Young, hip and upwardly mobile

With market penetration at its peak and 3G phones still a distant promise, it’s image-conscious youths who are keeping the mobile phones market buoyant

Eight out of ten people in the UK aged between 12 and 74 now own a mobile phone, which means there are about 40 million active handsets in the UK. Although the figures are levelling off, this still represents spectacular growth, given that five years ago only a quarter of the UK population owned a mobile phone.

But the high penetration that mobile phones have achieved in the UK means the industry is now experiencing tough market conditions. In addition, the mass availability of 3G services, heralded as the innovation that would give the industry a much needed boost, is still far away. But the gloom appears to be lifting as new mobile phone functions such as gaming, picture messaging and mobile e-mail are introduced.

According to a Taylor Nelson Sofres (TNS) survey, during the 12 months to November 2002, the value of the UK mobile telecoms market was £9.1bn. Thirty five per cent of that (£3.14bn) comes from pay-as-you-go – or pre-pay – customers, where consumers buy their own airtime in advance. Two-thirds of all mobile phone owners in the UK opt for this payment method, although these customers typically spend less on mobile phone calls than contract customers.

One-quarter of all airtime is bought at supermarkets, where denominations of £15 or more are most likely to be bought. Convenience stores and newsagents are the other two key outlets, jointly accounting for one-third of all sales. These are generally the stores of choice for younger consumers, who tend to top up their mobile phone credit in smaller amounts (£5 or £10).

One-fifth of pre-pay customers account for two-thirds of all airtime sales. These valuable customers tend to be younger and in full-time education. TNS says that retaining these customers when they move into full-time employment will be crucial for networks to sustain revenues.

The remaining one-third of mobile phone owners are contract customers, who sign up with a network for a minimum 12-month period. Typically, contract customers spend significantly more each month (on average, £36) than pre-pay users (£11 a month). Because contract customers spend more, mobile phone providers can offer them subsidised phones to maintain sales of mobile handsets. But, despite incentives offered by network providers, the current trend is for customers to hold on to their handsets for longer.

Mobile phone users keep their handsets for an average of 19 months, up from 16 months a year ago. This means that there are 8 million contract phones in the UK that are over a year old. This offers a huge opportunity for mobile companies to upgrade customers to the latest colour screens and the potentially more lucrative MMS (multimedia messaging service, which enables users to customise text messages with pictures and sound) or gaming-enabled handsets. There are also about 9 million pre-pay phones still in use that are more than two years old.

Younger consumers’ attraction to new technology and fads mean they tend to upgrade their handsets more frequently than older customers. Almost half of mobile owners under the age of 24 bought their handset within the past 12 months, compared with a quarter of those aged over 45.

Younger customers are also more likely to spend more on calls than older customers. Pre-pay users under 24 years old spend an average £14 a month compared with pre-pay customers aged 45-plus, who spend only £9 a month. Similarly, contract customers aged under 24 spend an average £43 a month, while those aged 45-plus spend £30 a month.

Since Christmas 2001, the mobile phone handset market has remained static, with about 1 million handsets sold each month, although in the run-up to Christmas 2002, handset sales increased.

Nokia is still the brand of choice for the majority of consumers and accounts for more than half of all handsets sold in the past six months. Motorola, Samsung and Sony Ericsson each accounts for about ten per cent of handset sales. Carphone Warehouse is the most popular outlet for buying mobile phones, followed by The Link and Phones 4U.

A greater range of mobile phone functions, ranging from gaming to picture messaging and mobile e-mail, were available this Christmas. While the average consumer may not be prepared to spend hundreds of pounds on new models, technophiles and style-conscious individuals will almost certainly become the owners of the latest digital camera phones during 2003.

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