'

T-Mobile, O2 urging customers not to upgrade

As the credit crunch takes hold, mobile operators are encouraging customers who are at the end of their contracts to take a discounted tariff instead of a new handset

Some UK mobile operators have begun trying to dissuade customers who are near the end of their contracts from upgrading their handsets.

The operators are instead offering such customers discounts on their monthly tariffs. The strategy is tailored to this financial quarter, when customers are beginning to feel the effects of the credit crunch. It means the operators do not have to spend as much money on new handsets, which they would typically give to customers for free or at low cost in exchange for staying with the network in question.

"Some customers are happy with their existing handsets and would rather take an option that allows them to save money, particularly in these credit-crunch days," Jonathan Earle, O2's head of consumer post-pay acquisitions, told ZDNet UK on Friday.

Earle said that as of last Monday, O2 began offering customers the choice of deferring their upgrade until January. If they do so, they can receive a £15-a-month discount on their subscription. He added that the offer will be reviewed in January.

T-Mobile is taking a similar approach to customer renewals. "T-Mobile has reviewed its customer-retention programme for the fourth quarter of 2008, with an emphasis on providing customers whose contracts are due for renewal significant savings in the form of airtime discounts and loyalty bonuses," a spokesperson for the operator told ZDNet UK. "We believe that in the current economic climate, most customers will welcome the opportunity to make savings on their monthly bills."

All T-Mobile's customers who are at the end of their contract will still have the choice of upgrading their handsets during the last three months of this year, but fewer may be entitled to a free upgrade, following a review of the eligibility criteria for mobile-phone upgrades, the spokesperson added.

T-Mobile's spokesperson said the company believed discounts would meet "most customers' desire for more-0affordable mobile communications".

However, not all operators are adopting this approach. Vodafone told ZDNet UK on Friday that it was not offering customers tariff discounts in place of upgrades. Orange had not, at the time of writing, responded to a request for comment.

Telecoms analyst Dean Bubley told ZDNet UK on Friday that he thought some operators were looking to increase customer loyalty while still reducing the expenditure they have to make on customer retention. He contrasted the situation now with the situation 18 months ago, when many people whose mobile contract is due to expire would have signed up.

"Eighteen months ago, people had Nokia N95s and quite nice phones which came out a while back," Bubley said. "Firstly, there is not anything spectacularly better that [customers currently] want to upgrade to. Also, the operators in the UK have for a long time have tried to persuade people to go onto longer cycles — 18 months ago, operators tried to shift people from 12-[month contracts] to 18-month contracts. They used high-end phones to almost bribe people to go onto 18-month contracts, and now all the 12-month plans are [perceived as poor]. I guess we're now going to see operators try to shift people to two-year contracts."

"That's not very good news for handset manufacturers," Bubley continued. "Clearly the upgrade cycle drives a very substantial amount of profitability."

Bubley added that the operators may be trying to impress their shareholders, who are scrutinising how the mobile providers are using their cash. "Anything they can do to make their next couple of quarters' numbers look better, in terms of cash out, is a good thing. It makes their metrics look a bit better. And they can also do this at a time when it appeals to their customer base."

"In the past, when everybody had lots of money, they could go somewhere else if they didn't get an upgrade," said Bubley. "Now the operators are tapping into their customers' desire to save cash."