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Why #O2Fail is really ‘iPhone customer Fail’

By Martin Bryant
June 9, 2009
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Why #O2Fail is really iPhone customer FailSo, the new iPhone 3G S has been announced and Apple fans are keenly expecting to upgrade upon its release on the 19th of June. Keen, that is, until they find out the cost of upgrading.

In the UK, O2 is telling iPhone customers that they’ll need to buy out of their existing contract before signing up on a new deal for the 3G S. For customers who bought an iPhone 3G on release day last year with 7 months left on their 18 month contract, that’s at least £245 (if you’re on the cheapest monthly price) that you’ll have to pay before signing up for a new contract and maybe paying towards your new phone too.

Last year, there was none of this. Existing iPhone users could upgrade to the 3G version without having to buy out of their existing contract, simply signing up for a new one. It’s understandable that these people were assuming that they could simply do the same this time.

Now they’ve found out they can’t there’s a bubble of anger building. The hashtag #O2Fail is trending highly on Twitter this morning and a petition has been launched asking for “A reasonable way to upgrade to the iPhone 3GS”.

Unfortunately, these people are missing a pretty obvious fact. The original iPhone wasn’t subsidised; you had to pay full price for it. The 3G, on the other hand was subsidised heavily by O2 meaning that part of the money you pay to them monthly covers the price of the handset.

This is how it usually works in the UK. You can pick up a top-of-the-range Nokia for free because you pay for it monthly in your contract. If you want to upgrade early you have to buy your way out of the contract because you committed to it.

Whether it’s a fair system or not, that’s the way it works. Apple fans had it good last year, but O2 doesn’t owe them anything. There’s no way they could take the hit of writing off all the money they spent on iPhone 3G handsets last year just to satisfy their customers’ gearlust. The iPhone offers the best user experience of any phone on the market but that doesn’t make it immune from economic realities.

Tech humour site TechChuff has the right idea. Their alternative petition hits the nail on the head.

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  • Simon
    Don't get me wrong - I'm happy to pay full price for a new iPhone. I'm happy to sign a new 18 month contract or even extend my current contract to 24 months. But to be told to pay the remainder of my contract is very poor.
  • William
    I agree re the subsidy stuff, but it doesn't explain why the price of the handsets has rocketed in comparison with launch prices a year ago for the iPhone 3G. On a £45 month contract a 16 Gb phone was free, I appear to recall. Now, the equivalent 299 dollar top-end iphone is hideously more costly.

    i think o2 saw the demand last year, and thought that they could milk it a bit more without the demand going below the supply - and i suppose, they are a business..
  • You are, of course, right. O2, however, are shooting themselves in the foot. They take on the iPhone knowing that means they are also taking on Apple customers who are, by nature, rabid fanboys who upgrade every year.

    What happens now is we won't upgrade now, because it's too costly to buy out of the contract and purchase the new hardware. We will also not upgrade in January, because by then we'll be getting ramped up for next years hardware revision. Assuming O2 lose their exclusivity on the iPhone at some stage, that's a whole lot of Apple fanboys (Apple, not O2) who will be free to look around for another carrier.

    Instead, the sensible, retain customer plan, is to allow iPhone users to buy the new hardware now, on a two year contract, with the condition that they are also allowed to buy any new iPhone hardware that comes out next year, under the same conditions. Since we will buy the new hardware *every* year and add two years to the contract, O2 essentially have a customer for life as we will always be at least a year in contract each time we buy new hardware.

    O2 are looking at short term gains at the expense of customer satisfaction (very important when it comes to something like the iPhone) at the expense of (very) long term subscribers.
  • I think it's ridiculous to expect users to buy out a contract only to sign up for a new one on the same network.

    I completely understand that o2 can't write off the cost of these contracts and that they subsidised the phone.

    The fairest solution is to allow current 3G owners to upgrade but by adding 18 months onto the end of their existing contract. Financially it is exactly the same to o2 than if we wait for it to run out and then upgrade but loyal users don't have to wait months for an upgrade.
  • Fair enough what is said, but O2 are saying we have to pay the contract off rather than by the subsidised rate. Also, previously, O2 said you had to extend the contract as well as pay a fee for the phone (affectively buying a contract when some have already paid £300 to start one on the original model)

    It's bad business to do something once then not again and also, when you have an Apple product, it's almost certain people will keep coming back, but if you don't give them a reason then you are screwed.
  • Marcos Scriven
    I agree that people should have to pay the subsidy part of their contract to upgrade early.

    HOWEVER, O2 are asking for the subsidy PLUS the talk time. If you compare the £20 SIMplictity tariff, which gives you 60mins talk time, 1200 texts, and unlimited wifi, to the £35 3Gs iphone tariif, you can see that the £15 difference is the subsidy.

    Therefore, if you have, say, 7 months left, you should be paying only 7x£15 = £90 to 'pay off' the remainder of the subsidy early.

    To ask you to pay 7x£35 = £245 means they are effectively charging you a furter premium of £155 to upgrade early, OVER AND ABOVE the subsidy.

    I am currently not in contract, but I'm still not getting this new iphone, as I'd probably be in the same situation this time next year.

    I'll stick with my jailbroken 3G and await either sensible pricing from O2, alternative operators selling the iphone, or even going to the palm pre when it comes out.

    Marcos
  • John Beadle
    I will also add we are also getting stiffed on the handset price itself

    US = $299 (£187 + 15% VAT = approx £209)
    vs
    O2 UK = £275 !!!

    outrageous! I for one will NOT pay nearly £480 to get the 3GS and assuming iPhone exclusivity for O2 is gone by year end (according to some rumours i've heard) shall happily jump ship to another network.

    O2 could have kept my custom for another 18 months from the end of my contract in January 2010 but they have blown it in chasing the £££ to get me to buy out my existing contract with them

    #o2fail
  • Well John, here's what you need to do: Don't pay it. There you go, problem solved.

    But don't hold your breath for another network to have the iPhone 3G S cheaper. Bare in mind that what Apple charges o2 will have gone up significantly, too (take a look at what Apple recently did to UK Mac pricing for an example).
  • William
    Marcos makes a very good point.

    I'm just hoping that the exclusivity deal is nearing it's end but given nobody will say how long it is, i feel like my contractual faith in o2 is being abused!

    I'm starting to understand why Apple wanted to avoid the whole subsidy model ... with full price handsets, we wouldn't have had this tie-in nonsense.
  • Alex
    a) they are not claiming just the subsidy, but the FULL outstanding contract cost
    b) the other part of the complaint is that their tethering offer is also a ripoff compared to 3G dongle prices
  • Dominic Sparks
    Personally I find the idea of upgrading to a new phone when you have a perfectly good one that is less than 2 years old, quite disgraceful. If your existing iphone still works, then you can a) keep using it yourself, b) sell it (and use the money towards paying off your contract) c) give it some you love. In any case, you are not losing out, and you're also not being socially irresponsible by chucking out/into a drawer, perfectly good & usable equipment. Remember in all this that the 8GB iphone which is still being sold, is still just the 3G model (not the 3GS) and is perfectly usable with OS.3. ;-)
  • Marcos Scriven
    @Dominic

    You're saying upgrading is essentially morally corrupt? What are you, some insane god-botherer?? Does it tell me in the bible when an upgrade is sufficiently advanced to no longer be 'disgraceful'?

    And would people please stop bleating about how stupid it is to complain to companies about their pricing policies? It's called communication, and is becoming an ever more essential part of consumer/business relationships.
  • The whining is ridiculous. O2 could have handled this better, but are under no obligation to. Why do so many customers expect more than they paid for? The iPhone came with an 18 month contract, which every customer signed up to. Now that O2 are holding them to that, they're somehow the bad guy?

    Doesn't make sense at all.
  • Beastos
    O2 are a business so they need to recoup the subsidy they paid on the iPhone 3G. The current economic climate means that consumers have to pay more hence why customers will have to pay a higher price for the iPhone 3GS. It doesn;t make sense for either O2 or Apple to bow down to customer demand and lower the price of the 3GS or allow existing customers to upgrade early. When Nokia/Samsung/Sony Ericsson release a new handset customers don't demand to be released from their contracts so why should iPhone customers be any different?
  • Nick
    If an existing subscriber has to pay the remaining subsidy on their existing phone, and then sign a new contract and pay for the 3GS - how exactly is O2 losing money??

    My maths may be a bit ropey, but it looks to me like O2 would gain money by having an extended contract period...
  • Marcos Scriven
    Would all you people who say "quit whining, you have to pay the subsidy" PLEASE read my comments before mouthing off?

    The figures show that the cost O2/AT&T are asking FAR EXCEEDS any lost subsidy.

    If you actually read what people are saying, they are NOT looking to get out of paying the subsidy fhor their previous phone, they just don't see it as right that they should have to pay at least £150 OVER AND ABOVE the lost subsidy, just for the priviledge of buying a new phone and staying with the carrier even longer!!
  • I think subsidation of handset isn't the problem here.

    Current iPhone (2G/1st Gen) late adopters are in the same predicament as the iPhone 3G. Of course it is standard practise within a contract, however, O2 are not showing their loyalty to customers, and aren't doing anything to ease their situation. They are banking in on new customers, and are expecting "Unprecendented Demand" for the new handset, which I douct will happen due to economic difficulties, and everyone's awareness of pricing.
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