UK telecommunications operator O2 will aim to break the mobile phone handset upgrade cycle with a new selection of tariffs that will be cheaper than the pay-as-you-talk and monthly contract offerings currently available.

A source familiar with the new O2 Simplicity range, which will be announced next week, said they will cut costs by scrapping the upgrade subsidy that is factored in to the cost of a standard monthly plan. Over the course of an 18-month contract, consumers and small businesses on an average £40 per month package will save £180, the insider said.

Orange has been quietly running a similar deal with sim-only packages available on its website.

Related stories

• O2 UK reduces churn, while Europe grows more slowly
• O2 lacking Apple focus
• O2 unwraps Cocoon music phone
• T-Mobile eyes hotspots and Sprint femtocells
• O2 offers incentives to end phone upgrade insanity
• EC slams roaming charges
• T-Mobile dumps VoIP restrictions
• O2 to slash monthly prices

O2 reckons Simplicity will attract business from the one third of mobile users who don't take the "free" handset upgrades offered by operators in an attempt to retain customers. They'll also be pitched as a good choice for environmentally-aware users concerned about the mountains of e-waste built up by regular upgrades.

The contracts, from a UK operator to emphasise users are not subsiding handsets, will run a rolling 30-day contract, rather than tying punters into the "contract creep" which has seen 18-month periods become standard. Users will need to supply the handset themselves, however.

The "free" handset upgrade cycle has been a fixture in the mobile phone business. O2's move is a sign of operators thinking differently to retain their voice and text revenue base as mobile VoIP takes off. ®

More comments…