Mobile phone operators have, for most of their comparatively short lives, been free of regulation. There has simply been no need for intervention in an industry which has often seemed a model of effective competition.

Market rules and a watchdog to enforce them are, after all, a consequence of the liberalisation of traditional telecom markets and the privatisation of telephone operators which were previously state-owned monopolies. They were instituted to ensure that new competitors were not strangled at birth by the power, reach and - possibly unfair - tactics of incumbent operators, and that customers were treated fairly in terms of prices and quality of service.

This hardly applied to the fledgling mobile industry. Incumbent operators had no competitive advantage over their new rivals. Indeed, Mannesmann Mobilfunk in Germany and Vodafone in the UK were able to run rings round the plodding early efforts of Deutsche Telekom's and British Telecommunications' mobile offshoots to establish leadership in their respective markets.

The cost of calls in the early days of mobile was high as operators sought to recover their investment in infrastructure and marketing. As early adopters were, for the most part, businesses who valued mobility for its convenience rather than individuals, this was not a problem.

Prices have, in any case, been steadily falling as a result of market growth, competition and new technology. In the past year, prices across Europe have fallen by more than 40 per cent according to some estimates.

Not far enough for some authorities, however. The UK regulator, Oftel, fired a pioneering shot across the industry's bows in 1998 when it managed to have the cost of calls made to mobile phones on the BTCellnet and Vodafone networks capped, an intervention which it claimed will have saved UK consumers more than £1bn in the three years to 2001.

These controls expire in March 2002, and Oftel is currently consulting with industry and public over whether they should be renewed or discontinued.

An argument for regulation

The issue has become a proving ground for regulation in the mobile business. Oftel argues that because the calling party pays when a call is made to a mobile phone, there is little incentive for operators to cut their charges as it is not their customers who pay for the call. It also argues that customers, whether business or residential, are not concerned by incoming call prices and therefore unlikely to select or reject a network on the basis of these costs.

An eminently suitable case for regulation, then? Not at all, says the opposition which takes as its starting point the fact that mobile telephony is increasingly replacing its fixed equivalent. In some countries up to 70 per cent of calls originate - as well as terminate - on mobile phones.

An informal industry grouping called Investors in Mobile which is campaigning against any extension in regulation in the mobile business, argues: "With more than half of mobile calls in some countries now directed to mobile phones, the cost of calling mobiles is becoming the key area of price competition."

In other words, a zone best kept free of regulation in case competition and investment are damaged.

Examples of the kind of competitive moves operators are making, it says, include 'on-net' price plans, where calls to and from the same mobile network are priced at a significant discount to market prices as a whole. Calls from KPN fixed lines in the Netherlands to KPN mobiles are 10 per cent to 50 per cent cheaper than calls to competitors' mobiles.

The success of these 'on-net' plans has led some operators to experiment with 'off-net' schemes, which allow cheap calls to phones on competitor networks.

The broader issue, however, is the fact that mobile telephony is steadily replacing the fixed variety for most purposes. The mobile industry can no longer expect to be excluded from regulation on account of its youth or its competitiveness. Vodafone, after all, is one of the world's largest companies with enormous market power.

The advent of third-generation (3G) services gives this argument an added force. Regulators will have to be on their guard to ensure consumers are not made to pay unfairly for the ridiculous sums some European operators have had to pay for their licences.

A comparison of prices charged by these operators and their more fortunate competitors - who secured licences at little cost - will be a test of the competitive maturity of the industry.