Hutchison Whampoa on Monday took a large bet on using disruptive telephone technology to increase the size of its third generation mobile operations.
The Hong Kong group’s 3G businesses announced a partnership with Skype, the internet phone provider, under which mobile customers will be able to make “free” calls using voice over internet protocol technology.
Frank Sixt, Hutchison’s finance director, said the partnership could bring millions of new mobile customers to the businesses, which have not reported a profit since their launch in 2003.
He insisted the partnership would enhance the businesses’ revenue and margins, even though customers using the 3G Skypephone would be able to make free calls to other Skype users.
“Our businesses need to build their customer bases,” said Mr Sixt. “Every new customer that comes with this is accretive...This is margin-accretive and revenue-accretive.”
He stuck to the Hong Kong conglomerate’s guidance that the 3G businesses in Europe and Asia would break even in the second half of 2007 in earnings before interest, tax, depreciation and amortisation.
Until now, most of Skype’s 246m registered users have made phone calls via computers plugged into fixed-line connections. The Skypephone is the company’s first proper foray into mobile telecoms.
But while users of the Skypephone can make “free” calls to other Skype users, they will make payments to Hutchison’s 3G businesses.
3 UK customers who are on pay-as-you-go deals can buy a Skypephone for £49.99 ($103) from November 2. But they must also make payments of £10 per month to 3 UK to be able to use the Skype calls and instant messaging service. Customers who take a contract with 3 UK must pay at least £12 per month, although the Skypephone is free.
Hutchison’s 3G businesses have yet to generate a profit partly because they do not have sufficient scale.
The businesses have much smaller numbers of customers compared with established mobile operators such as Vodafone.
Analysts said it was plausible the businesses could secure millions of new customers on pay-as-you-go deals through the Skype partnership.
Mr Sixt said one reason the Skype partnership would enhance the businesses’ margins was that it should lower the cost of securing new customers.
Mobile operators typically subsidise handsets chosen by customers, but Mr Sixt said at £49.99 the Skypephone would be sold in the UK “without meaningful subsidy”. The low-cost handset has been made by Amoi, a Chinese telecoms equipment manufacturer.
Michael van Swaaij, acting chief executive of Skype, admitted established mobile operators were hostile to such a partnership.
■ Hutchison Whampoa is committed to developing its third-generation mobile businesses, according to Frank Sixt, the group’s finance director.
3 Italy, the largest of Hutchison’s 3G businesses, last week said several companies had expressed an interest in buying it.
It added the approaches were made to Hutchison, which is believed to be willing to countenance selling 3 Italy, although Mr Sixt declined to comment.
“We are totally committed to these businesses, and continuing to build these businesses,” he said.
Hutchison’s 3G businesses have reported losses before interest and tax of more than $15bn since their launch.
Hutchison has changed its guidance three times about when the businesses will break even at the level of earnings before interest, tax, depreciation and amortisation. It originally said break-even would be reached in 2006, but then changed the date to the first half of 2007.
At Hutchison’s 2007 interim results, it said break-even would be achieved in the second half of the year.
The main reason for the failure to hit the 2006 target was the poor performance of 3 UK. Price cuts demanded by regulators meant break- even in the first half of 2007 became impossible.
