Dave Thorp's Blog

O2 still showing no sign of budging on the iPhone 3GS upgrade saga. In fact when I rang up before to merely enquire about my priority list status (which is the lowest level despite having two contracts and o2 broadband so no early upgrade for me) the CS then proceeded to spend 5 minutes dissuading me from the 3GS and singing the virtues of software 3.0 on the normal iPhone 3G (I didn’t mention that I’ve been running that software since Tuesday).

So with no sign of victory on either side I’ve been thinking about the whole having to buy your contract out to upgrade early thing and wondering, did it always used to be this way. And the answer is no.

Many moons ago some of the networks, most notably orange, used to charge a fee to upgrade rather than simply charging for the remainder of the contract. The fee would vary depending on monthly spend and how long of the contract was left but was generally less than the remainder of the contract and meant that if you had the money you could upgrade as often as you liked.

Now surely a system like this would be better for not just iPhone users but any contract customers as it would mean they could upgrade as often as they choose with the networks not losing out as they recovered the subsidy and other losses from the upgrade fee. Win win situation as far as I can see.

One has to wonder why the networks abandoned this system of upgrading!

Carphone warehouse are now taking pre orders for the iPhone 3GS. Due to O2′s stupid upgrade strategy only new customers or people taking additional contracts (which I have to say I am considering) will be able to pre order.

LINKY

Update 12/06/09 11:29 – CPW are still taking pre-orders and just e-mailed me to inform me they were (I already knew of course). Oddly pre-ordering has been open for a day now. The iPhone 3G sold out on pre-orders on CPW and O2 online in hours. Can’t imagine why this new model isn’t having the same impact

I’ve been thinking about this for most of yesterday and the more I think about O2 expecting you to pay for breaking your contract if you want to upgrade to the iPhone 3GS the more I compare it to the bank charges situation.

The banks of course have been charging people for breaching the terms and conditions of their accounts by going over limits, allowing transactions to bounce etc etc and a few years ago the consumer struck back and challenged the banks on if the charges were fair. This is still being argued in the courts but the general result is no they are not because the banks cannot justify them as being proportionate to their loss.

So lets examine the O2 case, if someone breaches their contract O2 then lose the remaining line rental. So to balance that out they charge someone the remaining line rental as a cancellation charge. Sounds fair doesn’t it? Lets examine the line rental though

From what I can gather there are three major elements to the line rental on a contract phone these are

• Subsidy – The discount O2 gave you off the price of the handset in order to entice you to buy it
• Profit – All companies make profit (well these days we might question that with companies going bust left right and centre). Profit is good
• Costs – Providing the service to you costs money in the way of maintaining the network, providing minutes/texts, customer service, billing etc etc

Now we can reasonably expect O2 to recover the costs from the subsidy and the profit as these are losses O2 will make from the breach but what about those costs? O2 are not providing a service to you at least for the remainder of that contract (they will be if you take a new iPhone 3GS contract but the costs will be factored into that contract and not the one thats been cancelled) so their costs will be zero. So attempting to recover those costs is not proportionate to their loss, hence a penalty and hence unlawful.

So the big question is how much of the line rental is broken down into which element. Well thats a tricky one and one O2 didn’t want to answer when I put it to them on twitter. The only bit that can be reasonably calculated is the subsidy as well which for a customer on iPhone 35 is £7.34 a month and for a customer on iPhone 45 is £7.33. This is calculated by deducting the cost of the equivalent simplicity plan which is unsubsidised away from the cost of the iPhone plan.

Whilst I am no legal expert, I do frequent forums which deal with legal issues and the bank charges issue and I am pretty confident O2 expecting people to pay the costs element of the line rental for a service they will no longer be providing in a cancellation charge is unfair, a penalty and consequently unlawful for the same reasons as the bank charges. However I take no responsibility if anyone wishes to pursue that in court and loses. However if I am right it doesn’t just affect anyone who has cancelled to upgrade to the iPhone 3GS with O2 but anyone who has ever cancelled their contract and not just with O2 but with any other network and that could open flood gates just like it did with the banks