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It used to be that people bought their phone under contract from their phone company. By signing an agreement with their telco which covered a couple of years, people secured themselves the latest iPhone and enough minutes and data to keep them going. When the contract was up, they upgraded to a new phone and the whole thing began again.
At the time, this sort of deal made sense. The phone companies, keen to grow their business, heavily subsidised the cost of the phone. Since a new device often cost hundreds of dollars, this prevented new customers from being deterred by a high up front cost. The 24 month term allowed the price of the phone + plan to be an affordable monthly payment.
But the maths has changed. These days, buying a phone and a SIM together is often the worst thing you can do. Here’s why.
Get your phone outright and add a SIM Only plan
The critical thing to remember here is that phone contracts have been around for 25 years now. That’s a generation. Things were very, very different when these sort of agreements were cooked up by Telstra, Optus and, later, Vodafone. You were buying mostly minutes and SMS back in 1990 and you were getting a Nokia with a black and white screen.
In the ensuing two and a half decades, phones, phone companies and plans have all come a long way.
- It’s all about data : The fundamental nature of the phone companies have changed, too. They want to sell you data these days. Almost all plans contain unlimited voice and SMS. It’s the data which costs the money.
- They don’t want to subsidise phones : The phone companies have all revealed indirectly in the course of the last 5 years that they don’t want to subsidise phones. Mobile phones are, after all, from Optus’ standpoint, the sizzle, not the sausage. Subsidising phones helps Apple, Samsung and the rest. It also costs the phone companies a great deal of money. Telcos want to sell network.
- There are small phone companies as well as big phone companies : Smaller phone companies now make up around 20% of all sales according to statistics released by Cantar in late 2016. Some of them will be companies you are familiar with. If you recognise Amaysim, if you’ve heard of Boost Mobile and you know what Lebara is, you’ve heard of smaller phone companies. They offer SIM Only and prepaid plans, they use the networks of the bigger phone companies ( often, they use exactly the same phone network as their bigger counterparts. ) They can be a great way to save you a great deal of money if you’re shopping SIM Only plans.
Here’s an example. Save 30% on your new iPhone
That’s the theory, those are the factors driving the market. But how much can you save ? In this simple example, from WhatPhone.com.au, buying your phone outright from Kogan and adding a SIM from the same place can save you 30% of the cost of a contract. Remember, Kogan use the same network that Vodafone sell their customers. They don’t use part of the same network or most of it. Kogan use the entire, whole Vodafone network.
But wait, there’s more – this 30% is just the start
Piecing together a phone plan in this way ( by putting together a SIM you have found yourself and adding your own phone ) is the shallow end of the pool. Approaching your agreement with your phone company in this way will ultimately save you money beyond the 25% we’ve shown. Here’s why.
- Data inclusions increase : The data you get in your SIM Only or prepaid plan will increase all the time. Most estimates show that the data the phone companies give you increases at a rate of 50% – 75% per year. This is important information to know. Your usage, as an individual with a phone will rise at a similar rate. That means you need the benefit of this sort of organic growth. Remember if you’re in a contract, you won’t see these data inclusions increasing over time.
- The networks are all the same : The 4G phone networks offered by Vodafone, Optus and Telstra are all now on a par. Whether you choose Vodafone, Optus or Telstra, the 4G coverage you get and the speeds you receive will be very, very similar. This puts a new perspective on the premium Telstra charge their customers. It also raises the important question of the benefits of using a smaller phone company which resell these networks. When you can move between networks without suffering a performance degradation – and you could save money by doing so – having the flexibility to change providers starts to matter more.
- Avoiding overage : As your data usage rises over time, those trapped in contracts can be stung by overage charges. Data overage is usually charged at a rate of $10 per GB for the data you use outside your allocated bundle. Say you used 3 GB of data per month when you started your contract and you bought a contract which had that data inclusion. Makes sense, right ? But after a year, you’re using 4 GB and towards the end of your contract, you’re using 5GB. Those increases in data usage are actually less than happen to most people. But in this scenario, you could very well expect to pay $150-$300 for extra data, used on top of your plan allowance, during the course of the contract. And remember, as we said above : Those outside contracts, i.e. on SIM Only plans, ) get that data free !
Summing it all up
If you are financially minded then you consider your options, weigh the pros and cons and pick a rational outcome. With that frame, it’s not hard to see why contracts between individuals and their phone companies are rapidly becoming a thing of the past. Put simply, over the life of your 2 year agreement, you could very easily save yourself $1000 by piecing the deal together yourself.
Contracts represent the bad side of the old world. Instead of working to win your custom every day, phone companies want to throw a net over you and keep you in a cage for 2 years. That’s not how things work any more.
Follow the tips on this page to save yourself $500 or more on an iPhone purchase. And research the additional points we include here if you want to save even more.