Looking at O2's New iPhone 4 Tariffs
O2 announced the tariffs for iPhone 4 today to much criticism. Gone are the unlimited data bundles of old, replaced by what could only be described as meagre allowances, reduced voice minutes, additional charges for MMS messages and higher charges.
The Plans
I thought it would be interesting to compare the current plan I’m on to an equivalent plan with O2 at the rates they announced today. You can see the full list of tariffs here.
Whilst O2 has given unlimited SMS messages, they’ve removed the unlimited data bundle, removed MMS messages from the SMS bundle and halved the number of inclusive minutes. No matter which way you spin it, it’s a massive step backwards for O2 who have traditionally had very competitive tariffs.
The Justification
O2 clearly understood that this would not be a popular move and have been on the defensive since the announcement. The official O2 twitter account followed the announcement with links to a blog post by O2 CEO Ronan Dunne and a press release detailing the changes as well as increasingly defensive replies to angry customers.
I want to look at the Ronan Dunne post in a little bit of detail, because it provides some insights into O2’s reasoning, flawed reasoning, behind these changes. In that post, they roll out a few numbers in an attempt to justify the change to data allowances. They claim that the amount of data passing through their network is doubling every four months (“At O2, we’re seeing a doubling of data traffic on our networks every four months”). That 97% of their users use less than the 500MB lowest inclusive allowance (“The vast majority of our users will be completely unaffected by the changes – 97% of our smartphone customers currently use less than 500MB of data every month”) and that 0.1% of their users are the ones who are using significantly more (“Nearly a third of our data traffic is accounted for by just 0.1% of our customer base, for example”).
So to be clear, 0.1% of their users are the ones abusing the unlimited data, yet based on current usage, 3% of users will have to pay more for data. But that’s not the whole story. In the comments on the blog post an O2 representative makes the following statement:
the average customer uses 200MB per month – by applying these limits across everyone they are fair and transparent.
Now we have some figures to play around with, we can attempt to work out how many people will actually be disadvantaged by these changes.
O2 say that data usage is doubling every four months. Whilst it’s difficult to get hold of current and past subscriber numbers for O2, I think it’s safe to say that their user base isn’t doubling every four months. That means the average data use per subscriber is increasing. Now I doubt that the average data use is doubling every four months (a figure which would be in line with the networks overall data usage increase rate), so let’s say that the average data consumption per user doubles every 6 months, 50% slower than the overall network usage growth. This means that your average user, who is currently using 200MB will be using 400MB in six months, 800MB in 12 months. Within 12 months they will be comfortably over O2’s new data cap, and this is an average customer who would be only part way through either an 18 or 24 month contract. This could leave many users in a difficult situation, having to either curtail their usage or pay more.
This speculation is fairly arbitrary. The unknown variable is whether mobile data usage will continue to grow at the same pace. If I were a betting man, which I am, I would bet the house on it growing faster as more capable handsets such as the iPhone 4 and HTC HDs come to the UK market.
What Doesn’t Add Up?
There’s a telling sentence in Ronan Dunne’s blog post:
So while data consumption is growing at enormous rates, our revenues are largely flat – a far from ideal situation for any business, least of all one growing as fast as ours.
So is the real problem O2 being unable to monetise mobile data use? That’s surely part of the problem, especially with Apple’s iPhone which gives mobile operators far less control than the average handset (many other phones have custom software, custom settings, default homepages etc loaded on them, the iPhone does not), but there’s another problem. O2, and they aren’t unique in this regard, failed to predict just how popular mobile data would be. Again from Ronan Dunne:
When the mobile industry first heard the word “smartphoneâ€, few of us realised how smart these devices would eventually turn out to be. Today, though, their extraordinary power is visible to anyone. They have literally changed our world, in ways that the first smartphone creators could barely have imagined; they entertain, help us navigate around unfamiliar cities or countries and keep us in touch with each other in myriad ways. For tens of millions of people around the world, it’s hard to imagine life without one.
To make all this happen, of course, we need data. And that in turn means that we are becoming increasingly reliant on data networks that were originally conceived with far dumber devices in mind. Thanks largely to smartphones, those networks are under greater pressure every day – one streamed YouTube video has the same effect on the network as half a million text messages sent simultaneously, the equivalent of everybody in Newcastle sending a text at once.
Emphasis mine.
They designed their mobile data networks for the phones that existed at the time, rather than the phones that were just around the corner. Because of this massive oversight, the customer is having to pay, and pay big.
In the table earlier in this post I put the years in which these tariffs were offered to add a bit of context. Context that shows haw far backwards O2 have gone in three years.
The changes to the tariff, specifically the data changes represent one of two things. Either it’s a cash grab on O2’s part or it’s a stop gap. The problem with the first is that they will lose subscribers, the problem with the second is that this issue is only going to get worse. Data usage will increase, average consumers will consume more and demand more, whilst expecting to pay less.
And The Rest?
As I mentioned at the top of this post, O2 have been firefighting the negative comments all day. Yet they have completely dodged the questions that ask why the voice allowance has been halved. All the talk of fairness and transparency is completely lost when they also pull a stunt like this. It also undermines their claims that this is a data issue caused by Smart Phones.
We’ve also managed to pick up a few more little bits of information regarding the changes, which I’ve listed below:
- When you go over your allowance, you won’t be cut off. Instead your speed will be capped, gradually decreasing. No specifics have been given.
- O2 will text you when you are approaching your limit, no doubt trying to sell you a bolt-on for more data. I don’t want my phone provider texting me trying to sell me something they should (and used to) provide in the first place thankyouverymuch. This is borderline spam in my book.
- MMS no longer counting as 3 SMS messages from your SMS allowance has apparently been in place for some time. I’m sure that 600 messages was plenty for most people, and they would have rather kept their MMS deal. I know I would.
- If you don’t use your entire data allowance in one month, the amount you didn’t use won’t roll over to the next.
Public Perception
The biggest problem O2 now have is one of public perception. Looking at the tariff comparison it looks as if O2 are going backwards. They don’t look like a network that’s progressing and improving, despite claims of million pound daily investments. They look like a network that’s struggling to keep up with demand. A network that got their future usage predictions completely and horribly wrong.
Me? Well I’ve used 955MB this months and I’ll probably be going on to Three, who have far better 3G coverage than any other network according to Ofcom (PDF). I can no longer call myself a loyal and long term O2 customer. This was my reaction when I first saw the new tariffs:
Great. Apple introduce multi-tasking so you can stream music and @o2 counters it with data plans from the 1990s.
Note that the new O2 tariffs are for all Smart Phones, not just the iPhone 4. However, they come into force the day the new iPhone launches, so I’ll let you put two and two together.
I’ve looked into this and my monthly usage ranges from 3Gb to 9Gb per month. I thought I was an average user but clearly I’m an abuser. Yet I don’t do anything out of the ordinary, I thought.
The thing is, the iPhone has opened up many new possibilities. In London yesterday, for example, I used Maps to find my position relative to London Bridge tube station, I used the app, ‘Vicinity’, to see what restaurants were nearby and I checked my email and facebook accounts, making a couple of responses there and then, and I also tweeted several times during the day.
These are all things you can’t do on a regular mobile phone, yet are normal for smart phones. My point is that anyone using 500Mb a month is simply not using their smart phone. They’ve just got an Apple cellphone. As they discover all the new uses so their data consumption will grow. That’s where the growth is coming from – people starting to use the power of the technology.
Until wifi is widespread – in the ether around us like your favourite radio station – we will have to use the cellphone network for data even though it’s so slow.
At these prices, O2 will be very rich and we will be very broke.
Great write-up, thanks for posting. I couldn’t agree more with Brian’s statement as well “…anyone using 500Mb a month is simply not using their smart phone. They’ve just got an Apple cellphone. As they discover all the new uses so their data consumption will grow.”
I reset my data stats this morning, and will be monitoring my actual data usage carefully until June 24 but the faster new iPhone and multitasking/ background apps, everyone’s internet usage is going to go up and that 500mb is going to be a very small ceiling height for most people very soon.
Ok, so you’re annoyed at O2s tariff changes, and not without reason, but unless you change your handset (and therefore your contract) my understanding is that your current allowances will stand. If that is the case, and you must have the iPhone 4, just buy it sim free from Europe – whether you’ll get o2 to send you a microsim on your current contract is a matter for debate, but in principle it shouldn’t be impossible – the sim is simply a means to access your contracted usage, but it depends on the wording of the contract.
To whinge about O2 building out a network that wasn’t designed for todays phone in a manner that indicates they are alone in this is unfair. All of the major networks have this problem – each cell tower only has limited backhaul to it, and with the increasing speeds in the wireless side of the technology it’s now a very real risk that one or two users could saturate a tower’s data backhaul on their own – especially so in rural areas.
This problem is one of economics – more capacity to the towers costs a lot more money both in capex and opex. It remains to be seen that 3’s network to which you plan to defect is any better once they actually start to pick up customer volume. Remember that 3 were the ones who completely “missed the point” (read: effectively limited how much data users on ‘unlimited data’ tariffs could use) of mobile internet when they started out, only offering walled garden sites.
Anyway, long story short, this is something that will eventually affect all operators, and the truth is that capacity costs, much the same as we saw in the home broadband market.
I’ve got to be honest, I have an HTC desire I bought on another network but currently use on O2 and I only clock in around a gig a month and I am what I would consider a heavy user – I have two gmail accounts and my exchange account on the maximum check frequency (push for exchange), twitter and facebook feeds on maximum frequency, and unless I sit and watch streaming media or download files (I do occasionally download dj sets directly to my handset, because I can actually do that on my device, natch), I won’t break 150meg-200meg. I use google maps, and various other network centric apps, too, such as Waze.
I would be at a loss to come up with 9 gig a month of usage without streaming movie trailers or iplayer half an hour a day, at which point I would go blind from squinting at a small-ass screen. I suppose I could listen to streaming radio all day every day but I sit at a computer all day with a broadband connection – it makes much more sense to use that.
The reality is that huge minute and bandwidth allowances are much the same as huge diskspace and bandwidth allowances in hosting – they look impressive, but as soon as people start to use them the performance for everyone else starts to suffer, and eventually you either lose your account or the provider sees sense and starts to set real limits.
It isn’t economically feasible to promise unlimited anything, and particularly not when it comes to mobile data which relies on dozens, hundreds or thousands of fixed capacity leased lines or microwave links depending on how much you move around the country.
I agree with many of the comments above. I don’t see the point in owning a smartphone if you don’t use at least some of it’s features that make it “smart”. I considered myself an average user until I checked my online bill yesterday when I was shocked to find out that last month I used 6 times what is going to be the new capped allowance by O2, ie 3gb. And I have in the last 6 days already gone over 500mb.
A typical days use for me is reading a couple of news websites a couple of times a day, catching up on facebook but seldom posting and receiving my emails which I rarely answer (unless urgent) preferring to answer them from my computer. I will occasionally check some other websites and use maps if in town, and of course I’ll download the odd app, but the novelty on that has worn off so that is rare too.
I would like to see evidence that the average user uses only 200mb a month, that seems to be impossible to me. And, if this is true then why change things? It doesn’t make sense.
At this rate I will not be able to afford to continue using my phone as a smartphone so I may as well sell it and get myself a cheap little phone for making phone calls only. I cannot understand a company such as O2 going backwards like this,