Europe's first 3G network service will make cheap flat-rate voice calls a main plank of its challenge to established operators when it enters service in the UK later this year.

According to the Financial Times, Hutchison 3G UK Holdings Ltd, likely to be Hutchison Whampoa Ltd's most important European operating unit, will "significantly undercut" its rivals' voice tariffs as a means of building an early subscriber base, and will probably adopt a similar tactic in its other European operations in Sweden, Austria, Italy, Denmark and Israel.

Although Hutchison UK spokespersons were unavailable for comment yesterday, some have hinted in the past that the company's early market forays would owe more to aggressive marketing of traditional wireless services, than to heavy selling of the advanced data services which 3G is normally associated with.

Certainly, in markets like the UK, where Hutchison has no existing services but the biggest tranche of 3G spectrum, a straightforward strategy of winning market share through price cutting may pay better early dividends than attempting to educate users about new services.

The claims made in the Financial Times, which cited "people familiar with the group's plans", will set alarm bells ringing among Hutchison's rivals in Europe. Companies such as Vodafone, which have put off launching their 3G networks in the face of cost constraints and doubts about the real early demand for 3G, are already being impacted by narrowing margins for voice services. Now they must address the prospect of Hutchison entering the market and accelerating this process, using brand new networks offering greater spectral efficiencies than those of its rivals.

To make matters worse for incumbent wireless operators, Hutchison is expected to launch services in the UK in October or November, at about the same time that its European rivals are likely to begin publicizing new data services, including picture messaging, in the run up to the Christmas buying season.

The established players hope that new MMS-capable, and camera-enabled phones will be a popular choice for Christmas shoppers, seeding the market for concerted push behind next generation data services, including 3G, during the course of next year. Hutchison's arrival in the market, with data services of its own, plus cheaper calls, may dilute the impact of its rivals' campaigns.

However, a lot may depend on the pricing of Hutchison's first handsets. While the company may be prepared to use voice service pricing as a means of prying customers away from established wireless players, it seems unlikely that it will want to equip its new users with 2G or even 2.5G phones.

Instead, it will have to persuade them to buy expensive dual-mode 3G phones, which will either come to market for around $700, a prohibitive price point for most users, unless Hutchison is prepared to offer them at a generously subsidized price.

© ComputerWire