EE's Q1 results: it's all about those LTE numbers

(PresseBox) ( London, )
Everything Everywhere (EE) has released its first quarter 2013 results, pointing to its success in the quarter and noting the challenges it faces going forward.

Emeka Obiodu, principal telco strategy analyst at Ovum has the following comment:

"Revenues, in line with the challenging macroeconomic environment, declined by 0.4% year-on-year (a decline of 5.4% if the impact of cuts to mobile termination rates is added). But EE had cheerier news on the growth in its postpaid customer base and ARPU, smartphone adoption and reductions in churn. However more interestingly, EE reports having 318,000 LTE subscribers at the end of the first quarter of 2013, the first time it has disclosed LTE subscriber numbers. It says that this is 2.3% of its postpaid base, and Ovum estimates that this is 1.2% of its total customer base. This is not necessarily bad but we believe that the adoption would have been higher. As other UK telcos ready to launch LTE, it could well be that EE has missed the chance to gain a massive first-mover head start in the UK LTE market.

There is progress on LTE

"The news about EE's LTE subscriber base is encouraging. EE has now signed up 318,000 LTE subscribers after just five months, and says it is now firmly on track to sign up 1 million LTE customers by the end of 2013. Also, EE says it has over 1,600 medium and large companies using LTE, giving it an important position in the battle for business customers.

"All of these LTE customers are postpaid as EE notes LTE now accounts for 2.3% of its postpaid base (Ovum estimates that LTE now accounts for 1.2% of EE's total customer base). Continuing with the emphasis on postpaid trends, EE notes that it added 166,000 postpaid customers in Q1, its best Q1 performance since the creation of the company. It says it now has 53% of its customers on postpaid, a lift from 49% in Q1 2012 and that these customers deliver five times higher ARPU than prepaid customers. Postpaid customers are also embracing smartphones en masse. EE said the number of postpaid customers with smartphones has risen to 82% and that 93% of new and renewing postpaid handset connections are smartphones. Of this number, 42% are 4G or 4G-ready. It also has postpaid churn of 1.2%, the eight consecutive quarter where it has had churn of less than 1.2%. Taken together, these good points on postpaid trends are meant to trivialize the fact that EE lost 571,000 prepaid customers in the quarter.

"The news gets even cheerier on spectrum, especially LTE-capable spectrum. Having paid £589 million for 2x5MHz of 800MHz and 2x35MHz of 2.6GHz spectrum, EE says it now holds an 'industry-leading 36% share of UK mobile spectrum'. Such spectrum asset gives it a strong foundation for the future.

Has EE done as well as it could?

"We have always maintained that EE would do a lot better with LTE if it had taken a more aggressive approach towards wooing customers. EE effectively has a monopoly on LTE in the UK and has achieved a commendable LTE network coverage. It also has a good LTE device portfolio. Accordingly, it had all the ingredients it needs to sew up the market before its rivals move in with their own LTE offerings. But by demanding a price premium, we believe the uptake, despite today's commendable 318,000 customers, could have been higher.

By demanding an LTE price premium, EE, and every other telco that has done so, assume that customers will pay extra for the privilege of using LTE. But that misses the point. LTE is an evolutionary technology, and is absolutely necessary for every mobile telco who wants to remain in business for the long term. But crucially, as every other telco is going to get it, having an LTE network will ultimately not be a differentiator.

"And that is why we believe that for LTE to be a mass market proposition, its merits lie in the cost efficiencies it brings rather than any potential revenue uplift it can bring. As such, given that EE rolled out the network quickly, had lots of handsets at launch and, importantly, said LTE was a 'mass market proposition' at the outset, we believe the premium contradicts the rest of the strategic elements."
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