Orange pips rivals with savage cost cuts

Orange, the UK's fastest-growing mobile phone network, will today unveil a bid to revolutionise the market for international phone calls, by slashing the cost of all its overseas calls to a price 20 per cent below British Telecom's.

Huge price reductions by Orange, backed by a high-profile advertising campaign, are the most significant development in the intensely competitive international call market since the explosion of discount resellers, the bucket shops of the phone business.

From 1 October the cost of most calls from Orange phones will plunge to just 20 per cent of their current price and only 15 per cent of the price of the Vodafone and Cellnet networks. The boldest move is on the London-New York route, the world's busiest international phone corridor, where a five-minute daytime Orange call will drop from pounds 4.30 to 88p, including VAT. The equivalent call made from a BT phone would be pounds 1.17, using the company's standard tariff, and would cost pounds 6.46 on a Cellnet handset.

A five-minute peak-time call to Tokyo would cost pounds 3 on Orange, compared with pounds 3.84 on BT and pounds 6.63 on the Vodafone. Calls to Europe will see similar reductions, with a five-minute call to France dropping from pounds 2.88 to pounds 1.06 on Orange, against pounds 1.42 on BT. In fact, on some routes, it will be cheaper to phone abroad using Orange than to phone numbers within the UK.

The price cuts will also apply to Orange customers who use their handsets abroad in countries where the network has signed up so-called roaming agreements. Previously, subscribers paid a similarly high price to have these calls routed from the UK to their handsets.

Hans Snook, Orange's group managing director, said: "We believe there is no reason the cost of phoning abroad should be as high as it is; consequently, from 1 October, it won't be for Orange customers."

The reductions are the clearest indication yet of how increasing competition is driving down the wholesale price of phone capacity on international routes. At the end of last year the previous government opened the market to full competition, ending the decade-long duopoly between BT and Mercury on traffic from the UK to other countries.

More than 40 rival companies, including recently established businesses like Energis, have since obtained international licences. Some are already selling bulk capacity at rates well below BT's. Orange would not reveal which companies it was buying capacity from, but said several operators were involved.

The cuts were also made possible because Orange has agreed cheaper rates with overseas fixed-line companies to pass the calls on to their final destination. An Orange spokesman said the company was still able to make a profit on all routes with the new prices.

Orange could not say whether its calls would remain cheaper if BT cut its own international prices. "We haven't thought about that yet," the spokesman said. In the space of 12 months BT has already made two big price cuts on international routes, knocking 23 per cent off weekend calls last September and 20 per cent off calls to the US in February. BT's international calls revenues are falling substantially despite a rise in call volumes.

BT is likely to point out that its charges would still be slightly cheaper, or no dearer, than Orange's if customers used its Friends and Family and Premier Line discount plans. They offer a 25 per cent reduction on BT's standard tariff, though Friends and Family discounts are limited to 10 most-frequently-used numbers.

The biggest casualties from Orange's surprise announcement will be its two main rivals, Vodafone and Cellnet, which hold most of the market for international calls from mobile phones.