O2, the UK’s second largest mobile operator by subscribers, will aim to move the majority of its customers away from traditional annual phone contracts to handset plans with simplified service tariffs.

The group, which is owned by Telefónica, will today announce plans similar to the tariff overhaul recently unveiled by T-Mobile in the US that decoupled the cost of the phone from the cost of calls, texts and data. Customers will be able to buy a phone outright, or pay in instalments over time, and then sign up to a separate service contract that can be cancelled or changed at any time.

Unlike T-Mobile USA, O2 will keep its more traditional contracts, although a spokesman said that it expected the majority of its customers to move to the newer, more flexible tariff. It will also mean that customers can leave the network to a rival as long as they pay off the cost of the handset. Like in T-Mobile USA, customers will in effect by tied to the phone contract rather than the service contract.

O2 said that the new tariff, called O2 Refresh, allows customers to get the latest phone whenever they want without having to wait for the end of their contract. Customers can pay the remaining balance for their phone and start afresh with no termination fee, or use O2’s service that allows trading in old mobiles for cash.

Once the customer has paid the balance of their phone, the monthly payments reduce to just the cost of the airtime plan. Overall, O2 said that customers would pay the same as they would on a standard contract with added flexibility. It will also allow O2 to account for the cost of the phone differently by showing the phone as an upfront cost.

Feilim Mackle, sales and service director at Telefónica UK, said: “Mobile phone technology continues to advance at a rapid pace, yet the way phones are sold has remained largely static. Increasingly our customers are telling us that they don’t want to be tied to the same phone for two years and, with 4G coming to O2 this summer, we want to make it easier for our customers to benefit from the latest technology.”

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