O2 running low on iPhone 3GS model, subscribers may abandon ship

Earlier this week, on Monday, the UK's third largest mobile operator Orange announced that an exclusive sale agrement between Apple Inc. and O2 has been terminated, allowing it to sell the much-wanted handset.

A day later, bigger rival Vodafone said it has secured a similar deal with Apple to stock and sell iPhone albeit from 2010.

The series of announcement made people feel that the operators were gearing up for a bitter price war during Christmas, the country's most important festive season, as all three operators will try to woo customers by offering price cuts and shorter contracts than those presently being offered by O2.

The handset - which is sold in Apple and O2 stores and in Carphone Warehouse, the high street mobile chain - is currently available free on some O2 contracts but customers are still required to "lock-in" for 18 or 24 months and to pay up to £74 a month for calls and texts. On the other hand, pay-as-you-go customers have to shell out £538 for a 32GB model or £440 for a 16GB model.

Along with the threat of a looming price war, another concern is growing whether Apple would be able to meet the demands of more networks offering the popular extreme of the iPhone viz. iPhone 3GS.

"We are currently unable to make enough iPhone 3GS to meet robust demand and we are working to address this," Peter Oppenheimer, Apple's senior vice president and CFO, had said in July 2009, when the company's most recent financial results were announced.

Though an Apple spokesperson said they have enough units to meet the huge demand the device would generate during Christmas, the biggest sales time for such a product, iPhone fans remain sceptical and some of them believe that O2 is already running low on stocks of the advanced handset and would soon run out of them.

A quick glance in O2's website will reconfirm the same story - that it is running extremely short of certain models of the fashionable mobile.

According to an O2 salesperson, 16GB version of iPhone 3GS is highest in demand and it is possible that soon one would have to wait for a month or two before one can lay his/her hands on this model. O2 still has the older iPhone 3G models available. This model is slower than the 3GS, does not have a video camera, nor does it come with the option of 32GB.

"We continue to see extremely high levels of demand for the iPhone which means it comes in and out of stock very quickly and will be why the website hasn't had any," the salesperson said, adding that though it is not possible to buy a black or white 16GB 3GS iPhone over the internet, yet "one can check out whether any O2 store is stocking one and then he/she can pick one up in a store."

However, Mark Mulligan, vice president and research director of Forrester Research, feels Apple will not commit the blunder of making its latest version of iPhone available on multiple networks in the UK if it knows it cannot "meet consumer demand."

“There is no doubt that Apple is still adjusting to being a player in the mobile phone market. It’s a different game than what it’s used to… However I expect it will be building up its supply chain in advance," Mulligan said.

"Apple is usually good at avoiding disappointing consumers compared to its peers," he added.

When contacted, a staff supervisor at a London O2 store told International Business Times that shops were expecting the next batch of iPhone 3GS models to be delivered by the end of this week or the beginning of next.

But, besides running low on stock, O2 also faces the threat of thousands of its subscribers returning their iPhones and terminating their contracts so that they can pursue better and more attractive ones offered by Orange or Vodafone.

Some O2 customers are also reportedly unhappy that the operator will not allow them to upgrade their older 3G iPhones to the new 3GS model unless they pay-out the remainder of the contract term.

However, O2 said it is not planning to offer its subscribers a better deal in order to convince them not to cancel their iPhone contracts. "We always knew that iPhone exclusivity was for a limited period of time, but our relationship with Apple continues and will be an ongoing success," the company said in a statement. A company official said they are confident that their customers will not abandon ship as most contracts run till 2010 or even 2011 with a pre-termination penalty clause.

O2 began selling the iPhone in November 2007, and the exclusive contract enabled the operator to poach customers off rivals such as Orange and Vodafone and consolidate its position as the largest network in terms of subscriber base. The group has sold more than 1.5 million iPhones till date and has over 20.7 million subscribers.

Meanwhile, adding salt to the wounds, Orange also said on Thursday that its network coverage was better than its rivals and it offered better tariff plans.

"The UK is the most competitive market in Europe. The way we position this device (iPhone) is that we have the best 3G coverage in the UK so if you are looking for the best 3G handset on the market - what you want is to have it on the best 3G network," Francois Mahieu, Orange UK's director of devices, said.