Three looks to dispel cheap reputation with CAPEX boost

pile of cash

Three has released the numbers for 2017 and they are pretty impressive, especially CAPEX, where it has outspent the majority of the industry.

Total revenues increased to £2.4 billion, a year-on-year boost of 7%, while total subscribers were up 10% to just over 10 million. 6.9 million of these subscribers were the attractive and lucrative postpaid kind. Another interesting number was the Net Promoter Score of 19, down from 20 in 2016 but anything above 0 is considered good. However, the statistic we like the most is 19%, the ratio of CAPEX to total revenue, we’ll come to that in a bit.

One area which should be a bit of a concern would be APRU, which has been steadily declining over the last couple of years. For 2017 the gross ARPU stood at £18.07, down 6% on the 2016 figure of £19.24. 2016 gross ARPU was down 4% on 2015, which in turn was 3% lower than 2014 which stood at £20.81. Three might be acquiring more customers year-on-year but it should have a look at bringing this number back up, or at least stabilizing it; continued decline isn’t fun for anyone involved.

Now onto the CAPEX column. Over the course of the 12 months, Three said it spent £459 million on CAPEX, a 30% increase on the previous year, primarily down to transformation projects in the network and IT systems. The main project seems to link back to an announcement made in February 2017 which saw Three bring Nokia on-board to deploy a cloud native core network, fully replacing the existing 3G and 4G core with a 5G-enabled proposition.

“We don’t use the word transformation lightly,” said Dave Dyson, CEO of Three.

Looking forward, Three is remaining tight-lipped on how much will be pointed towards CAPEX for this year, though the signs are positive. £459 million is a 19.1% ratio of total revenues, not all of which will be directed towards the network or IT systems but it would be a fair assumption a good amount will. Just as a point of comparison, O2 in the UK spent £724 million on CAPEX which is 12.6% of total revenues, while across the Orange group 17.5% was spent.

Three has developed a bit of a reputation for doing things on the cheap or begging for regulatory/legislative assistance to tackle the big boys, but this number dispels this assumption. Considering the reputation Orange has for spending big on infrastructure as opposed to the bells and whistles, outspending this colourful beast is quite an achievement. If Three can continue this trend it might be the first UK telco to actually live up to the claim of being customer centric.

Such investments are probably coming at the right time considering growing tidal way of data consumption. The growing appetite for data is not a new concept, but Three’s desire to be a data-centric telco means it will be impacted more than others. This is evident in the consumption numbers.

Over the course of 2017, the average data usage per customer per month stood at 6.8 GB, an increase of 7% over 2016. While this number might seem feeble in comparison to some nations, the US for example, Three claims it customers use three times more data than rivals. 2017 looked to be a serious year for network investment at Three, but 2018 and beyond needs to be just as potent if the telco is going to continue positive moves.

As users, we will continue to be more reliant on data, and up-coming changes to regulations will make it easier for customers to ditch a provider. Offering lots of data to a customer will be no-where near enough over the next few years, experience will have to be top-notch.

“Our digital transformation is a programme of work that will significantly enhance customer experience, employee experience and cost efficiency,” said Dyson. “Investment in spectrum, next generation network and IT underpins the opportunity to deliver improved results over the long term.”

We had a few brief discussions with Three customers, all of whom are based in London but travel for work and pleasure, and the feedback was pretty consistent. Three is okay, but poor in indoors and connectivity is pretty average (rephrasing for bashful readers) when outside of cities.

“It kind of is what it is,” said Owen Davies, one of your correspondent’s drinking buddies. “Cheap and cheerful, and works pretty well most of the time. Some decent perks like the ‘At Home’ offering.”

Millennials and younger generations are not as loyal as older demographics which makes the challenge even more difficult.

Three said in the statement it has been working to improve indoor coverage, but this year’s network investment should only be considered the tip of the iceberg. If Three wants to become a major player in the UK it has to permanently remove this reputation of ‘short arms, deep pockets’. 2017 was a good year for this, more of the same please.

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