Well it was good while it lasted. Years of incredible growth in the mobile telephone sector look to be over. Call it market saturation, phone-fatigue or another sign of hard times, but the number of new customers is ebbing. Considering the blistering pace of growth over the last two years a slowdown was inevitable. Hong Kong has one of the world's highest penetration rates with 33 per cent of the population owning mobile telephones. But operators had bet on at least 50 per cent, representing another one million customers. That was always ambitious, despite Hong Kong's passion for mobile phones. Income distribution remains highly unequal, placing even cheaper services out of the range of many. Still, with an average 90,000 new subscribers signing up each month the omens were good. However, Government figures show that just 27,000 customers signed up in February. This comes at a time of fierce competition with PCS (personal communications services) operators grabbing market share in the high-growth, low end of the market. What is interesting about the February figures is that tariffs look to have bottomed after falling precipitously. Late last year saw new PCS operators slash prices in order to grab customers. Realising billion-dollar-network roll-out plans had to be financed, such largesse could not be maintained. Last month saw a number of operators actually raise prices. While February is traditionally a slow month due to the Lunar New Year holiday the trend seems clear enough. What is more, the value of new customers may be declining as independent distributors sell multiple SIM (subscriber identification module) cards allowing users to simply pick and choose which network they use. The leading operators have enjoyed fabulous margins. However, tariffs for GSM (global system for mobile communications) operators are slipping and the business has effectively gone ex-growth. The game is a defensive one as operators try to hold on to subscribers without giving too much away. Product differentiation through value-added services remains the strategy. For Hutchison Telecom, Hongkong Telecom and SmarTone new business will be found among PCS customers. Hutchison has the greatest pricing power with three networks. Telecom claims to have signed up record new subscribers last month for its One2Free service but its Pacific Link acquisition is reportedly bleeding customers. SmarTone has maintained relatively strong GSM growth but is pitching its new PCS network about 40 per cent above Hutchison's comparable services. So how will the market look a year or two hence? While Peoples Phone and Mandarin Communications are both about the 100,000 subscriber mark, the big three will dominate. So long as growth is maintained they will protect GSM margins and chase new customers through PCS. Government consultants forecast up to 70 per cent penetration early next century. Should this optimistic scenario play out the two-tier market will be maintained. Yet, with dual-band PCS-GSM phones soon to arrive the big three will eventually cannibalise services into a single product with users roaming between networks. Looking forward, new growth is promised by the arrival of so-called third-generation mobile phones offering video conferencing and high-speed internet access for personal computer users. What is more, the nature of running mobile networks means the best years could be yet to come. Once network building costs are fully depreciated, running expenses are small next to the huge cash flow generated. Of course, all operators are looking to export experience learned in Hong Kong to the mainland which has yet to develop PCS networks. As technologies converge and operational complexities become more important than simply building networks SmarTone, Telecom and Hutchison Telecom should be well positioned. Best of all, Hong Kong will keep turning out the cash.