The Cost of a Phone

Are phone subsidies on mobile cap plans really worth it?

The short answer is yes, mostly. The long answer is as follows:

A couple of weeks ago I looked at some of the ways in which mobile phone cap plans are worse than they used to be. For those who missed it, it was an eye-widening (if not downright thrilling) article, and if you want to read it now I certainly encourage you to do so. We’ll wait.

All done? Good. Welcome back. 

Anyway, among the various things that aren’t what they once were are the actual phones that you get with your plan. There was a time when you could get a great phone included in with the value of even a modest plan, assuming you were willing to enter into a 24 month contract. The idea underlying all subsidies of this kind is that the telco gets to lock you into a two year contract, and you get a ‘free’ phone. It's win-win.

The good news is that you can still get a great phone included. The bad news is that unless you’re on a high plan, the phone won’t be ‘free’ anymore. Increasingly, if you want the latest device on any plan lower than about $80 per month, you’ll need to pony up a little cash each month. This is in addition to the increasingly reduced value of the plans themselves (as detailed so elegantly in the aforementioned article).

Anyway, today I’m going to look at whether phone subsidies are still worth it. I’ll look at three different phones, across three different carriers, all on fair standard entry level ($60) cap plans. This is therefore by no means a comprehensive survey of the Australian telecommunications landscape, or of all available devices. But it should provide some guidance, and it should show you how to work it out for yourself, based on the phone you want and the plan you need.

In order to conduct a meaningful comparison you will require the following information:

 

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

With those details in hand, a meaningful comparison is possible. 

Caveat: this is not a guide on how to find the cheapest phone!

 

Nokia Lumia 920 on a Telstra $60 Everyday Connect Plan ($5 extra)

The Basics

Getting Nokia’s latest and greatest Windows smartphone on Telstra will on the face of it cost you $5 per month above an beyond the $60 you would already have paid, for a total of $65 per month. That means that the phone would only cost $120 over the length of the contract!

Wait a Second...

However this is misleading, since this same plan is available in a BYO version for $50 per month.

In other words, if you didn’t need a new phone, then you would take the $50 version. In order to get the phone, you would first sign up for a $60 plan, then pay the additional $5 per month. This means that the actual cost of the phone is $15 per month ($10 + $5), which over the length of a 24 month contract comes to $360.

The Real Bottom Line

On the other hand, buying this phone outright would cost $829 unlocked from Telstra, although it can easily be sourced elsewhere for as low as $699 (or even lower). By taking this lower price, we can say that obtaining the Nokia Lumia 920 on a Telstra $60 Everyday Connect Plan will save you roughly $339. I’d say that’s worth it.

 

iPhone 5 (16Gb) on a $60 Optus Plan ($6 extra)

The Basics

Getting your hands on the new iPhone 5 on this Optus plan will cost you an additional $6 per month on top of the $60 access fee for the plan. This comes to $144 over the length of the contract. An iPhone 5 for under $150? Sign me up.

Wait a Second…

Optus have if anything been even sneakier than Telstra, in that they offer a SIM-only (BYO) plan that is almost as good as the $60 for only $34 per month. It has $100 less call credit, but the same data allowance. Assuming that amount of call credit isn’t a deal-breaker (and your mileage may vary), we can say that the real cost of the iPhone 5 is actually $32 per month ($26 + $6), or $768 over the length of the contract. Again, you may feel that that extra $100 credit is essential, but it’s best to be aware of precisely what you’re paying for.

The Real Bottom Line

An outright unlocked iPhone 5 costs $799 (set in stone by Apple). We can therefore say that in this case the subsidy only saves you $31 over two years. I’d say that $31 is a small price to pay for the flexibility of owning the device yourself. (Of course, there are plenty of better ways to get an iPhone 5, but this aims to highlight the potential pitfalls of what seems on the surface like a good deal.)

 

Samsung Galaxy S3 on a Vodafone $60 Plan ($0 extra)

The Basics

Now this is more like it. On this plan you can get arguably the greatest and most popular smartphone in the world for $0 extra per month. That means it’s free. Who doesn’t like free?

Wait a Second…

Well, even in a best case scenario it’s not free, but ‘free’. The scare quotes are an admission that the cost isn’t zero, but is folded into the cost of the plan. But, as with the other telco’s offers, let’s see what Vodafone offers if you don’t need a phone.

A perusal of their website reveals  a SIM-only (BYO) plan of similar value for $45 per month, although it only has 1Gb of data per month, which is 500Mb less than the $60 plan. It will be for you to decide whether that additional data is needed. It may well be, but assuming it isn’t, we can say that this comparison yields an actual handset cost of $15 per month, or $360 over the life of the contract.

The Real Bottom Line

You can easily source a Samsung Galaxy S3 for about $779, although by hunting around you might even find one for as low as $500 (which is a steal for a phone this good). Let’s say you do; you’re still saving $140 by getting the phone subsidised on a contract (and getting an extra 500Mb of data). I’d say even in the case of the Galaxy S3, the subsidy is worthwhile.

Conclusion

As I’ve hopefully stressed enough, this is not a comprehensive buyer’s guide on how to purchase a Nokia, iPhone or Samsung. If you want one of those, I strongly recommend Whistleout. But it does aim to show you how to work out the real value of subsidies on your own. And our experience has shown that subsidies, while they aren't what they once were, are still good value.

I'll be back soon to look at the phone subsidies for business plans.