THE British arm of 3, the mobile-phone company that is part of Hong Kong’s Hutchison Whampoa, is expected to report a loss of close to £1.5 billion when it finally files its 2004 results at Companies House.

The loss is one of the largest ever made by a British private company and follows a £972m loss in 2003. It will have made another large loss in 2005.

The deluge of red ink reflects the heavy costs of 3 challenging the more established network operators Vodafone, O2, Orange and T-Mobile, and puts a question mark over Hutchison’s original plans to float the company. A float of its Italian mobile- phone business, 3 Italia, was shelved earlier in the year.

The company’s problems date back to its 2003 debut, when it was hampered by a lack of handsets. It then spent heavily to acquire more than 2m customers — more than half its current total — during 2004.

Acquiring customers incurs heavy upfront costs because of handset subsidies and commissions to dealers.

The company refused to discuss the size of the loss in its 2004 results, which it is late filing with Companies House. It said that as a foreign-owned company, it had 13 months to file its results. “3 is in conversation with Companies House as to when the results will be filed,” it said.

Hutchison Whampoa recently said that the UK business made money at an underlying level for the first time last December — that is, after ignoring interest payments,various accounting charges such as depreciation, and the impact of a network-outsourcing deal.

The scale of losses at 3 — the trading name of Hutchison 3G UK — underlines the size of the challenge facing the business. A new analysis of the group last week suggested it was struggling to meet its targets, and suffering rising levels of customer churn, not just in Britain but also in its Italian sister company.

James Barford of Enders Analysis, a research firm, said recent disappointing results and “broken promises” made it less likely that Hutchison would be able to float its Italian business. Hutchison had hoped to float 3 Italia early this year, and then to follow that with a flotation of 3 UK. However, it had to shelve the Italian flotation when it became clear that investors were not prepared to accept its valuation of the business, originally well in excess of €10 billion (£6.9 billion).

Barford said 3 had failed to deliver on three “promises” that it made last August. Second-half customer numbers were lower, not higher, than in the first half of 2005 and the cost of acquiring customers increased rather than fell. And, Barford said, 3 did not achieve its aim of being profitable on an underlying month-by-month basis during the second half.

The 3 group as a whole “lost €1.1 billion (£760m) in the second half of the year, on revenues of €2.2 billion, a rather frightening minus 49% Ebitda (earnings before interest, tax, depreciation and amortisation) margin. Add in capital expenditure, and the second-half cash burn amounts to €1.8 billion. The company is clearly nowhere near profitability, on an underlying basis or otherwise.”

Barford noted that 3 UK had become less aggressive about acquiring customers in recent months, and had increased some tariffs. “It’s likely that they could go into a slow-death situation, where they plod on for months and years, with a lower cash burn but little growth.”

3 rejected the criticisms from Enders, saying the firm’s analysis was flawed.

A spokesman said 3 had not hit its targets on customer numbers because it had concentrated on attracting better-quality customers on longer-term contracts. This had consequently increased average customer-acquisition costs.

3 also rejected Barford’s estimate that underlying churn had risen above 50%. It said it was satisfied it had churn under control, and that its level of customer losses was in line with the rest of the industry — suggesting 30% to 35%.

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