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Thursday, 31 May, 2001, 16:45 GMT 17:45 UK
Vodafone launches 2.5G price war

Vodafone has raised the stakes in its fight for dominance of new mobile phone markets by opening a price war over next generation packages.

The company's first handset for so-called 2.5G services, which allow users improved internet surfing facilities, will be offered at 99.99 when it hits High Streets on Friday.

Motorola T260 GPRS phone
Vodafone: Undercutting BT Cellnet with the same GPRS phone
BT Cellnet, the UK's second most popular mobile phone operator, has been offering the same handset for 199.99 since launching its own 2.5G service two weeks ago.

Vodafone is also undercutting BT Cellnet by 50p a month on one of two service packages on offer.

Regulatory concerns

The move follows reports of increasing rivalry between BT and Vodafone in new generation mobiles, with the firms clashing last month over which was the first to trial forthcoming third-generation (3G) phones.

And it comes as telecoms regulator Oftel, which in February said Vodafone enjoyed "persistently high profits", completes a report on competition in the mobile phone industry.

Many observers said that the announcement by Vodafone on Tuesday of pre-tax profits of 4bn has raised the chances of an Oftel clampdown.

And BT on Thursday told BBC News Online that Vodafone was, by marketing handsets at 99.99, selling them at below cost price.

The use of such subsidies in some other sectors has in the past raised competitiveness concerns.

But an industry insider said Oftel was well aware that operators have in the past sold handsets below cost price to gain market share.

"There would seem to be a kind of land grab going on," the insider told BBC News Online.

"Oftel did not act then, so I can't see it acting here."

Motorola boost

The use by both BT Cellnet and Vodafone of the same handset, a Motorola T260, will help underpin Motorola's second ranking in the mobile phone manufacturer's league.

Top mobile phone makers
1: Nokia, 35.3% (33.9%)
2: Motorola, 13.2% (12.7%)
3: Siemens, 6.9% (6.9%)
4: Ericsson, 6.8% (8.7%)
Total number of cellphones shipped: 96.7m

Data: share global market, Jan-Mar (Oct-Dec)
Source: Gartner

Motorola saw its share of the overall global handset market rise to 13.2% between January and March, from 12.7% the quarter before, research firm Gartner said on Thursday.

Nokia again topped the table, with a market share of 35.3% during in the first three months of the year, compared with 33.9% between October and December.

Germany's Siemens replaced Sweden's Ericsson at third place.

Shares slide

But Vodafone's announcement initially failed to support the price of its own flagging shares, which fell to among their lowest levels since 1998 in early trade on Thursday.

The shares eventually closed 1.25p up at 181.25p, still well below highs of 400p reached last year.

Traders have blamed the after-effects of the company's acquisition spree, in which firms were bought with Vodafone shares rather than cash, for much of the recent decline in the company's share price.

The tactic has left a large "overhang" of Vodafone stock with shareholders waiting until the end of lock-in periods to sell out.

"The share price will not go up until the stock is placed," Kevin Lapwood, telecoms analyst at ING Charterhouse, said.

Shares in BT, which owns BT Cellnet, closed 4p higher at 435p.

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See also:

18 May 01 | Business
Q&A: GPRS phones
30 May 01 | Business
Vodafone 'faces Oftel price cap'
29 May 01 | Business
Vodafone posts 4bn profit
02 May 01 | Business
Vodafone pays 4.8bn for BT stakes
17 Apr 01 | Business
Vodafone passes 3G 'milestone'
28 Mar 01 | Business
3G causes Vodafone rift
26 Mar 01 | Business
Vodafone lifts pre-pay prices 40%
09 Feb 01 | Business
Vodafone shares hit two-year low
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