The battle to retain customers in the UK’s fiercely crowded mobile market has intensified after Orange, the French-owned operator, launched a two-year contract.

The 24-month contract — the UK’s first — is expected to be copied by rival operators.

The contract, launched this week, is the latest weapon in a fierce battle to retain customers in what is one of Europe’s most crowded and fiercely contested markets.

In Britain most people who want a mobile phone already own one and the traditional players are battling not only each other but a host of non-networkowning operators, such as Virgin Mobile.

Churn — the loss of customers to rival operators — has rapidly increased, with the average figure across the sector now in the mid to late 20 per cent range. About five years ago the sector leaders had churn rates of just 15 per cent.

Customers who take up the new contract with Orange, which has 15.3 million UK customers, will be forced to keep their handset for the duration of the deal. They will also be forced to spend a minimum of £35 a month.

Orange said that the contract, which is available to pay-monthly customers, would offer better value for money to loyal customers. A spokesman added that it would reduce the chance of consumers being required to spend beyond their monthly package cost.

Twelve-month contracts have long been the standard in the mobile industry, although increasingly operators have been trying to push 18-month offers.

Longer contracts are one in a series of new measures aimed at luring, retaining customers and encouraging them to spend more.

Vodafone and Orange have recently announced tie-ups with social networking operators that are aimed at helping to distinguish their services from rival operators and at stimulating uptake of more lucative data services.

Orange has tied up with Bebo to offer its 15.3 million UK customers access to the service on the move, while Vodafone has sewn up a deal with MySpace, the website acquired in 2005 by News Corporation, parent company of The Times, for $580 million.

The difficulties of operating in the British market were underlined in a recent update to the market from Vodafone.

A steeper than expected fall in its margin in its home territory in the five months to the end of February, sent its shares tumbling by 4.5 per cent — its biggest daily fall in a year.

It is seeking to reduce its cost base in part through a network-sharing deal with Orange. Nick Read, the group’s UK head, said at a recent investor day that a one-third reduction in base stations could cut costs by up to 30 per cent.

As they seek to reduce costs, mobile operators are also trying to make more sales through their own channels — high street stores and online — rather through middlemen such as Carphone Warehouse.

Operators’ problems are in part the result of the failure of much-hyped “3G” services to deliver the expected return.

Calling cards

Strategies for UK success

Vodafone

— Cost-cutting, e.g through network-sharing deals

— Targeting the small business/entrepreneur market

— Tie-ups with big internet names, such as Google and MySpace

Orange

— Retention tools, such as 24-month contracts

— Push of advertising-funded services.

— Network-sharing with Vodafone

— Move into new areas, such as “free” broadband and television

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