Why can employees not sell their iPhones?

Why can employees not sell their iPhones?
By Michael Skapinker
Published: June 9 2008 17:24 Last updated: June 9 2008 17:24
Steve Jobs, the chief executive of Apple, unveiled a new version of Apple’s iPhone on Monday. Unfortunately, some of the phone’s most effective marketers are not around to sell it because they have been fired.
O2, the exclusive network provider for iPhone in the UK, recently dismissed several employees for buying phones at the staff discount price and selling them over the internet.
The employees concerned were probably sore, but not surprised. What they were doing was against company rules. But should it have been? To answer, we need to think about why companies offer staff discounts.
These discounts fall into two categories: discounts on companies’ own products and discounts on other people’s goods and services.
Let us start with the latter. Many companies offer their staff a package of cut-price days at theme parks, discounts on various retailers’ clothing and the like.
Why do they do it? Glenn Elliott, managing director of the intriguingly named Asperity, a UK company that puts together staff-discount packages, says companies offer employees these discounts because it is cheaper than giving them money.
“Paying people cash is the most expensive way to pay them,” he told me. Companies pay Asperity an annual fee of £5 to £10 per employee for a range of money-off offers on other companies’ goods and services. Staff, Mr Elliott said, would not be too impressed with an extra £7.50 a year. “Money off for petrol or shopping seems to be worth an awful lot more to the employee,” he said.
The discounts can be substantial: up to 30 per cent on clothing and 45 per cent on visits to tourist attractions. The providers of these products and services are happy with these arrangements, Mr Elliott said. They still make a profit, and save on marketing and advertising.
Should employees be allowed to buy these goods at a discount and then sell them on Ebay? It is hard to see why not. They have paid for them.
What of staff discounts on companies’ own products? Here the situation is slightly more complicated, but not much. Companies have several motives for selling their staff their own goods at reduced rates. They want their employees to be “brand ambassadors” – to show off their products to family and friends and to talk knowledgeably about them to customers.
But these staff discounts are also perks in lieu of pay. Without them, companies might have to pay more to recruit and retain people.
Why can’t O2 employees who buy iPhones from the company do with them as they wish? Why should the company have any more say over what they do with their phones than with their wages? If they want to give their iPhones to their grandmothers, or hang them from the trees to frighten off the birds, or sell them on the internet, that, surely, is their business.
I telephoned O2. A spokesman for the company, which is owned by Telefónica of Spain, said he could not discuss internal disciplinary matters. But he did not deny that staff had been fired.
I pointed out that the employees had acquired their iPhones legally. Why could they not sell them? “That’s an excellent question,” he said. Someone would get back to me, he promised. They never did.
O2 is not the only company that prohibits the re-selling of its discounted products. Many organisations have similar policies. The O2 case shows clearly, however, why they should not have them.
When Apple launched the iPhone last year, it struck exclusive deals with AT&T in the US, O2 in the UK, France Télécom in France and Deutsche Telekom in Germany. The companies would be the exclusive providers of iPhone services in their territories and would share revenues with Apple. The exclusive, revenue-sharing deals caused some fuss. Some saw them as limiting competition and keeping prices high. In Germany, Vodafone won a temporary ruling against the exclusivity arrangement but Deutsche Telekom managed to overturn it.
The iPhone was launched to much fanfare, but many complained about the cost. Within months, iPhone prices were cut. At the weekend, the Financial Times revealed that the new version of the iPhone would be sold at significantly lower prices than the old one. The arrangements with the service providers would also be changed, allowing AT&T, O2 and the others to subsidise sales of the handsets, helping to cut prices and reaching consumers who had held back because they thought the phones were overpriced.
The O2 staff who were dismissed were ahead of the game. Realising the iPhones were too expensive, they had snapped them up at the staff discount and sold them at a price the market thought was right. They should have been made heads of sales and marketing, not fired.