Pricing the Cost of a Handset

The purpose of this article is to show you how to work out the most cost-effective way to acquire a new mobile handset – whether it is cheaper to buy the phone outright, or to get it included with a plan. There still seems to be a great deal of confusion about this.

Recent analysis has shown that Australians are increasingly buying their mobile phones outright. There are a number of reasons for this. For one thing, getting a phone on a plan typically locks you to that device for 24 months, and customers – especially younger ones – are increasingly keen to upgrade their handset more frequently than that. This is why Apple and Samsung release new flagship handsets every year.

Perhaps more importantly, however, is the simple matter of cost. While the prices of the premium handsets that drive the market – iPhones, Galaxies etc – haven’t fallen significantly, the willingness of telcos to subsidise that cost has vanished. It used to be that you could get an excellent phone included on a relatively modest plan, but those days are past. Now the best phones are only included on higher plans, and often there are extra charges, both hidden and overt. Dog and Bone looked at this issue several years ago – the article is still well worth a look. But costs are different now, and plans have become even worse value.

The first, and most important thing you should know when working out which option is best for you, is which plan you really need to be on. Ignorance, in telco land, is not bliss; it is expensive, and telco loves to sell plans based on the urge to own a lovely device. Do not let the device drive your choice of plan. It can inform it, certainly, but your plan choice should be determined initially by an honest appraisal of your actual phone usage. I long ago lost count of the number of times users and businesses signed up to vastly over-serviced plans in order to secure ‘free’ or ‘cheap’ handsets, thus spending far more in the long term. So, to stress it again: to start with, ignore the handset!

Broken down, this is the information you will need, and the process:

  1. Ascertain your ideal plan, based on your actual usage. This should be a plan with no phone included (i.e. a BYO plan).
  2. Multiply the cost of this plan by 24.
  3. Work out the outright cost of your desired handset.
  4. Add the results of steps 2 and 3 together. This is the 24 month cost of buying a phone outright.
  5. Find a plan that includes that handset. Make sure you have the total cost, including extra monthly handset charges.
  6. Multiply the cost of this plan by 24. This is the 24 month cost of getting a phone on a plan.
  7. Compare the results of steps 4 and 6. This will tell you which is cheaper.
  8. If it turns out that buying a phone outright is cheaper, you now have the exact value of the difference. Only now can you weigh that difference against intangibles such as coverage levels, customer service quality, taste in logos, or whatever you may deem important.

Example 1:

Sally wants a new iPhone 5S (32Gb), so let’s look at the most cost-effective way to secure one, appropriate to her situation. For the purposes of this example, Sally really likes Optus. (Perhaps she’s taken with that odious little lemon drop mascot. Who knows?)

  1. Sally has examined her last few bills, and worked out that she uses less than 1Gb of mobile data per month. Her call usage would fall comfortably under Optus’ $40 My SIM Plan.
  2. The total cost of this plan over 24 months is 24 x $40, or $960.
  3. The cost of an outright iPhone 5S (32Gb) is $999.
  4. The total cost of buying the phone outright with this plan is therefore $1,959 over 24 months.
  5. The cheapest Optus plan that includes an iPhone 5S (32Gb), appropriate to her requirements is the $60 My Plan. Getting the phone on this plan costs an additional $19 per month. Total monthly cost is thus $79.
  6. The total cost of this plan over 24 months (it is a 24 month contract) is $1,896.
  7. Buying the iPhone 5S (32Gb) outright is thus $63 more expensive cheaper over 24 months ($1,959 - $1,896).
  8. Given both options are on Optus, there is little comparison to be made. The subsidised phone on the plan is overall slightly cheaper. Sally will have to decide if she is willing to pay $63 to avoid being locked into a 24 month contract. On balance I'd say that's worth it.

Example 2:

But wait! Sally has heard that some of the budget resellers offer very cheap BYO plans, and decides that maybe she isn’t as fanatical about the Optus mascot as she’d thought. She decides to check these other carriers out. Same phone: iPhone 5S (32Gb)

  1. Sally has examined her last few bills, and worked out that her usage would fall comfortably under Vaya’s $18 Power Plan. She uses less than 1Gb of mobile data per month.
  2. The total cost of this plan over 24 months is $18 x 24, or $432. Sally also prefers not to go on a 24 month contract, so she pays an additional $20 upfront for the month-to-month plan, bringing the total cost of the plan to $452.
  3. The cost of an outright iPhone 5S (32Gb) is $999.
  4. The total cost of buying the phone outright with this plan is therefore $1,451 over 24 months.
  5. The cheapest Australian plan that includes an iPhone 5S (32Gb), appropriate to her requirements is Vodafone’s $50 Plan. Getting the phone on this plan costs an additional $18 per month. Total monthly cost is thus $68.
  6. The total cost of this plan over 24 months (it is a 24 month contract) is $1,632.
  7. Buying the iPhone 5S (32Gb) outright and going on the Vaya plan is thus $181 cheaper over 24 months ($1,632 - $1,451).
  8. Sally can now weigh up other factors. With Vaya she would own the device outright, and not be locked into any sort of contract. She would also be using the Optus LTE network. The plan would also include an additional 500Mb of data per month. Balanced against this, she may not be comfortable using an MVNO, or Vodafone may have better coverage in her area. Perhaps she intends on travelling overseas, and finds Vodafone’s latest pricing in this area attractive. Now that she has an actual dollar figure, she can weigh these factors more accurately against it.

For comparison’s sake, if Sally prefers Telstra, their most appropriate plan which includes an iPhone 5S (32Gb) is $84 per month, or $2,016 over 24 months. If she still prefers Optus, their most appropriate plan is $79 per month, or $1,896 over 24 months. 

 

NOTE: This article is not intended as an endorsement of any particular mobile phone carrier or product. Examples used in this article are intended only for illustration. Similar results can be achieved with other carriers and other plans.