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O2 tries something completely new: Honesty

Monthly bill to be torn from real cost of 'free' phone

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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 monthly mobile bill is going on connectivity and the rest on the "free" handset sold with the contract.

The official spin is that O2 Refresh will allow customers who are locked into a two-year contract to upgrade to the latest iThingy at any time, albeit by paying a suitable penalty.

But, crucially, the new tariff also splits up the cost of telecommunications (the Airtime Plan) from the monthly installments needed to pay off the handset (the Phone Plan) - thus revealing the handset subsidy and the total cost of ownership in the process. Normally these figures are combined when touted to punters.

With any luck for O2, this could be a clever step before the operator can drop subsidised handsets entirely.

Refresh was supposed to launch last night, among cavorting bodies on trapezes and the Derren Brown tribute act, but The Sun got wind of the details on Friday and forced Telefonica (which owns the O2 brand in the UK) into an early release.

The tariff is now available online. O2 provided this example of how it will work with all the numbers:

Let's say a punter wants an HTC One, so agrees to pay £50 upfront and enter into a credit agreement costing £20 a month for two years. The total payback is £529.99, exactly the same price as Expansys will bill you for the handset. So O2's offer is interest-free but comes without any handset subsidy - the subscriber must also pay £17-a-month for the airtime.

That's unusual: the premise has long been that phones with decent features get subsidised as users will end up spending more on their network usage.

A phone that offers to send an MMS after every photograph, or comes pre-installed with operator bookmarks, would normally acquire a decent subsidy as the operator pushed it in preference to competing handsets.

But that model has been declining for years, as phone handsets push the interests of the manufacturer and/or the platform provider, with the operator being sidelined, so splitting out the handset credit agreement from the airtime provides a good opportunity to get rid of the subsidy too.

Previous attempts to get rid of the subsidy have been scuppered by competitive pressure. As an interesting side-note, back in 2001, three operators in the Netherlands - KPN, T-Mobile NL and Vodafone NL - tried to band together and get rid of subsidies on the same day. But the Dutch competition authority delivered them a significant slapping for engaging in "cartel activities". The following year KPN was fined €7.93m, T-Mobile was fined €4.6m and Vodafone was fined €3.72m.

O2 will sidestep these issues by continuing to offer traditional contracts so punters can choose, and O2 can test the market appetite for honest retailing, and perhaps achieve the long-sought goal of getting rid of handset subsidies entirely. ®

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