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Solid if unspectacular results for Three UK as it prepares for the 5G era

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Three UK has unveiled its financial results for the first half of 2019, and while it is nothing to shout and scream about, the bigger prizes are coming into view on the horizon.

Revenue might have decreased by 2%, but that is nothing to worry about when you look at the bigger picture. Subscribers are increasing, net promoter score is on the up, margins are remaining consistent and the enterprise business unit is demonstrating steady growth. 5G is on the horizon and Three is in a healthy position to demonstrate growth.

“We’re pleased with the progress we’re making going towards 5G,” said CFO Darren Purkis. “Feel we’re setting up the business well for the launch in the second half of the year.”

This might have been a bit of a tricky period for the Three business to navigate, as while it has a reputation for disrupting the status quo and playing a different ball-game from its rivals, it has been relatively quiet over the last six months. There have been no antagonistic marketing campaigns and little wow factor to report. Three has its eyes set on the 5G era and all announcements have focused on the preparations.

Currently the UK is sitting in the calm before the storm. EE and Vodafone might have launched their 5G networks already, but the marketing A-Bomb has not been dropped yet. We suspect over the next couple of weeks there will be a marketing blitz as Three and O2 prep themselves to launch; you won’t be able to suck a polo without being bombarded with 5G messaging before too long.

Looking at the financial side of the results, Purkis highlighted there was no reason to be concerned about a slight revenue dip. More customers have been migrated to unlimited data tariffs, removing charges for exceeding data bundles, while international calling regulations have changed, and new accounting principles have been applied. Revenue might have dipped, but the margins have remained.

When talking to Three today and over the last couple of months, the tone has been much more reserved than in previous years. This is a company which is prepping for 5G and there will be much more excitable spokespeople and marketing campaigns when the network is up-and-running.

On the network side, the Nokia 5G core is running and the team are migrating customers onto the new network. IT transformation has continued, as CAPEX increased by 23% over the first six months, and the launch of 20 data centres around the country will shift the mobile experience closer to customers. Three has regularly been criticised for having a poor network in comparison to rivals, though few can say it is doing nothing about it.

This is one perception which will have to be addressed if Three is going to be a major force in the 5G world, though all the signs are looking positive.

“Three’s results held few surprises as it reported a solid if unspectacular performance during the first half of the year,” said Kester Mann of CCS Insight. “The number of active customers nudged up just 1%. This glacial growth illustrates a leading reason why Three sees 5G as a catalyst to reinvigorate its brand and achieve the scale it has long for craved.

“Given its strong position in 5G spectrum – a major advantage over rivals – Three was understandably keen to talk up its 5G credentials once again. When it launches later this month, expect it to focus on unlimited data, low prices and disruption in home broadband.”

Purkis highlighted consumer mobile will remain the core focus of the business moving forward, it is known as the brand for data-intensive users after all, though there are other opportunities to be aware of.

In the home, the 5G FWA offering presents a significant threat to the traditional broadband service providers, demonstrated by the 4G FWA offering which the company already offers. Three currently has 830,000 home broadband customers, a number which could very much increase as increased speeds are offered over the new airwaves.

This diversification to the core mobile business was brought about by the acquisition of UK Broadband in 2017, though it has also offering them a glimpse into the world of enterprise business services.

Enterprise business services represents a very small aspect of the overall Three business now, but this is a big opportunity for the team. With UK Broadband as part of the Three family, the team is learning the tricks of the trade, and in September, Mark Stanfield will join as MD for Enterprise Services adding to the momentum. Stanfield’s role will be to set-up a more complete enterprise business function, which will include more attention for the wholesale segment.

Once again, the consumer business will continue to be the core of Three’s activities, but there are opportunities to attract more revenue through enterprise services. Currently the team are focusing on Small Office and Home Office (SOHO) customers, businesses no-larger than nine people, though once a firm foundation has been created here the team will look to engage larger businesses.

Another opportunity which is being evaluated in the UK Broadband business unit is for private campus networks. UK Broadband MD Ros Singleton is leading the charge here, and while the team currently manages a number of different networks already, it is actively engaged in various tender processes to expand the footprint.

The financial results here are nothing to write home about, but this is a business which is in preparation mode for the 5G era. We suspect there will be bigger things to come here as Three has crafted a position and collected assets to mount a considered challenge to its three larger rivals.

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