Orange lays out pounds 1.2bn network phone plan

MARY FAGAN

Industrial Correspondent

Hutchison Telecommunications UK, which runs the Orange mobile telephone network, has launched a pounds 1.2bn debt-financing programme to fund the completion of its network. The company, which City analysts expect to seek a stock market listing next year, also plans to repay loans from its parents, British Aerospace and Hutchison Whampoa of Hong Kong.

The credit facility is underwritten by Chase Investment Bank and JP Morgan Securities. It will be launched into general syndication in mid-November. The announcement coincided with a statement by Cambridge-based Ionica that it would launch a national telephone service in phases from March, in competition with BT.

Graham Howe, finance director of Hutchison Telecom UK, said: "With the rapid and successful growth of Orange ... HKUT is now in a position to raise long-term debt on attractive terms to finance the completion of the network." He said talk of flotation is "speculation", but added: "We will complete the debt-financing and then consider our position."

The investment in the company has been about pounds 900m so far, provided by BAe and Hutchison Whampoa according to their respective equity stakes. Mr Howe said that BAe, which has 32 per cent, is "in for the long haul", in spite of speculation that it would like to sell its share. The mobile company is expected by analysts to break even in 1997 at the operational level, by which time the Orange network will cover more than 95 per cent of the population.

Orange, which was launched 18 months ago in competition with Vodafone, Cellnet and Mercury One2One, has 300,000 subscribers and is connecting more than 30,000 each month.

Mr Howe said that Orange has an annual "churn" - the rate at which people leave the network - of about 17 per cent. The industry average is thought to be about 20 to 25 per cent.

The mobile telephone market continues to boom with the total number of UK subscribers expected to reach 12 million or more by the end of the decade, compared with five million today. The networks being built by Orange and One2One are entirely based on new digital technology, which offers better quality than the analogue technology originally used by Cellnet and Vodafone, which still dominate the market. Vodafone and Cellnet now also offer digital services but Orange claims to have taken as much as 30 per cent of the total new digital business in September.

Mercury One2One, launched two years ago by Cable & Wireless and US West, recently abandoned free off-peak local calls for all new customers - an initiative which had taken the industry by storm. Under new tariffs introduced in September, free local calls are still available but only at weekends.

One2One has refused to say how many of its 20 million calls each week were paid-for calls, until the initiative ended in September. The company has more than 300,000 customers, of which 4 per cent had been using the service almost exclusively for free calls.

In its announcement yesterday, Ionica promised to challenge BT on service and price. when it launched its national telephone service. The company, which plans a stock market flotation by the end of next year, uses its own exchanges and provides radio links into the home. It can then offer national and international services using the fixed links of companies, including BT and Mercury.