Mobiles war sees price cuts of 50%

BRITAIN'S BIGGEST supermarket chains have begun a price war over pre-paid mobile phones, slashing prices by up to 50 per cent.

Asda will from today sell the Cellnet pre-paid mobile for pounds 39.99, in response to Tesco's announcement that it will sell mobiles from all four operators - Cellnet, One2One, Orange and Vodafone - for pounds 49.99. Sainsbury's joined the rush, cutting prices on the One2One and Vodafone products to match those of Tesco.

The network operators, other supermarket chains and high-street stores such as Carphone Warehouse sell the packages for between pounds 69.99 and pounds 79.99. Asda said it was negotiating to sell the other operators' phones in the future.

The move means that the supermarkets are cutting their margins on the sale of the phones to less than pounds 10. But industry observers said that buyers should not be tempted simply by the low price.

"The thing is that the models the supermarkets will be selling will almost all be the cheap and nasty models," said Simon Rockman, publisher of What Mobile magazine. "They will have smaller screens than more expensive models, won't have buttons to control the ringing volume, and will have batteries using older technology." That would mean the battery life will be less, or the phone will weigh more, he explained.

Tesco has already sold 230,000 pay-as-you-talk mobile phones in the UK. Pre-paid packages allow customers to buy a phone handset and starter pack without signing a service contract or paying monthly bills. Instead, customers buy top-up cards from retailers to give them call time.

The price cuts could be devastating for the mobile phone operators, who pay roughly pounds 200 for the phones at the factory gate and then sell them on at a loss to retailers. The operators then recoup their losses through the charges on phone calls, which are often at least 5p per minute.

Some network operators viewed the move as positive: "it will probably stimulate the market," said one spokesman.

Since the abolition of Resale Price Maintenance, companies cannot dictate the price at which retailers sell goods - a fact the supermarkets, withtheir immense buying power to drive down wholesale prices, are exploiting.

The first pre-paid mobile phone was introduced in November 1997, since when they have proved enormously popular. In total more than three million have been sold.

A payment of just pounds 20 will keep some of the phones "online" so that they accept incoming calls for 12 months without the user ever making an outgoing call.