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Mobile Phone Carriers Feel the Heat from Low-Cost Rivals

DW staff (jam)May 7, 2004

Big European mobile phone carriers are now facing a headache big airlines have already confronted: low-cost competition. The mobile phone equivalents of RyanAir and EasyJet are promising to shake up the market.

Low-cost providers are likely to introduce bargain-basement phone rates across Europe.Image: AP

It was probably only a question of time until some enterprising businessperson saw the possibilities in emulating the successful model of the low-cost air carriers. While RyanAir, German Wings and Hapag-Lloyd have undercut the giants of the aviation industry and forced them to radically reevaluate how they do business, mobile phone upstarts like Denmark's Telmore are doing the same in its own sector.

After years of growth, the European mobile phone market is saturated, since already 80 percent of Europeans already own mobile phones. Mobile phone service providers cannot count on basing future business strategies on winning new customers. They aren't there to be had.

"In the next few years, a segmentation of the market is going to take place, similar to what we've seen with the airlines," Roman Friedrich, telecoms analyst at the consulting firm Booz Allen Hamilton Deutschland, told DW-WORLD. He said according to studies his firm has carried out, the European mobile phone market is standing just before a turning point.

"By the end of the year in Europe there will several low-cost providers and in two years at the most, in almost every country there will be at least one big low-cost operator," he said.

Up to 60 percent cheaper

It's likely that low-cost mobile phone providers will find the same enthusiastic reception as Europe's low-cost air carriers have. Friedrich estimates that up to 20 percent of mobile phone users could switch to low-cost carriers.

For those who use their mobile phones for just telephoning and have little interest in high-tech extras or service hotlines, low-cost providers are an attractive alternative. Prices can run from 30 to 40 percent under those charged by the big carriers, or in some cases, up to 60 percent.

Those however who put value on having the newest, sleekest phone on the market in their purse or pocket and want to play games, get news, or download music and videos will be disappointed. The low-cost players, according to Friedrich, dispense with anything that involves higher operating expenses or development costs.

Danish success

Several Danish low-cost firms, Telmore and CBB Mobil, have managed to give big carriers a few sleepless nights with their success. The two have acquired 43.7 percent of all new mobile customers from 2000 to 2003. Today, more than 20 percent of mobile customers are using a discount mobile service provider.

The developments in Denmark have led the mobile phone providers across Europe, even in countries without low-cost players, to consider what their future strategies should be. Some are considering offering their own inexpensive plans or creating subsidiaries to try to beat the arrival of the low-cost competition--an event that the big firms say is a given.

"After Telmore several companies, such as tele.ring in Austria and Sunrise in Switzerland as good candidates for restructuring into low-cost carriers," said Friedrich. "In Sweden and the Netherlands there are several companies currently in the starting blocks."

In Germany, new providers are sure to mix up the mobile telephony landscape. The current market structure, two large and two small providers, is considered by the sector to be unstable and nearly predestined for the entry of one or more low-cost carriers. The only question companies are asking is who will make the first step.