SMS price war could hit UK

A war over the price of SMS text messages in the Netherlands could be replicated in the UK and even lead to a fiercer division between operators that choose to target businesses and those that focus on consumers.

The Dutch mobile market is one of the most competitive in Europe, with 10 mobile virtual network operators - or MVNOs - as well as five facilities-based cellular providers and growth of 14 per cent in 2003, as measured by Opta, the country's regulator. However, consultancy Current Analysis reckons price cuts in recent months on SMS messages for pre-pay customers could spread to the more valuable post-paid sector - with serious consequences.

"It's not surprising this is happening," said Current Analysis wireless analyst Emma McClune. "MVNOs tend to target the pre-pay market, offering no frills service - mobile's version of Ryanair."

The worrying thing is that after spending some time trying to reduce customer churn and stabilise their market, leading Dutch operators such as KPN Mobile and Telfort have slashed their per-message rates, from €0.23 to €0.09 this month in the case of the former. One MVNO quickly responded with a €0.04 per message offer.

The Netherlands, Denmark and Sweden - where similar price wars have raged - are among the most saturated markets in the world. As such, McClune sees a similar situation developing in the UK.

"The UK is vulnerable," she added.

But with the rise of MVNOs unlikely to abate - the UK counts Virgin Mobile and services from retailers such as Sainsbury and Tesco in these ranks - operators are working out their possible responses.

Some will set up their own no-frills, web-based offerings - a bit like BA starting up Go!, to return to the airline analogy.

Others will increasingly look to the enterprise market, where SMS messages are more likely to form part of high-value bundles, and more complex data and voice arrangements are usually beyond MVNOs, whose core business isn't mobility.

A research note by McClune concluded: "Should a price war develop to its logical conclusion - that is, the innovation of an entirely free SMS service - operators are vulnerable to the tune of 10 per cent of their entire service revenues."