Three UK's financial figures for the most recent full year show that the business cannot continue without being allowed to merge with Vodafone, according to the mobile operator's chief executive.

Mary Lennighan

March 22, 2024

6 Min Read

The telco reported growth in revenues and customers last year, but capital spending and operating costs increased, causing it to swing to an earnings loss for the first time in well over a decade. And that's just what Three UK needed to enable it to further push the case for its proposed merger.

Robert Finnegan, CEO of Three UK, declared himself "pleased to report another year of progress," highlighting that customer and topline growth, and an increased margin. However, there was a big 'but' coming...

"But the cost of rolling out and maintaining our 5G network, and our commitment to improving connectivity across the UK, has impacted our profitability with negative reported EBIT for the first time since 2010," Finnegan said.

Three reported an EBIT loss of £117 million, compared with a £147 million profit in 2022, citing higher operating expenses and an increase in depreciation and amortisation due to recent higher network investment.

"This financial performance is clearly unsustainable despite scaling back our 5G investment," Finnegan said. "With the current market structure of four MNOs, where there are two scaled players who have the ability to invest but do not face enough competitive pressure to do so, and two players (Three UK and Vodafone) who lack the scale to be credible challengers, the UK will continue to lag behind on 5G," he insisted. He then repeated claims that the UK has the slowest data download speeds in the G7 and performs poorly on the European stage in terms of 5G availability and download speeds.

Finnegan then continued the merger pitch with the usual comments about the potential for job creation – something the unions don't accept – and the positive impact it will have on the UK's digital transformation.

He's not wrong about Three being sub-scale. Its 3% revenue hike in 2023 – driven by customer growth at its Smarty mobile sub-brand, in the B2B space, and in 5G-based home broadband – took its top line to £2.59 billion. BT's Consumer division, which includes EE and its retail broadband operations, brought in £9.74 billion in its most recent full year. And Three's active customer base also grew by 3% to 10.6 million last year, but Virgin Media O2 reported having 35.2 million retail mobile connections at end-December, as well as 5.8 million fixed-line customer relationships.

However, the relentless merger spiel is starting to get quite tiresome. It's less than 48 hours since would-be merger partner Vodafone promised a concerted push on 5G standalone in Scotland... provided the tie-up gets the go-ahead.

Clearly it's an important issue to the two companies, one of which has always been sub-scale, while the other has arguably suffered something of a fall from grace having once been a trailblazer in the UK mobile market. But the constant banging of the same drum is becoming little more than noise at this stage, and the operators' promises on network rollout, jobs, digital transformation and so forth are starting to feel a little like coercion.

The UK's Competition and Markets Authority (CMA) began the first stage of its investigation into the merger in late January and we're not expecting a ruling until September.

We can expect to hear that £11 billion network investment pledge a few more times before then. Finnegan included it in his comments alongside Three's numbers, but it has been so oft-repeated that it's hardly worth mentioning anymore.

The telco reported growth in revenues and customers last year, but capital spending and operating costs increased, causing it to swing to an earnings loss for the first time in well over a decade. And that's just what Three UK needed to enable it to further push the case for its proposed merger.

Robert Finnegan, CEO of Three UK, declared himself "pleased to report another year of progress," highlighting that customer and topline growth, and an increased margin. However, there was a big 'but' coming...

"But the cost of rolling out and maintaining our 5G network, and our commitment to improving connectivity across the UK, has impacted our profitability with negative reported EBIT for the first time since 2010," Finnegan said.

Three reported an EBIT loss of £117 million, compared with a £147 million profit in 2022, citing higher operating expenses and an increase in depreciation and amortisation due to recent higher network investment.

"This financial performance is clearly unsustainable despite scaling back our 5G investment," Finnegan said. "With the current market structure of four MNOs, where there are two scaled players who have the ability to invest but do not face enough competitive pressure to do so, and two players (Three UK and Vodafone) who lack the scale to be credible challengers, the UK will continue to lag behind on 5G," he insisted. He then repeated claims that the UK has the slowest data download speeds in the G7 and performs poorly on the European stage in terms of 5G availability and download speeds.

Finnegan then continued the merger pitch with the usual comments about the potential for job creation – something the unions don't accept – and the positive impact it will have on the UK's digital transformation.

He's not wrong about Three being sub-scale. Its 3% revenue hike in 2023 – driven by customer growth at its Smarty mobile sub-brand, in the B2B space, and in 5G-based home broadband – took its top line to £2.59 billion. BT's Consumer division, which includes EE and its retail broadband operations, brought in £9.74 billion in its most recent full year. And Three's active customer base also grew by 3% to 10.6 million last year, but Virgin Media O2 reported having 35.2 million retail mobile connections at end-December, as well as 5.8 million fixed-line customer relationships.

However, the relentless merger spiel is starting to get quite tiresome. It's less than 48 hours since would-be merger partner Vodafone promised a concerted push on 5G standalone in Scotland... provided the tie-up gets the go-ahead.

Clearly it's an important issue to the two companies, one of which has always been sub-scale, while the other has arguably suffered something of a fall from grace having once been a trailblazer in the UK mobile market. But the constant banging of the same drum is becoming little more than noise at this stage, and the operators' promises on network rollout, jobs, digital transformation and so forth are starting to feel a little like coercion.

The UK's Competition and Markets Authority (CMA) began the first stage of its investigation into the merger in late January and we're not expecting a ruling until September.

We can expect to hear that £11 billion network investment pledge a few more times before then. Finnegan included it in his comments alongside Three's numbers, but it has been so oft-repeated that it's hardly worth mentioning anymore.

About the Author(s)

Mary Lennighan

Mary has been following developments in the telecoms industry for more than 20 years. She is currently a freelance journalist, having stepped down as editor of Total Telecom in late 2017; her career history also includes three years at CIT Publications (now part of Telegeography) and a stint at Reuters. Mary's key area of focus is on the business of telecoms, looking at operator strategy and financial performance, as well as regulatory developments, spectrum allocation and the like. She holds a Bachelor's degree in modern languages and an MA in Italian language and literature.

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