O2 offers contract upgrade to iPhone 4

The iPhone 4 is available through all five UK operators

O2 has announced that it will allow customers to buy out their existing contract and upgrade immediately to an iPhone 4, but the deal may not be as generous as it first appears, experts warned.

None of the UK networks has yet announced tariff details for the new Apple handset, but O2 has made the first move by offering an upgrade option allowing customers to pay a one-off charge equal to £20 for each full month left on their contract.

However, Tim Shepherd, an analyst at Canalys, believes that the option is not necessarily the best move for consumers.

The cost of the contract buy out and the need to commit to an 18- or 24-month contract could make it an expensive option, he said.

A calculator on the O2 web site helps to estimate how much this upgrade will cost, and appears to reinforce Shepherd's view.

If a customer has 10 months remaining on a contract, they would have to shell out £180, then sign up to a new contract which in all likelihood would require them to pay an upfront sum for the handset.

Shepherd said that he would be surprised if Vodafone and Orange followed suit as they have stocked the iPhone 3GS only for a few months and would have warned customers of the iPhone 4's imminent arrival.

However, Shepherd explained that Three joining the list of iPhone 4 stockists will have an impact on the market.

"Three has been very aggressive with tariffs and extras in the past, and it may offer bundles or accessories," he said.

"With the iPhone 4 widely available, there is likely to be a surge in demand. The landscape will definitely be more competitive."

O2, Orange, Vodafone and Three will begin taking pre-orders from 15 June and will sell the device from 24 June. An announcement from T-Mobile is due in the coming weeks.