The mobile phone finally comes of age
The flotation of Orange heralds a decisive phase in the battle for Britain's mobile telephone users, says Mary Fagan
Tuesday 20 February 1996
This is meant to be the era in which brand names are under attack from low-price, often "own-label" competitors. Orange has invested about pounds 14m a year on marketing and advertising to lodge its brand identity in the minds of the British consumer. Its success is a case study of how modern companies will have to combine fierce price competition with clever marketing to be successful.
Yet the rise of Orange is more than just the story of a single company. It has been the catalyst that has taken the mobile phone out of its yuppie ghetto and on to the verge of the mass market.
Orange was born in 1991 when it was awarded a licence by the Government to offer mobile telephone services in competition with the existing operators, Vodafone,created by Racal, the electronics group, but now an independent company, and Cellnet, owned by BT. The service did not begin until April 1994. It is jointly owned byHutchison Telecom - the Hong Kong conglomerate which is the major shareholder with a 68 per cent stake - and British Aerospace. The company has notched up 400,000 subscribers and, when it floats on the London Stock Exchange next month, is likely to carry a price tag of up to pounds 2.8bn. This week it is setting out to woo 600,000 potential small investors.
Until a few years ago, mobile telephones were seen as a luxury for the wealthy and for high-flying executives whose companies were prepared to foot the bills. Several attempts were made to bring the mobile to a mass audience, including an ill-fated experiment with the so called CT2 technology in the late Eighties and early Nineties. But in the past two years several factors have come together to attract a larger audience. Bulky, expensive handsets have become more convenient and attractive. Quality and coverage of service has improved. But perhaps the most significant changes have come in charges for using the services.
In 1993 Mercury One-2-One, a joint venture between Cable & Wireless and the American giant US West, burst into the marketplace with the offer of free off-peak local calls. The One-2-One initiative shook the cosy Vodafone and Cellnet duopoly to its foundation and made ordinary people on ordinary incomes realise that they too could take advantage of this technological revolution. When Orange started its service, consumers were already more open to the idea of going mobile. At that time many in the industry assumed Mercury had stolen such a march on Orange that it would never recover.
Two years later any fears that Orange would be still-born are a distant memory. One-2-One and Orange are neck and neck in attracting subscribers, with a market share of about 7 per cent apiece. Vodafone and Cellnet view Orange as a serious rival in spite of their much larger subscriber base of about 2.3 million each. The size of Orange's base is no measure of its influence, however. Whereas Vodafone, Cellnet and even Mercury One- 2-One can trace their ancestry from the old telephone and radio industries, Orange, by contrast, appears to be the only truly new, customer-driven company, unencumbered by a legacy of old management and assumptions drawn from traditional telephony.
The challenge for Orange was to come up with a pricing proposal that was attractive but which did not copy One-2-One's free call concept. (That has since been watered down to cover only local calls made at weekends.) The answer was to offer a range of monthly rental packages, each bundled with an amount of "free" minutes for which subscribers are not billed at the end of the month. Customers pay upfront for the bulk of their calls yet still have the feeling that they are getting something for nothing from the company.
The other attraction of Orange was that its calls have always been charged on a per-second basis rather than on the old concept of paying per minute, which meant that even if you used the phone for only 10 seconds you were charged for a minute. One-2-One, which initially used 30-second units, has since adopted per-second charging. Even the mighty Cellnet and Vodafone will from next month adopt a similar approach for new customers. Orange has made the other companies compete on its consumer-friendly terms.
Even more tellingly, both Cellnet and Vodafone have decided to offer packages based on bundled calls. The plethora of tariffs they offer has bewildered some customers who have had no idea which to choose to best match their lifestyles and pockets. Pricing structures for Orange and One-2-One are, like the prices themselves, simpler and more user-friendly. The headache for consumers is that the all-important question of which service is cheapest remains almost impossible to answer. The cost depends entirely on the pattern of usage, but generally, Orange and One-2-One will still be cheaper. The consensus is that the average customer on Orange and One-2-One will still be paying about 10 per cent to 15 per cent less and that One-2-One remains cheaper even than Orange.
While Orange is battling the dominant players on price, it has won so far against One-2-One in terms of coverage. Orange has always aimed to cover as much of the country as quickly as possible, whereas Mercury One- 2-One began in and around London with a staged "roll-out". Orange now covers 90 per cent of the population.
The key question for would-be customers or investors in the Orange flotation is how the company will fare in future. It is premature to write One-2- One off: its network is still expanding and its prices are attractive. Vodafone and Cellnet are prepared for all-out war.
The next year or so is key because of the onslaught of digital technology which offers superior quality to existing analogue service and which makes much more efficient use of the radio waves. Both Orange and One-2-One are entirely digital but Vodafone and Cellnet now run digital networks as well as analogue and will ultimately migrate all their customers across to the new technology.
For the two babies in the business there are two all-important tasks. They must continue to attract those who until now have never used a mobile and they must catch those who are in transition from old technology to the new. The mobile telephone business is booming but between the companies the battle has barely begun. That must be good news for consumers.
How the costs compare
Orange's charges start at pounds 15 per month including 15 minutes "free" airtime. Beyond that customers on this package pay 25p per minute at peak times or 12.5p off-peak, although the bill is calculated on a per- second basis. At the top end of the range, the monthly fee is pounds 100 for 540 free minutes with other calls charged at 14p per minute peak and 7p off-peak. One disadvantage is that because of Orange's advanced technology users cannot "roam" in other European countries because of lack of compatibility with some of the existing networks. This will gradually change. Orange is loss-making but is expected to break even next year. The company is scheduled for flotation next month.
Mercury One-2-One is a 50/50 joint venture between Cable & Wireless and US West, a large North American telecommunications group. The company has about 400,000 subscribers and a network covering 40 per cent of the population. It is aiming for 65 per cent coverage during this year, rising to 90 per cent by December 1997. The main attraction is free local calls at weekends. One-2-One's monthly fees start at pounds 15 with call charges at 25p per minute peak and 5p off-peak. At weekends national calls are 5p per minute and local calls free. But customers can choose to pay pounds 35 per month with peak-rate calls at 15p per minute and 5p off-peak. This includes free voicemail retrieval. Bills are calculated on a per-second basis. One-2-One is loss-making but is expected to break even in the 1996/97 financial year.
Vodafone has been in operation for 11 years and has 2.3 million subscribers. It was launched by Racal, the electronics group, but was demerged in September 1991. The company had a turnover of pounds 1.1bn in the year to March 1995 and made a profit before tax of pounds 371m.
Vodafone runs a new digital network alongside its original analogue network. For a premium, some customers can also make calls in a large number of other countries under "roaming" agreements between Vodafone and operators overseas.
From April it is introducing an additional range of charges for digital customers. These will be 25 to 30 per cent cheaper. They start with a monthly fee of pounds 22.50 inclusive of 50 minutes of "free" calls. Thereafter the charges are 30p per minute peak and 10p off-peak but calculated on a per-second basis. At the top end, the monthly fee of pounds 37.50 includes 100 bundled minutes. Calls thereafter are 20p per minute peak and 10p off-peak, based on per-second billing.
Cellnet was launched in 1985 and has about 2.3 million subscribers. It is 60 per cent owned by BT with the remainder held by Securicor. BT would like to buy its partner out but has so far been refused permissionby the Government. Cellnet made a pre-tax profit last year of pounds 154.8m on turnover of pounds 682m. Cellnet runs an analogue and a digital network. It has roaming agreements with some overseas operators. From April it will adopt per-second billing for all digital customers and will introduce extra consumer-oriented tariff packages. The new charges start with a monthly deal under which customers pay pounds 7.50 but are then entitled to pounds 12.50 worth of calls. Thereafter they pay 30p per minute for peak-rate calls and 10p off-peak. At the top end the monthly fee is pounds 12.50 with pounds 17.50 worth of free calls and charges thereafter of 20p per minute peak and 10p off-peak.
THE MARCH OF THE MOBILE
First UK cellular radio licence is awarded (to Racal-Vodafone). Until it goes on-line three years later, there is little consumer choice: BT's "System 4" Radiophone service allows 14,000 customers access to mobile telecommunications but handsets alone cost up to pounds 10,000.
Vodaphone officially launched. Cellnet launched; 25,000 subscribers in the first year.
The UK becomes the EC's largest cellular market.
Government announces plans for new mass market mobile phone service.
The Government issues licenses for the CT2 system, opening the door to a number of networks (Zonephone, Phonepoint, Callpoint, Rabbit) which only allow calls within range of a CT2 base station. They are not seen by the public as properly mobile, and the operators find business is difficult.
UK mobile subscriber figures reach 1m for the first time.
Cellnet and Vodafone, now well established, attempt to head off the imminent threat of new competition offering domestic tariffs by launching their own - LowCall and Lifetime. This new and potentially vast market sector quickly becomes known in the industry as LowLife.
Mercury launches One-2-One. Rabbit, the last of the CT2 companies, collapses
28 April '94
Orange launched with 50 per cent UK population coverage
Came by his first mobile phone in the mid-Eighties. Pricey, very bulky, frequently impossible to understand what was being said and many calls simply cut out. But he could close a deal on the way to the office, impress fellow diners during business lunches, call to mislead his wife about his location and activities at any time or simply pose. Often seen pacing around outside pubs talking animatedly. On the minus side, incidental costs rose when his Range Rover outside his home in Chelsea was twice broken into. He must remember not to leave the phone on the front seat.
Frightfully busy mum
Received the phone as a present, Christmas '95. Initially sceptical that a product endorsed by rowdy City types and the local plumber could have any attractions for her. But it's lightweight, bright yellow, and, after all, it is a telephone. As such, it can be used to order goodies from Fortnum's and tell the nanny to pick the girls up from school. Once she's mastered steering the 205 with one hand, she can use it on the move. It can even be left in baby's bedroom while connected to the phone in the kitchen, to check he's not crying.
Jordan's school was forced to ban disruptive mobile phones from the classroom in the late Nineties. Jordan finds a mobile is still useful, however, as break-time is a good opportunity to hook it up to a laptop and send electronic mail to his friends in California. A gift for algebra leads to popularity as he offers to find the best tariff option for newly subscribing friends. He can phone home with a request to visit a friend's house after school, or to leave a plea for chips for dinner tonight. If mum and dad are out when he calls, he can always leave a message on their mobiles.
South Korea ferry: Sewol captain says he is 'sorry to the people of South Korea' and that he delayed evacuating ship in case passengers 'drifted away'
Easter egg hunt horror as mother finds dead body under deck of house
Missing Malaysia Airlines Flight MH370: Wreckage could be found within a week as search reaches 'very critical juncture', says minister
Loch Ness Monster found on Apple Maps?
Royal Tour 2014: Is the Duchess of Cambridge the only person ever to climb into a fighter jet wearing a dress and high heels?
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
Nigel Farage fatigue? Half of voters ‘immune’ to Ukip’s appeal
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
Refugee facing deportation from Sweden saved by fellow passengers refusing to let plane leave
- 1 Easter egg hunt horror as mother finds dead body under deck of house
- 2 'Natural' energy drink banned for containing erectile dysfunction drug
- 3 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 4 Loch Ness Monster found on Apple Maps?
- 5 Kingdom Tower: Construction of 1km high new world’s tallest building to begin next week in Saudi Arabia
£150.00 per week: QA Apprenticeships: This company is a company that specializ...
£153.75 per week: QA Apprenticeships: This company is an innovative outsourcin...
£150.00 per week: QA Apprenticeships: This company has been providing on site ...
£150.00 per week: QA Apprenticeships: We've been supplying best of breed peopl...