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Contract phone costs revealed

Joe Howell's picture

True cost of buying a phone on contract

If you buy one of the latest flagship phones on contract, whether it’s a Galaxy S7 or an iPhone 6s, you’re probably going to end up spending at least £40 a month. Your bill pays for a couple of things, plus network overheads and margin:

  • Your usage – namely the minutes, texts and data that you’re allowed to use on your plan, plus the cost of any other wraparound benefits like free calls to premium numbers or international roaming.
  • Your phone – the cost of which is spread over the course of your 24 month contract.

With each network offering slightly different talk plans and wraparound benefits, you’d expect the cost of this network usage to vary between suppliers - and if you compare their SIM only deals you can see that it does. What you might not expect is for the cost of the phone to vary significantly.

We recently researched the costs of buying mobile phone contracts from the big UK networks, and tried to work out how much you’re actually paying for the phone itself. For traditional contracts, where the cost of the phone and talk plan are bundled into one monthly cost, we've worked out the cost of the phone by taking the total cost of ownership (TCO) of the 24 month phone contract and subtracting the cost of running an equivalent 12 month SIM only plan from the same network for two years. For O2 Refresh style contracts, where the cost of the phone and talk plan are itemised, we’ve simply used the phone contract cost. Here are some of our results:


Samsung Galaxy S7

  EE Three O2 Vodafone Giffgaff Virgin Tesco
SIMO monthly £14.99 £21   £22      
SIMO TCO £359.76 £504   £528      
Contract monthly £40.99 £43   £45      
Contract upfront £129.99 £29   £49      
Contract TCO £1,113.75 £1,061   £1,129      
Phone cost £753.99 £557 £629.99 £601 £672.52 £696 £588

 

*prices checked 03/05/2016. Where only the phone cost is displayed, we've used the cost of the itemised phone contract, including any interest charged.

Clearly, there’s a significant difference between the networks, and if you compare these costs to Samsung’s RRP of £569 it’s fairly clear which networks are offering better value for money. The graph below shows the difference between the effective phone costs above, and the Galaxy S7 RRP:

Cost of Galaxy S7 on contract

Three comes out on top in this particular example, with the cost of the phone, after subtracting the equivalent SIM only cost, working out cheaper than if you were to buy it direct from Samsung. EE stands out as being the most expensive, with the phone costing £185 more than if you were to buy it separately.

When you buy a phone on contract you are effectively financing the purchase of the mobile, and so it isn't surprising that some networks are charging interest on this. What is surprising is the variance - and the fact that EE are charging so much more than the other networks.

So is this just a one-off, or do we see similar trends when analysing the cost of other phones? We’ve produced a graph for each of the high end smartphones below:


iPhone 6s

Cost of iPhone 6s on contract

*based on an RRP of £539.

In the case of the iPhone 6s 16GB, O2 work out the cheapest, with almost no additional cost over buying it outright direct from Apple. EE once again stand out as the most expensive, with an additional cost to the phone of £255 over 24 months.


HTC 10

Cost of HTC 10 on contract

*based on an RRP of £569.99. HTC 10 not available on O2, Vodafone, Giffgaff, Virgin Mobile or Tesco Mobile.

The HTC 10 isn't widely available yet from UK mobile phone networks, so we only have data for EE and Three so far. The trend continues here, with EE coming out £254 more expensive than if you bought the phone direct from HTC and bought an EE SIMO plan separately.


LG G5

Cost of LG G5 on contract

*based on an RRP of £499.95. LG G5 not available on Three or Tesco Mobile.

The LG G5 isn't available from Three or Tesco yet, but data from the other networks shows a really wide spread of phone costs. EE is surprisingly reasonable this time, but Vodafone stand out as the cheapest, with the phone coming out at £83 cheaper than if you were to buy it separately from the phone.


So why are the differences so big?

There are a few reasons why the differences in the effective phone cost could be so big:

  • Some networks could be heavily discounting their SIM only deals in order to acquire new customers. If this is the case then the SIM only costs above might not give a true representation of the portion of a mobile phone contract that covers network usage and contribution to overheads.
  • Some networks will have special deals with phone manufacturers that allows them to invest more in the offer and gain a competitive advantage. We suspect that could be the case with Vodafone and LG, where the G5 on contract is significantly cheaper than buying the device and plan separately. The same might be the case for EE and LG, where EE are uncharacteristically competitive.
  • A lot of buyers won't do these kind of comparisons themselves, making it easier for the networks to charge more.

And what does this all mean for you?

What this really demonstrates is that some mobile phone contracts are much better value than others, and that by being careful about how you buy your phone you could save around £250 (more than £10 a month).

For example, if you know that you want an iPhone 6s and want to get it on EE, you could save £250 by buying the iPhone separately and getting an EE SIM only deal. Even if you can't afford to pay for the iPhone upfront, and can't get interest free credit, it would still work out cheaper to get finance direct from Apple or from Giffgaff.