Pay as you go shot in arm for mobiles

One 2 One yesterday took the boldest step yet in the battle to kick-start the sluggish UK mobile phone market, by announcing the first digital "pay as you go" service.

The fourth-largest operator, jointly owned by Cable & Wireless and US West, claimed the service would give many new groups of customers, including those with poor credit ratings, their first opportunity to own a mobile phone.

From later next month customers can buy and operate a mobile handset without paying rental charges, which in the case of One 2 One start at pounds 17.50 a month, or signing a contract. Instead they would buy air time in the shape of pounds 20 vouchers and pay a flat rate of 50p per minute for calls. This compares with 30p a minute at peak times for One 2 One's standard tariffs.

Customers would pay just under pounds 200 for a handset, while those who already own an existing One 2 One handset and some compatible Orange phones would pay less than pounds 100. One 2 One is investing pounds 3m in promoting the service, called "Up 2 You" and has agreed a deal with the Sainsbury supermarket chain and the Post Office to sell the vouchers.

Jan Peters, One 2 One managing director, said: "We have taken away some of the concerns that prevent people buying mobile phones, such as signing up to a minimum-term contract and being surprised by bigger-than-expected monthly bills."

It is estimated that 25 per cent of customers who apply for existing mobile contracts are turned away, most because of their credit-worthiness.

Analysts yesterday predicted the new service could add at least 10 per cent to One 2 One's subscriber growth, which so far this year has accelerated to more than 80,000 net new customers a quarter following a big advertising campaign.

Jim McCafferty, from stockbrokers Hoare Govett, brokers to C&W, predicted other mobile operators would follow One 2 One. "In other European countries pre-payment mobile services have been a huge success. In Portugal 50 per cent of mobile customers use a pre-payment service while in Italy there are 800,000 pay as you go customers."

Only Vodafone has so far launched a pre-payment service, though only using its older analogue network, which has so far gained just 25,000 customers. Calls are much more expensive, at pounds 1 a minute.

The news came as Vodafone confirmed it was in talks with Energis, the long-distance operator owned by National Grid, to launch its first fixed line phone service. Under the deal, expected to be signed in about a month, Vodafone would offer fixed phone connections to its business customers. Vodafone shares yesterday climbed 6.5p to 302p.

Energis said the two companies had not yet agreed several important issues, including whether Energis services would be rebranded as "Vodafone" to the network's customers.

Mike Grabiner, Energis chief executive, said it was "a bit early" to give details on the deal. He added: "But we'd be churlish not to confirm that the talks are at an advanced stage."

Mr Grabiner said the talks were solely about a joint marketing agreement and the possibility of Vodafone buying a stake in Energis had arisen. "Initially this is little more than price packaging, but the next stage is providing services where the customer can move from fixed phones to mobile at will."