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The BBC's Rory Cellan-Jones
"Two-thirds of the population now own a mobile phone"
 real 56k

Monday, 26 March, 2001, 14:40 GMT 15:40 UK
Vodafone lifts pre-pay prices 40%
Woman talking on a mobile
Pay-as-you go mobiles are becoming more expensive
Vodafone is to increase the price of its basic pay-as-you-go mobile phone by about 40%.

The price of its cheapest Pay As You Talk handset - before dealer subsidies and special offers - will rise to 70 from about 50 from 1 May.


It is in the interest of all operators to reduce customer acquisition costs

Orange spokesman
The company is also scrapping its "all in one" package, which includes a year's contract line rental and bundled monthly minutes.

Its decision follows a similar move by Deutsche Telekom-owned One2One earlier this month, as the mobile giants try to take the heat out of the battle for new customers.

Maturing market

Vodafone's decision is expected to pave the way for similar price hikes from other UK operators, as the emphasis changes from attracting new customers to extracting more profit from existing ones.

It follows research which showed a higher than expected percentage of handsets were not in regular use.

"These changes in Vodafone UK's commercial policies reflect the move of the UK market into a phase of greater maturity and our recognition of the need to reduce the current levels of expenditure on customer acquisition," said Peter Bamford, chief executive of Vodafone UK, Middle East and Africa Region.

Vodafone will cut the bonus it pays distributors for signing up pre-paid customers by 12.


Getting customers is easy - it is like turning on a tap

Telecoms analyst
The decision marks a move away from the focus on increasing customer numbers - a strategy into which all four UK networks pumped huge sums.

The fastest growth in customer numbers has been in pre-pay deals which bring in about one quarter the amount of money as contract customers.

All the big telecoms firms have seen their share prices plummet in the past year because of the huge amounts they have had to invest in next generation services and doubts about their ability to make enough profit from customers.

Orange considers options

Orange said it was "considering its options" on the price of pre-paid deals.

"It is in the interest of all operators to reduce customer acquisition costs," a spokesman added.

BT Cellnet was also considering an increase in the cost of its pre-paid packages, according to industry insiders.

However, Virgin Mobile ruled out any increase in the cost of its pre-paid deals.

A spokesman said the company already kept handset subsidies to a minimum.

"We do subsidise handsets by a small amount but nowhere near as much as the other operators.

"We have always charged a realistic price for our handsets."

As a relatively new entrant into the market, Virgin was still concerned with customer acquisition, he added.

Concerted effort

Some analysts argue that the change from customer acquisition to retention by the big four is long overdue.

"Getting customers is easy - it is like turning on a tap.

"I think there is a concerted effort from the operators to make sure the customers they have got are worth it," a telecoms analyst with a leading investment bank told BBC News Online.

UK mobile operators are increasingly looking to the Italian market, where handsets are not subsidised at all, as a model for the future, he added.

But the move could also lead to a further slowdown in handset sales.

"It [raising the price of pre-paid deals] is good for the operators. It means they make more profit on their customers.

"But it is bad for the handset manufacturers because it means there is a smaller market," the analyst commented.

Telecom regulator Oftel is carrying out a review of the competitiveness of the mobile phone market.

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See also:

22 Mar 01 | Business
Paying more to go with One2One
23 Mar 01 | Business
Vodafone shuns 3G reforms
07 Mar 01 | Business
Vodafone bullish on mobile future
21 Feb 01 | Business
Text messaging nears a billion
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