Lets start with the standard stuff... The new iPhone is, finally, 3G and has real GPS on it. The metal back is now replaced with a shiny plastic cover, slightly curved in the ends making the new model appear to be thinner. The "biggest" improvement is that it now comes in white. What? Yes, the expensive 16GB model has the option of a white back, with black face. What? Seems like an aesthetically challenged design, if you ask me. You either make the whole darn thing white, or keep it black... Oh well, some people wear rabbit ears with flashing lights on a Saturday night, so I guess its a matter of taste.

So, the phone is filling in the most important gaps of the previous model. So how much is this thing going to cost? Apple says, free. However, it's not as simple...

True, you can go to any O2 and Carphone Warehouse store and get it for free, provided that you sign a contract for 18 months on the £45 tariff. Sure, you get 1200 minutes and 500 texts, but who really talks that much on the phone? To use 1200 minutes you need to spend 40 minutes on the phone every day, which from my perspective requires considerable effort, especially as AIM, MSN and Skype are filling in most of our daily communication needs. (For the rest, there is always friends and a cappuccino ). All in all, the £45 contract will set you back £810.

So what is the next best option? £35 per month, which means that by the end of your contract, your bank account would have taken a £630 hit. Not bad... But, the phone is not free any more. The 8GB version costs £99. In reality, the £35 contract is more of a £40 contract if you factor in the cost of the phone, with a total outlay of £729 by the end of the 18 months.

Finally, there is a pathetic £30 contract, that only gives you 75 free minutes, compared to the 600 of the £35 tariff. You can also get it on Pay-as-you go, but using the phone for anything besides iTunes will cost you... Dearly... 

Lets open excel and plot the total cost of ownership and cancellation charges... (No one sticks around for 18 months...)

iPhone 8GB Total Cost of Ownership

Ok, so what does that mean? Until the 10th month the iPhone will cost you more on the £35 contract than on the £45. What happens if I want to cancel? Well, if you think that you wont last more than 10 months, then the £35 will cost you the least to get out of, whereas the difference is negligible with the £45 if you wait for a year. In absolute numbers, canceling your contract on the 12th month will cost you £210 on the £35 and £270 on the £45.

What happens with existing iPhone users? O2 has made a "special" offer for existing iPhone users. You can simply renew your existing contract and enjoy the same offers as a new iPhone user. Plus, your old iPhone is converted to Pay-as-you-Go. But what does that mean in terms of cost...?

Existing iPhone users - Total Cost of Ownership

Upgrade for free? It depends on your perspective... If you stick with the 18 month contract, upgrading will cost you nothing on the £45 contract, or £99 for the device on the £35 contract. If you changed to the £35 contract in May, when O2 doubled the talk time of the package, because 600 minutes are enough and you choose to upgrade to the £45 to get the device for "free", the device would cost you in the end almost twice as much than if you paid for it up-front, totaling £180...

Moreover, the moment you sign the renewal, you are increasing your cancellation cost by £450 for the £45 contract and £280 for the £35 contract. If you choose to end your contract on the 18th month, when your original contract was set to expire, you will end up paying for two and a third fully priced iPhones (£285 + £280 + £99). 

Reading between the lines of Apple's clever marketing, lie the financial facts. It's definitely not a free upgrade, nor the iPhone is free on the £45 tariff. So, weight your needs, understand the commitment and take the plunge... Or not?

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PS. The excel files used for the calculations can be found here.