This MAPS report on the mobile telephone market in the UK deals with both the network operators, those who provide the mobile telephone networks as well as the market for handsets, the physical device that is used to receive and make calls. We also look into some peripheral markets that have developed and deal extensively with consumer issues.

The mobile telephone industry is strongly influenced by technological change. As a new technological breakthrough occurs, a new market is often created. For this reason, it is a market of frantic activity and change and some would say even confusion.

Two companies entered a virgin market in 1985, offering customers the chance to make a phone call without needing a fixed connection via handsets that operated through the use of radio waves. These companies, Vodafone and Cellnet, are now the largest in the UK and command the lions share of the market. Originally, they operated using analogue transmission only. Developments in technology however gave rise to the possibility of digital systems, whereby information is stored electronically in numerical form. Vodafone and Cellnet both now have analogue and digital networks, although their analogue networks are substantially larger.

Encouraged by government legislation, two new companies entered the market in 1993 and 1994, Mercury's One2One and Orange. Both these companies operate solely on digital systems, although using slightly different technology to the digital networks of both Vodafone and Cellnet. Although Orange and One2One have only 10.8 percent and 7.6 percent respectively of market share, they are both expanding at a healthy rate.

There were 6,632,100 subscribers to mobile phone services at December 1996 and this figure is still increasing at a healthy rate. For the first 9 months of 1996 however, growth was only two thirds that of the previous year. In autumn and winter 1996 however, growth took an upturn and was more in line with the strong growth of 1995. We can however expect a gradual slow down of the massive growth we have seen recently over the next 4 years, due to the market now approaching maturity.

The digital systems are now growing at a faster rate than the analogue systems. One reason for this is that digital systems facilitate a value added service easier than the old analogue systems such as voice mail, fax and e-mail. Another is that the network operators themselves see analogue technology as out-of-date and are promoting the digital networks as the systems of the future. In the UK, the government is behind this initiative and has suggested that the analogue networks be phased out by the year 2005.

Although still relatively small in size, mobile data is one of the highest potential growth areas of the market at the moment. Mobile data is where the mobile telephone network is used to send information other than voice conversation and can consist of anything from football results to a fax and connection to the Internet. However, the value of revenues brought in from mobile data is estimated to be only around £237 million at present.

Massive growth is expected soon, particularly from the use of both e-mail and short message services (SMS). Short messaging is a new development whereby text can be sent to a mobile telephone handset of up to 160 characters in length.

The method of distribution involves a three-tier system. The large network operators, Vodafone and Cellnet, are forbidden to sell directly to subscribers, so they use a system of companies known as service providers to sell on their networks. In turn, the service providers use dealers to sell directly to the customer. Orange and Mercury One2One are permitted to sell directly, but use a combination of the service provider method of selling and direct selling. Orange, in particular, is developing new methods of distribution, including telemarketing and attempting to reduce the subsidises of handsets, a practice which service providers rely upon heavily to bring in subscribers.

The consumer profile is changing substantially at the moment. Originally, the typical user was the businessman, in particular the businessman who travelled. Now as the market has matured, and mobile telephones have become a part of everyday life, mobile telephones are being used increasingly for personal calls and the 'casual' user. More subscribers now use their mobile telephones for personal use in the UK than for business use. Fifty per cent of subscribers use their phones principally for personal use, 35 percent principally for work, and 15 percent equally for work and private use.

Whilst this may be good news for the overall growth of the market, it is presenting problems for some of the network operators. The number of overall subscribers is growing, the change of consumer profile from high spending businessmen to the personal user who is very much concerned with cost, has significantly reduced the average spend per user.

Although, the network operators in the UK deal on the whole only with the UK market, the situation is different in the handset market. Here, companies deal with a totally international marketplace and the worlds market leaders Motorola, Nokia and Ericsson supply infrastructure hardware as well as manufacturing the individual handsets. Both Nokia and Ericsson are Scandinavian companies, Nokia being a Finnish company and Ericsson Swedish, whilst Motorola is a US company. Japanese companies such as Sony are also becoming more involved in this market. There has been some excitement about the entry of the electronics giant Phillips into the handset market, who hope to take on the three market leaders.

The market for handsets in the UK is somewhat unique in the world in terms of the heavy discounts that the service providers offer on the handsets in order to bring in new subscribers. The service providers receive most of their income from the operators in commission on signing up a new subscriber, as well as for airtime used. Handsets are often sold therefore at a fraction of their normal retail value. Although this is good news for the consumer, it is worrying some network operators who now may wish to introduce more sophisticated, expensive equipment.

There are a number of new markets developing around the mobile telephones market, such as satellite mobile telephones and computermobile telephones. There is presently only one computermobile telephone in existence at the moment, Nokia's Communicator. The Communicator can send and receive faxes, e-mail, browse the Internet and operate as a personnel organiser and mobile telephone. The Nokia Communicator was just entering the marketplace at the time of writing, but MAPS anticipates that there will be much development in this area of the market in the future.