Dave Thorp's Blog

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

Well O2 can’t even handle constructive criticism. O2 forums have been buzzing since the iPhone 3GS saga started and I made a post which included the following paragraph.

What bothers me more is that O2 seem to be doing everything they can to quell sales. Ok fair enough there is a very valid argument for not allowing existing customers but O2s pricing for new customers is frankly stupid compared to the 3Gs original pricing and isn't going to attract huge sales (who wants a phone on a £75 tariff or on a 24 month contract... a few people will but not many)

This morning I get a PM from O2′s moderators saying they have removed that passage. The reasons quoted are

This is because the comment you have made contained general criticism of O2’s products or services. You are more than welcome to share your experiences with O2, whether they’re positive or negative. Doing so may allow other users to provide support as well as providing us with insight to areas that are going wrong.

What we cannot accept are widespread, malicious or gratuitous criticisms of O2 as a company or a brand.

Now I can’t see anything malicious or gratuitous in that section rather than a widely accepted fact that O2s sales are going to suffer not just because of the upgrade policy for existing iPhone owners but also because the pricing for new customers is ludicrous compared with the pricing last year. Not only that but who will want to lock themselves into a 18 month or 24 month contract knowing full well that they wont be able to upgrade onto the next model which will be out in 2010. No one that’s who.

Still if O2 can’t handle the truth then perhaps they need to review their pricing and upgrade policy before their sales take too much of a hit and Apple consider offering the phone to other networks. I’m sure Apple are watching all the negative press on twitter and in the UKs media with interest!

Apple today announced a new version of the iPhone 3G. As soon as it was announced, I wanted one. However now the hype has settled down a bit and O2 have updated their prices, I’m not so sure.

The new model boasts the following improved features

• A compass so maps knows which way you are facing
• An improved 3MP camera with auto focus and video capabilities
• A faster processor so some tasks and launching apps should be faster
• More storage
• HSDPA
• Voice dialling and commands

All in all it’s not a great improvement over what the iPhone 3G can do once OS 3.0 comes out on June 17th and one of the features is available on a jailbroken iPhone 3G so clearly Apple are blocking current iPhone 3Gs from using it. Much more offputing is O2′s new crazy pricing which means the device will only be free if you agree to a 24 month contract or a £75 a month contract or the device will be approx £450 on PAYG for the 16Gb version and £550 on PAYG for the 32Gb version. Not exactly the cheaper prices making the device available to more mentioned at the keynote.

Even worse is the fact that last time a new model came out customers could upgrade for free. This time customers either have to wait for their upgrade date (for most early adopters this is January 2010) or pay to end their contracts early (again for early adopters that will be approx 7 months at your monthly rate so in my case approx £245), and then agree to a new 18 or more likely 24 month contract.

Madness in my view as given Apple’s habbit of releasing a new model every year who on earth is going to want to agree to a new contract which will likely make the customer miss the model that will be inevitably released in 2010. Not me thats for sure and frankly unless O2 change their upgrade policy and prices fast, I may be looking elsewhere come my contract expiry

EDIT Full details of the ludicrous pricing HERE