Probably ecause they can't achieve over 400 kbps on Pay and Go.
I can't see why not. I have a Three dongle and it's on PAYG. When I run out of credit, I run out of internet. Simple. What stops o2 doing this with tethering? The only thing I can't really complain about is the fact that I still have a few months free web surfing on o2, and will gladly pay a tenner a month when the freebie is up because I do most of my basic surfing on the phone. It's so much more convenient than lugging a laptop around -although I am still a little miffed about the no tethering on PAYG. I always think, like, if Three could do it when I had a Three phone on PAYG, why not O2 with the iPhone?
Interesting to see at the keynote that we iPhone users count for so much of mobile net usage. Is there any wonder since browsing on iPhone is such a natural and intuitive experience? Maybe that's why AT&T are being so fussy in the US. Give us the option and we'll cane it. Sweet.