I doubt O2 is down in the area... check with local friends n family that their O2 signal is fine...
Sim works in the old phone so a replacement sim shouldn't be needed.
Just checked the Giffgaff site... all their phones are unlocked so any sort of locking issue shouldn't be happening.
If it was me, I'd back up my important data... do a handset hard reset... then see what happens. Cause its a new phone I'm guessing there's not much on it so should be easy to back up or not much data to lose.
If all of this fails... you may need to contact O2 customer support or maybe Giffgaff to arrange a return or swap for a new device.
Even though you've purchased a new phone I would still run it through a black list checker just to see what outcome turns up, some phones have been known to blacklist incorrectly due to wrong information.