Across Europe, experts say roughly 30 percent of mobile users are people not focused on state-of-the-art phones or high-speed data but on low fees.


To serve them, a new generation of resellers is spreading across Scandinavia, Britain, and more recently, into France and Germany.



“This is a significant paradigm shift for the mobile phone industry,” said John Strand, the owner of Strand Consult, a Copenhagen-based researcher that focuses on the industry. “What these companies are providing is pure, plain mobile telephony.”



Most of these so-called mobile virtual network operators undercut established rivals by running low-cost, no-frills operations.



Many sign up and bill their customers only over the Internet.



In Hertfordshire, north of London, for example, it takes just 25 people in a second-floor office to run easyMobile, Britain’s newest mobile operator, which began service this month.



While the company bears the logo of EasyGroup, Stelios Haji-Ioannou – EasyGroup’s founder – has no ownership stake and is being paid only for use of his brand.



EasyMobile is 80 percent owned by the Danish phone company TDC and 20 percent held by a consortium including Frank Rasmussen, the founder of Telmore, a Danish virtual operator.



Rasmussen predicted easyMobile could sign up 500,000 to 1 million customers in Britain this year.



The British mobile market is already fiercely competitive, led by Virgin Mobile, a virtual operator set up in 1999 by the British entrepreneur Richard Branson. Another virtual network called Fresh, belonging to British handset and mobile retailer Carphone Warehouse, cut its prices in half this month.



“What you are seeing taking place here is a war,” said Rasmussen, 40. “We are a direct threat to these companies because our costs are much, much lower than theirs. We aren’t interested in fancy calling packages or in subsidizing handset sales. We just want to sell cheap, honest calling service.”



In general, network owners sell large chunks of time to virtual operators at a discount because they are buying in high volume. The virtual operators turn around and sell to their customers at prices that are less than what the original network charges its own customers – but more than the virtual operators paid, thus ensuring a profit. The leanest of the virtual operators spend €25, or $32, to acquire a customer, compared to costs that range up to €300 for full-fledged network owners, Strand said.



In Denmark, Rasmussen’s Telmore grew from obscurity in 2000 to sign up 500,000 customers, capturing 12 percent of the Danish market, by 2003. Orange sold its subsidiary in Denmark in 2004 after the market was flooded by more than five virtual operators.



For Orange, T-Mobile, Vodafone, Telenor and others that own their own networks, the rise of no-frills competitors is a double-edged sword, said Lars Godell, an analyst at Forrester Research in Amsterdam. The virtual rivals may be taking full-service customers, but the network owners are selling their unused system capacity to long-term clients at fixed prices.



These wholesale sales will become important with the spread of high-speed third-generation networks, which offer at least four times the capacity of existing networks, Godell said.



“With this excess capacity and almost everybody in Europe owning a mobile phone, something has to give,” he said. “In that case, selling to virtual operators makes sense.”



The sales come with a downside. The cut-rate operators are driving down prevailing calling prices.



Vodafone, based in Newbury, England, for example, sells its unused network space to resellers in Britain, the Netherlands and in Australia. “We don’t do this across the board but do this in markets that are more competitive,” said Alan Harper, Vodafone’s director of global business strategy. “Of course, it will bring pricing pressure on us, but there is already a lot of pricing pressure.”



Other companies are studying the mobile business as a way to target niche customer groups, to deliver specialized content or to provide seamless fixed-line and mobile service. The sports channel ESPN is starting a mobile business in the United States. Bertelsmann, the German firm, is also considering one.



“We see a virtual operator as a possible mobile sales channel for high-quality content from Bertelsmann or others,” said Hartmut Ostrowski, a Bertelsmann board member. “This would be a premium service for clients willing to pay for top-quality content and entertainment.”



Enhancing its brand was also the reason Hamburg-based Tchibo, a coffee retailer that has expanded into insurance, vacation packages and clothing, started Tchibo Mobilfunk in October 2004. The 50-50 venture with network operator O2 signed up 150,000 prepaid phone customers through Tchibo’s 950 retail outlets by Feb. 1 and aims for 500,000 by the end of 2005.



Regulatory hurdles are the biggest hindrance to the spread of virtual operators, although some markets are gradually opening.



This month, the French operator SFR signed deals with fixed-line operators Cegetel and Neuf Telecom, as well as with German content company NRJ Media for a third-generation offering.



“In Germany the regulators aren’t really permitting this to happen yet,” said Johnny Svedberg, the chief operating officer of Tele2, the Swedish mobile operator, which has 26 million customers on its own and on virtual networks. “In Italy, they have banned virtual operators, so it will take time.”



Björn Löken, director of regulatory matters at Telenor Mobil, the Norwegian mobile operator, said it would take at least two years for the rest of Europe to remove legal hurdles and force network operators to negotiate wholesale resale prices with virtual competitors.



“The equipment has become cheaper and the knowledge one needs to set up a virtual operator can be obtained,” Löken said.



That will be good news for European consumers like Franke, who isn’t doing badly anyway. For signing a two-year contract with Cellway, a unit of the German reseller MobilCom, Franke received a free DVD player and he pays no monthly basic fee. Cellway even pays him €10 each month.



BERLIN Jochen Franke, a German government administrator, likes his cellphone and likes to save money. So a year ago, Franke began phoning his friends using a mobile operator called Cellway.



Franke’s calls do not travel over Cellway’s network but over the airwaves of E-Plus, a German unit of KPN. That is because Cellway is a “virtual” operator: It does not own a network but operates as if it did, buying and reselling air time on other networks.



“It doesn’t matter to me whose network they use,” said Franke, 53, “as long as the calls are cheap.”



Across Europe, experts say roughly 30 percent of mobile users are like Franke, people not focused on state-of-the-art phones or high-speed data but on low fees.



To serve them, a new generation of resellers is spreading across Scandinavia, Britain, and more recently, into France and Germany.



“This is a significant paradigm shift for the mobile phone industry,” said John Strand, the owner of Strand Consult, a Copenhagen-based researcher that focuses on the industry. “What these companies are providing is pure, plain mobile telephony.”



Most of these so-called mobile virtual network operators undercut established rivals by running low-cost, no-frills operations.



Many sign up and bill their customers only over the Internet.



In Hertfordshire, north of London, for example, it takes just 25 people in a second-floor office to run easyMobile, Britain’s newest mobile operator, which began service this month.



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