More Thoughts on Phone Subsidies

Are handset subsidies worthwhile for business cap plans?

Last week I wrote an article looking at phone subsidies on consumer cap plans, with a view to providing a basic idea of whether getting a mobile phone on a plan was better or worse than buying it outright. This week I’m going to both simplify the process, and apply the same insights to business cap plans.

There are also a few things to bear in mind:

  1. Getting a handset on a plan is only a good idea if you need to be on a plan. I've seen people sign up to contracts just to get the phone, even though this costs considerably more in the long term. 
  2. It is generally safest to prioritise the correct plan over the desirability of the handset. Your handset savings will vanish very quickly if you exceed your cap, and suffer bill shock.
  3. Higher plans provide better subsidies for more expensive phones. Again, this should be obvious, but some people forget this. If you need to be on a high plan, you might as well get the best phone you can.

To review: the first thing you’ll need to do is work out the real value of the subsidised phone. To do this you’ll require four pieces of information:

  1. The phone you want;
  2. The cheapest reasonable cost of buying that phone outright;
  3. The plan that is most suitable for your needs, that includes that phone;
  4. The most similar plan that includes no phone.

With this information we can conduct a fairly meaningful comparison, and get it to the point where you can make a realistic choice, since it isn’t always just about the cost. Let’s apply that to some actual hardware and plans.

Example 1.

  1. Let’s say you want an iPhone 5 16Gb (in which case you certainly aren’t alone).
  2. The cheapest you’ll pay outright for that phone is $799.
  3. Let’s also say that you’ve decided to go with Telstra, because you like their coverage and their mercifully animal-free advertising. You’ve decided that their $60 Business Performance plan is the right one for you, based on your call and data requirements. To get this phone on this plan costs an additional monthly contribution of $7, for a total of $67.
  4. However, if you were to purchase this iPhone from Apple outright, you could source the same plan from Telstra in a BYO version from Telstra for $50 per month.

Armed with this information we can say that the real cost of the subsidised iPhone 5 is $408. 

To derive this figure I took the monthly difference between the subsidised plan and the BYO plan ($67 - $50 = $17) and multiplied it by the length of the contract (24 months). Therefore the difference between the subsidised iPhone 5 and buying one outright is $391 ($799 - $408). (The subsidised phone will also be locked to Telstra, but can be unlocked free of charge. It isn’t rare for them to subsequently appear on Ebay.)

Example 2.

Let’s say you want the same phone, but you’re a much heavier user, and that some months you make a very large number of calls.

  1. You still want an iPhone 5 16Gb.
  2. The outright price is still $799
  3.  Due to your heavy and unpredictable usage, you require an unlimited plan, which on Telstra costs $130 per month. This phone costs no extra each month on this plan.
  4. However, this plan is also available in a BYO version for $100.

Using the above calculation, we can therefore say that the cost of the same phone on the higher plan has actually increased, to $720. This is only $79 cheaper than simply buying the phone from Apple.

How is it that going onto a much higher plan actually decreases the value of the subsidy? As I said at the top, the answer is that higher plans provide better value for more expensive devices. Each phone actually has a kind of ‘sweet spot’ in terms of a plan that provides the most valuable subsidy, and this will differ from phone to phone, and from carrier to carrier. I’ve used Telstra in these examples, but it holds true for every carrier (and Telstra is invariably the least generous when it comes to device subsidies).

There is another point to reiterate here, which is that it might seem on the face of it tempting to choose your plan based on achieving the optimum handset subsidy. I can tell you from long experience that this is almost never a good idea. You’re generally safer going on the plan this right for your usage. There are exceptions, but now that the golden age of the handset subsidy has passed these are growing much rarer. Always choose the plan that addresses your needs.