O2 Publishes iPhone Prices, Will 3 Undercut?

UK operator O2 has published its price structure for Apple’s new iPhone 4. With O2 keeping prices high, 3 UK is now the best hope for price competition, according to rumours.

O2’s prices confused many potential customers, as the two-year contract appears to offer a much worse deal than the 18 month agreement. O2 followed Orange, which released its prices yesterday. A set of prices was briefly leaked on Vodafone’s site on Monday, and Apple has been selling SIM-free iPhone 4s, although its pre-order stock ran out in 24 hours. In the US, AT&T and Apple servers failed under the pressure of pre-order sales.

Micro-SIM lock-in explained

According to O2’s published tariffs, users can get a 16GB iPhone 4 on an 18 month or 24 month contract, paying £209 up front and £30 a month for the 18 month contract, or £279 up front and £25 a month for the two-year deal.

Those contracts include 100 minutes of talk, free Wi-Fi and a 500MB of cellular data – O2 has abandoned unlimited data bundles following high demand for mobile data by iPhone users, and the emerging demand for data on the iPad.

Users can pay higher rates to have greater data use and more talk-time, with the price of the handset falling depending on how much they are prepared to commit to O2. To get a 16GB iPhone 4 for “free” (or no up-front cost), users have to commit to £60 per month for two years, or £65 a month for 18 months – and will also get an allowance of 1GB of data per month.

As with Orange, O2 is offering an explanation of the micro-SIM which the iPhone 4 uses. Smaller than a conventional SIM card, the micro-SIM is used in both the iPhone 4 and in the iPad, and has been accused of increasing the difficulty for iPhone customers changing from one device to another, or using other SIMs in their device – although some determined users are getting around the problem by trimming down conventional SIMs to fit iPhone 4s and iPads.

The high price of the two-year contracts has caused confusion amongst users, who tweeted queries to O2 asking if the site had a misprint, but were simply told that if they didn’t like it they didn’t have to take the two-year deal. “You’re welcome to take any tariff you like,” the operator tweeted back.

Can 3 undercut?

With T-Mobile and Vodafone still to declare their hands, attention is shifting to 3, which has traditionally been a mass-market provider of lower-cost handsets.

”We don’t currently have the iPhone, and we don’t really have any smartphones,” said 3 chief executive Kevin Russell last year when he announced 3’s intention to ship the iPhone in 2010. This week various sites have reported 3 executives have been in tough negotiations with Apple to make sure 3’s rates are the best, but so far no figures have been presented.

In addition to a larger battery capable of 7 hours of talk time and a thinner body, the device includes a front-facing camera for video conferencing and a built-in three-axis gyroscope. Its iOS4 operating system, previously dubbed “iPhone OS 4,” includes new features such as multitasking.

Sales of iPhones are far ahead of sales of the iPad, although Apple sold a million iPad tablets in thirty days after launching, which began shipping in the UK at the end of May.