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O2 to stop ‘Unlimited’ data for iPhones

Published: 16/06/2010 by Comments

With the rising popularity of the smartphones, and the data-intensive web services that these devices enable access to, the phone networks are becoming increasingly congested, prompting many operators to reconsider their “unlimited” data download deals.

In a move described as “inevitable” by analysts, O2 has become the first operator to scrap its unlimited download offers for its smartphone customers. In its place, O2 is introducing a multi-tiered model, with usage capped between 500 MB and one GB, depending on the monthly tariff of the user.

Users with the network’s cheapest tariff of £25 per month for two years will be allowed a monthly limit of 500Mb, while the £60 per month tariff rate will see a usage cap of one GB. Once a user exceeds her cap, a £5 surcharge shall apply for every additional 500 megabytes of downloads.
The changes shall kick in from 24 July, the same day as the iPhone 4 - Apple’s latest data hungry wonderphone - is launched. Current customers will be able to stick to their unlimited data plans until their contracts expire.

According to O2, the new charges shall affect only 3% of its 21 million users. Ben Wood, from the research firm CCS Insight, said that this 3% demographic accounts for about 36% of the traffic on O2’s network. With many users complaining about poor speeds and network coverage, Mr. Wood comments that if O2 can get it right, its entire customer base will enjoy improved services.

Thomas Wehmeier, principal analyst at Informa Telecoms and Media, labeled O2 “the poster child of the capacity crunch era”. O2 has to spend around £1m every day to upgrade its network in order to be able to deal with the exponentially increasing network traffic, a practice Mr. Wood says cannot be continued indefinitely unless the changes were made to its revenue model.

O2, with its massive smartphone customer base, is a victim of its own success, and there are some fears that new changes risk alienating many of its subscribers. However, O2 claims that for an average user, a 500MB cap is two and a half times more than her monthly usage.
Mr Wehmeier concurs with O2’s assessment. Despite talk of “data-hungry” smartphone users, majority of the user base will see their needs comfortably met by the 500MB monthly limit, he said.

O2’s CEO Ronan Dunne describes the move as “the foundation for a sustainable data experience for all customers”.

However, Mr. Woods points out that there is the risk of the competing operators wooing the top 3% customer base of O2. Yet, with both Orange and 3 is preparing for a similar moves, T-Mobile currently reviewing its policy, and Vodafone having dropped the term “unlimited” last year from its promotional material, the competitive threat seems limited.

O2’s changes mirrors similar policy shifts by the AT&T network in the US.

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