O2 must prepare for iPhone churn


O2 will have to carefully consider its pricing strategy for the iPhone 3G and 3G S to prevent churn after Orange and Vodafone nabbed Apple deals, analysts claimed.

O2’s decision not to allow existing iPhone 3G customers to upgrade to the 3G S will encourage consumers to churn to other networks, according to analysts.

When Apple launched the 2G version, customers who signed a 24-month contract were allowed to upgrade to the 3G version at launch 12 months later, provided they re-signed an 18-month contract.

But, O2 did not provide the same offer when the 3G S was launched.

“The timing of the announcements is bad news for O2,” said Ovum principal analyst for mobile strategy Stephen Hartley.

“The device will go on sale later this year, early next year – around the time O2 customers’ iPhone 3G contracts end.

“So, O2 will see a lot of churn. This is partially down to customers spiting O2 for not letting customers upgrade to a 3G S version when it was launched.”

IDC senior analyst Jonathan Arber said Apple may report a drop in iPhone sales over the next two months, as customers wait to see what tariffs Orange and Vodafone will offer.

Said Arber: “The decision by Apple to broaden its reach is positive in terms of sales. There will be a lull in sales for two months, while consumers wait to see what the tariffs will be. After that, there will be a sales boost in the UK.

“Pricing structure and tariffs are important factors determining which network will gain the most sales.

“Orange and Vodafone must decide how they will differentiate their offering. It could be on price or the quality of the network.”

The benefits for Orange and Vodafone are in terms of data revenue as iPhone customers use four times more data than consumers of other smartphones, claimed Arber.

And, Orange and Vodafone will gain from a surge in customer numbers. Hartley said: “Vodafone said they lost 150,000 customers to the iPhone in one quarter, so there’s a major churn affect.

“In America, AT&T said 30 per cent of iPhone customers were new to the network. The benefits are huge for the networks new to the iPhone.”

Hartley said Apple’s decision to remove the exclusivity is simply to increase shipments during Christmas and the first quarter of next year.

He said: “Apple is finally trying to open up its distribution. When the phone first launched, Apple wanted to sell exclusively through one network because it provided and aura of prestige for both the handset and network.

“The UK market is the first region where Apple has lapsed its exclusive deal with a network. In the USA, it has an exclusive deal with AT&T and in Germany with T-Mobile.

“In France, the competition regulator removed the exclusive deal, not Apple.

“Now, it’s about maximising the audience.

“It’s not surprising if T-Mobile also gets it. It has the handset in Central Europe and Germany. “