Three UK sees top-line revenue growth but first EBIT loss since 2010

As its potential merger with Vodafone is investigated by the Competition and Markets Authority, Three UK has published financial results that show an increased customer base and improved margin, but also its first negative earnings before interest and taxes (EBIT) since 2010, which the company put down to the cost of rolling out and maintaining its 5G network and its commitment to improving connectivity.

For the year ended 31 December 2023, Three UK reported total revenue of £2.59bn, up 3% on an annual basis, driven by customer growth in a number of customer segments. These include the Smarty value-added mobile service provider, business-to-business (B2B) services and 5G home broadband sales. The company’s margin rose by 9% compared with the previous year to £1.67bn.

By the end of 2023 – and compared with the end of the prior fiscal year – its B2B customer base had increased by 67% and 5G home broadband customers had almost doubled. In addition, Smarty surpassed one million customers, with 37% growth. The total Three UK active customer base was up by 310,000, representing annual growth of 3%, bringing the total to 10.6 million. Total contract customers rose 7% year on year to 9.06 million due to increases in the B2B, 5G home broadband and Smarty base. The number of prepaid customers was 15% down year on year to 1.56 million.

Yet on the downside, it reported earnings before interest, taxes, depreciation and amortisation (EBITDA) of £402m, down 34% year on year, and an EBIT loss of £117m. The company said this reflected higher operating expenses and an increase in depreciation and amortisation due to recent higher network investment. Over the year, Three UK’s operating expenses ballooned by 23% annually to £1.02bn. This was attributed to IT running costs, greater site numbers and inflationary pressures. Reported capital expenditure was £454m, down 39% year on year.

Assessing the results, Three UK chief executive officer Robert Finnegan said that such financial performance was unsustainable despite scaling back its 5G investment. Alluding to the proposed Vodafone merger, he warned of potential issues within the UK mobile industry as a whole.

“With the current market structure of four MNOs [mobile network operators], where there are two scaled players who have the ability to invest but do not face enough competitive pressure to do so, and two players (Three UK and Vodafone) who lack the scale to be credible challengers, the UK will continue to lag behind on 5G,” he said.

“The UK has the slowest data download speeds in the G7 and ranks 22nd out of 25 European countries in terms of 5G availability and download speeds. We are committed to improving our service for our customers and our country, creating additional jobs and supporting the digital transformation that is taking place across the UK. The merger with Vodafone will enable the investment of £11bn in the UK over 10 years to create one of Europe’s most advanced standalone 5G networks in full support of government targets,” added Finnegan.

Vodafone and Three UK regard the merger as the biggest shake-up in the UK mobile market for over a decade, allowing them to add what they see as a much-needed alternative for the UK comms market.