EE’s brief monopoly on mobile 4G fails to bring home the bacon

EE's expensive advertising campaign fronted by Hollywood star Kevin Bacon failed to halt a dip in overall revenues
EE's expensive advertising campaign fronted by Hollywood star Kevin Bacon failed to halt a dip in overall revenues
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Mobile phone operator EE’s ability to capitalise on its brief monopoly on 4G services was questioned yesterday after 
figures showed the company’s revenues shrank in the final quarter of last year.

The firm, formed by the merger of Orange and T-Mobile, signed up more than 200,000 contract customers in the three months to December as it 
became the first provider to launch superfast 4G.

But it lost 239,000 pre-paid accounts, which it said was “in-line with industry trends”, and although almost all its new customers opted for smartphones it did not reveal how many had chosen 4G contracts, which cost between £36 and £56 a month.

The group said its average revenues were five times higher for each customer on a contract, but it still saw overall revenues decline 1.9 per cent to £6.7 billion as it suffered from the impact of regulatory cuts, including new rules on roaming charges.

Including one-off costs such as restructuring, EE’s pre-tax losses increased by 55 per cent to £249 million, although it said the merger which created the company had already produced cost savings of £369m.

Chief executive Olaf Swantee said: “We have started to see EE become known for having a great network which will give us long-term benefits and advantages. The launch of 4G has been instrumental for us and we are on track with plans around 4G.”

But Steven Hartley, principal analyst at Ovum, said the latest results show that the firm still faces “huge challenges”.

“It is what the results don’t say that seems most telling,” he said. “If customer uptake was far ahead of expectation, then we would hear about it.

“We therefore have to conclude that uptake has not been spectacular. That doesn’t make it a disaster, just not necessarily fully optimising its monopoly position.”

He said the firm may have made a mistake by seeking to charge a premium for 4G – customers choosing the faster internet option are paying about 10 per cent more on average – when experience in markets such as the US and Japan suggests most customers will not pay extra.

“We have argued for years that charging a premium for LTE [super-fast broadband] services may appease investors fearful of ‘telcos’ losing their traditional 
licence to print money, but it will not generate customer uptake where 3G is well embedded,” Hartley said.

He added: “EE must not underestimate the importance of tariff strategy in seizing its first mover advantage.”

EE, which has more than 26 million customers, said it would continue to “rapidly” roll out 4G with the network expected to cover 65 towns and cities and 55 per cent of the population by June.

The group’s rivals – including O2, Three and Vodafone – had threatened to go to court over telecoms regulator Ofcom’s decision to allow the company to be the only 4G operator in the UK until the spring.

But the competitors decided against legal action and will launch their own 4G services in the coming months.

EE’s owners Deutsche Telekom and France Telecom are thought to be considering a 
flotation of the business this year, although both would likely retain large stakes.