Following a surge of interest in the O2 PAYG iPhone deal that’s just about to hit the UK market – and some misunderstandings I’ve encountered concerning the relative merits of contract vs PAYG pricing and services – I thought I’d set out a few simple sums to illustrate why the PAYG deal can, in the right circumstances, be quite an attractive one. It’s not for everyone, but it’s certainly one worth considering before you take the plunge into a contract.
Clearly, the upfront pricing of the PAYG iPhone can be offputting, but the regular monthly payments on a fixed-term contract can add up to far more. Both end up costing you a fair weight of currency over time, but that’s what you end up paying for any premium handset (look at the off-contract costs of a Sony Ericsson C902 for comparison). That’s £239.99 with no data plan thrown in at all, which will cost you a tenner a month on top; and you can’t even get most of the best phones on PAYG, (the less said about the monthly data costs of a Blackberry, the better).
The iPhone is a premium handset, mobile internet device, GPS receiver, and a pretty versatile platform for a variety of applications, not just something to make the odd phone call or text on (/ad ends). If the latter is what you want you’d be far better served by any one of numerous other handsets, and you should skip this post right now before succumbing to the tactile charms of the iPhone’s 3.5″, 480 x 320 pixel multitouch screen and numerous other siren features.
Anyway, on to the iPhone O2 PAYG/contract comparisons.
Option 1: 18 month contract £35 pcm 16GB iPhone
iPhone £159; network cost (£35 x 18) £630
Total cost £789 over 18 months
Gets you each month:
Unlimited O2 network and wifi data access
600 cross-network minutes
500 cross-network texts
Visual voicemail
Option 2: 12/18 months PAYG no top-up (data only) 16GB iPhone
iPhone £399.99; network cost £0 for 12 months + £10 pcm for further 6 months
Total cost £399.99 over 12 months / £459.99 over 18 months
Gets you each month:
Unlimited O2 network and wifi data access
Option 3: 12/18 months PAYG £10 pcm top-up 16GB iPhone
iPhone £399.99; network cost (£10 x 12) £120 for 12 months + (£20 x 6) £120 for further 6 months (network data access costs £10 pcm after 12 months)
Total cost £519.99 over 12 months / £639.99 over 18 months
Gets you each month:
Unlimited O2 network and wifi data access
500 minutes to UK landlines and O2 phones dialling from from a chosen postcode (beware)
£10 credit for each month which can be used vanilla or with various bolt ons, e.g. Messaging 100 (100 SMS texts for £6.99, leaving £3.01 credit for calls outside the above bundle)
A typical cost/service comparison might therefore be:
PAYG 18 months option 3:
- Unlimited data access
- 500 minutes to UK landlines and O2 numbers per month from home postcode
- 100 texts
- £3.01 other call balance remaining per month
Cost £639.99
Contract iPhone £35 pcm
- Unlimited data access
- Visual voicemail
- 600 cross-network minutes
- 500 texts
Cost £789
Of course, you’re not tied in to the PAYG deal and if you choose not to keep the service after 12 months you’ll have incurred costs (for the Option 3 package immediately above) of only £519.99 including the £399.99 for the iPhone; less, if you use the service for less than 12 months. If you then decide to sell the iPhone at any point, it’s fairly likely you’ll make at the very least £150 back on the handset (at current sale prices). With the contract, you’re basically stuck with 18 months at £35 pcm before you can choose to do anything but keep paying.
All in all, PAYG users don’t seem to have got a bad deal on the iPhone, despite many saying they’d expected the iPhone to retail for less – but surely if it had, this would have upset the PAYG/contract balance altogether. Upfront costs are greater on PAYG, of course, but (depending on your requirements) over the whole term of a plan you could pay an awful lot less than a contract customer. In fact, you could just use the free unlimited data tariff for the first 12 months and pay nothing more than the cost of the device itself, essentially getting a 16GB iPhone, unlimited access to the web, emails and other goodies like YouTube, iPlayer and GPS services through 3G and wifi hotspots, for £399.99. And then just sell the device on and recoup perhaps half those costs.
Compared to paying a total of £789.99 and being locked into an 18 month contract, some will find that deal very appealing. And even adding additional call plans via bolt ons, some users will find that the PAYG deal works out cheaper for them – as well as not requiring any restrictive contracts to be signed.
It will be interesting to see if O2 change the terms of existing iPhone contract tariffs to encourage more lock-ins should the PAYG deal prove to be disproportionately popular. My money (currently £35 a month) says not.
I have been doing some similar calculations. At the moment with O2 you can get a Simplicity contract (ditch the PAYG sim card supplied) which you can change tariff (up or down) with 30 days notice for £20 per month (600 mins and 500 texts and free bolt on for data). Add the cost of a £399 handset and your 18 month cost would be £759, alternatively to go contracted would cost you £789 (you would get wifi and 100 mins more per month). Here is my key point, if you go for the contract, your monthly cost would not reduce where you have the flexibility to change with 30 days notice with Simplicity/PAYG. May not seem much of a selling feature but I am coming to the end of my existing 18 month contract which was ‘exceptional’ value at the time costing be £40 per month where the alternative tariff in today’s market is only £20! I am prepared to gamble that in 9 months time there will be new tariffs offering 1200 minutes and 1000 texts for £20 which could be switched to by customers on the Simplicity Tariffs and PAYG phones where IPhone contract customers would be stuck paying £35 per month for 600 mins for the full 18 months. Remember that Steve Jobs also claimed (and demonstrated) that using 3G was only fractionally slower than using WiFi, surely WiFi is not that important when you are on an unlimited data contract? also, you could still WiFi connect using any of the free hotspots near Starbucks/MacDonald’s/your home/etc? What do you think?
I certainly agree that you can get some fairly decent deals on iPhone PAYG compared to the iPhone contracts; however, I’m not too sure about the specifics of this particular suggestion (although I’m more than happy to be put straight). I thought that the current Simplicity tariff (£20 pcm if taken out before the end of September but £25 pcm if taken out after that) didn’t include any free data bolt-on – although it does seem to include 600 minutes and unlimited (not 500) SMS messages per month. The only data-only bolt-on I know of costs £7.50 a month: could you provide a link to information about the free data bolt-on? If this were available it’d certainly swing favour towards the PAYG purchase.
Having spent most of last weekend jumping from one free (to WiFi bolt-on/iPhone tariff people) WiFi spot in Newcastle upon Tyne, I can definitely recommend WiFi over 3G as a connection option, assuming your area is well covered by hotspots; WiFi connections do seem to be generally faster, and some services (e.g. iPlayer) only really work to full effect when connected by WiFi.
This is all detail, though, and I agree that for many a PAYG iPhone deal might be preferable to the contract, mainly for the absence of tie-in which you mention.