Three UK clocks 9% revenue jump, but maintains its position is unsustainable long-term

The concise set of financials showed margin was also up 9% to £424 million for the quarter, net Arpu was up 3%, active customers were up 3%, and Capex was down 7%.

However the release stated that ‘challenging economic conditions remain a determining factor for telecommunication customer spending’ and that despite the year-on-year growth in revenue and margin, the firm continued to be impacted by inflationary cost pressures, while EBITDA less capex remained negative (cash outflow since 2020), which it says was driven by network investments coupled with an increasing cost base.

The growth in revenue and margin was driven by an increase in ‘certain customer segments, as well as revenue initiatives’ – which is a bit of a vague statement. It also said growth remains challenging from the shift of customer behaviour towards lower value products – which presumably means cheaper contracts.

The B2B and SMARTY divisions were held up as continuing to drive active customer growth, and offsetting ‘continued higher churn from traditional core business.’ Capex meanwhile primarily focused on delivering ‘contractual and regulatory requirements’ – meaning the HRV and SRN programmes.

A 9% rise in revenue and margin is a pretty good show by the standards of operators, which due to market dynamics don’t tend to see numbers fluctuate in great strides quarter to quarter, certainly not in the preferable upward direction. While posting financials that show decent growth, the often repeated line that the business is basically unsustainable unless Ofcom allows the proposed merger with Vodafone to go ahead seems somewhat of a trickier sell.

Not that that stopped it appearing prominently in the release – Robert Finnegan, Chief Executive Officer of Three UK said: “We have seen a solid start to the year, successfully growing our revenue and margin and adding 6% to our active contract base. However, we continue to be impacted by inflationary pressures, and market conditions remain challenging. Our EBITDA-CAPEX remains negative, as it has been since 2020, which is unsustainable long-term. I believe that merging with Vodafone is vital to give us the required scale to invest, grow and compete to create a best-in-class network for the UK.”

Usually when companies put out financials with any hint of growth or other type of market win they practically fall over themselves to direct attention to it, and the release becomes a jubilant performance of patting themselves on the back. The tone of this release seems to almost be playing down the success it has had in Q1, perhaps in order to not confusingly jar with the aforementioned wider merger narrative.  

Meanwhile, an article from Light Reading this morning highlighted that Three’s outdoor 5G coverage dropped 11% in just three months according to Ofcom’s latest Connected Nations report. Three attributed this drop to a technology called dynamic spectrum sharing (DSS) which allows frequencies to be divided between 4G and 5G. This apparently led to some detrimental effects on capacity, and Three is now removing the DSS products, says the report.