From next month, Orange users will pay just 5p a minute for off-peak calls, a cut of up to two-thirds on current rates.
The operator also laid down a major challenge to its rivals with a John Lewis-style guarantee promising to match any tariff which is available on a rival network.
The move is an aggressive response to recent price cuts introduced by Vodafone and Cellnet, the UK's two largest operators.
Hans Snook, Orange's chief executive, said the initiative was designed to clear up the confusion among consumers about call rates. "The message is simple: don't worry," he said.
Orange shares soared by almost 10 per cent as the company said that its customer base to the end of May had grown by a net 20 per cent on the previous year. The shares hit a new high of 605p, up 54p.
However, analysts said they found the market's enthusiasm hard to justify. They pointed out that although the price cuts would stimulate usage, Orange's revenues per user were still likely to fall. "They're taking a bet that they will attract more new customers," said one analyst.
Later this year, Orange plans to launch a new service which will compete with fixed telecom lines. Known as Daily Talk, the service will offer subscribers 20 minutes of off-peak calls per day for just 50p. Meanwhile, the company plans to introduce mobile video phones within the next 18 months.
Mr Snook said he expected mobile phone penetration to rise to 50 per cent of the population by the 2004 from 16 per cent today. He added that, within the next 10 years, 90 per cent of mainstream communications would take place on a wireless network.Reuse content