This sums up much of my thinking - I hold a few and swing trade a few and even trade intraday sometimes ......

I think there is a lot of slack that management can cut out of the costs and would also anticipate sector consolidation ..... good value currently and have been holding their own in a falling market. Lot of US interest.

ains


Edited by Dominic White
(Filed: 08/02/2003)


Texting makes MmO2 sexy but it's also risky

More and more Britons are discovering the joys of textual intercourse. In the month of December, we fired off more than 50m mobile messages a day, and next Friday (that's Valentine's Day, folks, in case you'd forgotten) we'll send considerably more than that.



It emerged this week that the chief beneficiary of this craze is MmO2 . BT's former mobile phone division revealed that it gets a higher proportion of revenues from texting than any of the other three operators.

Revenue from messaging grew at its fastest rate ever in the last quarter, up 19pc, and data services as a proportion of MmO2 's revenue rose to 17.7pc from 15.6pc.

More good news was the rise in MmO2 's average revenues per customer. ARPUs, as nerdy analysts like to dub them, grew by 5pc to 243 in the UK and by 9pc in Germany to 212.

MmO2 now has 19.1m subscribers and in Britain it may be the smallest player, with 11.9m users, but it is growing faster than its rivals - testament to the success of its rebranding from BT Cellnet.

Only 114,000 of its 503,000 new UK subscribers were higher-spending contract customers, but MmO2 claims its pre-pay customers have started spending more than before.

Customer growth in Germany, which continues to be dominated by T-Mobile and Vodafone, is less impressive and the MmO2 share price ascribes little or no value to this part of the business.

That seems unfair, given the fact that the group has attracted higher-spending customers and has made a decent fist of turning the operation around. An eventual sale or merger is almost as inevitable as a disposal of the Dutch unit, which is losing customers.

MmO2 's larger rival Vodafone is trading on a free cashflow yield of 6pc, while at 49p this week, MmO2 's equivalent valuation remains negative. It might not have Vodafone's scale or profitability but there is room for upside. A risky buy.

L2 for VOD & OOM? Mkts improved after BOE announcement & EON inc 2003 forecasts.

Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (44.00%) 11 (55.95%) 1,996,489 56.53 - 57.50 1,571,740 (44.05%) 14 (56.00%)
5% (35.90%) 14 (51.30%) 2,777,823 56.38 - 57.71 2,637,065 (48.70%) 25 (64.10%)
10% (40.63%) 26 (55.35%) 3,931,871 55.95 - 57.90 3,171,227 (44.65%) 38 (59.38%)
15% (42.47%) 31 (49.17%) 4,032,071 55.88 - 58.47 4,168,870 (50.83%) 42 (57.53%)
50% (44.30%) 35 (55.23%) 5,204,514 54.70 - 58.55 4,219,562 (44.77%) 44 (55.70%)
100% (46.99%) 39 (55.34%) 5,229,534 54.62 - 58.55 4,219,562 (44.66%) 44 (53.01%)
all (46.43%) 39 (55.32%) 5,229,534 54.62 - 58.63 4,223,562 (44.68%) 45 (53.57%

Thanks. Can you provide L2 for VOD also. OOM is very strong. Your very fortunate.

Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (57.95%) 51 (51.51%) 8,619,687 122.86 - 123.93 8,113,201 (48.49%) 37 (42.05%)
5% (60.16%) 77 (56.33%) 11,664,314 122.51 - 124.07 9,041,972 (43.67%) 51 (39.84%)
10% (52.02%) 116 (56.27%) 18,264,060 121.40 - 125.32 14,194,100 (43.73%) 107 (47.98%)
15% (54.26%) 172 (57.06%) 25,471,044 119.65 - 127.05 19,166,402 (42.94%) 145 (45.74%)
50% (57.44%) 220 (57.34%) 27,065,764 118.86 - 127.67 20,133,986 (42.66%) 163 (42.56%)
100% (56.13%) 238 (57.32%) 27,352,628 118.61 - 128.02 20,366,276 (42.68%) 186 (43.87%)
all (55.22%) 238 (57.28%) 27,352,628 118.61 - 128.30 20,401,472 (42.72%) 193 (44.78%






Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (57.69%) 15 (60.18%) 1,830,620 56.78 - 57.56 1,211,241 (39.82%) 11 (42.31%)
5% (46.34%) 19 (53.95%) 2,709,659 56.54 - 57.77 2,312,419 (46.05%) 22 (53.66%)
10% (45.16%) 28 (58.74%) 3,589,997 56.11 - 57.91 2,521,849 (41.26%) 34 (54.84%)
15% (47.95%) 35 (51.40%) 3,722,386 56.02 - 58.58 3,519,492 (48.60%) 38 (52.05%)
50% (49.37%) 39 (57.82%) 4,894,829 54.72 - 58.67 3,570,184 (42.18%) 40 (50.63%)
100% (51.81%) 43 (57.95%) 4,919,849 54.64 - 58.67 3,570,184 (42.05%) 40 (48.19%)
all (51.19%) 43 (57.92%) 4,919,849 54.64 - 58.77 3,574,184 (42.08%) 41 (48.81%)

The US figs just released were quite bad, especially PPI Shows Biggest Drop In 56 Years. How has that affected L2 now for VOD & OOM? Hopefully mkts have recovered from initial shock inline with US Futures appearing to return to previous session highs. :)

US futures and out markets are improving .... talk tends to be bullish today. sector is up over 1.5%



Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (46.67%) 35 (47.56%) 7,604,179 123.37 - 124.25 8,384,544 (52.44%) 40 (53.33%)
5% (54.62%) 65 (55.01%) 12,073,912 122.91 - 124.49 9,876,439 (44.99%) 54 (45.38%)
10% (49.33%) 110 (54.47%) 18,772,896 121.86 - 125.92 15,690,357 (45.53%) 113 (50.67%)
15% (54.07%) 166 (58.33%) 26,869,928 119.94 - 127.19 19,196,676 (41.67%) 141 (45.93%)
50% (57.22%) 210 (58.54%) 28,434,252 119.19 - 127.79 20,142,060 (41.46%) 157 (42.78%)
100% (56.52%) 234 (58.55%) 28,779,264 118.92 - 128.14 20,374,348 (41.45%) 180 (43.48%)
all (55.58%) 234 (58.51%) 28,779,264 118.92 - 128.43 20,409,544 (41.49%) 187 (44.42



Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (54.17%) 13 (61.06%) 1,970,640 56.72 - 57.48 1,256,786 (38.94%) 11 (45.83%)
5% (43.59%) 17 (58.61%) 3,326,252 56.47 - 57.73 2,349,121 (41.39%) 22 (56.41%)
10% (43.33%) 26 (62.18%) 4,206,590 56.12 - 57.86 2,558,551 (37.82%) 34 (56.67%)
15% (46.48%) 33 (54.96%) 4,338,979 56.04 - 58.54 3,556,194 (45.04%) 38 (53.52%)
50% (48.05%) 37 (60.44%) 5,511,422 54.89 - 58.63 3,606,886 (39.56%) 40 (51.95%)
100% (50.62%) 41 (60.55%) 5,536,442 54.81 - 58.63 3,606,886 (39.45%) 40 (49.38%)
all (50.00%) 41 (60.53%) 5,536,442 54.81 - 58.73 3,610,886 (39.47%) 41 (50.00%)

Thanks. Can you provide L2 for OOM & VOD also. OOM is very strong! Your prediction?

58p + at this time



Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (54.46%) 55 (44.17%) 8,895,275 123.30 - 124.59 11,241,459 (55.83%) 46 (45.54%)
5% (55.63%) 79 (47.40%) 12,375,008 122.95 - 124.81 13,733,354 (52.60%) 63 (44.37%)
10% (48.80%) 122 (47.93%) 18,244,792 122.02 - 125.88 19,818,172 (52.07%) 128 (51.20%)
15% (53.29%) 178 (53.04%) 26,341,824 120.01 - 126.93 23,324,490 (46.96%) 156 (46.71%)
50% (56.35%) 222 (53.48%) 27,906,148 119.24 - 127.44 24,269,874 (46.52%) 172 (43.65%)
100% (55.88%) 247 (53.56%) 28,253,560 118.97 - 127.73 24,502,164 (46.44%) 195 (44.12%)
all (54.99%) 248 (53.52%) 28,253,560 118.97 - 127.97 24,537,360 (46.48%) 203 (45.01%



Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (55.56%) 15 (60.47%) 2,668,310 57.44 - 58.20 1,744,553 (39.53%) 12 (44.44%)
5% (57.89%) 22 (68.50%) 4,682,788 57.24 - 58.34 2,153,805 (31.50%) 16 (42.11%)
10% (53.97%) 34 (67.31%) 6,994,190 56.86 - 58.98 3,396,678 (32.69%) 29 (46.03%)
15% (60.00%) 45 (69.24%) 7,680,279 56.63 - 58.99 3,411,678 (30.76%) 30 (40.00%)
50% (60.49%) 49 (71.89%) 8,852,722 55.83 - 59.08 3,462,370 (28.11%) 32 (39.51%)
100% (62.35%) 53 (71.94%) 8,877,742 55.78 - 59.08 3,462,370 (28.06%) 32 (37.65%)
all (61.63%) 53 (71.92%) 8,877,742 55.78 - 59.19 3,466,370 (28.08%) 33 (38.37%)

the shares rose 1p to 56p after the influential US research house Sanford Bernstein upgraded to "buy" and set an 85p target price. After exiting the Netherlands, and securing a 3G network sharing deal in Germany, Bernstein reckons mmO2 is now a viable stand-alone business with a bright future.

As suggsted we closed at over 58p ..... which was nice and expect an attack on 60p today


This was first talked about yesterday ....



Mobile operator seeks VAT refund
By Dominic White (Filed: 16/05/2003)TELEGRAPH


At least one of Britain's five mobile operators has approached Customs & Excise saying it wants a VAT refund on its third-generation licence, after the Radio Communications Agency refused to provide it with a VAT invoice.

All five operators are considering launching claims for refunds totalling 3.9 billion because they think the 22.5 billion they paid in licence auctions three years ago included 17.5pc tax.

The Government has maintained that the sale of licences was VAT exempt, but the operators are attempting to use an obscure European tax directive to prove that VAT was in fact levied and they can claim it back.

Experts doubt they will be successful and say any claim could take years. Operators are bound to meet stiff opposition from the Treasury, whose finances are already stretched.

The operators are following similar moves elsewhere in Europe. In Germany, where the licence auctions raised 30 billion, Dutch operator KPN is calling on the government to provide a VAT invoice.

Paddy Behan, a VAT specialist at accountants Grant Thornton, said: "This will be difficult for UK players to get off the ground but, in practical terms, if the operators in Germany or Holland are successful the UK would probably have to follow it because VAT is harmonised across Europe."

No operators would comment but some are taking the possibility of a claim more seriously than others.

Europe's VAT principles say that VAT should not generally apply to public authorities such as the Radio Communications Agency, which received the money for the licence.

But it also says if an authority engages in certain activities, including telecoms, VAT must be charged. Experts say the debate will centre on whether the licence auctions constituted a "telecoms activity".

L2? OOM's v.strong & has held above 58 this morning. US needs to be weaker for it to fall! Did you topup or offload yesterday or what price are you holding out for?

Still holding my full number and looking for 60p + with a fair wind. US nas off 3.5 points at this time but it is Friday. Lots of good news around for 00m and sentiment is improving.

Sector plus 0.48%



Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (38.46%) 5 (32.48%) 760,409 58.33 - 59.07 1,580,500 (67.52%) 8 (61.54%)
5% (35.29%) 6 (31.36%) 934,612 58.22 - 59.19 2,045,500 (68.64%) 11 (64.71%)
10% (28.00%) 7 (20.24%) 950,412 58.20 - 59.81 3,745,515 (79.76%) 18 (72.00%)
15% (34.48%) 10 (28.37%) 1,489,301 56.67 - 59.82 3,760,515 (71.63%) 19 (65.52%)
50% (40.00%) 14 (40.76%) 2,621,886 54.32 - 59.88 3,811,207 (59.24%) 21 (60.00%)
100% (46.15%) 18 (40.99%) 2,646,906 54.16 - 59.88 3,811,207 (59.01%) 21 (53.85%)
all (45.00%) 18 (40.96%) 2,646,906 54.16 - 59.98 3,815,207 (59.04%) 22 (55.00%)

Volumes are high this morning with 14 million shares traded already - always a good sign on a plus day


ains

We are at the 60p threshold


02:00 AM May. 16, 2003 PT

Being part of the "in" crowd for teens used to mean hanging out where the cool kids were -- the mall, the house party, the rave.

Now all they have to do is be within cell-phone range.

She's Gotta Have It: Cell Phone

The cell phone has become a primary mode of socializing for teens and they will often avoid contact with peers that don't have cell phones, according to a study by Context. The Baltimore company uses anthropologists to study consumer trends.

"Next time a teenager says, 'Mom if I don't have a phone,' or 'Dad, if I don't have a phone, I'm going to be a nobody,' they are being serious," said Robbie Blinkoff, Context's principal anthropologist.

Blinkoff and his colleagues studied the behavior of 144 cell-phone users between the ages of 16 and 40 from several countries and found that teenagers were so immersed in the technology that they often saw little difference between meeting face to face and talking on the phone. A common scene they observed was a group of teenagers sitting together -- all with ears glued to cell phones -- talking with faraway friends rather than to each other.

In the study, teens who had no cell phones and whose numbers were not included in someone's phone book could pretty much write off the possibility of speaking with any of the teens with cell phones, a group Blinkoff refers to as "mobiles."

While saying he didn't think the cell-phone-toting teens were intentionally acting rude, he said he suspects that a new kind of "digital divide" has been created, similar to the gap among PC haves and have-nots.

Blinkoff said "mobiles" represent a class of people who are heavy users of wireless technology such as cell phones and wirelessly enabled laptops and personal digital assistants.

"If you don't use the technology, you are not part of the class," he said. "If you are not a name or number on my phone book, then you are not on my radar screen."

For teens, this behavior is completely normal and acceptable, the authors of the Context study said. Wireless industry analysts also weren't surprised by the group's findings.

Not having a cell phone is "like having last year's sneakers," said Seamus McAteer, principal analyst at market research and consulting company Zelos Group. "It's a social faux pas for kids."

In the adult world, however, what's considered "rude" cell-phone use has created a backlash.

Most recently, New York City passed a law that fines people whose cell phones ring in "places of public performance." And as Context observed in its study, a myriad of stores and places that wish for silence, such as libraries and movie theatres, tend to stick threatening signs asking patrons to turn off their phones, or better yet, to not bring them in at all.

"I don't think that the cell phone is causing us to be rude," said Paul Dittner, an analyst with market research firm Gartner Dataquest. "It's just another opportunity to create norms and accepted behavior."

New York state and a handful of cities in the United States now ban the use of cell phones while driving, as do a handful of countries, including Israel, Great Britain and Italy.

Alan Reiter, president of consulting group Wireless Internet & Mobile Computing, said "antisocial" behavior because of technology has existed since the beginning of civilization.

"I bet you can find an academic source who can point to rudeness in the Roman and Greek era," he said. "'I have a chariot and you don't.'"

But adults, like the teens, find themselves tied to their mobile phones, according to Context. Parents are just as guilty as their teenage kids of accepting cell-phone calls during dinner, the study said.

Business decisions are often made over cell phones from anywhere, including the dinner table. Much tardiness at meetings can now be blamed on cell phones when users feel they can quickly call and say they are running late.

And almost everyone -- including those whom the Context study considers moderate cell-phone users -- felt anxious during the phase of the study -- termed "deprivation" -- that required them to give up their phones for a few days.

"The people who had become a part of the mobiles group had a hard time doing deprivation at all," Blinkoff said. "They couldn't do it at all."

Mobile operators set for VAT dogfight
By AccountancyAge.com [16-05-2003]
Mobile operators that bid for 3G licences are taking steps to reclaim an estimated 3.9bn in VAT from Customs & Excise, but are facing a long hard fight as the government tries to hold onto falling tax revenues.
Link: Mobile providers will fail
The mobile operators, most of whom are crippled by massive debts from bidding for and paying for the licences, must prove that VAT was included in the auctions to win a rebate.

According to the FT, they have now written to the Radio Communications Agency, the body which sold the licences, demanding copies of VAT invoices.

One operator, Dutch telecom KPN, has already been told by the RCA that the auction did not include VAT.

What L2 like, strong support. Have you offloaded? or what price will you sell at?

stil holding but could trade a few before close



Buy orders Sell orders
Num(%) Num Vol(%) Vol VWAP Vol Vol(%) Num Num(%)
1% (92.31%) 12 (99.56%) 2,230,462 59.75 - 59.50 9,820 (0.44%) 1 (7.69%)
5% (51.72%) 15 (56.27%) 2,863,333 59.59 - 60.43 2,225,297 (43.73%) 14 (48.28%)
10% (58.14%) 25 (60.82%) 4,344,446 59.14 - 60.60 2,798,209 (39.18%) 18 (41.86%)
15% (55.10%) 27 (62.51%) 4,858,335 58.60 - 60.77 2,913,901 (37.49%) 22 (44.90%)
50% (56.00%) 28 (62.63%) 4,883,335 58.57 - 60.77 2,913,901 (37.37%) 22 (44.00%)
100% (60.71%) 34 (63.70%) 5,113,355 58.12 - 60.77 2,913,901 (36.30%) 22 (39.29%)
all (59.65%) 34 (63.67%) 5,113,355 58.12 - 60.89 2,917,901 (36.33%) 23 (40.35%)

reuters


BT (LSE: BT.L - news - msgs) , MMO2 RESULTS

Europe's fifth largest mobile phone company mmO2 , increasingly seen as a takeover target, reports first half numbers, while BT will also update investors.

Analysts polled by Reuters expect BT to show full-year underlying pre-tax profit at between 1.784 billion and 1.835 billion pounds up from the previous year's 1.273 billion.

Darren Winder, UK equity strategist at UBS Warburg said UK equities were undervalued.

"There is still quite good valuation support in equities. It does seem more appropriate to take profits in bonds than equities," said Winder.

Britain's institutional and retail funds cut their holdings of bonds and raised their exposure to equities in April, monthly data from Lipper showed on Friday.

"With the dividend yield at 3-4 percent and a third of the market with price to earnings ratios as low as the last recession, support is pretty strong," said Winder.

"People if anything are thinking too negatively about future growth prospects. The underlying picture globally is one of expansionism," he added.

Friday 16th May 2003
Winston Chai, CNETAsia


A digital pen being developed by Nokia allows mobile phone users to write or draw a message, transfer it to the phone and then distribute it via MMS
Finnish phone giant Nokia aims to have users scribble their thoughts with a pen-like device, and send the writing through multimedia messaging (MMS).

When used with a specially-printed notepad, Nokia's new gadget -- the Digital Pen SU-1B -- allows users to write in digital ink and transfer the image to their mobile phones via Bluetooth radio.

The notepad contains paper that is otherwise ordinary except for printed command symbols that can be sensed by the pen. These symbols allow it to know what page it is on, and by ticking the symbols, the user can specify line colour and thickness.

The text will be saved in the commonly-used GIF picture format and users can then send them to an MMS-enabled handset like the Nokia 7650 and 3650, or an email address, the firm said on its Web site.

The device also connects to a PC through a bundled docking station with a USB (Universal Serial Bus) interface, so that writing can be uploaded to the computer. However, the pen itself can store up to 100 A5-sized pages of text, Nokia said.

To convert written words into computer text, the user must purchase a third-party character recognition software package, according to Nokia.

A Nokia Asia-Pacific spokeswoman said the digital pen was first previewed in Hong Kong in March but shipments will have to wait till the third quarter.

"The retail price will vary from market to market as the pricing will be determined by distributors and operators in the various Asia-Pacific countries," she said.

Coincidentally, Nokia has invited the press in Singapore to a launch later this week. The invitation letter suggests that the device is pen-like. The Nokia spokeswoman, however, told CNETAsia that a different product, not the Digital Pen SU-1B, will be showcased.

Nokia's foray into the world of digital ink is not unique. Rival handset maker Ericsson also introduced a similar device in 2001.

Coined Chatpen, the gadget can transfer handwritten messages to mobile phones via Bluetooth, like Nokia's pen. Instead of sending the information via MMS however, Ericsson's device does so through GPRS (General Packet Radio Service).

Digital pens have also emerged in the PC realm. Last September, Swiss computer peripheral maker Logitech launched its Io pen, a device with the ability to capture and stores a person's handwritten notes which can then be transferred to a computer.

Spying a gap in the security of cyberspace

Mobile phone security is becoming more sophisticated, but data will never be totally secure - and intelligence agencies want to keep it that way

Conal Walsh
Sunday May 18, 2003
The Observer

How secure are mobile phones? It is a question that will become ever more pressing as the new 2.5G and 3G phones take over in the next few years, providing their owners with powerful internet facilities and full access to their corporate intranets while out of the office. But there is also the risk that they will be vulnerable to attack from hackers.
More and more businesses, especially those with itinerant sales forces, such as insurance companies, have 'virtual private networks' (VPNs), allowing employees to view their corporate intranets from anywhere.

But the new mobile phones will multiply the number of people logging on. And with so much sensitive commercial information suddenly hurtling through cyberspace, a big concern will be to keep it out of the hands of saboteurs and corporate spies.

Security breaches are already thought to cost US businesses $500m a year, and safeguarding sensitive information is at the top of many 'to-do' lists in the IT departments of large companies.

'The true potential for generating revenue from mobile data services will only be realised if network operators guarantee delivery of the level of security their customers demand,' said a recent study by Lucent Technologies.

But Mark Blowers, an analyst at the Butler Group, fears that an industry-wide accepted strategy to combat security breaches is many years away.

'The new phones from Nokia, Siemens and others are basically little PCs. They are based on Java, or on the Symbian operating system, and they transport data around in "packets". So they're vulnerable to hackers or viruses in a way that phones never were previously,' he said.

Of course, internet technologies have their own security features, many with a good record. Secure socket layer (SSL), the encryption facility originally designed by Netscape, allows surfers to make credit card payments over the net. But it doesn't always work. And with new mobile technology bringing large volumes of sensitive corporate information on to the web, even one major leakage could be disastrous.

As it happens, the new mobile phones will use not SSL but newer security standards such as IPsec (short for IP security), which provide easy access to a greater variety of applications and folders on the corporate server and also transmit data faster.

But however effectively confidential information is encrypted, there is still no guarantee that the right person is receiving or sending it. Sometimes all a hacker has to do is get hold of the right password.

'Authentication is the biggest problem,' says Blowers. 'How do you really know who's logging on to your corporate system? Are passwords really the way forward? Maybe we should be focusing more on authentica tion technology. There are sophisticated voice-recognition and biometric identification systems out there, but the mobile industry hasn't shown much interest.'

At least mobile phone users are usually more easily identified than PC users, because of the SIM cards in the handsets. But there are still a thousand ways in which a phone and its Pin number could fall into the wrong hands.

In the absence of any more futuristic alternatives, businesses are being urged not to forget an old-fashioned system of passwords and usernames to give added layers of protection to their VPNs.

The likes of McAfee and Texas Instruments are busy developing security-enhancement products for mobile operators and the manufacturers of mobile phone devices, as well as large businesses with highly developed remote access systems.

But ultimately, the next generation of mobiles will offer no absolute guarantees of security from hackers, and it will remain the responsibility of companies to decide how much money they want to spend on keeping their systems secure.

Mike Gerdes, research director for the security firm Red Siren, has expressed a fear that unwise skimping might even extend to certain network operators reluctant to pay for the extra servers required to safeguard their clients' security.

On the other hand, the added security benefits of 3G and 2.5G phones are designed not only for phone users, but for the mobile phone companies themselves. Second-generation mobiles have always been vulnerable to hackers who set up their own transmitters, known in the trade as 'rogue base stations', to intercept or misdirect traffic or hop on to a carrier network for free.

Few, if any, mobile phone operators admit how much money they are losing through this practice, but many experts estimate that 'piracy' is costing them more than 10 per cent of total revenues. The new technology is designed to thwart it.

With encryption becoming ever cheaper, more powerful and more difficult to crack, a halt to progress may come from an unlikely source: our intelligence agencies. Correspondence between the British and US governments, obtained recently by the Guardian under America's freedom of information laws, reveals concern about encryption at the highest levels.

In May 1999, Janet Reno, then US Attorney General, wrote to Jack Straw, then Home Secretary, saying: 'I believe that the difficulties that encryption will pose for law enforcement are among the greatest challenges we will face in the coming years.' Straw replied: 'I fully share your concern at the threat posed by criminal use of encryption.'

Since then, the 11 September attacks have added urgency to official eavesdrop ping, and new laws make it easier for law enforcement agencies to confiscate encryption codes. They are unlikely to countenance any technology that makes it more difficult to catch terrorists.