EE’s 1Q13 results reveal its LTE subscriber numbers

OVUM VIEW

Summary

UK mobile operator Everything Everywhere (EE) recently released its 1Q13 results, which highlighted the operator’s success and noted the challenges that it faces in the future. EE’s revenues declined by 0.4% year-on-year in 1Q13, with this decline increasing to 5.4% if the impact of mobile termination rate cuts is included.

EE reported more positive results in regards to its postpaid customer base, ARPU, smartphone adoption, and reductions in churn. More interestingly, however, the operator disclosed its LTE subscriber numbers for the first time, reporting that it had 318,000 LTE subscribers at the end of 1Q13. EE stated that this represents 2.3% of its postpaid subscriber base, and Ovum estimates that this is approximately 1.2% of its total customer base. While these figures are not necessarily bad, Ovum expected that EE’s LTE subscriber base would have been higher. With other UK telcos preparing their own LTE launches, EE may well have missed the opportunity to gain a significant first-mover advantage in the UK LTE market.

There is progress on LTE

The news about EE’s LTE subscriber base is encouraging. The operator has signed up 318,000 LTE subscribers in just five months and says that it is firmly on track to sign up 1 million customers by the end of 2013. In addition, EE claims that more than 1,600 medium and large businesses use its LTE service, which positions it well in the battle for enterprise customers.

All of EE’s LTE customers are on postpaid contracts, with the operator stating that LTE accounts for 2.3% of its postpaid customer base. Ovum estimates that this represents 1.2% of the operator’s total customer base. EE added 166,000 postpaid customers in 1Q13, which is the operator’s best first quarter performance since it was created. EE says that 53% of its customers are now on postpaid contracts, which is an increase from the 49% that it reported in 1Q12. This is significant as EE reports that postpaid customers deliver five times as much ARPU as prepaid customers.

EE’s postpaid customers have embraced smartphones, with the operator reporting that 82% of its postpaid customers and 93% of new and renewing postpaid handset connections have smartphones. Of this number, 42% have 4G or 4G-ready smartphones. EE’s postpaid churn was 1.2% in 1Q13, which was the eighth straight quarter that its churn has been equal to or less than 1.2%. Taken together, all of these positive results overshadow the fact that EE lost 571,000 prepaid customers in the quarter.

In addition to its strong subscriber performance, EE reported on its significant spectrum assets, particularly in regards to its LTE-capable spectrum. Having paid £589m for 2×5MHz of spectrum in the 800MHz band and 2×35MHz in the 2.6GHz band, EE says that it now holds an “industry-leading 36% share of UK mobile spectrum”. EE’s strong spectrum position gives it a strong foundation for the future.

Has EE done as well as it could have?

Ovum maintains that EE would have been more successful in the UK LTE market if it had taken a more aggressive approach to acquiring customers. The operator effectively has a monopoly in the UK LTE market and has achieved commendable LTE network coverage. It also has a strong LTE device portfolio. As a result, it had all the ingredients needed to obtain a dominant position in the market before its rivals could launch their own LTE offerings. However, we believe that EE’s decision to charge a price premium for LTE has meant that it has not made the most of this opportunity.

By demanding a price premium for LTE, EE (and every other telco that has charged a premium) assumed that customers would be willing to pay extra for the privilege of using the new technology. However, as LTE is an evolutionary technology, every other mobile operator will have to launch it if they want to remain in business. This means that having a LTE network will not be a long-term differentiator for any operator.

We believe that LTE’s merits lie in the cost efficiencies that it brings rather than in any potential revenue uplift. Given that EE rapidly rolled out its LTE network, had a strong device portfolio at launch, and positioned LTE as a “mass-market proposition” from the outset, we believe that charging a price premium contradicts the rest of its strategic elements.

APPENDIX

Author

Emeka Obiodu, Principal Analyst, Industry, Communications, and Broadband

emeka.obiodu@ovum.com

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