Im not sure, this is definatly a step in the right direction, and is a godsend for everyone who went with an iPhone but I don't feel its that competitive yet in what is a very competitive market!
For example, with my contract m on 3 mobile with a 1100 Direct text 18 month contract which includes 500 txts and 500 mins with 50 mins video call and ive added 3's "unlimited" mobile internet over 3G for £5 a month, and in total my contract costs me £22.50 a month!
Ok, my phone is no-where near as cool as the iPhone (its an N73 that i got a year ago) but it was free with the contract... If the cost of the iPhone was cut then maybe it would be worth it but at the moment its not for me, which is really annoying because I would love an iPhone damnit!!
EDIT: Actually, scratch my comments above, just had a quick browse round the big mobile providers and it seems that this is a very competitive price compared to what the others are offering (especialy considering the free internet browsing) unless you start messing around with cashback deals (which arent worth the hassle and dont work according to what ive read)
So kudos to O2!