose to exit underperforming businesses in weaker markets, such as Ireland. Nevertheless, the latest figures from the group support our long-held view that investment in data-centric services and targeted upselling of higher-value plans is necessary for operators looking to grow revenues in mature, saturated markets.

This article is tagged to:
Sector: Telecommunications
Geography: Austria, Europe, Austria, Denmark, Spain, Ireland, Italy, Europe, Europe

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