By the end of this month the four mobile phone networks will have recruited more than 600,000 subscribers in just three months. The quarter may even top the record 616,823 recruits of Christmas 1994, a boom based on cut-price offers which was followed by two years of declining Christmas sales.
But the companies – Vodafone, Cellnet, Orange and One2One – have had to pay a high cost for the new signings. Between them, they have spent an estimated 50m on marketing in the fourth quarter alone. This comes on top of other capital investment in improving distribution channels, completing national network coverage and buying retail outlets in the past 12 months.
However, some of this year’s offers appear over-generous and strategically naive. Cellnet for instance, which has suffered this year because of problems with its billing system and the competition from Orange and One2One, is offering Christmas subscribers a 100 payment if they stay with the network for six months. The scheme has been described by both rivals and analysts as “a recipe for churn” – a situation where people will stay with the network long enough to get the 100 and then move on to another network.
“There has been a definite over-investment in Christmas,” says One2One commercial director Paul Donovan who oversees the company’s 30m-35m annual marketing spend and has seen its share of new net connections grow from seven per cent last year to 30 per cent in 1997.
For the first time heavyweight Christmas campaigns from the likes of Motorola, Nokia and Ericsson – with its product placement in the new Bond movie – is fuelling the subscriber growth.
The fourth-quarter subscription lift, an estimated 23 per cent up on last year, comes amid speculation that the market is heading for a price war fuelled partly by a ten per cent cut in tariffs at market leader Vodafone and the fact that One2One will finally become a national operator at the end of this month when it moves beyond 95 per cent network coverage of the UK.
But the sector is entering a new growth phase. And that is where the significance of this quarter’s figures lies. The growth is in “prepay” mobile phone telephony – where customers pay for the phone, the line rental and the minutes all in one go – which has been available before but never properly marketed.
For network operators puzzling over how to move the penetration of the UK market on from 14 per cent to 25 per cent in the next three years it opens up a new area of the consumer market. It is an area which mobile operators have previously ignored or even feared – the lower income sector. Talkland, now rebranded and part of the Vodafone retail empire, previously rejected 45 per cent of consumers on the basis of credit ratings. With prepay it rejects nobody.
Some observers suggest prepay could account for as much as 25 per cent of the fourth-quarter market. Its growth, fuelled by ads such as One2One’s supermarket romance “Derek and Tanya”, has forced some analysts to increase their estimates of the number of additional subscribers this Christmas.
“The biggest single aspect of this growth is prepay,” says Hoare Govett telecoms analyst Jim McCafferty. “I was not expecting this surge but it is going very well. Yet there is also improved distribution, special offers and the impact of manufacturer advertising which has not been there before in quarter four.”
Vodafone director of corporate affairs Terry Barwick argues it will be price cuts, rather than prepay, which fuel market penetration. “Prepay will take a larger share of the market in this quarter as opposed to the other nine but the real step forward in penetration will come from reduced tariffs.”
One source says in the run-up to December 25 Vodafone is registering an unprecedented 6,000 new connections every Saturday.
“Acquiring customers is still the aim but when the market gets to 25 per cent penetration it will be retention that becomes the priority and the networks have to prepare for that,” says Donovan. “Cellnet and Vodafone have failed to build the understanding of the benefits of mobile communications and as market leaders that is what they should have done,” he adds.
But retention is already the name of the game. An increasingly important date for all the operators is January 1 1999 when number “porta- bility” becomes available. It will mean that people who have resisted switching networks because they would have to change their telephone number will be able to take their existing number with them.
As a result, next year will see an even more intense round of advertising and marketing in the mobile sector. To that end One2One will be launching a campaign in January promoting its new nationwide coverage. It will use the “Who would you most like to have a One2One with?” theme; there will be fresh non-celebrity executions and the company will target the business sector.
The new heavyweight One2One campaign may raise the stakes even higher and lead rivals Vodafone, Cellnet and Orange to bolster their own marketing spending. This would make the sector one of the biggest spenders in the UK.