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Last Updated: Tuesday, 16 March, 2004, 09:21 GMT
Phone firms face costly future
John Caudwell, The Caudwell Group
Caudwell : Price war is on the way
Life looks set to get better for anyone that uses a mobile phone as price wars break out between rival operators.

So says John Caudwell, boss of the Caudwell Group that owns Phones4U and a slew of other companies involved in the mobile phone market.

Mr Caudwell believes the price war will come about because of the efforts of the UK's 3 to win people over to its third-generation network.

Recently 3 announced a pay-as-you-go option for its network that it hopes will interest the 70% of British phone users that currently pay for their phone that way.

Troubled times

"3 have got incredibly aggressive on normal tariffs and they have some very nice handsets coming into the range," he told BBC News Online.

"They are pushing it on the back of low cost voice calls."

3 has a chance to cause trouble for rivals because so many British people have a phone.

"The problem operators face is that market is virtually saturated now," said Mr Caudwell.

With 3 willing to spend money to recruit users away from other networks, the reaction from those networks will likely be price cuts and special offers to keep customers loyal.

The P900, SonyEricsson
Games are popular but not lucrative
But, he said, it remains to be seen whether cheaper phones means people make more phone calls and offset the lower call costs.

"It could take revenue out of the marketplace faster than revenue that can be replaced by new features," said Mr Caudwell.

Certainly, he said, there was little evidence that customers who buy phones via Phones4U want all the latest extras on a phone.

"The vast majority of people want superb value for money and superb service," he said, "it's the minority that want bells and whistles."

"At the end of the day no customer is interested in the technology," he said, "they are interested in the benefits.

"That's all they want to know," he said.

Mr Caudwell said the revenues from extras such as wallpaper, ringtones and games were, so far, proving negligible compared to the amount of revenue phone firms made from voice calls.

20:20 Logistics
Phones 4U
Discovery Store
Caudwell Communications
Mobile Phone Repair Company
"Data revenues are relatively small in the scheme of things," he said, "and it's difficult for operators to get excited about wallpaper."

"Revenues are increasing slowly as a result of new services," he said, "but the price war is threatening the overall revenue as the whole thing is cheaper."

With an imminent price war and slow revenue growth on data services, Mr Caudwell said Britain's phone market was ripe for change.

"Over the next five years we're going to see consolidation of networks, service providers and retailers," he said.

"The challenge for the networks is to create the services that customers really do want," he said, "that people cannot live without."

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