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

The advertisements are simple but sophisticated, with bold orange lettering against a black backdrop, they are instantly recognisable. They are advertisements for Orange, the company that has done more than any other to turn mobile phones into a product with mass appeal. Its message, displayed on hoardings and in bus shelters, is that the product it advertises is stylish and modern, but warm and accessible. The posters are backed up by an extensive television advertising campaign set in the Far East, a generic symbol of the tiger economies that are the wave of the future. These advertisements tell viewers that by choosing Orange they will be individualists swimming against the tide.

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

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

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

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

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

December '82

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.

January '85

Vodaphone officially launched. Cellnet launched; 25,000 subscribers in the first year.

1986

The UK becomes the EC's largest cellular market.

January '89

Government announces plans for new mass market mobile phone service.

1989

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.

1990

UK mobile subscriber figures reach 1m for the first time.

1992

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.

1993

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

The yuppie

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.

Schoolboy

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.

News
i100
News
people Emma Watson addresses celebrity nude photo leak
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
News
peopleHis band Survivor was due to resume touring this month
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Robert De Niro, Martin Scorsese and DiCaprio, at an awards show in 2010
filmsAll just to promote a new casino
News
i100
News
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
science
News
people'It can last and it's terrifying'
Arts and Entertainment
tv
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
News
i100
Sport
Tom Cleverley
footballLoan move comes 17 hours after close of transfer window
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
footballRadamel Falcao and Diego Costa head record £835m influx
Life and Style
fashionAngelina Jolie's wedding dressed revealed
News
Boris Johnson may be manoeuvring to succeed David Cameron
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs General

C++ Quant Developer

£700 per day: Harrington Starr: Quantitative Developer C++, Python, STL, R, PD...

Java/Calypso Developer

£700 per day: Harrington Starr: Java/Calypso Developer Java, Calypso, J2EE, J...

SQL Developer

£500 per day: Harrington Starr: SQL Developer SQL, C#, Stored Procedures, MDX...

Front-Office Developer (C#, .NET, Java, AI)

£40000 - £45000 per annum + Benefits + Bonus: Harrington Starr: Front-Office D...

Day In a Page

Stolen youth: Younger blood can reverse many of the effects of ageing

Stolen youth

Younger blood can reverse many of the effects of ageing
Bob Willoughby: Hollywood's first behind the scenes photographer

Bob Willoughby: The reel deal

He was the photographer who brought documentary photojournalism to Hollywood, changing the way film stars would be portrayed for ever
Angelina Jolie's wedding dress: made by Versace, designed by her children

Made by Versace, designed by her children

Angelina Jolie's wedding dressed revealed
Anyone for pulled chicken?

Pulling chicks

Pulled pork has gone from being a US barbecue secret to a regular on supermarket shelves. Now KFC is trying to tempt us with a chicken version
'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband