Ovum comment on EE announcement

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As EE announces its results Steven Hartley, principal analyst at Ovum provides the following comment:

"EE's latest results show that the company still faces huge challenges. However, it is what the results don't say that seems most telling. The lack of LTE customer numbers is unsurprising. The official line is so as not to impact the on-going spectrum auction. However, experience suggests that phrases such as "solid early 4G momentum" cover all manner of sins. Or to put it another way: if customer uptake was far ahead of expectation, then we would hear about it. We therefore have to conclude that uptake has not been spectacular. That doesn't make it a disaster, just not necessarily fully optimizing its monopoly position.

"A clue, in our opinion, lies elsewhere in the release. "Early Orange and T-Mobile customers migrating to 4G on EE are showing increases of approximately 10% in ARPU" highlights the premium customers must pay to use LTE. We have argued for years that charging a premium for LTE services may appease investors fearful of telcos' losing their traditional license to print money, but it will not generate customer uptake where 3G is well embedded. The three most penetrated LTE markets in the world (the US, South Korea and Japan) all have little or no 3G-4G premium. The business case for LTE is not about raising ARPU (market saturation and competition will see to that), but data transport efficiency. EE's premium is lower than many Western European operators, but it is a premium nonetheless.

"EE has everything in its favour for LTE to be a success: a market starved of high-speed mobile broadband, but high smartphone adoption and data usage; an LTE monopoly; rapid LTE coverage deployment; and a wider range of compatible handsets at launch than any other LTE operator. Therefore, unspectacular LTE uptake will be due to brand and pricing. EE's decision to use its new brand has been much discussed and may be out of its hands if the touted IPO means Orange and T-Mobile will have to disappear from the UK. Therefore, EE must not underestimate the importance of tariff strategy in seizing its first mover advantage