Payphone operators around the world are fighting falling revenues as mobile phones provide a competitive alternative. It is happening not just in the UK and continental Europe but also in Japan and the US.

Operators are reacting to the threat in different ways. In October, British Telecommunications doubled the minimum cost of using its payphones - following a 37 per cent fall in revenues in the preceding two years - and introduced charges for calls to directory inquiries from them.

Susan Thairs, managing director of researchers Teligen (formerly Eurodata), says BT is also cutting down on the number of phone boxes. Les King of BT Payphones disagrees: "BT had 141,000 payphones in 1999 and it has 141,000 now."

"With measures like these, as well as the introduction of new services, BT hopes to control costs and hold payphone revenues at their current level," according to Ms Thairs. "BT's costs for maintaining phones boxes haven't changed much, but cash and phonecard revenues from payphones have fallen," she says.

The reason is competition from prepaid mobiles which, according to Malcolm Newing, director of BT Payphones, "are used by the same people that account for the majority of payphone calls - predominantly youths through to adults in their 20s and 30s."

Phonecard revenues are falling because people who mainly use a mobile are reluctant to spend large sums on a card when they want to make a single call. The same trends of prepaid mobile success and declining sales of prepaid phonecards can be seen across Europe.

Yet BT is one of the few European telcos to have increased payphone charges recently. Ms Thairs says: "Looking at comparative charges across Europe, BT's prices are at the high end of the averages. But Italian prices are even higher."

According to Teligen, one minute of national off-peak payphone use, excluding VAT, costs E0.20 in France, E0.32 in the UK, E0.41 in Italy, and E0.20 in Germany.

Payphone pricing is a bit of a political hot potato as, in addition to the youth market, payphones are mainly used by lower-income households. When BT raised its minimum payphone charge from 10p to 20p, it drew complaints from the Telecommunications Users' Association (TUA), which said it was amazed that BT should use competition from mobile phones as a reason to put up prices, adding that: "BT complains that the payphone is not profitable but it is obliged to provide a universal service."

Political sensitivity may explain why few incumbent operators have increased their payphone charges recently, although price hikes could be on the way as they seek to offset declining revenues.

Even new entrants are not immune. BT payphone rival NWP Communications also raised its minimum charge to 20p in the face of falling payphone revenues. And it has diversified into mobile phone distribution, which now accounts for the majority of its revenues.

But the good news for payphone users is that because their main competition is mobiles, prices are unlikely to rise much higher than mobile tariffs.

Ms Thairs says: "BT's prices are very, very carefully worked out vis-a`-vis prepaid mobile packages. They need to be, because there are a lot of clever consumers who use their mobiles only when they get off-peak rates and use payphones at other times.

"For example, BT's price for sending text messages to mobiles from its new text message and e-mail phone is 10p, about the same price as from a mobile," says Ms Thairs. "And it will cost 20p to send an e-mail."

Text messages

In Germany, Deutsche Telekom is bundling text messages with payphone internet access in the hope of increasing revenues. Japan, which has more payphones than anywhere else in the world, is also looking at how to curb costs and arrest falling revenues. Ms Thairs says: "NTT wants to persuade the government to let it close a lot of phone boxes."

However, there is much more of a tradition of payphone use in Japan, according to Teligen. People tend to pop in to a call box more readily in the middle of a shopping trip than Britons, who are likely to wait till they get home unless a call is urgent.

This tradition could mean the Japanese would be receptive to innovative payphone-based services.

"A lot of Japanese payphones can accept multi-purpose smart cards, which could be used to dispense rail tickets or for electronic purse applications," says Ms Thairs. Such services could help to extend the life of payphones.

BT's Mr Newing believes the threat to payphones from mobiles is a worldwide problem. Yet as BT points out: "Payphones make a fundamental contribution to public safety and continue to provide a valuable public service, which we wish to maintain; however, this is increasingly dependent on finding and developing new sources of revenue, such as advertising."

One of these new sources will be making phone boxes available to mobile phone operators for low-powered, localised transmission capacity to fill gaps in their existing networks or for third- generation mobile.

Ms Thairs is confident that payphones won't disappear overnight. "There are a still a lot of questions over third-generation mobile and data services and when they're going to arrive," she says.

"And there are many rural areas where it is difficult to get a mobile signal. So it will be more of a gradual retreat than a disappearance."