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European cellular networks are giving every indication that they intend to price gouge their way out of their debt woes, putting lucrative data revenues at risk.

Some extraordinary comments in yesterday's Observer by One 2 One CEO Harris Jones confirm not only that the network wants to phase out phone subsidies for consumers - that's not exactly news - but that he wants phone companies to pursue the model set by the ailing PDA manufacturers.

And his remarks - based on some deeply inaccurate figures - are sure to alarm One 2 One business partners, as they constitute as wayward a strategic statement as we've heard in a very long time.

"There were 25 million Palm Pilot or PDA devices sold in the US last year at prices that were well over £300 and with functionality that was significantly less than our GPRS devices," said Jones. "Why, we ask our selves, should this industry continue to subsidize a product that consumers are willing to pay for?"

Up to a point, Lord Copper.

The wrong number

Palm, which takes the lion's share of the PDA market, shipped only 6.4 million Palm devices worldwide in fiscal year 2001, according to its own figures. Since 64 per cent of its revenues are in the US market, we can assume that the figure shipped in the US itself was around 4 million in the period Jones refers to, pegging the size of the US market at 6 million, at most. (Microsoft optimistically claimed a million sales of WinCE/PocketPC devices in its first year). So Jones is out by around 400 per cent.

Palm claims to have sold 13.7 million devices in its history. In fact, even after adding PDA veterans Psion and Sharp to the picture - who've sold five million and four million devices respectively over the years - it's doubtful if 25 million PDAs have been sold worldwide since the category was created over fifteen years ago.

That's not all. Very few of the PDAs sold last year were priced at $500 plus, as the hapless One 2 One chief seems to think. Gartner estimates the average selling price of Palm PDAs was about half that, at $209.

So on that count, Jones is closer to the truth: he's only 200 per cent out.

But not only did Palm's average selling price fall considerably - the market grew thanks to the $150 low-end models - but it had trouble persuading customers to pay for them. Palm wrote off $500 million dumping excess inventory, and Palm acknowledged in a May conference call that much of the surplus was headed for landfill.

Now the One 2 One chief might be forgiven, perhaps, for getting some figures wrong. But what might alarm his bosses at Deutsche Telekom and One to One's handset partners is his failure to notice that the PDA manufacturers are in deep trouble. Palm's woes have been well documented, and British PDA manufacturer Psion withdrew from consumer PDAs earlier this month.

Jones additional point - he dampened enthusiasm for the packet data services which are the raison d'etre for the more expensive devices - is more likely to reduce demand for phones carrying PDA style price tags. One 2 One is the only British network not to announce a GPRS service, and don't hold your breath.

"What we're saying is that the customer experience is not there," a One 2 One spokesman said today. "It hasn't moved on since WAP over GSM.

"We're not planning to withdraw subsidies, but we can envisage a day where that would be the case," said a spokesman.

The One 2 One chief may be right in that there's a "very strong under-appreciation of the products", but suggesting that the relatively tiny and increasingly unprofitable PDA business model is one that will create a mass market for data makes little sense. ®

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