Thailand's mobile phone market has grown beyond expectations, reaching nearly 18 million users, more than 70% of them on low-margin pre-paid plans, at the end of 2002.

Kanya Setwong, a sales clerk at the Kusuma Shop in Muak Lek, Saraburi, makes a phone call from an Orange phone to a friend.

Market leader Advanced Info Service has 11 million customers, against 5.5 million for DTAC, while nine-month-old TA Orange was closing in on 1.2 million at year-end.

At the end of 2001, the country had 7.5 million cellular subscribers.

But while subscriber numbers soared, industry executives were enduring sleepless nights amid concerns that the market was reaching saturation.

Industry experts have projected a total mobile phone market at 20 million in 2003 or about 32% penetration. If the projection pans out _ the big operators insist it is too pessimistic _ a lot of energy and investment will be expended chasing just two million new customers.

Grant Ferguson, DTAC's chief financial officer, is among those who expect robust growth to continue, though the nature of competition is changing as the market grows more sophisticated.

He projected four to five million new users would be added to all systems in 2003. Other operators believe the saturation point is still two to three years away.

A major catalyst to the market boom in 2002 was the removal of all phone locks or International Mobile Equipment Identity (IMEI) codes by the service operators, first by DTAC and followed by AIS.

The locks on phones and Sim cards had prevented customers from easily migrating from one system to the next.

The removal threw the handset market, long been monopolised by network and service operators, wide open.

DTAC had reason to make the daring move first. It was looking to counter TA Orange's soft commercial launch in March when some handsets were offered free while more expensive models were half-price.

DTAC was also seeking to restore its image after a nasty public spat with the Telephone Organisation of Thailand over unpaid access charges. Many DTAC customers switched to other services, fearing that TOT would cut off access to its network. DTAC finally relented on the charges, but new customer growth slowed for a few weeks.

``Unlocking IMEI brought us out of troubled waters,'' said Wanna Swuddigul, DTAC's marketing group director, claiming that the response from customers had been positive, with handset sales returning to pre-dispute levels of approximately 60,000-70,000 monthly.

With operators no longer calling all the shots, independent handset distributors can import cheap units to compete with the brand-name models, bringing down prices and making cellular service almost universally available.

As if to underscore the way the market had changed, local newspapers reported the arrest of a beggar who had a mobile phone to communicate with other members of her team.

The three main operators, meanwhile, are hoping to head of further competition from two newcomers: Thai Mobile, a joint venture of TOT and the CAT; and the CDMA 1X service operated by Hutchison CAT Wireless Multimedia, a joint venture of Hong Kong-based Hutchison.

Huge customer bases have come at a high price. Operators can no longer rely on fat handset margins to subsidise airtime promotions, and they have found that pre-paid services generate far less revenue per number than post-paid plans.

They said pricing strategy would now have to be de-emphasised in favour of better service quality and customer care.

The main challenge will be to increase revenue per line through services such as messaging and data, made possible by GPRS technology that will increase transmission speed and user-friendliness.

Short messaging service has ben a boon to the industry, and hopes are high that multimedia message service (MMS) will catch on in a big way. Also highly popular are ringtone and graphics downloading services, while mobile gaming holds promise, along with downloading of music through alliances with major local providers such as GMM Grammy.

AIS projected non-voice services would generate six billion baht in 2003, while DTAC projected two billion to three billion baht. TA Orange said that non-voice revenue would jump to 10-15% of its total revenue in 2003, from 1% at present.

Still, heavy competition squeezed the earnings of most telecom firms, notably in the third-quarter of 2003. AIS delivered the largest net profit, at about three billion baht for the quarter, but analysts said they were cautious about the company's outlook going forward.

``The competition is a major risk,'' said Prasit Sujiravorakul of Capital Nomura Securities. The communications index, the worst-performing sector in the Stock Exchange of Thailand in 2002, was languishing near four-year lows, having shed 22% versus a 16% gain in the overall market, he said.

Cellular competition, which intensified after the launch of TA Orange in March, forced operators to sacrifice their margins for market share in a crippling price war, slashing handset prices and charges, he said.

In addition to retaining their customer bases, operators also are expected to pay more attention to untapped growth in the provinces in 2003, since most of the attention in 2002 was focussed on the Bangkok market.

TA Orange has been especially aggressive in the provinces, where cellular penetration is still low at 10% of the population, compared with more than 30% in Bangkok.