Hutchison will need deep pockets to enable it to survive until it sees a return on its massive investment in an Australian 3G network, analysts claim.

Hutchison has invested around AU$3 billion in its 3G network to be launched on 15 April, and reactions on whether it will see a positive return on this investment range from "impossible" to "only in the long term".

The key to Hutchison's success lies in the content and services it offers on its network, and analysts are sceptical about whether the offerings put forward so far will be enough to draw customers to the premium mobile data space.

"None of the telcos have really come up with anything compelling in terms of the services that run on their [3G networks]," Robin Simpson, research director of mobile and wireless for Gartner told ZDNet Australia  . He added that he believed Hutchison had been quietly working hard on content to offer over its services, and this focus is a recent development.

"Vodafone Live is the first time we saw a telco talk about solutions instead of technology," said Simpson. Vodafone Live is a 2.5G network with speeds of up to 100 kbps. Instead of focussing only on network speed, Vodafone is working to deliver a service that encompasses a range of multimedia and other applications for properly enabled phones linked to its network.

Simpson argued Vodafone had created an advantage by offering the same service in every country in which they operate, whereas Telstra had a more country-centric service. Hutchison will also have the same branding and service in all the countries it operates in.

Peter Lemon, mobile telecommunications and data communications analyst for IDC, told ZDNet Australia   Telstra had the advantage of its network being "up and running". Hutchison's edge came from leveraging a service operating in several countries, according to Lemon, while its European content was easier to leverage in Australia than content delivered for services in Telstra's overseas markets, most of which are Asian.

However, Hutchison would continue to burn money over the next few years, said Lemon. "If you look at a normal telco investment you're normally looking at a 10-15 year time frame," he said.

Simpson agreed, adding the caveat that Hutchison's strategy was a high-risk one. "They're first, they're taking a risk, but if they get it right and it takes off they'll have a big lead on everyone else," he said. "But it is a risk - they could get it wrong. Or it could fail because of things that are beyond Hutchison's means to execute."

Simpson said if the economy weakens in the next few years it would make it very difficult for Hutchison to survive.

Telstra is doing its best to ensure Hutchison doesn't grab a large slice of the mobile data market. As well as rushing to launch its Mobile Loop service last week it has run a 'spoiling campaign' to devalue Hutchison's "3" brand. "It's aimed at trying to get market position ahead of Hutchison's launch," said Simpson.

Telecommunications analyst Paul Budde pointed out Telstra's spoiling tactic was hardly a surprise. "When the whole 3G thing happened in 2000 I was saying whatever Hutchison do Telstra will use its power to spoil the party," he said. "I'm sure Hutchison have worked around it."

No-one is sure whether Hutchison will prosper, mainly because no-one has any idea how many customers Hutchison can reasonably be expected to attract and how much revenue per customer it can reasonably expect to generate.

One measure is the "merger and acquisition" value companies place on each customer when determining the value of a telco when they consider taking one over. Historically this has been placed at AU$3,000 per customer for telcos, meaning Hutchison would have to attract one million customers to make its AU$3 billion investment worthwhile.

However, the AU$3,000 figure is generally considered to be out of date, since it is from a period before mobile data services were taken up in a big way. Also, it is set at a level where a company considering buying the telco could be expected to make a profit on its customer base, so is necessarily lower than the customers actual worth.

Budde said that even the lower levels of customers required in the 3G network to make the investment profitable were unattainable, because the 3G applications specific to that space were very niche products. While each application may attract 10,000 users or so, they would be unlikely to add up to the numbers required to recoup the AU$3 billion investment.

"If you invest AU$100 million to get 400,000 customers you can make a nice profit, but there is no way in the world you can get AU$3 billion out of niche market applications," said Budde.

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