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Will Cheap Cell Calls Rock The Industry?


Flamboyant Greek businessman Stelios Haji-Ioannou, founder of the low-cost airline easyJet, was kicking back on a flight in late 2003 when he hit on his latest venture. His attention was grabbed by a magazine article that compared easyJet to Danish discount mobile-phone operator Telmore, whose no-frills business model fit perfectly into the Haji-Ioannou mold. "I tore out the page and kept it until I could put it into practice," says the 38-year-old entrepreneur, whose London-based easyGroup has launched more than a dozen startups under the "easy" brand, from a dirt-cheap credit card to a budget cruise ship.

On Mar. 10, Haji-Ioannou unleashed his new easyMobile service on Britain -- and the shockwaves are already being felt. Like Telmore, easyMobile aims to attract customers looking for ultra-cheap voice calls and text messaging. Calls to any British network are 11.4 cents a minute, vs. rates often three times higher for full-service operators like Vodafone Group (VOD) and Orange.

Prices are low because easyMobile is as bare bones as it gets in this business. It neither owns nor operates a network, instead leasing spare capacity from Deutsche Telekom's (DT) T-Mobile unit, which is happy to get the extra revenue. It also has no retail stores, no marketing, and a tiny customer support center. EasyMobile doesn't even sell phones. Instead, customers sign up over the Internet and receive a SIM card in the mail with $38 worth of minutes that they slip into just about any handset. Clients refill their accounts through the easyMobile Web site.

Outfits like easyMobile are a new breed of competitor that could shake up the wireless industry as never before. Low-cost "virtual operators" lacking their own networks, such as Richard Branson's Virgin Mobile, have been around for years. But no-frills services like Unity Mobile in Sweden and CBB Mobil in Denmark have taken discounting to a new level, thanks to cost structures that, according to industry analysts, are half that of even Virgin.

These superdiscounters are spreading across Europe. Telmore, which was profitable 18 months after its debut in late 2000, aims to roll out service in 11 countries under the easyMobile name, which it has licensed from Haji-Ioannou. By 2008, predicts Copenhagen telecom researcher Strand Consult, superdiscounters will command nearly one-fifth of Europe's $170 billion mobile market.

SERVICE VS. SAVINGS

Customers may love the cheap rates, but the shift could fuel massive profit erosion for established operators. After Telmore launched its service, a furious battle among Danish carriers drove down voice and text prices by nearly 60%.

Big British operators like Vodafone are so far not dropping rates to counter easyMobile. Better instead to offer extra goodies such as downloadable ring tones, and photo and music services. But smaller players may not be able to resist. On the day easyMobile launched, British virtual operator Fresh, owned by retailer Carphone Warehouse, cut prices 33%, to 9.5 cents a minute. Virgin Mobile, which charges 28 cents a minute for the first five minutes but 9.5 cents after that, has so far held firm. Problem is, both companies have higher overhead than easyMobile, so heavy discounting could hammer their profits. "They will find it hard to keep playing the price game," warns Strand Consult principal John Strand.

EasyMobile has yet another advantage rivals may find hard to match. Its media-savvy founder, known across Europe as Stelios, cultivates a David-vs.-Goliath image. One competitor discovered that taking on the little guy can backfire. France Telecom's (FTE) Orange unit has sued easyMobile for using the color orange in its branding -- even though every "easy" company launched since 1995 uses the same color. The ensuing coverage drove scads of curious consumers to the easyMobile Web site. Score one for the underdog.

By Rachel Tiplady in Paris


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