3's UK launch costs add up to close to £1bn

The company behind 3, the UK's only fully operational third generation mobile phone network, made a loss of £972m for 2003, according to accounts filed at Companies House.

The company behind 3, the UK's only fully operational third generation mobile phone network, made a loss of £972m for 2003, according to accounts filed at Companies House.

The accounts give a detailed breakdown for the first time of the costs incurred by the Hutchison Whampoa-owned operation in setting up the country's first 3G operation. 3G phones offer subscribers mobile phone services alongside fast downloads of film clips, music, games, sport and a host of other information.

The main contributor to the group's losses, however, was a £664m figure for "administrative expenses". This figure includes: £106m for staff costs; a £201m write-down on the value of the company's 3G spectrum licence, which now stands at £4.28bn; and £105m for depreciation on fixed assets, including the cost of the network - which had cost a total of £1.33bn to build, by the end of 2003.

The group, whose debts had mushroomed to £2.4bn by the end of 2003, also paid £132m in interest. It achieved a turnover of £92m for 2003. Yesterday a spokesman for 3 said: "These losses include the pre- and post-launch costs and reflect the nature of launching the 3G business in the UK."

Handset shipments, which were delayed during 2003, improved at the start of 2004, according to the accounts. Early 2004 also saw the launch of 3's first pre-paid phone tariffs.

The group has promised to break-even at the Ebitda level next year, financial 2005, though it will no longer enjoy the technological advantage of being the UK's only 3G network, with Vodafone set to launch a 3G-enabled version of its Vodafone Live! mobile entertainment service next week.

During the summer, the company announced it had broken through the 1 million subscriber level, revealing a customer base of 1.2 million with growth continuing to accelerate. The figures surprised many industry observers.

Handsets made by LG, the Korean electronics giant, are proving particularly popular among 3's new customers. However, analysts have expressed concern at 3's business model, which they say is buying market share at the cost of a profitable and sustainable business in the future. One of the biggest costs that 3G operators face are the subsidies they are forced to pay to get cheap mobile phones into the hands of consumers through retailers such as Carphone Warehouse.

Although Carphone Warehouse is predicting a bumper Christmas for mobile phone sales this year, it is not expecting 3G sales to be high. This view has been echoed by Vodafone, Orange and mmO2.