Summary:

As price competition continues to put pressure on mobile operators, O2 has come up with a new customer retention strategy: give them a game…

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As price competition continues to put pressure on mobile operators, O2 has come up with a new customer retention strategy: give them a game instead of a phone.

Industry watchers are expecting Kinect, the Xbox hands-free games controller, to be a sell-out this holiday season.

Mobile operator O2 is jumping on the hype by announcing a deal for subscribers renewing their contracts: instead of a new phone, they can pick up a bundle that includes the Kinect and an Xbox 360, for £190 ($305) – a price that is undercutting other retailers by £60 ($96).

The £190 deal, which is only available to O2 subscribers renewing their mobile phone contracts to a two-year, £25/month ($40/month) deal, lets users take the package in lieu of a new handset. O2 subscribers who want to purchase the Kinect bundle on its own pay £390 ($627). Both deals also include a choice of either a game – Dance Central or Kinect Sports – or a 12-month Xbox Live subscription.

The Kinect offer is an interesting move from O2. It underscores how mobile retailers and operators have been moving beyond handsets and mobile services to secure customers in an ever-more competitive market. CarphoneWarehouse, in particular, has been offering free gaming devices bundled with handsets and monthly phone contracts.

But the Kinect deal may be the first instance where an operator has offered a non-mobile device in place of a handset, as a way of enticing users to stay with the mobile operators.

What would be interesting to see is whether it costs O2 less to offer a Kinect than it does a subsidised smartphone.

Selling consumer devices like the Kinect could also be O2’s attempt to get more traction with customers for other, non-mobile services.

O2 has been aggressively expanding its broadband operation – Q3 numbers will be reported tomorrow, November 12 – and selling Internet-enabled devices like the Xbox gives them one more avenue into eventually being able to offer them connectivity for that, too.

A spokesperson from O2 declined to say whether the operator would be extending this marketing scheme to other products.

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