EE not capitalising on LTE monopoly

UK operator EE has posted a drop in revenue for 2012, despite being the only operator in the country to offer LTE services. The company formerly known as Everything Everywhere; created as a result of the merger of T-Mobile and Orange in the UK, saw full-year service revenue fall 2.6 per cent year on year to £5.95bn.

The operator admitted 2012 was a transformational year, in which it launched a new brand, a new network and purchased new retail estate. However, although it switched on its LTE network on October 30, 2012, it saw a 3.9 per cent year on year drop in revenue in the final quarter of the year.

The firm did see 752,000 net postpaid additions in 2012 though, with a net postpaid increase of 201,000 in Q4, as well as a 20 per cent year on year increase in postpaid renewals in H2.

“In the past year, we delivered solid financial performance, underpinned by good progress integrating the business and success in attracting high value customers,” said Olaf Swantee, CEO at EE.

According to Steven Hartley, principal analyst at research firm Ovum, EE’s latest results show that the company faces huge challenges.

“It is what the results don’t say that seems most telling,” he commented. “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.”

He explained that if customer uptake was far ahead of expectation, then we would hear about it, and must therefore conclude that uptake has not been spectacular.

“That doesn’t make it a disaster, just not necessarily fully optimising its monopoly position,” added Hartley.

He said that EE announcing the fact that early Orange and T-Mobile customers migrating to 4G on EE are showing increases of approximately 10 per cent in ARPU highlights the premium that 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,” said Hartley.

He pointed out that 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, he argues, as 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,” said Hartley. “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, he concluded.

“EE must not underestimate the importance of tariff strategy in seizing its first mover advantage.”

An EE spokesperson blamed the drop in service revenue on the impact of regulation, noting that service revenue would have actually increased by 2.7 per cent year-on-year excluding the impact of Mobile Termination Rate (MTR) cuts in the UK and roaming cuts across the EU.

“There is no other industry that would have five or six per cent shaved off its revenue in this way,” the spokesperson said,

We’re investing £1.5bn and still have to put up with these measures that would bankrupt most other industries. If we as an industry start to accept that, that’s unacceptable to those who want this industry to strive.“