EE Grasps at U.K. Identity as Shareholders Look to Cash In

EE, the biggest wireless company in the U.K., wants to be more British.

EE, jointly owned by France’s Orange SA and Germany’s Deutsche Telekom AG, may be headed for an initial public offering next year giving it a London listing and stronger U.K. ties, Chief Executive Officer Olaf Swantee said in an interview. A sale to a private equity firm is also an option.

“The advantage of an IPO is we would be perceived as more British than we are today,” Swantee said at Bloomberg’s London offices last week when asked about the pros and cons of an IPO. “Being on the stock exchange would make us more U.K.-centric. It would give us more financial capacity.”

As EE’s customer base of more than 27 million shifts to monthly contracts, which generate six times more revenue than pay-as-you-go plans, the three-year-old company is now more known for having the most advanced network in the U.K. -- helped by an ad campaign fronted by actor Kevin Bacon.

Prepaid mobile customers are no longer the majority of EE’s clients, and their ranks fell 14 percent in the quarter ended June from a year earlier. During the same period, contract subscriptions -- attractive to smartphone users -- rose 6.3 percent, a shift Swantee said is industrywide.

Network Kinks

Deutsche Telekom and Orange are waiting for EE’s investments in its 4G network, which offers data speeds five-times faster than older technology, shorter delays and higher capacity, to pay off. EE said it’s on track to beat its goal of reaching 1 million customers by the end of the year and has signed up about 700,000.

There are still some kinks to iron out, particularly for a company that’s maintaining three brands: EE for 4G customers and T-Mobile and Orange for subscribers to the older networks.

The company has rebranded stores and its call centers under the EE name, treating the Orange and T-Mobile brands as options under the EE umbrella. Swantee, who sometimes works alongside customer-service employees, said that while he encounters users confused by the change, most are quick to pick up on the new name once it’s explained to them.

“We are truly one company now,” Swantee said. “Orange and T-Mobile are very strong brands, but both don’t play in the entire market.”

The Dutch-born Swantee is the venture’s second CEO, joining from Orange in 2011, a year after the U.K. partnership’s debut. Maintaining the three brands was one of his first decisions, because they attract different groups of customers, he said.

Early Hiccups

That strategy was needed to maintain the more established brands while the company -- then known as Everything Everywhere -- waited to see if it would catch on. There have been glitches, such as T-Mobile and Orange customers reporting problems when trying to upgrade to EE, Obiodu said.

“It would have been difficult for them to introduce a fresh new brand in the marketplace, which was unanchored to the other brands,” said Emeka Obiodu, an analyst for Ovum Ltd. in London. “Implementation-wise, there were hiccups. It wasn’t seamless.”

EE is racing against competitors who plan to offer their own services later this year. Telefonica SA’s O2 brand will start selling 4G service in some markets this month. Vodafone Group Plc will introduce packages by the end of the summer.

“4G is not required to win in the market,” Obiodu said. “4G is required to play in the market.”

Widening Gap

EE has doubled the speed of its 4G, widening the gap with competitors, and is changing up its price plans to attract more users and discourage subscribers from moving to other networks. EE this year began offering prepaid versions of its 4G plans as well as shared data plans, which allow customers to put multiple devices on one contract.

EE said customers who move up to 4G pay about 10 percent more for their service. Mobile companies are pinning their hopes on faster 4G service to increase the amount that customers are willing to pay for service and to encourage the uptake of data plans.

Europe’s mobile carriers have fallen behind the U.S. wireless companies as price wars and relatively low data use hold down monthly bills. The average European customer spent $38 per month in 2012 compared with $69 in the U.S., the GSMA industry group said in a report in May.

`Decent Growth'

In the first half, EE’s service revenue declined 4.9 percent from a year earlier, primarily due to regulatory caps on the amount it can charge for roaming or to other carriers who terminate calls on its network. Earnings before taxes, interest, depreciation and amortization rose 8 percent. Bonn-based Deutsche Telekom is scheduled to report second-quarter results tomorrow.

For now, users aren’t flocking to 4G, said Peter Boyland, an analyst for researcher IHS. The faster speeds aren’t enough of a proposition for most subscribers to pay to break their contracts, and many customers are happy to wait until their current provider rolls out the service.

“They’ve seen some fairly decent growth, but we haven’t seen an explosion of millions of customers suddenly taking it up,” Boyland said. “4G is very new in Europe at the moment. I think it will probably take a few years” to catch on.

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