Mobile phone defies recession: Limited competition and a surge in demand has helped two companies make big profits. Mary Fagan and Terry Wilkinson report

THE ECONOMIC gloom has done little to dent the growing popularity of mobile telephones, as the soaring profits of the cellular telephone companies, Vodafone and Cellnet, show.

Vodafone has just announced taxable profits of pounds 322m for last year, more than 19 per cent up on the previous year.

The high returns owe much to the Government's decision in 1982 to license only two mobile phone operators. Demand has been much greater than predicted.

Mobile phone rental and call charges are not regulated - unlike prices charged by BT, which are controlled by Oftel, the industry watchdog. The Government chose instead to introduce new competition, but has had limited success.

Although four licences were given to operators of Telepoint, a cheap alternative to mobile phones, only one, Rabbit, has survived and only on a small scale.

This absence of competition and an explosion in demand has allowed Vodafone and Cellnet to enjoy high profitability.

Only five years ago, Vodafone made a small loss of pounds 3.8m on sales of pounds 67.9m. The pounds 322m profits announced this week on sales of pounds 664m imply profit margins of almost 50 per cent. Cellnet is not far behind at just under 40 per cent. Potential competitors have been put off by the cost of building a mobile phone network, which requires large numbers of linked base stations around the country.

Vodafone spent pounds 550m on its basic network, money it has long since recovered, and is spending pounds 100m on a system employing digital technology. Since Vodafone and Cellnet will probably still enjoy a big share of a much expanded market for mobile phones, it is unlikely that profit margins will fall significantly. Analysts at the City firm Barclays de Zoete Wedd are forecasting that Vodafone will have profit margins in the low to mid-forties by 2000.

So far, Vodafone and Cellnet have had little to offer the average consumer - high call charges have made mobile telephones a luxury for businesses and the wealthy. But Vodafone and Cellnet will face competition this summer from a mobile service called Mercury One-2-One, a joint venture between Cable & Wireless and an American company, US West.

Next year, Hutchison of Hong Kong will enter the market and the estimates are that up to 8 million people in Britain will be using mobile telephones by the end of the decade, compared with about 1,500 today. The new services will be cheaper than existing cellular radio - Mercury One-2-One is expected to offer prices up to 40 per cent lower than Vodafone and Cellnet. The expected rates are call charges of about 8p a minute or 16p for peak time, which compares with standard cellular charges of up to 33p peak and 10p off-peak.

The two companies have responded to attacks on their duopoly with lower charges for people who use their mobiles infrequently and, later this year, Vodafone plans its cheapest offering yet which, it hopes, will be the beginning of the mass- market mobile phone.

The LowCall service launched by Vodafone last October has higher call charges than the ordinary service but a lower monthly subscription - pounds 15 compared with pounds 25.

It benefits those who make at most one two-minute call at peak rates every day but is still primarily for the business user. Cellnet has a similar low-user scheme, but again this is not a true consumer offering.

One-2-One will also have a low-user scheme with call charges between 10p and 25p and a monthly charge of pounds 12.50. Vodafone will meet that challenge in the next few months with a new digital service.

The drawback of Vodafone's planned low-cost offering is that it is limited geographically - calls may be cheap, but if you move outside your town or city to make the call, you will pay much more.

Meanwhile, those attracted to Mercury One-2-One may have to wait until the end of the decade for national coverage. The service starts in the M25 area although the company plans to cover almost a quarter of the population - again in an area centred on London - by April next year.

In spite of the scramble for the pockets of the consumer, no one really knows whether the average Briton really wants or needs a mobile telephone.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
Arts and Entertainment
Festival-goers soak up the atmosphere at Glastonbury
Japan's population is projected to fall dramatically in the next 50 years (Wikimedia)
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Project Implementation Executive

£18000 - £23000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Chiropractic Assistant

£16500 per annum: Recruitment Genius: A Chiropractic Assistant is needed in a ...

Recruitment Genius: Digital Account Executive - Midlands

£18000 - £26000 per annum: Recruitment Genius: They work with major vehicle ma...

Recruitment Genius: Web Developer

£28000 - £30000 per annum: Recruitment Genius: This company provides coaching ...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own