It means you don't have to pay them.
O2 will cover the cost of upgrade.
When you upgrade you take a new contract and pay the new price going forward.
The free bit is that O2 pay off what you owe on the old contract so you don't have to pay it yourself.
They pay what you would owe on the old contract to upgrade early.
Track usage, upgrade and get support with the My O2 appDownload My O2