Jeremy Warner's Outlook: Amid the retail gloom, Dunstone's Carphone is a rare beacon of growth. Why's that?

Energy review's nuclear option; The sun rises on Japan once more

Even 10 years ago, spending on mobile telephony was comparatively limited. Today mobile has overtaken fixed line as the main conduit for voice telephony, and there are more mobile phones than there are heads of population. The very success of mobile telephony may in part explain the bind that traditional retailers find themselves in. Money today spent on mobile phone bills would 10 years ago have been available for spending on clothes, electrical goods and other traditional stables of the high street retailer.

We can safely assume that virtually everyone who wants and can afford a mobile now has one. Mobile penetration may be close to its limit, yet that doesn't so far seem to have curtailed Mr Dunstone's growth. Why is this? As the mobile phone market becomes more competitive, with more devises, services and keenly priced packages launched almost by the day, the level of churn is rising sharply. This is quite bad for the mobile phone operators, whose fat margins are coming under growing pressure, but it is manna from heaven for Mr Dunstone, Europe's largest mobile phone retailer.

For Carphone, mobile subscriptions rose by 20.6 per cent in the second quarter as customers across Europe traded in their older models for jazzier new ones, with cameras, music players and now full-scale internet access.

The more upgrades there are, the better it is for Mr Dunstone, who makes his money from the recurring revenue he gets from the new contracts he signs up to mobile networks. The mobile operators have tried, but largely failed, to take this market from him with their own retail chains. They would much rather he wasn't there at all. Unfortunately for them, the customer prefers the independence and choice of the intermediary, so like a parasite on the pig's belly, they've had to learn to tolerate his success.

This churn-driven source of growth may have a good few more years left in it yet, but like everything else it will eventually mature and settle. It is faintly ironic for Mr Mobile to be hedging himself against this eventuality by expanding into the old technology of fixed line, but here too Mr Dunstone seems to be on to something of a winner in acting as a consolidator in the carrier pre-select market. He's hoping to buy One.Tel from Centrica to build on his success with Talk Talk.

The biggest threat to Carphone, it seems to me, is the one that has been consuming so many of the high street's former stars - Tesco. Its chief executive, Sir Terry Leahy, is already attempting to invade the mobile pitch, though not yet in the way Carphone does it. It may only be a matter of time.

Energy review's nuclear option

Common sense eventually prevailed when Tony Blair attempted expensively to rebrand the Department of Trade and Industry the Department for Productivity, Energy and Industry, but he's had his revenge. Against its better judgement, the DTI has been ordered by Number 10 to conduct a fresh review of British energy policy.

Alan Johnson, the Secretary of State, was dead against this as recently as last summer. The ink has barely dried on the last one, and he feared that to order, say, a new programme of nuclear build to address supply and emission concerns would kill the Government's commitment to renewables at birth. Nobody would want to invest in renewables if they thought there was a new generation of nukes in the pipeline.

But actually, the two aims are not necessarily incompatible. The renewables commitment is underpinned by an obligation on suppliers to source a growing proportion of their power from wind, wave and sun. There is no reason why a further, carbon-free obligation shouldn't be imposed on top, with the renewables obligation left undisturbed. This is the only way I can see of providing the incentive to the private sector to build new nuclear plants. It would be ludicrous for the Government to order such a programme, and then underwrite its construction with taxpayers' money. Rather, a market mechanism needs to be provided to persuade the private sector to do it instead.

The sun rises on Japan once more

For more than 15 years now, Japan has been the land of the setting sun, yet all of a sudden the Japanese patient seems to be rising from its sickbed and now everyone is talking about the possibility of a sustained and durable economic revival. Under the title "The sun also rises", last week's Economist magazine carried a special survey on Japan's apparent renaissance, while John Snow, the US Treasury Secretary, has pointed to Japan as a model that Europe could usefully follow, both on structural reform and the way it conducts its monetary policy.

Is Japan's economic rebirth for real this time, or is this just another short-lived, cyclical upturn of the type we have seen so often before in 15 years of economic gloom? Who knows, but the omens are more encouraging this time than they've been in years. Experience would teach us to anticipate another false dawn, yet there's scarcely an economist out there predicting one.

Toshihiko Fukui, the Governor of the Bank of Japan, yesterday gave the clearest hint yet that Japan would soon be abandoning its four-year policy of "quantitative easing", under which the financial system is flooded with far more liquidity than it really needs in the hope that some of it seeps out into the wider economy. The Bank of Japan, still at root a deeply conservative organisation, has always hated this approach, but it seemed the only way to prevent the country slipping into a downward deflationary spiral, and it seems to have worked.

Applied too heavily for too long, and the policy might have eventually triggered a serious inflation, yet if it is withdrawn prematurely, market interest rates could rise precipitously and Japan would slip back into her economic malaise. In fact, withdrawal from this bizarre experiment in easy money is being handled with some skill. The Bank of Japan has stuck to the policy for far longer than the markets would have predicted when it was introduced in March 2001, and it has been true to its word that there would be no let-up until finally price deflation is exorcised from the economy.

This is likely to happen towards the end of this year, when consumer prices are expected to start rising again for the first time in eight years. Virtually all the previous upticks in economic activity have been export led. This one seems to be soundly grounded in domestic demand. Yet wisely, policymakers refuse to be rushed. There's no question yet of abandoning the zero interest-rate policy, which can be expected to last at least another year.

Perhaps regrettably, this supports a whole swathe of uneconomic activity. As in Germany, many Japanese businesses would be bust if they were forced to pay a proper cost of capital. Yet the shock therapy of Thatcher's Britain is not the Japanese way, and remarkably, the country seems to be easing its way out of its economic doldrums without the pain of mass unemployment, multiple bankruptcy and social division.

There may indeed by lessons for continental Europe in Japan's economic revival, though the parallels shouldn't be taken too far. Japan had price deflation. Many parts of Europe still have quite high levels of price inflation, making the Bank of Japan's experiment in monetary easing virtually impossible for the European Central Bank. Even Germany would be hard pressed to justify Japan's zero interest-rate policy.

j.warner@independent.co.uk

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