Future's cloudy but definitely mobile

Not since Sid exhorted the public to buy shares in British Gas has there been quite so much hype for a stock market flotation in this country.

And this time it's for a French company. Orange, which has already been on and off the London Stock Exchange once, has spent 25 million pushing those hands with strange orange squares on their palms into what seems like each and every major TV commercial break.

Judging by the fact that more than one million people in the UK, and probably many more in France, Germany and Italy, have applied for a share application form, the hype has paid off. But with the deadline for applications not until 4pm tomorrow we will probably not know the final result until this weekend. Private investors are notoriously fickle. They are being offered shares in the company which is only being partially floated by its new parent France Telecom at a four per cent discount to the price which institutional investors will have to pay. That price will not be announced until Monday morning but it is expected to value the group at 35 billion.

For many the offer may be no more than a stagging opportunity - the chance to buy shares cheap and hopefully sell them immediately dealings start, at a quick profit. France Telecom needs all the money it will raise from this share sale and more, not just to pay back the debt it raised to pay Vodafone 31 billion for Orange, but also to fund all those third generation mobile licences it wants to exploit. The threat that it will sell off more of the 85 per cent of Orange it will continue to own could depress the share price for some time to come. Mobile phone networks used to have a licence to print money but with near saturation of the service isn't there a chance that Orange and the rest of the mobile phone industry is about to go pear- shaped?

WALK down any street, travel on any method of public transport (other than the Tube) or stop at any traffic light these days and it's difficult to imagine a time when people believed that telephones ought to be tethered to the wall, like goats.

According to Oftel, 54 per cent of UK adults now own a mobile phone. That translates into something like 31.8 million people and 68 per cent of households. It's got to the point where people are giving up on the tethered variety altogether - about six per cent of UK homes now have a mobile as their only telephone.

These numbers have been increasing inexorably for years.

The key watershed in Britain was the introduction of prepay systems which opened up the market to consumers who were too young or too poor to have credit cards or bank references.

The result is that two thirds of all mobile users are now on prepay tariffs, which are especially popular with consumers in the lower socio-economic groups - and with the young, with huge numbers of school-age Britons now carrying a mobile phone.

The prepay revolution has given rise to a whole new subculture in which mobile phones serve simultaneously as fashion accessories and personal communicators.

Even the most rundown areas of British cities have shops specialising in "faces" - interchangeable covers for popular phones. And text messaging has reached epidemic proportions among the young. In August last year, for example, more than 560 million SMS (short message service) greetings were exchanged, with a noticeable peak around the time the GCSE results appeared.

The best-selling book this Christmas was not the traditional cookery, gardening or dieting tomes but a dictionary of SMS lingo explaining that THNQ means thank you and BCNU means I'll be seeing you. All of which helps to explain why mobile phone users now spend an average of 21 a month on their habit - which makes the UK mobile phone business worth more than 8 billion a year in call revenues alone.

It's all a far cry from the day in 1990 when Norman Lamont, then Chancellor of the Exchequer, received the biggest cheer of his political career from the House of Commons when he announced a tax on business users of mobile phones.

Then, the devices were regarded as Yuppie toys.

But the mobile's astonishing metamorphosis from pretentious luxury to one of life's essentials has been relentless since, and in the process companies like Nokia and Vodafone have grown into global giants. In the last 18 months, however, some clouds have appeared on the horizon.

FEARS about the potential health hazards of the technology keep surfacing, despite the best efforts of the industry to squash, ridicule or refute them.

The Government has advised that children should use mobiles as little as possible, just to be on the safe side. And network operators are finding it increasingly difficult to get planning permission for transmission masts. A bigger problem is that the market cannot keep growing at its recent pace.

There will come a time when everyone who is likely to buy a mobile phone has purchased one.

And there is a limit to the amount of time even teenagers can spend talking or text messaging. This is what lies behind the recent prediction by Forrester Research, a leading market research firm, that mobile operators in Europe will see a 36 per cent decline in their revenues by 2005, and average revenue per user will fall by 15 per cent. Forrester's analysts claim that mobile carriers' operating profits will disappear in 2007 and take six years to return, leading to major operator business failures and massive industry consolidation.

The industry's riposte to these gloomy forecasts is a simple acronym - 3G.

It stands for third generation - a new technology which will supposedly give mobile phones permanent, fast connections to the internet and enable companies to provide all kinds of fancy services. Video on demand, for example; and m-commerce and location-specific services based on the fact that these new phones will know exactly where they are, enabling entrepreneurs to offer customers local information and bargains.

YOU could be walking through a shopping mall, for example, and suddenly your phone rings telling you that the nearest pub is offering two course lunches for 2.95. You might hear a song on the built-in digital radio receiver and then order an MP3 download of it to your phone. Or use your phone to buy drinks from a slot machine or to pay for car parking.

Exciting stuff, eh? There are only two things wrong with this scenario. The first is that European mobile operators have paid upwards of $150 billion dollars for their 3G licences, and will have to spend as much again to construct the networks.

That's $300 billion before they see much in the way of new revenues.

But the biggest question is whether consumers will be willing to pay for the kinds of services which are technically possible in the brave new 3G world.

Who would want to watch video on a screen not much bigger than a postage stamp, for example? Will people be content to have their every movement tracked by their phones? Will consumers warm to a regime where even a casual stroll down a street involves running a gauntlet of electronic hucksters?

The fact that nobody knows the answers to these kinds of questions is what's causing stock markets to wonder whether mobile phone companies are such sure bets after all.

It's even casting a cloud over the forthcoming flotation of Orange, and to rumours that the launch might be pulled unless the market in technology shares improves.

The future may still be bright, but it might not be orange.

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