Mobile phone capacity set for revolution by 2005

MARY FAGAN

Industrial Correspondent

The Government yesterday opened the way for further expansion of the mobile telephone industry by making available to all four operators more capacity on the air waves.

At the same time Ian Taylor, minister for science and technology, yesterday called on Vodafone and Cellnet to complete their conversion to new digital technology within 10 years. He also urged all of the companies to come up with innovative new services to justify the extra airwaves before specific allocation of those reserved goes ahead.

The allocation of spectrum to accommodate millions more customers comes within days of the publication next Wednesday of the pathfinder prospectus for the flotation of Orange, the newest operator. The sale, expected to be complete by the end of March, is likely to value Orange at up to pounds 2.8bn.

Orange is also expected to announce next week a new service which would allow customers with two lines on their mobile to make unlimited calls at weekends on one of the lines for five pence per minute. The low-cost deal, which compares with between 10p and 12.5p on the standard Orange tariff, will be in exchange for an extra monthly fee of pounds 2.50. It is likely to attract business customers who have the second line for personal use.

Orange said that the Government's decision to allocate more capacity is "positive for us and for the entire industry". One City analyst also pointed out that, as spectrum is limited, the move makes it less likely that a fifth competitor will be licensed in at a later stage. But a Government spokesman said that a further licensee cannot be ruled out at this stage. Vodafone also welcomed the move but pointed out that it is now up to the companies to come forward with suitable plans.

Mr Taylor said: ''This is an essential requirement if the rapidly growing and highly competitive mobile phone market is to continue. Our proposals should provide all four operators; Vodafone, Cellnet, One-2-One and Orange, with the necessary firm basis for planning and to make the investment decisions that they need in the medium term.''

He added that the Government "supports and encourages" Vodafone and Cellnet in their plans to move from analogue to digital operation as quickly as practicable with a view to this being completed by 2005, he added. Both Orange and the other new player, Mercury One-2-One, have been all-digital since day one.

The new spectrum for Vodafone and Cellnet has been "loaned" from that currently reserved for a possible future European Digital Short Range Radio service in the 900 MHz band.

The Government also proposes to continue to reserve spectrum in the 1800 Mhz band for One-2-One and Orange and will invite proposals from Vodafone and Cellnet on what service they would offer if allocated spectrum in 1800 MHz range.

There are almost 5.5 million subscribers to mobile telephony in the UK and the numbers are expected by observers to almost treble by the end of the decade. However, in spite of the boom, the companies' are increasingly challenged by price-cutting in the battle to attract customers.