Say That Again

by Carlo Longino

3 Says It's Making Money, If You Ignore All Those Pesky Costs

Hutchison Whampoa's adventure in 3G telecoms with its "3" brand has been nothing if not entertaining. The company's had some success, but in nowhere near an equal amount to the hype it's spewed. Hutchison Managing Director Canning Fok has relied on the Jedi Mind Trick to try to explain the business before, but now 3 has a new trick. One particular sticking point for the company since it launched has been its customer acquisition costs. Apparently 3 doesn't like the way they're dragging down earnings, so instead of cutting them, they've invented a new financial metric that simply ignores them. EBITDA -- earnings before interest, taxation, depreciation and amortization -- is a commonly used metric that emphasizes a company's operational cash flow, but now 3 wants everybody to use EBITDA-CAC when talking about them. That's earnings before ITDA and customer-acquisition costs. A Hutchison exec says that everything good in the business "is not recognised by the marketplace" -- a claim that 3 makes on a regular basis while trying to position itself as a media company, even though its success has been on the back of cheap voice service, not data or content. Conventional wisdom has certainly been wrong before, but 3 just trying to get people to ignore a significant operational cost won't help make the case that its business isn't as bad as people say it is.

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