O2 tries to put pressure on Ofcom - by frightening subscribers

Ofcom is examining the levels of termination rates in the UK and is already on record as saying that they remain far too high - and now O2 is getting it's retaliation in early by saying that at one extreme "free" handset offers might disappear whilst, at the other end of the consumer spectrum, tariffs for smartphone services (such as the immensely popular iPhone, to which O2 still retains exclusive rights) "will have to rise".

The fact remains however that "free" handsets are no more free than the proverbial "free lunch". Their costs are factored-in either to post-pay tariffs or pay-as-you-go rates. Meanwhile any operator can try to hike its smartphone tariffs but when contracts come up for renewal (and remember that many of them are now for a minimum period of 18 months at least and consumers hate being locked-in to such one-sided agreements that are hedged around with punitive monetary penalties for those that decide to go elsewhere) angry subscribers who feel exploited will churn away to other networks. As we all know there is no brand loyalty in mobile telephony.

In the end though it will be competition, red in tooth and claw, that will sort the wheat from the chaff and all the exclusive deals and long contracts on the planet come to an end sometime - and when that happens operators judged by the public as being rapacious had best beware.

Ofcom's current price-cap regime expires in 2011. The regulator wants connection charges "drastically reduced" thereafter and is entering negotiations with telcos to come up with an agreed timetable and formula for change.