Price war forecast as Tele2 targets UK

Tele2 has launched itself into the UK telecoms market and claims to be offering much cheaper prices than BT - a charge that the British incumbent rejects

European telecoms operator Tele2 announced on Tuesday that it is launching an assault on the UK market, claiming that its prices will be significantly lower than BT's.

Although only fixed-line voice products will be launched initially, the telco is likely to add Internet access services to its portfolio if it feels sufficient customer demand exists. Analysts have already predicted that Tele2's arrival will spark a price war in the already-crowded UK telecoms sector.

"We have had huge success in rolling out the Tele2 service to 23 countries over the last 10 years, and we are now bringing our low-cost model to the UK," said Lars-Johan Jarnheimer, chief executive of Tele2.

Tele2 is basing its voice products on carrier pre-selection, a process that allows BT customers to make calls using another telecoms operator without having to fit an adaptor to their phone or dial other telephone numbers before making a call.

"The introduction of carrier pre-selection means that alternative telecoms provision is now a viable proposition in the UK, and we are taking this opportunity to launch in one of the most significant markets in Europe," Jarnheimer explained.

A weekday call with Tele2 will cost 2.5p per minute during the daytime and 0.75p per minute in the evening and at weekends. Tele2 claims that these prices are between 25 percent and 80 percent cheaper than BT's.

BT, though, rejects this claim -- insisting that Tele2's comparisons are bogus.

"They are comparing their cheapest prices with our standard rates," a BT Retail spokesman told ZDNet UK, pointing out that the BT Together packages launched in April this year offer substantial savings over standard rates.

"For line rental of £11.50 a month, BT Together option 1 offers a national call at evenings and weekends for a maximum cost of 6 pence for up to an hour. A 59 minute call with this lot at the weekend would cost more than 44 pence, which is seven times as expensive as BT option 1," said the BT Retail spokesman.

Angel Dobardziev, analyst at research group Ovum, has predicted that Tele2 will manage to take market share from the likes of BT, NTL, Telewest and One.Tel, and believes that a price war is inevitable as Tele2 aims to become the second largest operator in the UK.

"Tele2 follows a simple business model, similar to that of the no-frills airlines," explained Dobardziev in a research note published on Tuesday afternoon.

"It is ruthless with its costs, while it is aggressive in its marketing. This has worked in 23 European countries where Tele2 has amassed 20 million customers to date. It is one of the few alternative operators with profitable fixed line operations," Dobardziev wrote, adding that Tele2's "extensive and diverse experience in variety of markets will keep it in good stead once BT and the others respond."