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Has O2 UK pulled a #totalfail with iPhone 3GS pricing?

By Matt Radford on June 8, 2009

o2The WWDC Keynote is done. Thanks to macrumors.com, which has the best coverage optimised for Safari on the iPhone. There was plenty to look forward to in the Keynote, and not just for the iPhone. I was a bit surprised they didn’t demo video editing, but all in all, good stuff. Voice control, not just voice dialling, looks excellent. More details are of course all over the web – try Engadget for starters.

So no massive surprises, until I checked out O2’s responses on Twitter. Oh dear O2, oh dear.

Here’s a roundup of what O2 in the UK have confirmed so far on Twitter:

  • Available June 19th

Upgrades

  • You will be able to upgrade to an iPhone 3GS when you’re eligible for an upgrade
  • If you would like to leave your contract early you will need to pay extra – call us up and we can explain how much in each specific case
  • The price will vary for each person depending on how long the contract is

Generally, you can upgrade with O2 from a month before expiration of the contract. However, if you’re a O2 Priority List Gold customer, you can upgrade 3 months early. Priority List Platinum customers can upgrade 6 months early. The eligibility rules for this are on O2’s site.

As a rule of thumb, to upgrade early and buy out of contract, it’s monthly tariff charge x months of contract remaining.

I don’t have a problem with O2 not offering an early upgrade path for existing iPhone 3G users who are within contract. They were only offered an early upgrade last time around because original iPhone users bought their handsets unsubsidised. The iPhone 3G on Pay Monthly was always subsidised, so O2 will look to recover their anticipated revenue through the customer buying out their remaining contract. Expecting anything else is just unrealistic.

MMS and Tethering

  • We will be supporting MMS and tethering – these will be available on June 19th
  • MMS messages will come out of your normal allocation, with one MMS deducting four SMS from your allowance
  • To tether you need an Internet Tethering Bolt On: 3Gb for £14.68/month, 10Gb for £29.36/month. Both include The Cloud’s Wi-Fi.

So MMS will now be included in the monthly tariff at the cost of 4 SMS per MMS, which is as per every other O2 customer. We knew that already, but it’s good to have it confirmed.

But ouch! How much for tethering? For £15 on Three I can get 15GB a month. Using my iPhone 3GS on O2 I get five times less plus the privilege of draining my battery. Very poor. And this doesn’t include BT Openzone Wifi hotspots, it’s The Cloud only.

Pricing

Finally, the biggie. I’ll be doing a full update on my Cheapest iPhone on O2 article in the next couple of days, but I think all you need to know right now is that the iPhone can’t be had for cheap any more.

iphone-3gs-pricing

The highest-specification iPhone is now £120 more expensive than before. Yes, that’s right £274 on an 18 month contract for the 32Gb iPhone 3GS! That is a lot of money, especially when you can get similar high-spec smartphones (think Nokia N97, Samsung i8910 HD) thrown in for under £100 on similar tariffs.

This is a lot of money. However, despite what the Guardian claims, it does compare favourably to the US. AT&T customers will be paying US$299 for the 32GB phone on a 2-year contract, at a minimum of $69.99/month. If you compare that to O2’s 24 month, £35/month tariff, then the cost is similar – £174 in the UK vs. £186 in the US. The Guardian is comparing upfront costs on an 18-month UK tariff and a 24-month US tariff. Expected customer spend and subsidisation across the life of the contract, not to mention exchange rates and differing markets, make such a comparison useless.

But that still doesn’t mean it’s good value.

UK consumers are used to paying less for their high-end phones. And although they didn’t need to, allowing an upgrade path for existing 3G customers would have kept a lot of customers happy. Plus what is that with the tethering prices? If you look on the O2 Forums or on Twitter right now, you’ll see that the company has burned an awful lot of goodwill tonight.

I’m not sure if I’ll be upgrading yet, even though the video and voice control are a powerful pull. At least the software update is free :)

UPDATE: Check out http://www.o2fail.co.uk as well

UPDATE 2: Techcrunch weighs in with “Why The iPhone 3G S May Be A Sucker’s Bet Right Now“

  • Iain 117

    I too am upset about the pricing plans being published by o2, before this I always thought the iPhone plan was a bargain, with unlimited data n all.

    Do you think the prices changing would be a possible outcome? I’ve never heard of a carrier changing prices once setting them though, and the iPhone is popular enough to sell even at these prices unfortunately.

    Do you think it would be cheaper to sell my iPhone 3G, buy the 3GS on PAYG then pop my sim card into the 3GS?

  • Iain 117

    Also about the tethering, what’s to stop people from not buying the bundle from o2, yet hooking up their phones to their laptops anywhoo?

  • http://web.mac.com/jamesburland/Nokia_Creative/ James Burland

    Double the speed. Better battery life. Autofocus. Video Capture. Count me in.

    Hang on, at least £274! to upgrade, and I’ll probably have to pay my way out of my remaining contract. Count me out!

    Come on O2, there must be something you can do to ease this upgrade. How about a trade-in service, or a loyalty discount of some kind?

  • Jon Smitj

    Is there no oled screen on the 3gs

  • http://www.allaboutiphone.net Matt Radford

    @James O2 have already said on Twitter that there’s no trade-in available for upgraders. No loyalty discount has been announced yet. We’ll see what today brings.

    @Jon There’s no OLED screen on the 3GS

    It seems to me the problem is that the contract lengths and the expectations of iPhone buyers (in relation to the product cycle) are misaligned. O2 need to either do existing owners a deal, or re-jig their contracts – perhaps longer contracts with the possibility of a trade-in when a new device is released?

  • tri fin

    Isn’t this annoying! O2 want longer than 12 month contracts but we want the new iphone every 12 months.

    In another 6 months, when the 18 month contracts expire, it will only be 6 months until the new iphone comes out that’s assuming a iphone every 12 months. Do you wait another 6 months for the next iphone or upgrade and miss out completely on the next model because of your new 18 month contract!

    It seems that this isn’t a very well thought out plan and will annoy / alienate customers from Apple /O2.

  • nicol1980

    I have read all about the fact that the 3G was not subsidised and thats why contracts would have to be bought out. So, why ‘o why did o2 not think about this froma commercial point of view back when the 3G was released and just charged their customers for the new handset which most people would have accepted and took out their new 18 month contracts thus enabling o2 to do the same this time without upsetting every single iphone customer.

    Also, have they thought about who is going to be queuing at their stores on the 19th June??? Lets face it in the last two years everyone who can afford to buy an iphone or is willing to pay the money for it already has one (obviously with a few exceptions) so who do o2 think is going to buy their new hansets if they alienate all their current iphone customers.

    This is just poor commercial nouse.

  • tri fin

    I also had another thought about the subsidies etc.

    How can o2 justify charging the full monthly amount x the number of months left on your contract? The full monthly amount includes the subsidy but also includes inclusive minutes, texts and data. One should only be charge the monthly subsidy amount x number of months left on your contract!

    Still o2 charged me £1.80 for a 1 second call on my last bill. I was abroad and then called another country and immediately hung up when i got put through to voice mail. You get charged by the minute and country to country calls are double the rate of country to home country calls even though the call is not routed via your home country! I was lucky I have international traveller service or that 1 second call would have cost £2.40!

  • http://www.allaboutiphone.net Matt Radford

    I think O2 are perfectly justified in charging the remaining contracted amount – that it what you sign up to when you take a subsidised handset. However, nicol1980 is quite right that this is poor commercial nouse.

    O2 are pissing people off by not providing a better upgrade path. I don’t think people expect a freebie – at least I don’t – but there must be a way that they can offer access to the latest handset, thereby keeping their existing customers happy, without having to pay a large fee and getting the feeling that you’re being gouged.

  • nicol1980

    Just another thought.

    I paid £269 (approx. cant remember exactly) for the first gen. iphone. I then paid £45 per month for the cotract for 12 months (of 18 months). I then got a free upgrade to the 3G and paid the £45 per month for the following 12 months (again on an 18 month contract) bringing me to now. If indeed within this current contract part of my £45 monthly cost was to subsidise for the lack of me paying for the 3G hndset thus explaining why o2 want me to see out the rest of my 18 month contract then why was i paying the same £45 per month on the original contract????

    Would it not then be logic that i would have paid for the subsidised 3G handset in the first term contract therefore every handset after that would be paid from the previous contract??

    Just food for thought.

  • natalie

    What you need to know about the pricing of the iphone 2g against the the iphone 3g, is that although the customers who had the original iphone paid more for their iphone, the reason it was high was because o2 were NOT getting all of the money for the iphone sales. When apple released the iphone 3g ALL sales profit went to o2. Which is also the reason why if you unlocked the iphone 2g the warranty was void, becuase then o2 had no way of recouping profit. If you unlock a 3g the warranty remains active, becuase o2 have already recouped profit.

  • natalie

    What you need to know about the pricing of the iphone 2g against the the iphone 3g, is that although the customers who had the original iphone paid more for their iphone, the reason it was high was because o2 were NOT getting all of the money for the iphone sales. When apple released the iphone 3g ALL sales profit went to o2. Which is also the reason why if you unlocked the iphone 2g the warranty was void, becuase then o2 had no way of recouping profit. If you unlock a 3g the warranty remains active, becuase o2 have already recouped profit.

    just let existing customers extend the existing contract and pay for the new 3g s

  • tri fin

    I am sorry Matt but it is not fair to charge the full contracted amount – just because the contract says something and I signed the contract that is not the same as being fair or even legal.

    For example: the EU law courts do not accept Microsoft’s End User License agreement that you have to agree to if you want to use Windows. So just because an O2 contract says something does not its fair or right. I am happy to pay the amount per month that is the subsidy but not the line rental, inclusive minutes etc etc as I will be signing another O2 contract anyway so they are not loosing out on anything.

    What I am saying is that O2 offer existing customers an path to upgrade to the new phone that covers the 6 months of subsidy. No one looses and no one is taken advantage of.

    As they are not doing this I doubt I will upgrade this time and wait until June 2010. This means Apple loose out a sale of a Iphone3GS.

    Good point Nicol1980. O2 are being stupid on this one. I am 100% sure that if the iPhone was available on all carriers we would not be taken advantage like this. The french government is not allowing iphone exclusivity because they feel there is no real competition in the mobile phone market.

  • http://www.allaboutiphone.net Matt Radford

    @Natalie: if I unlock my iPhone, then it doesn’t affect O2’s calculations. They have worked out the subsidy and profit based on the contract term and monthly payment. Even if I do unlock, I’m still bound by contract to pay them what was agreed, so their calculations and subsequent profit are not affected.

    I think you’re right about allowing existing customers to extend their contracts and buy the new iPhone 3G S. That may work, but it all depends on the numbers for O2. Liklihood? Slim.

    @tri fin: I hear what you’re saying, and you’re right – O2 could do better for existing customers. But fair isn’t the same as legal. An EULA is a non-binding agreement, whereas a contract is binding one. So to upgrade you will have to pay off the contract. But again, this is a PR fail for O2 and I’m sure they will lose a lot of upgraders at the end of contracts because of it (especially if they lose exclusivity in 2010).

  • tri fin

    OK Matt – good points.

    It is annoying though that the french government accepts that mobile phone companies / networks do not treat their customers fairly whereas our government just allows them to do whatever they want. But i guess British MPs are too busy lining their own pockets to care 😉

    I also feel that Nokia and others should step up their game. For me the iphone / app store etc is miles ahead and they don’t offer a decent alternative to Apple / O2.

    Where there is little or no competition customers always loose out. But in this case Apple will also loose out because people can’t (realistically) upgrade.
    The mobile phone market is odd!! I read on another forum that when you buy a car it isn’t subsidized by a particular fuel supplier. The idea of buying a BMW and having to buy Shell diesel seems totally ridiculous but that’s sort of what happens with mobile phones. Personally I would like to buy a phone for the going price, get a sim that works on any network and then route my calls via the network that offers the best reception / price!

    Whats even more annoying for me is that at my home I can only get reception with 02 so i am stuck with them! haha

  • Moe

    Those prices are a lot higher than I was expecting. I’ve always been a Nokia N series owner and my current contract for my N82 is coming to an end. I’ll probably still end up forking out for the iphone 3GS as I’m not really that excited by the N97 (unless I can get a real good deal lol)

  • Jason

    Well I’m in a slightly different situation. My O2 contract has expired on a HTC and I’ve been sitting on a simplicity contract just waiting until the new Iphone came out.

    I’ve been an O2 customer for 5 years and have always had some kind of Loyalty discount when upgrading.

    Not this time though or so O2 have told me, there will be no discount of the handset price even for existing customers who’s contract has expired.

    I’ve requested my PAC code. I have had to do this every year to get a better deal when upgrading. They were supposed to text it to me within 2 hours but its been 5 and it still hasn’t arrived.

    It will be interesting to see if they back down and I get a phone call from the retention team some time, or they stick to their guns.

    I don’t want much but I expect £100 off the handset, as I have with every other handset. Their argument is the prices are set by apple.
    Obviously O2 make money on this deal as well and it makes sense to give something back to loyal customers instead of alienating them.

  • http://www.allaboutiphone.net Matt Radford

    That’s interesting to know, thanks Jason. I would have thought that O2 would be able to do you some sort of retentions deal on the new iPhone. It’s very poor on their part if they don’t.

    But, I do get the feeling that O2 are sticking to their guns on iPhone pricing. There’s been no backtracking to date from any customer service, marketing, or anyone else they’ve wheeled out to talk about this.

    Let us know what happens.

  • Jason

    PAC code came through about an hour ago.

    In the end I wont move because I’ve specifically been waiting for this new iphone and its not available on any other network.

    I will however play the game and give them grief until the bitter end obviously :-)

    I’m still keeping my fingers crossed for a call from retentions at some point.

  • http://www.allaboutiphone.net Matt Radford

    Have you spoken to Retentions already? I find it’s always good to be polite, and if they can’t help you, ask to speak to someone who has more authority. I find that works better than getting shitty about it (not that I’m implying you have!).

  • Jason

    No I usually just ask for the PAC code and within a day or two you get a call back from them.

    No I agree being aggressive helps nobody. Personally I know I’m more inclined to go the extra mile for someone when they are courteous even if they are obviously frustrated.

    Until I came to O2 I had to change networks every year. Thankfully O2 were more sensible with loyalty deals come renewal time, lets hope the step up to the plate again this time. You have to play the game though.

    Some of the conversation I’ve had are simpley farcical. Something along the lines of:

    Me: I can get X handset with X min for £40 a month with orange.

    O2: We can offer you the same deal for £45 a month.

    Me: With all due respect you relly dont seem to be grasping this concept. Why on earth would I pay you £5 more a month more for the same deal when Ive been a loyal customer. If anything you should be giving it to me a little cheaper.

  • http://supermorph.5druids.com supermorph

    i was mis-sold a contract form carphone warehouse.
    and my means of getting back to o2 was the iphone, as it was direct o2 only. which saved me having to WRITE to close my account.

    they sold me a contract on the understanding it was an upgrade.
    but when i called to query they said u now have 2 contracts.

    1 with o2 and 1 with carphone.

    i was LIVID.
    i spoke to retensions on o2 direct.
    they GAVE me a money off deal to keep my number for a year with no phone
    after which a sales person cold called me about iphone.
    luckily i did research and was interested.
    the pains in the rectum still messed up.
    luckily propper o2 sorted it out.
    so i upgraded to o2 and got out of a carphone contract.

    it wasnt a cheap option but in my situation, it was the best damn thing i’d done as revenge to a company who cared less.

    but i can say i am impressed with 3g.
    modded myne to hell and back.

    now that 3.0 os is out im thinking of what to sort for the firmware mods i made (logo’s and ssh ability for my ubuntu playback of music abilities the easy and secure way)

    never get a contract with carphone if they say yes you can upgrade
    (UNLESS its so u can get back to the provider in question,
    cutting out the middle company.)

    just thought id say my peice

  • Billy

    I’m looking to get an iPhone 3G S later this year, on pay and go.

    I’m just wondering that if i change the tariff to O2 Unlimited (the same as what I have at the moment) will I still get the Unlimited Internet Bolt?

    Thanks. :)

  • http://www.infowurm.de/apple-iphone-3g-zum-schnaeppchenpreis.html mark

    I’m looking for an iPhone3G S later too. The new OS of the 3G is enough at the moment.