Mobile phones get more expensive

By the BBC's business reporter, Quentin Sommerville

Stack 'em high, sell 'em cheap offers from supermarkets led to record sales for mobile phones in the UK last year.

That surge in numbers means that majority of the country now owns a mobile phone.

But the most popular handsets are, for the first time, getting more expensive, as mobile phone companies have stopped subsidising the prices.

Charles Dunstone, chief executive of the Carphone Warehouse, says the decision has had a dramatic effect on phone sales.

"For April versus May there's a significant fall-off in the sales of pre-paid phones. You've got to remember that that prepaid represents 85% of the marketplace, overall the market is down substantially."

Unsustainable subsidies

But industry analysts say the levels of subsidy were unsustainable.

"Over the last couple of years there has been incredible demand for handsets, ownership levels are now up over 65% in the UK.

"Everyone who wants a mobile phone has one. In which case it didn't make much sense to keep subsidising new handsets," says John Tysoe, global telecoms analyst with WestLB Panmure.

The end in subsidies on pre-paid phones is likely to extend to contract phones too, as network operators begin focusing on increasing their average earnings per customer rather than growing customer numbers.

Higher bills

The great hope for the phone companies was the mobile internet - but customers weren't impressed.

Coupled with the huge sums they paid for third-generation phone licences, phone companies have to find other ways of making money.

The mobile industry received a wake-up call this month when Finnish-phone giant Nokia shocked investors with a profits warning and cut sales growth estimates in half.

Until recently, Nokia, the most recession proof of telecom stocks, had predicted a global market of 550 million cell phones, but has now cut the figure to only 405 million.

Which some industry watchers think could mean higher bills for customers.

Without your consent

According to Simon Rockman of What Mobile magazine, price changes may be in the offing, and retailers would not require their customers' consent.

"The network is allowed to change the price as much as they like wants.

"In the past they've always cut the price, so you've got more free minutes, calls have gone down or you've got free text messages.

"But they now need to make more money - they're heavily in debt - and so they're going to start putting the prices up," he says.

Phone companies deny that customers will be in for any shocks when their bills arrive, but privately admit that handset charges may increase on contract phones.

"We are trying very hard to focus on different customer streams now, so some will receive subsidies and others will not," one leading industry insider said.