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Hutchison must listen

April 26, 2003

Hutchison Australia two weeks ago its A$3 billion 3G network, ignoring criticism that the market can't yet support such a chic product.

With large funding obligations that will need the resources of its Hong Kong parent, the company doesn't expect to be cashflow positive until the end of 2006.

Australian consumers will pay up to A$768 for a 3G handset, as well as a A$100 connection fee. By contrast, phones are often free in deals offered by bigger local rivals who provide more basic mobile services.

The domestic rollout is part of plans by Hutchison Whampoa to launch the "3" brand across its home market of Hong Kong, Europe and Australia. It has already launched the services in U.K. and Italy.

Hutchison Whampoa owns 57.8% of the Australian company.

"This is a long term investment," Kevin Russell, Hutchison Telecom's chief executive, told reporters. The service is now available in Sydney and Melbourne, with plans to expand to other Australian cities such as Adelaide, Brisbane and Perth in the coming months.

In February, the company announced a A$197.3 million calendar 2002 loss, hurt by pre-operating costs for 3G.

Hutchison Telecom's rivals aren't convinced there is enough demand for the new technology given Australia's maturing mobile market and relatively small population of about 20 million.

Hutchison Telecom is a minor player in the Australian market, which is dominated by Telstra and Optus. The company currently houses its 2G mobile services under the "Orange" brand in Australia.

Analysts say it is taking a significant gamble on the 3G network as the product's commercial viability remains unproven.

Ted Pretty, head of Telstra's consumer and marketing arm, told Australian Broadcasting Corp. television earlier Tuesday that the Australian market for 3G is "narrow."

"What Hutchison brings to the market is a next step. It's around video calling and streaming. As to whether you want to build a business just around those two products, that's a question that Hutchison will find difficult over the next 12 to 24 months," he said.

Optus is also wary of 3G's viability.

"We will build our 3G network when the demand increases," Paul Kitchin, Optus' director of mobile marketing, told reportes. He added that there isn't sufficient consumer appetite for 3G services in Australia to currently justify a large investment.

Hutchison Telecom has invested about A$1 billion in the network and is expecting to raise about A$2 billion in the debt market as market conditions improve, Russell said.

 


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