One 2 One to offer pay-as-you-go

One 2 One yesterday took the boldest step yet in the battle to kick-start the sluggish UK mobile phone market, by announcing the first digital "pay-as-you-go" service.

The fourth-largest operator, jointly owned by Cable & Wireless and US West, claimed the service would give many new groups of customers, including those with poor credit ratings, their first opportunity to own a mobile phone.

From later next month customers can buy and operate a mobile handset without paying rental charges, which in the case of One 2 One start at pounds 17.50 a month, or signing a contract. Instead they would buy air time in the shape of pounds 20 vouchers and pay a flat rate of 50p per minute for calls. This compares with 30p a minute at peak times for One 2 One's standard tariffs.

Customers would pay just under pounds 200 for a handset, while those who already own an existing One 2 One handset and some compatible Orange phones would pay less than pounds 100. One 2 One is investing pounds 3m in promoting the service, called "Up 2 You" and has agreed a deal with the Sainsbury supermarket chain and the Post Office to sell the vouchers.

Jan Peters, One 2 One managing director, said: "We have taken away some of the concerns that prevent people buying mobile phones, such as signing up to a minimum-term contract and being surprised by bigger-than-expected monthly bills." It is estimated that 25 per cent of customers who apply for existing mobile contracts are turned away, most because of their credit- worthiness.

Analysts yesterday predicted the new service could add at least 10 per cent to One 2 One's subscriber growth, which so far this year has accelerated to more than 80,000 net new customers a quarter following a big advertising campaign.

Jim McCafferty, from stockbrokers Hoare Govett, brokers to C&W, predicted other mobile operators would follow One 2 One. "In other European countries pre-payment mobile services have been a huge success. In Portugal 50 per cent of mobile customers use a pre-payment service while in Italy there are 800,000 pay as you go customers."

Only Vodafone has so far launched a pre-payment service, though only using its older analogue network, which has so far gained just 25,000 customers. Calls are much more expensive, at pounds 1 a minute.

The news came as Vodafone confirmed it was in talks with Energis, the long-distance operator owned by National Grid, to launch its first fixed line phone service.

Under the deal, expected to be signed in about a month, Vodafone would offer fixed phone connections to its business customers. Vodafone shares yesterday climbed 6.5p to 302p.

Energis said the two companies had not yet agreed several important issues.