Hutchison’s Three group of operators in Europe and Asia-Pacific has never quite lived up to its disruptive potential. The Hong Kong telecoms company launched the subsidiaries in six European countries (Austria, Denmark, Ireland, Italy, Sweden and the UK) at the start of the century and of 3G roll-outs. The parent has stuck by its sometimes ailing children and steered them slowly to profit, and they have certainly had a strong impact as challengers in their various markets. But they have remained disadvantaged in terms of spectrum and market share.
That may change with 5G. A more open approach by regulators to infrastructure sharing, spectrum allocation and M&A will allow the operators to intensify tactics which they already use to reduce cost and grow scale. There are three main ways that Three is improving its position ahead of 5G.
- Like other disruptors, such as Iliad’s MNOs in France and Italy, the Three operators like to minimize infrastructure investments by sharing, and ideally to bulk up through acquisition.
In Italy, Three is preparing for 5G with both these activities, acquiring Wind Italy to form Wind Tre, the largest Italian MNO (though at the cost of having to divest spectrum to an even more disruptive newcomer, Iliad); and then forming a new network sharing deal with broadband provider Fastweb.
The shared 5G network will include Wind Tre’s and Fastweb’s macro and small cells, connected by Fastweb’s dark fiber. The partners aim to cover 90% of the population with 5G by 2026. Wind Tre will manage the network, while both operators will be commercially independent in how they use the shared infrastructure.
In addition, Wind Tre will provide Fastweb with roaming services on its existing 4G and legacy networks, enabling the Swisscom-owned broadband operator to achieve national mobile coverage to national level. Fastweb will provide Wind Tre with wholesale access to its FTTx network, increasing the MNO’s ability to offer broadband and fixed/mobile services.
The 10-year deal stops short of full merger, which would have been harder to get past regulators since Wind Tre is the market leader, but it brings many of the convergence benefits in an era when Three companies are feeling the disadvantage of having few wireline assets (that was an advantage in the 3G times, when wireline operators’ ageing networks were albatrosses round their necks, but at the dawn of 5G, growth and margins in saturated European markets are all about converged services and quad play).
The agreement does enable a potentially powerful new competitor in an market where the three established MNOs are already dealing with the challenge of Iliad and very high 5G spectrum costs. But at least it keeps Fastweb out of an alliance or merger with Vodafone (which was rumored earlier in the year -those two firms had an infrastructure exchange deal in 2006 which has apparently been replaced by the Three agreement).
The agreement is also reminiscent of others made by disruptive operators with infrastructure-heavy partners and even competitors, such as Rakuten’s with KDDI and with a string of energy utilities in Japan, or Reliance Jio’s with multiple network partners in India.
Jeffrey Hedberg, CEO of Wind Tre, said in a statement: “Through this combination of resources, we are accelerating our strategy of ‘reinventing’ Wind Tre by enabling 5G services and integrated solutions to meet the present and future requirements of our customers.”
Alberto Calcagno, CEO of Fastweb, added: “The agreement with Wind Tre is a fundamental step in the execution of Fastweb strategy to build a sustainable fixed/mobile convergent business.”
- Three has become increasingly known for high impact, disruptive pricing with echoes of the Uncarrier approach of T-Mobile USA.
This has been particularly seen in the ultra-competitive UK, where Hutchison was deprived of its wish to buy Telefonica O2 (the competition authority did not like the idea of reducing the number of MNOs to three, even though it had allowed the creation of a dominant fixed/mobile player with the merger of BT and EE).
Unlike in Italy, Austria and Ireland, where Three was able to offer enough concessions to get regulatory approval for mergers (with Wind, Orange and O2 Ireland respectively), in the UK it has had to adopt other tactics. These have included very high profile marketing campaigns for Three’s affordable data, content and roaming propositions. It has led the drive to unlimited data in the UK and claims its customers use 3.5 times more data than those on other networks.
- Another important element of the ‘new Three Europe’ is to improve the 5G position, compared to that in 3G and 4G, by investing cost-effective, flexible platforms and in new spectrum.
Again the UK is the best example. Here, Three may have failed to win O2, but it did make a smaller, but highly significant, acquisition, of UK Broadband, for £250m in 2017. That brought a dowry of spectrum in the 3.6 GHz band, neglected and underused in the UK (as elsewhere) until the C-band spectrum from 3.4 GHz to 4.2 GHz became the primary band for first-phase 5G launches.
Three UK has reversed its spectrum disadvantage, as well as reducing its need to spend larger sums on 3.5 GHz in the recent UK auction, and now has sufficient capacity to promise that its 5G network, launching soon, will be the country’s fastest, and to offer low tariffs while still making a profit.
Indeed, Three is the only UK operator to have at least 100 MHz of 5G spectrum – the amount deemed necessary for some of the very high bandwidth applications that will set ‘true 5G’ apart. In fact it has 144 MHz across the 3.4-3.6 GHz, 3.9 GHz, 28 GHz and 40 GHz bands. It topped up UK Broadband’s midband assets with 20 MHz in the 3.4 GHz auction (though rivals got more), and the 700 MHz auction is still to come.
The ability to squeeze more out of every MHz of spectrum will be further boosted by a modern, virtualized network, including a 5G core, and Three UK is one of the first MNOs outside Japan and South Korea to unveil a concrete plan for a cloud-native 5G core, which will support flexible pricing and service delivery and even network slicing.
It is deploying this core with Nokia and the 5G-ready system has already been rolled out in 20 brand new data centers, connected by dark fiber, and has an initial capacity of 1.2TBps, three times bigger than its predecessor. The operator says it is targeting security, scalability and cost benefits, above all, from its new core, which it has been using to support a trial network for staff. It hopes to extend the tests to selected consumers later this year, with a view to commercial deployment in 2020.
“In order to use the core network, we have to ensure that all of our mobile sites are connected to our new core. We achieved this milestone in December 2018. This means all of our customers will be able to enjoy the benefits of the new core network when it goes live,” said a spokesperson.