Mobile phone charges are falling - thanks to Stelios

A cut-price pay-as-you go plan could spell the end of contracts, says David Prosser

There's some bad news for anyone irritated by mobile phones. With a bitter price war between network providers continuing, making calls is cheaper than ever. And as charges keep falling, there'll be even less reason for mobile phone users to show any restraint.

There's some bad news for anyone irritated by mobile phones. With a bitter price war between network providers continuing, making calls is cheaper than ever. And as charges keep falling, there'll be even less reason for mobile phone users to show any restraint.

The fight began last month when serial entrepreneur Stelios Haji-Ionannou, founder of cut-price airline easyJet, announced the launch of easyMobile, which he claimed would finally break up Britain's "cosy" mobile phone market.

Now the companies most under threat, Virgin Mobile and Fresh, have hit back with price cuts and some barbed comments about the small print of the easyMobile offering. And Tesco, which has been trying to break into the mobile phone market, is also promising to transform its bargain-basement service into an even cheaper offer.

These services are known in the trade as "virtual networks", because they provide services through the infrastructure set up by Britain's five competing network providers. But the distinction is irrelevant to mobile phone users: your handset works in the same way whether you're with one of these providers, or the big five of Orange, O2, T-Mobile, Three and Vodafone.

In most cases, the virtual networks operate on a pay-as-you-go, or pre-pay basis. Users buy a set amount of airtime in advance and then top up their phones with more time as and when they need it.

The alternative is a contract deal, where phone users sign up for a minimum period and pay a monthly fee. Until now, this has generally been better value. First, the network knows it is likely to keep them as customers for longer, so it offers bigger subsidies on handsets.

Pay-as-you-go customers, by contrast, generally pay more for the same phones.

Contract customers pay a monthly fee to cover most of their calls. As long as they're on the right tariff, most regular phone users have found that this one-off fee works out cheaper than paying for each call on a pre-pay basis. Even calls that are not covered by the monthly rate - overseas and premium-rate numbers, for example - have often been charged at a cheaper rate for contract customers.

The most recent survey by the consumer group Which? of the mobile phone market, completed at the end of last year, concluded that contracts suited people who used their phones for at least a few minutes most days. Pre-pay deals suited those who didn't use their phones often, Which? said, as long as they were prepared to pay more for their handset and to keep it for a while.

Mobile phone experts reckon this advice still stands for most people buying a phone for the first time. Equally, if you're the kind of person who wants to upgrade their phone regularly, a contract, with its subsidised handset, will still represent good value.

However, Jonathan Morris, the technology editor of What Mobile? magazine, says: "For someone who isn't bothered about regularly changing their old phone, pay-as-you-go now represents a real opportunity to save money, because the providers are practically giving airtime away."

Jessica Simpson, of Carphone Warehouse, which advises on mobile phone deals and also runs the Fresh network, agrees. She says: "The price war will continue and, on cost terms at least, it has really tipped the balance towards pay-as-you-go."

The cost of a contract depends on which tariff you choose: the higher the monthly fee, the more free airtime and text messages you get. Contracts start at about £15 a month, for which you might get 30 minutes of free calls, effectively a 50p-a-minute charge. At the top end of the scale, you could pay as much as £70 a month for 700 minutes of free calls - worth 10p a minute.

Now, however, easyMobile is offering call charges at 9p a minute. Virgin Mobile's pre-pay charges start at about 5p a minute, though they can cost as much as 35p. Fresh has halved its prices, so charges start at 5p a minute. In other words, for all but the heaviest of mobile phone users, pay-as-you-go services may now work out cheaper than contracts.

And it's not just the newer entrants to the market that offer good deals. The five networks all offer their own pay-as-you-go services and have been forced to become increasingly competitive.

Even so, Morris believes: "Pre-pay has real appeal, but it will take time to convince people." He thinks most phone users like regular upgrades, and the cost of the latest handset on a pay-as-you-go deal will eat into call charge savings.

Simpson adds: "It's also worth bearing in mind the convenience of paying monthly by direct debit." Pre-pay customers, she points out, have to keep topping up their phones - at Fresh, for example, they actually have to go into a Carphone Warehouse store to do so.

Still, some mobile phone users are aready making savings. Steve Thomson dumped his 12-month mobile phone contract last year after a change in circumstances.

"I had been using my phone a lot at work and during the evenings, but then I was made redundant. Then I was paying a fixed monthly fee for a service I never used," he says.

After looking at rival providers' web sites and talking to advisers, Steve eventually decided to move to Virgin Mobile. Its service is much more like a pay-as-you-go deal.

Steve, who lives in South-east London, now pays for airtime in advance each month and is able to carry over unused minutes to the next month.

"I reckon I'm saving £20 or more each month and the other great thing is I'm not tied in," Steve adds. "This means that if I find a better deal in the future I'll be able to switch again."

By contrast, last year Steve was upset to discover he would have to pay a fee to retain his old mobile number and that switching it over to his new phone would have taken up to 21 days. "More flexibility was a really important consideration when I started looking for a new deal," he adds.

In practice, the deal you go for depends on a variety of factors. You need to consider how many calls you make each month, at what time of day and whom you call - charges vary depending on whether you're contacting a mobile on a different network, a land line or an international number.

There is also the cost of text messages to worry about if you plan to send any number.

If you have special circumstance, there may be deals that have been designed particularly for you. For instance, Carphone Warehouse this week launched Mobile World, a network offering cheap charges on international calls.

Also think about whether you're bothered about keeping up with new technology. Virgin Mobile claims mobile users who don't upgrade their handsets collectively waste £99m a year on contract charges.

On the left, we look at the best deals for four different types of mobile phone user, but most people will benefit from taking some independent advice. The excellent Which? internet site at www.which.co.uk/switch can help you identify the best deal. Carphone Warehouse continues to offer good independent advice, despite its ownership of Fresh.

Don't be put off by complexity. The majority of Britain's mobile phone users - and there are 50m contracts in force - may be able to save money.

So while critics of easyMobile point to small print such as a £4 charge for itemised bills, Stelios is owed a vote of thanks. He may not have delivered the simplicity that easyMobile promised, but phone charges are continuing to fall.

FOUR TARIFFS FOR FOUR TYPICAL USERS

THE TEENAGER

Amy has persuaded her parents to buy her a phone. The 13-year-old will mostly use it to send text messages to friends, but she will also make occasional off-peak calls.

Carphone Warehouse recommends: Virgin pay-as-you-go - 3p texts to other Virgin mobiles, plus the option of £10 bundles for 200 cross-network texts (5p each).

Or she could choose Fresh pay-as-you-go. 5p-a-minute cross-network calls, 1.7p cross-network texts.

On both deals, Motorola's C115 handset costs £24.99; the Nokia 1100 is £29.99.

THE OFFICE WORKER

Mark works in a typical office environment and has access to a landline during the day.

Outside of work, however, he makes lots of off-peak calls to friends and family, both to mobiles and landlines.

Carphone Warehouse recommends: O2 Leisure Time Plus contract. This provides 1,000 off-peak minutes to other O2 numbers and 100 texts for £20 a month.

Another option is O2's Leisure Time All contract. This gives 500 cross-network minutes and 100 texts for £25 a month.

THE BUSINESSWOMAN

Margaret runs her own catering business and is constantly on the move. She uses her mobile all day to talk to clients and other work contacts. She also makes plenty of off-peak calls.

Carphone Warehouse recommends: 3 Talk and Text 600 contract. 500 cross-network anytime minutes and 100 texts for £30 a month.

THE OCCASIONAL CALLER

Alan, a retired teacher, has never owned a mobile phone, and has never wanted one. But his ageing estate did recently break down, and he has realised that a mobile might be useful in emergencies.

Carphone Warehouse recommends: Pay-as-you-go on any network. A Nokia 1100 handset costs £29.99 with Virgin Mobile and Alan can top it up as required.

He must, however, buy an initial £10 worth of calls when he first gets the phone.