iPhone tethering creates headache for O2

Unsurprisingly a work-around has already been found for the need to buy an add-on for tethering the iPhone 3GS to use it as a modem. A downloadable app from benm.at will do the trick, although O2 have commented that this unofficial tethering is prohibited under its Ts&Cs.

In my recent report for Analysys Mason, Mobile broadband devices: from USB modems to where? I predicted that this handset-as-a-modem option would see only modest uptake for various reasons including the fact that it is rather too clunky to be user friendly and it's not in the interests of the MNO or vendor to push it. Of course, if it's free, that's a different matter.

The problem with the iPhone is the inclusion of unlimited data packages for free with all contracts. Where subscribers are being charged for flat-rate mobile internet tariffs the charges are typically more per-GB than for mobile broadband. So there's little problem for the MNO with tethering, permitted or otherwise. There's some minor revenue leakage as a result of users being able to share a bundle across MBB and mobile internet, but the implications are probably modest. However, there more of a problem where all the additional usage isn't generating any more revenue, particularly where the month fee is not that substantial and the plan is actually unlimited.

A typical iPhone 3GS user is paying £175 up front for a 600 minute/500 SMS/unlimited data package over 24 months at £34.26/month. This is only £15-ish/month more than the equivalent SIM-only offer which includes no free bundled data and (of course) no heavily discounted iPhone. This is fine for O2 as long as it isn't also cannibalising mobile broadband revenue which should also be generating £10-£15/month from the same subscriber.

Whether this becomes a problem depends on how stringently and effectively O2 implements their fair usage policy. It'll be an interesting test. T-Mobile has run into problems enforcing the no-Skype rule on its network and I suspect O2 might find itself in the same position.