Sir Giles Gilbert Scott's red telephone box was once as much a symbol of Britain as the black London taxi or Big Ben. The 1930s design was one of the most distinctive sights on the landscape of the country.

When British Telecommunications began withdrawing the red box in the 1980s it could not have known that the demise of the red box was the end of the golden era of the payphone.

Widescale mobile phone ownership has hit the payphone sector hard, especially as prepaid mobiles were targeted at less affluent, younger people who were more likely to use payphones.

A report last November by Oftel, the UK telecoms watchdog, on the usage of payphones found that just 12 per cent of the population used a payphone each month, raising a serious question over whether a network is needed.

The demographics of usage found by Oftel, however, explain why the maintenance of a payphone network is considered an important public service.

The most frequent users of payphones are those without a fixed line in their homes, at 32 per cent of users, while 15 to 24-year-olds account for 26 per cent, and those living in rented accommodation 20 per cent. The largest social grade of users is the DE group.

Cheaper calls

Despite having usurped the payphone, however, mobile phone ownership is not seen as a bar to usage. Oftel found mobile phone users often use payphones when they think it is cheaper, for more important calls where there may a danger of being disconnected, or when their credit or battery has run out.

But payphone revenues are falling. BT's Payphone division has seen a 37 per cent fall in revenues in the past two years, halting the expansion of its network at 141,000 payphones, and raising the prospect of a rationalisation of it.

Malcolm Newing, director of BT Payphones, is the man with the task of maintaining a network that forms part of BT's universal public service obligation, while finding ways to make the business pay.

"Payphone is definitely profitable, but heading for a situation where if we were not doing the types of things we are doing now, it will not be," he says. And despite its universal service obligation, BT is at liberty to remove any payphone, provided it can reach agreement with the local council. This suggests that phones without high usage, such as those in rural areas, may be at risk.

But Mr Newing and his team are working to ensure that does not happen. The company has already doubled the minimum price of a call to 20p and is working on a series of other measures to keep payphones in the black.

While Mr Newing says the company's first priority has been to pare back its costs, its more innovative ideas have come in the area of revenue generation. "We have a huge amount of real estate and we have been looking at what we can use it for," he says.

A first innovation was to deck the glass boxes out with advertising. This has been a success, partly because the advertising is highly visible, but also because a special material has been used to overcome concerns that safety could be at risk if people could not see in or look out.

Then last month, in a move rich with irony, BT announced it would allow mobile network operators to place low-powered transmitters on phone boxes, enabling them to boost local network capacity.

"Putting micro mobile stations in the roof will help them with black spots and give them support for 3G networks," says Mr Newing.

BT's proposition is all the more attractive because it removes the need for the operators to put up larger masts, considered by many to be a potential health risk, as well as unsightly. BT says "several" network operators have expressed an interest.

But as with the red boxes, however, many see the voice payphone as yesterday's story, and attention and resources are increasingly being targeted at developing a network of multimedia kiosks offering internet access and e-mail.

Simon Gould, managing director and founder of Web Point, which provides 120 coin-operated kiosks offering full internet access in competition to BT Payphones and others, has seen demand grow for the kiosks in the past 18 months. "Initially it was seen as an amusement, but now the functional tools have become the reason for use, and we are seeing take-up of it grow in much the same was as the internet," he says. Web Point now has about 40,000 users per month.

"We are also finding we have 35 to 40 per cent repeat users which means there is still a lot of room for growth in new users out there."

Web Point has signed deals with Railtrack, BAA and Virgin Megastores to place kiosks in their locations, as well as selling them to drop-in centres and youth centres where access is provided to those who do not have the web at home or work.

Web Point is already introducing broadband services into kiosks and is also looking to incorporate emerging wireless technology, such as Bluetooth, which will allow kiosks to communicate with mobile phones.

With increasingly sophisticated technology available, the death of the telephone box may have been exaggerated. But if it is around in 20 years time, Sir Giles may not recognise it as a descendant of his magnificent red box.