George Pitcher: Mobile operators are the real villains on the street

Mobile phone prices are rising as operators try to increase revenues. By hiking costs, operators are hurting more than consumers’ pockets, says George Pitcher

My daughter dropped her mobile phone in a beer at a New Year’s party. Unsurprisingly, it failed to respond to hungover family first-aid treatment with Q-Tips and so we set off for The Link in Fleet Street on January 2.

My eldest son, who allegedly knows about these things, predicted that the Nokia 3310, which had been last spring’s no-brainer, teenage, pay-as-you-go option, would have collapsed in price, as it had been superseded in the months since by so many smarter models.

In the event, the 3310 package – you can’t, of course, just buy the phone – had risen from the £90-odd I’d paid last April to about £130. The total replacement cost came to more than £150 with insurance, which I somewhat belatedly bought.

Talk about slamming the insurance stable-door after the lager-soaked horse had bolted, but my purchasing psychology had been different last April. I thought then that mobile-phone prices were falling so fast that the replacement cost was likely to be less than I paid for the insurance.

In any event, I distrust these insurance schemes proffered at the point of sale. They remind me of the days when such cover was aggressively sold on commission at Dixons (which owns The Link) – a practice that led to regulatory investigation and did the chain’s reputation no good at all.

To some extent, my suspicions were vindicated. The Link’s insurance doesn’t cover “liquid damage”. Given teenage lifestyle and the fact that the Nokia 3310 is substantially aimed at the teenage market, this is not unlike offering insurance on a car so long as you don’t drive it.

No matter. Insurers wouldn’t make money and we’d all have to pay grossly more in premiums if it weren’t for the exclusion clauses. My purpose, anyway, is not to have a go at brown-goods insurance schemes, nor to criticise The Link, whose service I’ve always found polished and professional, if a bit youthful.

No, my point is a broader one. As my temporarily mollified daughter headed for the station, I noted that she was carrying a heavily-branded bag from The Link, which obviously contained the size of box that brand-new mobiles come in. She made an eminently muggable target, I thought for a second.

I dismissed the notion as over-protectiveness. The rational mind tells us that hundreds of thousands, possibly millions, of Londoners carry bags every day that declare valuable contents without getting mugged.

Nevertheless, I read with a shudder later that day in the Evening Standard of a teenage girl who had been shot for her Nokia 3310.

This is not the occasion to make some mawkish connection between the wretched circumstances of someone else’s daughter and mine. All the same, I couldn’t help but remember these events this week when I read that mobile-phone retailers are poised to abandon their subsidies of pay-as-you-go products. Vodafone has announced that packages that now retail at a shade under £70 will cost “in the region of £100” from next month. And mmO2 (formerly BT Cellnet) chimes in with the news that the cheapest pre-pay phones will sell for £99.99 “within a few months”. This compares with deals of as little as £9.99 during the mobile bonanza of Christmas 2000.

The mobile operators will tell us solemnly that a mobile unit costs them about £70 and that the kind of discounting that has been around in this market is unsustainable. So, we are forced to ask, why did they do it?

Part of the answer must be that they have saturated the market – there are some 42 million mobiles out there in the UK, some of which are never used. And there are two alternatives for achieving earnings growth. One is to develop more sophisticated and commensurately more expensive services. The other is to raise prices for existing services.

The mobile operators have proved too incompetent or complacent to achieve the former option (where exactly have those 3G products got to?). So it has to be the latter alternative. One might go so far as to suggest that the mobile market has been cynically flooded with cheap products, precisely with the intent of raising prices for revenue growth.

It doesn’t have to be this way. Historically, HK Telecom demonstrated that mobile prices in a mass market such as Hong Kong could be so low as to make them almost disposable items.

The problem in the UK is that the mobile phone continues to be marketed as a utility, rather than, by process of industrial evolution, a commodity. Mobile phone operators have long been fond of telling us that they make no money on the product, but aim for revenue from network charges.

Well, they should put their revenues where their mouths are. The technology is so mass produced that the mobile unit should be all but a disposable product. We could then concentrate on paying for the network services we want.

Such a policy would, incidentally, also serve the social purpose of crushing the latest crime wave that we’ve heard so much about lately. If you take the price away, you take the illicit market way – a principle borrowed, as it happens, from progressive thinking on drugs.

But sadly, the complacent economics of the mobile phone industry continue to play into the violent hands of muggers.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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