Three calls for easier corporate consolidation path as it reports solid 2022 | Computer Weekly

Just days after financial news outlets were reporting that the leading UK mobile operator was in talks with Vodafone to finalise a long-expected merger, Three UK has reported a solid 2022 financial year, in which it added to its customer base and delivered an increase in revenues and margin.

For the year to 31 December 2022, Three UK reported revenues of £2.52bn, up 3% on an annual basis, driven by customer base growth. Net customer service revenue was up 5% year on year to £1.56bn. Other revenues, which include wholesale and accessories, increased 9% to £203m.

Due to what was described as strong growth coming through the company’s core contract voice business – alongside B2B, SMARTY network and wholesale lines – Three UK claimed a yearly 6% margin growth to £1.53bn and EBITDA of £612m, up 3% compared with the end of fiscal 2021.

The company noted that margin increases were partially offset by increased costs, due to investment programmes and inflationary factors specifically impacting the second half and which will further impact 2023 numbers. Wholesale business margin grew by 21% year on year, with an 8% increase in customer numbers. However, to maintain budgeted levels of cash outflow, reported capital expenditure (capex) was £743m, down 5% year on year.

In terms of customers, the Three UK active base was up 6%, totalling 614,000 additions year on year, bringing the total to over 10 million. Contract customers were up 5% to 8.5 million, while prepaid customers rose 13% to 1.8 million.

Citing Enders Analysis, Three UK claimed to have retained number one position in the sector for overall contract net adds across 2022, with almost double the growth of its competitors combined. The company’s B2B customer base doubled year on year, finishing on 385,000 customers, while the SMARTY base grew by 33%, finishing on 734,000 customers. It also extended a key partnership agreement with Currys for MVNO iD Mobile.

Non-financial highlights during the year included the company’s 5G home base tripling year on year, with customer data usage growing by 5%. The company now has over 4,250 5G sites live, with 60% outdoor coverage in 588 UK locations. Overall average data usage, per customer, per month, increased 32% annually to 25.1GB.

Commenting on the 2022 fiscal results, Three UK chief executive Robert Finnegan said: “We have successfully grown the business again in 2022, building on strong foundations. We have added to the customer base, delivered an increase in margin as well as year-on-year cashflow improvements.

“It has been particularly pleasing to see such strong performances from areas of the business such as SMARTY, business and wholesale, whilst building a credible 5G home broadband business and alternative to fixed-fibre broadband. Our roll-out of 5G has been a great success.”

Yet as he was making this call, Finnegan warned that the company was now at an inflection point. He noted that its returns continued to be below its cost of capital, and EBITDA minus capex remained negative.

Looking to the future, he added that high levels of investment would still be needed to deliver the networks the UK requires, but warned that levels of capex spread across the current set of four mobile players was “unsustainable”.

He added: “As good connectivity continues to be critical to how we live and work, structural change is needed in the industry through consolidation.”

Almost a year ago, speaking after UK regulator Ofcom launched a discussion document to set out thinking on future demand for mobile services and how mobile networks may need to evolve to meet that demand, Finnegan noted that moving from four to three mobile players in the UK would mean better, smarter investment in the networks, which would, in turn, improve the quality and scale of connectivity in Britain and would unleash more competition. This, he said, would ultimately be better for customers, who would benefit from more choice and better deals.