O2 Lease falling short

O2 UK is following the example set by the company’s German arm… more or less.
[It] now rents phones instead of selling them. In December the operator introduced O2 Lease whereby customers can rent an iPhone 4S 16GB for 12 months at £55 (€66) per month (the 32GB model costs £65 per month). For that price, customers get 750 minutes, unlimited texts and 500MB of data; also included in the tariff are unlimited UK Wi-Fi, tethering and insurance, in case the phone is damaged, lost or stolen. Customers who want a little more data can pay an extra £4 per month to bump their allowance to 1GB.
This is a concept that seems to be sweeping the rest of Europe, and beyond – operators in countries such as Germany, Denmark and the US are offering similar deals, where customers can pay for their handset in installments. Yet the key difference between O2 Lease and these other plans is that O2 Lease requires customers to give the phone back at the end of the contract, while under schemes like O2 Germany’s MyHandy, or Telia Denmark’s Smartaftale customers own the device once they’ve paid it off.
At first glance O2 Lease looks like it’s aimed at a narrow slice of the market (namely, Apple-worshiping early adopters). The one-year contract is good for those who like to change phones often, and the minute and text allowances are probably more than enough to satisfy most users, though the data allowance is pretty skimpy.
On the other hand, it’s going to be of little interest to those who want an Android or Windows phone (although O2 has suggested that if the reaction is positive, it might add other phones to the scheme). Also, £660 over the course of a year is expensive, considering that UK consumers can buy the same device outright for £499 and take out a SIM-only contract from O2 starting at £10.50 per month. And if they want to trade up after 12 months they can sell their phone off for a good chunk of the original price.
It’s a step in the right direction, though, as O2 moves away from the model of selling heavily subsidized handsets. As handsets become increasingly expensive, and with possible changes to accounting rules in the pipeline, more operators will be looking for ways to keep customers hooked and paying for the device.

Francesco Radicati is a research analyst with Informa Telecoms & Media