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Wednesday, 23 January, 2002, 16:11 GMT
Mobile operators ring up good returns
1980s 'brick' phone, BBC
Mobiles have changed a lot since the 1980s; now they make money
The future is bright for all mobile phone firms.

Research into the fortunes of 50 European mobile phone firms has produced very different predictions than might be expected for a business sector burdened by debt and cooling consumer interest.

The Coleago Research study shows that the financial positions of many mobile operators will improve dramatically over the next two years as they stop competing with each other for new customers.

The research group said this recovery was unlikely to be dented even by the high cost of setting up future third-generation mobile services.

Customer cash

The dramatic slowdown in the numbers of new customers signing up for mobile phone services has been seen as evidence that the mobile market in many European countries has reached saturation point.

Many industry watchers have said that this will mean times getting even tougher for mobile operators already reeling from a combination of large debts and widespread disillusionment with technology companies.

Child with mobile, BBC
Mobile phone users are getting younger
But analysis by Coleago Research suggests a different picture.

Many operators are about to see a "dramatic" improvement in their finances thanks to reduced competition, claims the research.

There was little point in spending money to acquire new customers when there were no new customers to acquire, said Stefan Zehle, chief executive of Coleago. "To get a new customer is very expensive," he said.

Mr Zehle estimates that Europe's mobile phone operators have been spending up to 200 to acquire every new customer.

This amount is divided between handset subsidies, marketing, advertising and money paid to dealers every time a customer is signed up.

Cash call

In some mobile firms, customer acquisition costs had reached almost a quarter of all operating expenses, said Mr Zehle.

But now, with competition cooling and phone penetration peaking, mobile operators no longer have to spend money to sign up subscribers.

By cutting handset subsidy costs, Spanish mobile operator Telefonica has already produced a 33% reduction in its operating expenses during the first six months of 2001.

Coleago expects similar changes in fortune for many other European operators.

Many operators are expected to use the cash they are generating to reduce debts, to build future third-generation networks or to persuade existing customers to do more with their phones.

"It is a marketing truism or rule that it is much cheaper to sell something more to an existing customer than it is to acquire a new one," said Mr Zehle.

This could reap dividends as Europe's mobile firms prepare to launch third-generation (3G) services. Introducing subscribers to a variety of new services on existing handsets should make it easier to convince people to upgrade to a 3G phone.

Many operators will do well even if there are delays to the launch of 3G services because they generate so much cash from voice calls, SMS and existing services.

"The financial health of the many mobile operators should improve quite a bit," said Mr Zehle, "unless they do something really stupid and enter a destructive competition phase."

The BBC's Rory Cellan Jones
"An industry... has gone into reverse"
See also:

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3G talk gets cheaper
15 May 01 | Business
Finland stalls on 3G launch
23 Dec 01 | Sci/Tech
Promoting the future of phones
03 Sep 01 | dot life
Stuck in the mobile with you
05 Dec 01 | Business
MMO2 admits further 3G delay
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