Jon: O2’s brave move on subsidies


Keeping prices up to date in What Mobile magazine is a constant battle, but thanks to hefty subsidies, most handsets are in fact free of charge on a contract. It’s the way it has always been, and most people probably assume always will be.

In the industry, we all know that there’s no such thing as a free lunch, and customers pay back the subsidy over the length of their contract.

However, it never ceases to amaze me that so many people don’t realise, and assume their top-of-the-range, internet surfing, laptop busting, multimedia monster must roll off the production line with no cost whatsoever.

The network then makes a fortune from the inflated rental fee when the subscriber doesn’t upgrade or jump ship to another network immediately after the 18 or 24 months are up.

But, many consumers are getting smarter (well, they have had 24 years to do so).

Many now look to upgrade on, or before, their contract is up. Few seem to consider customer service, or even coverage, as a reason to stay with their network.

Instead, they will happily change to any network that has the next must-have phone.

Naturally, the phone will almost certainly be free and may come with some form of added incentive, from cashback to a ‘free’ games console or television that you’ll be paying £45 a month for over the next couple of years.

O2 has now broken ranks by starting to reduce the subsidy and I wonder if this is a gradual move towards ditching it entirely.

For as long as I’ve worked in this industry, people have talked about scrapping subsidies.

This would have a number of benefits; the networks solve their cash flow problems, resellers don’t need to worry about clawbacks, handsets have a true value and, for the phone owner, there’s a viable resale value in the months to come.

With the changes, O2 customers may need to sign up to a £45 or £75 per month contract in order to get a free phone.

The problem is, if you’re now paying more for the phone on the lower tariffs, why is the line rental still so high? Shopping around for a SIM-free handset and combining it with a SIM-only contract seems like a far more sensible option, but how many people know about this?

Once you’ve separated the phone from the phone account, users can swap their handset whenever they want.

Buy a new phone, sell the old on eBay. Don’t like the network? Give the required one-month notice and go elsewhere. Even prepay suddenly seems to be more appealing, now there’s no £200 premium.

It’s a bold, and some may say risky, move by O2 because it requires action from its competitors to work.

Deep down, every mobile operator would love to see the end of huge subsidies and commissions to dealers, but unless they all act at once, O2 will simply look like a more expensive network and be forced to make a U-turn.

If that happens, and I fear it will, this will be yet another failed attempt to add to the list.

We’re a nation that expects to pay nothing for the one thing we rely on more than anything else, and who is O2 to change that?

Jonathan Morris is the Editor of What Mobile magazine, the UK’s leading mobile phone magazine and sister publication to Mobile News.