3 having difficulty attracting a crowd

With a stated aim of 1 million customers by the end of the year, 3 has so far attracted about 20,000. Prices are high, handsets are large and there are few unique services. Lucy Barrett looks at the company’s prospects

The success or failure of Hutchison Whampoa’s (HW) 3, the pioneer of third-generation (3G) mobile phones in the UK, will depend on persuading consumers that it is worth upgrading their phone service so they can enjoy new products and services. The UK’s other four main mobile operators, which have yet to launch their 3G services, will be watching 3’s progress closely.

Getting customers to upgrade requires “education” – a watchword also being deployed by rival Orange and the Government in regard to mobile services. However, 3 appears to be having trouble teaching the British public about the capabilities of next-generation mobiles.

It’s too early to judge whether 3’s launch has faltered, but the company is understood to have sold only 20,000 handsets so far – just 200 a day – since its launch in March. The management team, several of whose members are veterans of Orange – originally another HW venture – is being hauled over the coals. Managing director Colin Tucker is handing day-to-day responsibility of the UK to his counterpart at the Italian division, Bob Fuller, while the role of chief marketer Lisa Gernon is expected to change, although this is denied by 3 (MW last week).

The launch of 3 has been dogged by problems: the service’s video call facility, its major selling-point, can take up to a week to activate. In addition, the 3 service does not work in some areas of the country so consumers’ phones revert back to “2.5G” capability (the halfway house to 3G). Finally, the three handset models available on the network, although currently available at half-price (&£199), are considered to be bulky, and the batteries have a short life. All this is compounded by a back-office system for billing and customer service which, according to insiders, is “chaotic”.

A 3 spokesman defends the company, saying: “Not only are we offering brand-new technology, but the customer services system is brand new. So we expected to experience some kinks, which are being ironed out.”

Hutchison 3G – the UK HW subsidiary which owns 3 – and the other four main mobile phone operators between them paid &£22.5bn for their 3G licences. In order to claw back this huge investment, the industry as a whole – including rival mobile phone companies yet to enter the 3G market – will need to educate consumers about services and product offers.

Orange took up the education challenge last week, with an advertising campaign to support its Learn initiative. The scheme is designed to teach the company’s customers to use specific services and functions on their mobile phones. As part of the scheme, 1,800 Orange retail staff have been dubbed “Orange Phone Trainers” with a brief to instruct customers on how to make the best use of their handsets and the services available through their mobile networks.

Orange vice-president of brand marketing Jeremy Dale admits that the mobile industry has never “bothered” to explain people’s mobile phones to them, opting instead “to stuff an instruction manual in the box”. Orange is keen to persuade its 13.3 million customers to use its data services, which it plans to offer as a package for &£4 a month.

The Government has also weighed in to support mobile phone education. Last week, it was revealed that the Government recently funded a course to teach adults all aspects of using a mobile phone, including how to send text messages and download ringtones. The two-hour course was run by the Learning and Skills Council, which said it was aiming the course at adults aged 40 and over, who only know how to use a mobile phone’s basic functions.

The scheme has been heavily criticised by some, who see it as a waste of taxpayers’ money. Its defenders, however, point out that texting is becoming increasingly important in modern society. Some local authorities ran pilot schemes for voting by text in recent council elections, and there is speculation that mobile phones will one day replace credit cards as a method of payment.

Aware that “early adopters” will be intrigued by its technology, 3’s retail strategy focuses on persuading more reticent consumers to try a “hands-on” experience. The company sells its handsets through Phones 4U, Carphone Warehouse and Dixons as well as its own stores. Last week, it began opening concessions in outlets of Superdrug – also owned by HW – in an effort to ensnare consumers who are not actively looking for a new mobile phone. The spokesman says that once customers experience the phone, they are likely to buy into 3G.

The company claims its multi-million pound advertising campaign is going down well, and that according to its research brand awareness is high. However, some of the services featured in its advertising are hard to differentiate from those offered by rivals. Whether deliberately or not, advertising for Vodafone’s Vodafone Live data services package concentrates on picture-messaging and could make it difficult for customers to spot the difference between 3G and 2.5G.

Alongside up-to-date video clips of news, sport and movie trailers, 3’s real novelty lies in its video-calling capabilities. Vodafone does not offer consumers the chance to make live video calls, but it does offer video-messaging. One analyst says: “If other companies are advertising heavily around this service, it can only mean they are worried that consumers will go to 3 for this purpose. To many consumers, there is not enough difference between 3’s service and Vodafone Live.”

An insider from another mobile phone company says that, even though the rival networks have so far held off from launching their 3G services, 3 has gained little from being first to market. He points out that 3 cannot “migrate customers from an existing network”, as it does not own one, and says that the industry is expecting to launch 2.5G phones with virtually the same capabilities as 3G by the end of 2004.

As with banks, consumers are reluctant to change their service provider and 3 is unlikely to attract the 20 per cent of the UK population that does not already own a mobile phone. The 3 spokesman claims the customer churn rate for mobile phone service providers is about 20 to 25 per cent a year, however, which suggests that there is a steady flow of floating customers for 3 to pick up. One factor which could deter them is 3’s pricing. Two-thirds of 3’s customers have opted for its all-inclusive tariffs, which cost &£59.99 a month or &£99.99 a month. Average customer spending on rival networks is about &£30 a month and getting customers to pay double for a few extra services will be tough.

Analysts’ predictions for 3’s end-of-year customer figures are grim, ranging from 30,000 to 84,000 – far short of the company’s stated target of 1 million . There is pressure on 3 to keep its handset prices at a discount &£199, and speculation that they will even be cut by a further &£100.

When Fuller takes over the UK reins of 3, he will expect the company to perform as well as its Italian counterpart, which had attracted 50,000 customers by mid-March. The 3 spokesman says the company is sticking by its 1 million year-end figure for the time being, but perhaps Fuller’s first task should be to admit that the company has been over-ambitious and to lower its target.

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