UK Cellular: 02 goes mass market on upgrade cashback

It has been well known that for quite some time a call to cancel your mobile contract brings forth all sorts of special offers not normally published by the network operators and certainly offers that any independent retail network would struggle to match. These offers have taken the form of better handsets, discounted tariff plans, free extras or basically anything bar the kitchen sink to keep your custom.

Today, o2 has gone public with one of its offers and even added a green tint for the eco-shoppers with a £100 cashback offer for a 12-month upgrade, if no handset upgrade is required. Notice, this cashback is immediate and doesn't require the production of a million pieces of paper to prove qualification.

This is interesting not because of the offer per-se, but more because o2 is openly publishing that killer upgrade deals and money saving offers are available without leaving the comfort of your own couch. There is certainly no need to go to an independent retailer and get an upgrade or even, heaven forbid, think of churning to another network.

For O2, the economic variables of the offer are pretty straightforward:

• they do not have to supply a handset upgrade which would probably around £100 on average;
• they do not have to pay an upgrade commission to any third parties;
• ARPU’s probably remain constant with the discount appearing as part of the retention costs; and
• the likelihood of churn is sharply reduced.

O2 had at Dec 2006 around 6.2m contract customers, if only 5% of these take up the handset free option at upgrade time (or around 310k), I would guess the promotion would be seen as wildly successful.

For the large independent mobile phone retailers the Annus horribilis continues:

• no-one now sells a full selection of all operators services and therefore complete independence cannot be claimed;
• the operators continue with their 18-month (or even some are going to try 24-month) contracts which reduce the amount of churners and upgrades; and now
• the operators try to disintermediate the retailers on upgrades by making a push direct to consumers and taking the handset out of the equation.

The balance of power keeps on shifting towards the network operators and away from the independent retailers.