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Are Apple & O2 changing the subscription model?

Apple may have changed the mobile phone subscription model, without anyone yet realising… So reckons Jon Mulholland — and it’s a perspective I asked him to expand on when we were discussing it by email. He’s been kind enough to put down his thoughts thus:

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Here’s an interesting question, how do you think O2 will manage iPhone customer upgrades as future versions of Apple’s wonder-device are released?

Speculation is rife that a 2nd generation iPhone, presumably with 3G HSDPA amongst its enhancements, is on the way for next Spring. Apple will almost certainly have released a newer iPhone model before this time next year. What will happen to customers in the UK (and Germany and France for that matter), who at that point would have had their devices for less than 6 months? Will launch of the new device be delayed in these countries for the sake of this first wave of iPhone customers?

I’m betting that O2 will let customers – no make that encourage customers to – upgrade to the new device well before the end of their existing contracts. Think about it for a minute, what reason would 02 have for wanting to prevent any customer who’s just bought the first generation iPhone from upgrading to a newer model?

Usually networks prevent handset upgrades during contract term because the cost of the device is subsidised in line rental over the lifetime of that contract. This is not the case with the iPhone, as all of the handset cost has been paid upfront by the customer at point of sale. If a customer wants to upgrade from the current iPhone to a newer version less than 18 months later, where is the downside for O2? In fact, why not happily upgrade customers to a newer iPhone (taking another small percentage of the hardware sale in the process) and use that opportunity to reset and extend their existing 18 month contract?

In doing so Apple and O2 create a new contract renewal / upgrade path model, one that guarantees a ‘recurring lock in’ of iPhone customers and revenue. O2 keep extending contracts and Apple sell yet more iPhones. Smart eh?

From the outset Apple have been open about wanting to change the mobile phone purchasing experience; device registrations are done at home and sales advisors are pretty much removed from tariff selection. I’m willing to bet that changing the device upgrade path is also part of that strategy – I just don’t think that the other networks have realised this yet.

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A brief overview of Jon:

Jon Mulholland is a People & Technology Change Consultant working in the UK mobile industry. His personal thoughts, ideas and ramblings can be found on his blog (www.jonathanmulholland.com) and Twitter (www.twitter.com/jonmull).

Jon, thanks very much indeed for taking the time to write this.

What do you think? Do you think the subscription model has changed?

By Ewan

Ewan is Founder and Editor of Mobile Industry Review. He writes about a wide variety of industry issues and is usually active on Twitter most days. You can read more about him or reach him with these details.

15 replies on “Are Apple & O2 changing the subscription model?”

I totally concur with Jon’s comments. All the fuss about a 3G iPhone coming out and upsetting the early adopters, well who cares if you can upgrade mid-contract? As Jon says it makes perfect sense for O2 and Apple to keep these customers locked in. It helps prevent churn, it keeps customers happy, it keeps people away from promotional tarrifs.

Apple is the master at getting people to buy twice, people buy 1st gen, skip 2nd gen, then get the 3rd gen of hardware.

Is it a good thing? Not sure – I prefer SIM free kit generally – but I understand why Apple like to own the whole experience.

Makes a lot of sense, and ties up most of the loose ends. Except one.

What happens to your old iPhone when you upgrade to iPhone2.0? Is it ‘officially’ bricked as per the O2 conditions of service? do they unlock it but block phone services? do you have to hand it back to get your new phone? Do they offer a reduced contract so you can pass it on to a junior member of the family?

The old model of selling phones and network subscription , locked and unlocked phones outside of USa and locked phones in USA have been around so long that no one thought it could be any different, until now. Isn’t that what innovation is all about? Apple has only one phone in the market place, and even then for only 4 months and not even in a “mass market” segment. yet it disrupts the existing business models so much that handset manufacturers, software companies, network providers and governments are all frantic. This is truly strange. Vodafone suing T Mobile? And yet they had also competed and tried to get the iPhone deal with Apple? Maybe this is a new business model to be tried. Let the consumer decide. There is enough competition out there…many network providers, many phones, many consumers, much content. Why should the authorities intervene? By doing so , they are actually trying to preserve the old business model and not permitting any new ones to evolve. Think about it.

Just for the record, saying “Are Apple & O2 . . . ” is improper english. It should be “Is Apple and O2 changing the subscription model?” That’s because the term Apple is “singular”, referring to a single company, nor plural. The same with O2, which is also a single company. For example, to say “Is Mom and Dad coming back soon? That’s correct english. You wouldn’t say “Are Mom and Dad coming back soon?”. On the other hand, if you’re referring to more than one Mom, such as, “Are Moms better than Dads?, then that would be correct english. It would also be correct if you said, “Are apples sweeter than oranges? That’s because then the subject is plural.

@psionandy: That’s a good point, perhaps you’ve just outlined a couple of ideas for O2 to think about. The reduced contract idea could be a good one.

Maybe Apple will offer a firmware version that removes the ‘phone’ and turns your old iPhone into an iPod Touch…

Secret Squirrel, that just doesn’t sound right to me! “Is Mum and Dad coming back soon?” Strange!

@secret squirrel …You’re wrong. It’s all to do with what is inferred in the question but absent from the sentence.
When you say ‘Are Apple and O2…?’ you are effectively saying ‘Are they(Apple & O2) …?’ since Apple and O2 = 1 + 1 = plural(they, collectively).
However if you were to say ‘Is Apple and O2’s policy right?’ say, you would be correct in that the relevant noun(policy) is singular

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