Hutchison payment ends feud with 3 partner

Hutchison Whampoa is paying £90m to buy out KPN, its partner in the UK mobile phone group 3, to settle an acrimonious feud over who should fund mounting losses at the venture. The decision, which averts an embarrassing public clash in the High Court next week, comes as hopes fade that 3 will have a choice of handsets in stores in time for the Christmas rush.

Observers said that Hutchison's decision to pay the Dutch telecom group for its 15 per cent stake signalled its high-stakes financial commitment to getting 3 off the ground, even though the venture's stated target of a million subscribers by New Year is now virtually impossible to meet.

The Hong Kong conglomerate, run by Li Ka-shing, has been in bitter dispute with KPN since the Dutch carrier refused to stump up £150m as its portion of a £1bn loan to 3 at the start of this year. Hutchison was claiming breach of contract.

Canning Fok, Hutchison's managing director, said: "We are happy to put this dispute behind us and increase our interests in Hutchison 3G UK at a very attractive price. This represents an excellent transaction for us. We remain confident that 3 will have a promising prospect and will create long-term value for our shareholders."

KPN has received £60m now and will have the right to receive any dividends paid by 3 until the last of three remaining instalments is paid in 2007. Although the shares will not transfer to Hutchison until then, KPN no longer has voting rights or any further financial commitments to 3.

The deal means that KPN lost £810m on its investment in 3, which it made in July 2000 but has since written off.

Hutchison, which will end up with 80 per cent control of 3, while a 20 per cent share is still held by Japan's DTT DoCoMo, said that the £90m price tag for KPN's stake did not imply that it valued the whole company at £600m.

The value was arrived at against the background of the dispute and court proceedings, it said.

Although 3 has not given any subscriber figures since August, analysts believe it now has around 230,000 UK customers. The chances of meeting its ambitious target are almost certainly doomed, because the likely date for the arrival of vital new handsets from the manufacturer NEC has slipped towards the end of the year.

Despite slashing prices and funding a massive advertising campaign, the company has been plagued by bad publicity for its services. Users have complained of dropped calls and difficulties getting through to customer services.