March 15, 2016
Ever wondered if the flashy ‘free’ phone you got with your new cell phone contract is really free?
Well, the bottom line is, it isn’t.
Well, the concept of a ‘free’ phone to go with a new cell phone contract actually did exist once upon a time. It started in the 1990s with the very popular Nokia 3310. Back then, the actual contract – the megabytes and minutes – were really expensive. But the phone itself wasn’t too pricey back then (especially for the cell phone provider). So as a clever marketing tactic, the cell phone providers gave the phones away for free as long as you bought one of their contracts containing the expensive megabytes and minutes. This is where the long-standing perception of getting a ‘free’ phone with a new contract stemmed from and providers have been clever to keep this area muddy.
Following the success of the Nokia 3310, Blackberry then introduced a range of popular new phones which had really cool features, like BBM. This had a gigantic appeal to the mass market who were desperate to get their hands on them. But, because of the new features, they were more expensive to the provider. So cell phone providers still offered these phones in the contracts, but instead of giving them for free, the networks were now helping to pay for a large part of the phone, but us, as consumers, were also contributing to the cost of the phone over the duration of the contract.
From here, Apple iPhones came onto the market. These phones were now so advanced and had moved way beyond the standard features of regular phones. This made them extremely expensive and significantly more than what phones had cost up until now (your current iPhone can cost up to R15,000). By this point, these phones were barely subsidised by the cell phone providers (in terms of the cost of the phone verse the subsidy from the providers) as they far outweigh the profits of megabytes and minutes.
Simultaneously, the cost of megabytes and minutes, started to decrease. However, a regular customer wouldn’t notice this price reduction as the savings were being eaten away by the cost of the more expensive phones.
This created a cycle where contracts had now become more affordable, but if we wanted the latest phone, the contract would have to be very expensive to pay off the phone. This will also explain why going for a prepaid option is now such a popular option for many customers, who get cheap call rates without a phone.
By now, people must realize there’s a catch to the free phone deal. When you buy a new package today, it more than likely comes with a contract and a new phone. The network and service provider (and sometimes the hardware manufacturer) will give a certain subsidy towards the phone, but you, as the customer, would pay for the balance of the phone every month as part of the package. There is the odd time when you can get a really good deal when the service provider subsidises the phone cost a lot … but for the most part, you’re at least paying off the cost of the phone every month. The cost of the package can increase even more if providers charge for other extras like insurance, which you feel compelled to have, because of the high value of the phone.
We strongly advise our customers to focus on what kind of contract they need (i.e. the minutes and megabytes), first. The contract they choose should be based on their lifestyle, usage and behaviour. Once they’ve assessed which contract they need, you then choose a phone, either by paying for it upfront, or adding it to your package.
If you’re not too interested in getting a new phone you can also consider getting a SIM-only deal (which is usually cheaper or comes with more value). Or, you could move to prepaid or some of the new Mobile Virtual Network Operators (MVNOs) who offer month-to-month SIM-only contracts.
Please also remember to keep a close eye on what else you may be paying for as part of your package. There are often extra, hidden costs.
If you need any help with choosing your next contract, or assessing what kind of contract you need, you should consider using Tariffic. We have a very special and nifty tool which can analyse your cellphone bills and tell you exactly how much you could be saving if you were on your perfect contract. It gives you a report which tells you which contract to move to (showing the best results on each of the 4 networks), to get the savings. You don’t have to change the way you use your phone and in many cases, you don’t even have to change provider. We simply advise you of the contract you need, but with a saving!