O2 UK hired circus performers at a PR event this week to launch its new Refresh tariff, which it was forced to confirm ahead of schedule thanks to a media leak. But despite its use of a cut-price Derren Brown, the payment plan really does represent something completely new: honesty. As in, one can see exactly how much of the …
I manage mobile phones in a commercial environment. I often get staff asking me why handsets cost so much under our commercial contract (which has no up-front phone subsidy/interest free load) when they can go to the high street and get phones for free or a low ammount (e.g. £50).
Once I show them the maths of their consumer contract and compare it to our business tariff, they realise that their consumer tariff costs more than our business tariff over the same time for the same handset.
I buy my phone outright, keep them for one year and sell them on afterwards. They are kept in a decent case so when I sell them they are generally immaculate and have a good resale potential. Recently, I tended to go for the iPhone because it has better second hand potential and I get more than 60% of the original price.
I have a £15 a month contract.
A phone that you have to keep for 2 years on a contract is worth next to nothing is second hand value so you lose out twice, ,for the subsidy (your vat payments on £30 per month are higher than £15 per month which increases the cost) and the loss of decent secondhand value.
In the beginning a phone contract was only for one year.
I go for the contract. £8 a month (inc. voice, texts and data) with a phone? Why yes, thank you.
Much better than the £40-ish the article states. I'd only pay that if I was getting rid of the landline, but the one gets skinned alive for international calls.
Really need to setup VOIP at home.
I didn't think it was possible....
@ Anonymous Coward. Never thought I'd hear a convincing argument for buying an Apple phone, but congratulations, that actually makes sense. If you can put up with owning the product of course ;)
Blackberry Z10 (Black)
Per O2 web site:
£589.99 'Phone cash price'
£349.99 'Up front cost'
£240.00 'Credit amount'
£439.99 (Buy It Now incl. Delivery)
Difference from O2 = £589.99 - £439.99 = £150.00 premium to current market price.
N.B. I'd like to know how much O2 pays Blackberry for the unit, ie. how much mark-up/retail- margin is actually in the quoted £589.99 'Phone cash price'.
£150.00 / 24 = £6.25 per month = £75 per annum.
£75 per annum on principal of £439.99 = 17% simple interest rate
per O2 website:
0% 'Interest rate (fixed)'
0% 'APR representative'
Hey people, '0%' is the new '17%'.
Who does their marketing? MSFT's 'TCO' Dept?
Re: Blackberry Z10 (Black)
Now look here, the article is about "Honest" marketing and sales.
Don't you try to twist things so that those good good people in those benevolent professions appear to be some malevolent, evil, dishonest, manipulative, deceptive, lying, bunch of scum.
We all know that they protect the consumer and aren't trying their hardest to put a spin on something so that their ripoff seems a better deal than the other guys ripoff.
I've never known a group of people less interested in extracting as much money as possible whilst trying to appear friendly and then twisting the knife in your back as sales and marketing people,
They really are the salt of the earth.
So we'll hear none of your maths and facts thankyou very much.
"I have a £15 a month contract."
This. I'm not sure how this is a fabulous new launch from O2, they already have the Simplicity tarriffs which I thought pretty much did that? Calculating the subsidy wasn't exactly rocket science.
Here's a thought though - does this mean that O2 et al will eventually be forced to declare APR rates? Essentially you're getting a loan for the value of the phone and repaying it over 2 years.
I don't see it
How does the division described tell us anything. It just shuffles the subsidy into which ever part they want to look good.
Re: I don't see it
I think that by splitting the "airtime plan" from the "phone plan" you can buy your latest phone with a £17/month airtime plan and a £20/month plan to pay for the phone over two years there are two new options that are available, simple to do and importantly for O2 retains the customer
1) pay £37/month for two years ... at end of this the phone plan is finished and the default situation is you continue using the phone and only pay £17/month for airtime ... avoids the need to "look for a new contract" at end of 2 years to avoid staying on a tariff that contains the phone subsidy payback - simpler for customer and for O2 reduces possibility that they will look at other operators
2) If after 12 months you decide you that your iThingN is not longer good enough and you just must have the iThingN+1 (or iThingNS) then you can simply go to O2 and get an extra phone plan for that ... so you'd end up pay £17 airtime + 2x £20 phone plans for 12 months (assuming iThingN+1 is same cost) - you might be able to sell you iThingN and use that cash ot pay of the first phone plan early. However, the key is that as airtime and phone plans are seperated I assume the idea is you are able to "upgrade" early by running a 2nd phone plan alongside the final months of the first.
Re: I don't see it
"How does the division described tell us anything. It just shuffles the subsidy into which ever part they want to look good."
El Reg seem to have swallowed O2's line about tranparency, personally I think there a lot more than tranparency, and it's not about shuffling the subsidy round quite like you think.
The clue is in the idea of a financing agreement for the phone. If there's a financing agreement then you're into Consumer Credit Act and financial regulation, you've got crappy VAT issues that increase your corporate costs by a small amount. There's an element of CCA regulation anyway with contract sales, but why make things more complicated? But now, consider that if there's a financing agrement, you've got a nice revenue stream attached to an asset which is not being "given" to the customer anymore, but now presumably "owned" for the duration of the finance agreement by somebody other than the customer.
O2 have something of the order of ten million retail customers in the UK, so making a guess that the implied average asset value of the phones at any time is around £100 per customer, then there's an asset base of £1bn. How about you now securitise and sell the receivables stream on the phone to a bank or asset finance company? They'd be happy to put the bulk phones on their balance sheet - if a user doesn't pay then the phone has to be returned. At the moment I'd guess O2 expense the handsets, so they move through the P&L but never reach the balance sheet.
The idea of the "free" handset disappears, but I wonder if they can make it appear "interest free". OFT requirements are pretty tough, and I'd be surprised if O2 could claim that the phone is sold at the price they paid for it, so there's a markup and costs of capital (customers already pay this, they just don't see it), but this could make the financing agreement carry a hefty APR.
But what the hell? If O2 can shift a worthwhile chunk of the £1bn plus of consumer handset net asset value out of their P&L, and if some asset finance house can buy a big chunk of reasonably secure handset receivables, then everybody is happy. And the great thing for O2 is that they are selling an asset that doesn't currently appear on their balance sheet (unless they capitalise future contract receivables, which I doubt, but stand to be corrected). What does the consumer stand to lose? Not much really. Legal title to their phone for the duraction of the contract, but that's notional anyway: there's usually a clause requiring you to send it back or pay the outstanding commitment if you want early termination.
Re: I don't see it
You sir are a slippery genius - and have probably hit the nail on the head. You however need to be a little more circumspect as the Fail will have the mobs around your house before you can say credit crunch for displaying an understanding of Finance.
"With any luck for O2, this could be a clever step before the operator can drop subsidised handsets entirely."
That would only be lucky if they want to go out of business.
The vast majority of retail customers can't afford £3-500 on a new handset as an upfront cost. That's why the current system exists and works.
"The vast majority of retail customers can't afford £3-500 on a new handset as an upfront cost"
True, but the point of this system is that O2 still let you have the phone up front for a low cost, but then you pay back the full unsubsisidised cost of the handset over the length of the Phone part of the contract.
Of course, the only way this is worth it for the customer is if the Airtime component of the deal is the same price as the SIM only deals they do now.
Indeed, i think separating the phone and services contracts is great.
I was just criticizing what the article's author suggested, of it being a path towards not subsidizing handsets.
"I was just criticizing what the article's author suggested, of it being a path towards not subsidizing handsets."
TBH I think they have pretty much stopped subsidising handsets anyway. Having compared many operator contracts and SIM-only plans, I have always found that it is the same or cheaper to buy the phone outright and use a SIM only plan. In fact, buying the phone on some credit cards can sometimes work out cheaper!
Depends how you define subsidizing.
What the operators are essentially doing is giving you a personal loan for the value of the handset, with what works out to a fairly good interest rate, which is a form of subsidy. Getting a personal loan for around £500 over 18-24 months with a comparable interest rate would be basically impossible.
Sure the handset is cheaper to buy outright with a SIM free plan, in terms of total cost. If I could afford to do that I would.
But as I pointed out originally, most customers including myself, don't have the capital to spend to do that.
Whether you call it a subsidy, or a handset payment plan or whatever, it's still a useful and necessary business model.
"I have always found that it is the same or cheaper to buy the phone outright and use a SIM only plan. In fact, buying the phone on some credit cards can sometimes work out cheaper!"
Agreed. I don't change my phone every year, but I always buy outright.
As I'm on a one-month rolling "contract", I can change whenever I like and am always on the lookout for a cheaper one.
It's like this in South America
You take out two contracts - the monthly "Sim", and the credit agreement to buy the handset.
This model does reduce the pressure to upgrade your handset - if you are going to keep paying £30 a month regardless of whether you get a new handset or not, you're going to get the new handset.
So I can see it being bad for operator lock-in, unless they go for the same underhanded "automatic new 2-year contract" that BT got gently told off for.
This is the logical extension of sim-only deals of course - and it might be good, as it should mean more choice of which phone you want on a given tariff.
it could mean the death of those restrictions which some smartphones currently suffer from such as delayed software updates or restricted functionality. Either would be a damned good reason to say thank you to O2. Would it also mean that the phone really really was yours so you could have it unlocked anywhen you wanted?
The best way around the problems of delayed updates or reduced functionality is to get a deal through Carphone Warehouse, Phone4U or similar. Get the handset you want on the tariff you want, but the handsets are always unlocked and are the manufacturer's version not some operator modified one.
Re: Alternatively @Kevin Johnston
"it could mean the death of those restrictions which some smartphones currently suffer from such as delayed software updates or restricted functionality."
You, sir are an incorrigible optimist. For you, clouds have silver linings, and your glass is half full.
But why exactly would the separate hire purchase (or whatever) of the phone have any bearing on the network operator wanting to corral you to use their threadbare internet portal? Why would the fact that you have a more complicated bill (online only, that you never look at) stop them preloading trial crApps that the operator gets paid to pre-load? Why would this scheme stop them, in a fit of hopeless optimism, trying to lure you to their tumbleweed infested content stores?
Personally I'd expect that to stay, and maybe even get worse. As per an earlier post I made, under these arrangements it is probable that the customer won't own their phone anymore. Lockdown could get worse, not better, and the lockdown may not even be controlled by the network operator, but by a separate finance company who are selling you the phone on HP. And for anybody like that, unlocking the phone will most certainly be a chargeable extra.
Welcome to my grey cloud infested, glass half empty world.
Interesting side note...
As an Orange customer, I envied the dead...
Re: Interesting side note...
was it anything like being a head floating in a jar?
Can't see them dropping the old style contract, I know a fair few people who don't realise their monthly bill is half loan repayment / half service and will often stay in the same contract even after the loan's repaid waiting for the next iDroidy thing to come out rather than switch to sim only asap.
But isn't this something sensible/dull people do anyway - calculate whether it is cheaper to buy a handset outright and go for a sim only deal compared to locking yourself in for two years with a subsidised handset? People are strange.
1. Not every sensible / dull person can afford to buy the handset outright. Whether that should mean that they shouldn't be getting it or not is another debate.
2. Sometimes it works out better for you to have everything rolled in to one monthly amount, for example, if you run your own company mobile, and claim back the cost each month - less accounts department anguish.
But this kills the other half of the brilliant business model...
which consists of overcharging those few customers who were to lazy to cancel / rollover their contract after two years.
Don't need a new phone? We'll just keep charging you for the old one. (And no, we can't allow you to switch to the grandly advertised cheap new contracts because those are for _new_ customers.)
The sort of bad practice that this is trying to get round is exactly the reason I went Sim only / pay monthly a couple of years back - I can change my phone whenever I like, and my "contract" is for the next month.
Without stating which provider I'm with, it's an O2 subsidiary, and rhymes with BiffBaff...
Re: Sim Only
Yes, same here. I figured out quite some time ago that it works out cheaper buying the phone outright and having a SIM-only contract that can be terminated with a months' notice. I remember with a previous phone getting hold of the manufacturer's latest release and flashing it over the telco's version and seeing all the interesting settings and features that suddenly appeared.
Based on past history, I seem to get a new phone every four years or so on this model, so it definitely works out cheaper than upgrading every year or two and paying the higher prices.
I'm a PAYG man myself, but I assume a lot of the profit with contract phones is in the unused minutes, messages and bandwidth. I don't suppose that's itemised...
* see T&T
But there's no subsidy anyways
It was just an interest free option to get a handset at inflated prices.
Take the example of Google Nexus 4. buy directly from them at £249 or from retailers at £399 plus.
On a monthly contract this was at least £28 per month. Do the maths. Whats Subsidy?
They would like you to believe it was subsidized, but was NEVER the case. Pure profiteering.
The dutch operators took a different tak.
Most Dutch telco's now offer so called "lease" contracts. The monthly payments are ever so slightly lower, but the phone stays property of the telco. If, at the end of the contract you want to keep the phone, you have to pay an extra premium. Or you get a new phone with a new x year contract. In the end this probably works out cheaper for the telco's and it's usually just as expensive for the consumer
Re: The dutch operators took a different tak.
O2 did try that, but removed it last year.
I don't get it. If I need a new phone, I pay £50 up front then £20 per month + £17 per month for talk / data etc = £37 per month....the same as a decent contract now.
(OK when the two years are up my bill will drop to £17 per month, but those who let contracts roll on after their tie-in has finished are idiots.)
I'm not arguing if contracts are better than non-contracts (I for one cannot afford £500 up front) but I don’t see how this changes anything. If this is also a “non-subsidised” phone I don’ t want bloat, bookmarks, splashscreens etc!
As the article says, it's about honesty.
Does the contract contain a subsidy, or a credit agreement?
It's a marketing ploy. At the end of the day, you still fork out £37 a month, although it should make it easier to stop paying the credit part at the end of the credit agreement and drop to the line rental only (£17).
We can only hope this catches on!
So O2, my company pays about 4 quid a month for unlimited global data on our handsets ... I presume I can now add that to my personal contract at the same price?
If you do the same level of business with them as your company does, yes. They probably qualify for a quantity discount, so you'd probably get charged at least a tenner for a one-off version of the same deal.
The bulk deal probably works on the principle that the average amount of data used is below a certain limit, but some phones will be using a lot and others hardly any.
Dropping the subsidies
In Spain Telefonica (O2 mother company) together with Vodafone stopped giving 'free' handsets a few months ago, they may be preparing to do the same thing in the UK by letting customers know that free handsets are anything but.
Orange have been making fun of them running ads in which they show people carrying their own bed linen when booking into a hotel, but the strategy seems to be working for Telefonica and Vodafone.
Re: Dropping the subsidies
But at the beginning you had to buy the mobile (there were no 'free' mobile deals) and you had to pay for your upgrade so Orange, who decided not to join in, hoovered up thousands of new customers. Telefonica and Vodafone back-pedalled a bit and now offer free phones and free upgrades but only on the more expensive flat-rate deals.
The idea of splitting airtime from phone subsidy and reducing the subsidy was originally pushed by the operators in Spain because of the amount of people not paying their bills. Not sure if the same is happening in the UK now.
No more contracts for me
My first ever (1990's) mobile phone came with a TEN-YEAR contract with Nokia Mobira. I was able to get out of it but since then have never trusted contracts and prefer the way pre-pay puts you back in control. There is always an affordable handset which is nearly as shiny as the expensively subsidised ones - currently the phone modding community likes the Huawei Ascend G300. So, 100 quid for a very capable rooted phone and £7.50 a month with unlimited data.
Re: No more contracts for me
You signed a 10 year contract on a phone??? Seriously???
Did you even read the contract or are you just one of these idiots who will happily sign anything put in front of them?
Re: No more contracts for me
Yes of course I read it, and used my biro to delete that and a couple of other daft clauses. They accepted the amended contract, no doubt because I was bringing my own hardware so they were not subsidising me . Did not stop them half-heartedly trying it on later when I terminated.
I was just making the point that the current two-year lock-ins are NOTHING! People should stay away from contracts altogether - if the operator finds a reason to surprise you with a huge bill there is little you can do about it. At least with pre-pay the most you can lose is a tenner or so.
Will this affect the way they arbitrarily increase the monthly payments in "fixed price" contracts?
I struggle with the whole 2 year contract thing these days. Is it socially responsible lending to be offering 2 years credit to buy a fancy phone?
I can see an argument that a mobile is an essential these days, but then you can buy a basic handset from Tesco for £9.00 (it makes and receives calls, the primary function), or a smartphone from £50.
Would we consider it socially responsible if high street shoe shops were offering 2 years credit to buy a pair of Christian Louboutin's or Jimmy Choo's? (I know way to much about women's shoes, hence Paris!)
I do miss those cheap "dumb" phones that looked unique and beautiful.
They claim the cash price of an 16GB iPhone 5 is £600! There's honesty for you!
Still no good with custom firmware and locked bootloaders
My wife got an Xperia Arc on O2 about 2 years ago.
The Android 2.3 firmware ran out of app space due to all the O2 Bloatware. I rooted and removed it. O2 then updated the O2 FW to sort some bugs, but with all the bloat back and no root available for that version. No space again for apps.
Great, ICS must be out soon ...... then O2 decided to not go ahead and it was stuck on 2.3 with very little apps.
Ah, custom firmware ..... nope. Booloader has been locked by O2 as well.
Never again. If they didn't fuck with the firmware for "added value" crippling the handset then add insult to injury by stopping you updating the ROM then I would think about it.
Sim Free from now on!
Re: Still no good with custom firmware and locked bootloaders
Sorry, but that's Sony's fault for cripling the handset on purpose by providing NotQuiteEnough™ memory, or yours for not evaluating the options (though that's harsh and I prefer to blame Sony)