This piece first appeared in The Daily Telegraph on 8 August 1999
The text here may not be identical to the published text

Two of the four mobile phone networks cut their prices this week. But the reductions were targeted on people who use the phone a lot, widening the gap between the price they pay and the much higher charges levied on low volume customers - especially those who use one of the 'pay-as-you-go' phones which Tesco is promoting this week at £49.99. They can pay as much as 40p or 50p a minute for a call that some users get for 1p - or even nothing at all. Even Hans Snook chief executive of Orange said on Thursday that the industry was in danger of 'fleecing' customers with pay-as-you-go tariffs.

Over the last year, prices have come down, but complexity has gone up. A year ago there were 21 basic tariffs offered by the four networks. Now, it is just about impossible to say how many permutations of tariff there are. The picture has been clouded by the new way to pay for a mobile phone - pay as you go which confusingly the industry is now beginning to call 'pre-pay'. (see Box - three ways to pay) With no bills, no contract, no commitment, and complete control of the costs, they appeal to anyone who wants to make sure that keeping in touch does not put them in debt. Most new customers now take up one of the many pay-as-you-go tariffs, driving the number of mobile users in the UK above 15 million.

And that will only get worse, as the supermarkets battle it out. Asda trumped Tesco's offer by slashing the price of BT Cellnet pre-paid phones on its U tariff to just £39.99. For that, the customer gets the handset (though not the smallest or coolest) and connection to the network. Calls cost 35p a minute (5p to other U users). But although the handsets are cheap and the costs of running the phone are controlled - calls are paid for in advance with vouchers bought from shops - these customers pay far more for their calls. Orange charges 50p a minute, BT Cellnet 49p, Vodafone 35p (50p for calls to mobiles) and One 2 One charges 40p a minute and a staggering 75p to ring a mobile phone connected to a rival network. Pay-as-you-go is attractive to parents buying a phone for a teenager, people with a bad credit record, anyone who wants to limit the cost or who just wants an emergency phone in the glove box, and companies which provide a phone for occasional use by staff. However, vouchers paid for by an employer are a taxable benefit - unlike the cost of providing a mobile on a traditional credit tariff which is now tax-free.

These new ways to pay were invented as bait to get people hooked. There is not a mobile phone user in the world who has not found they spend more time on the mobile and more money than they expected. And at some point the networks hope to convert them to a credit tariff where they get a bill and ay it each month. And for most users, that is the cheapest way to run a phone.

All credit tariffs now include a certain number of minutes free each month. This week Orange and Vodafone both increased the number of free minutes, except for their smallest users - those spending less than 30 minutes a month on the phone. But for bigger users the deals are much better. All the networks will offer hundreds - even thousands - of free minutes for a modest monthly charge if calls are made off-peak. They suit people who mainly use their phones socially.

Other tariffs offer cheaper rates for people who mainly call in their own local area. Other credit tariffs offer fewer minutes included in the monthly fee, but they can be used any time and anywhere. However, not all calls are covered in inclusive minutes. Each network has its own rules, and calls to rival mobile networks, international calls, some calls to answering services, calls to 0345, 0990 or premium rate numbers, can all be excluded. Between the four networks there are more than 30 credit tariffs. The table shows a sample of tariffs for a moderate, standard user and for a mainly off-peak user from each network.

THREE WAYS TO PAY

Credit tariff - The traditional way to own a mobile - buy a handset, pay a monthly rental, get some calls included in that, and pay for extra calls on top. Pro: Relatively easy to understand; the inclusive tariff covers most calls; extra call costs modest. Anti: No control on costs, hard to work out which of the many tariffs will suit best, can be hard to change tariffs.

Pay as you go - The most popular way now for new entrants - Buy the handset, buy vouchers to pre-pay the calls. Pro: no bills, costs strictly within user's control, no credit checks Anti: call costs very high; inflexible; no record of calls made; taxable if provided by employer.

Pre-paid - One payment gets a handset, connection to the network, and pays a year's rental - most also include some free calls each month. Pro: Up-front cost is being cut to the bone; next-to-nothing to pay for a year if calls are kept low. Anti: can still run up big bills; call charges after pre-paid minutes are high.

8 August 1999

e-mail Paul Lewis on paul@paullewis.co.uk