Working out how much your phone actually cost in your contract

Smart PhonesThe cellphone market has seen many changes since it was launched in South Africa late 1994. At that time, there were only really two types of contracts and you were still required to pay a substantial amount upfront for a phone. Calls were expensive, coverage was spotty and you had to the phones on the market left a lot to be desired.

Over time, the cost of the hardware started to come down and there were a range of contracts to choose from, deepening on your calling habits and budget. Most contracts allowed you to get a top of the range phone at no cost and simply pay for your calls and monthly subscription. It was only on the entry-level phones that you might have had to pay in a small amount for a top phone. This continued for many years. Retrieving voicemails become free, SMS use, although still expensive, was common and data was starting to become available although it was slow and expensive initially. Coverage had improved and there were only a few remote areas that had no coverage.

Prepaid hit the market and changed the playing field completely. It was a massive breakthrough and the model has been replicated in many companies all over the world. As there was no guarantee of loyalty and the service provider making their money back on the service, prepaid users had to pay the full retail price of the phone. By this stage, the handsets had improved dramatically and prices had come down considerably. Initially, you could get a decent cell phone for just over R 1000 while the top models were around R 4000.
The rise of the Smartphone

Shortly thereafter, smartphones hit the market. After the race to make the smallest cell phone, they now started getting bigger again. They also started getting more expensive. They became bigger as people were receiving e-mails on their devices, browsing the internet and using some of the millions of apps that were available for everything from finance to star gazing. The processing power and other features of top smartphones exceeds the computing power of many computers we used just a few short years ago.

Some of the devices, in the beginning, were still fairly reasonable but most people taking a contract with a mid-level handset had to pay in extra for a smartphone. This soon became the norm and while there are a few well-priced smartphones, human nature dictates that most people want the top of the range.

People suddenly found themselves paying a great deal more for their monthly contract, much of this going towards paying off the value of the handset. It was an incremental increase so every 2 years when people upgraded, many would want the latest greatest smartphone. Initially, it was a few hundred rand extra per month so they went for the deal. This cycle repeated itself and for a few extra hundred rands per month every time they upgrade, they could have the best phone on the market. Few people took the time to look at what this actually cost over a 24-month contract. After 2 or 3 upgrades, people were now paying R500 plus extra, every month, just to have the latest phone.

Let’s look at a few current examples.

If you went for the MTN Made for me M package, that would set you back R249/month. This is a package for a low to medium user that gives you 150 minutes per month, 100 SMSs and 1GB of data. The average user tends to use a bit more than that most months so you would probably pay a bit extra for additional usage or added bundles.

There are a number of reasonable phones, smartphones included, that you could pick up on this 24-month contract for no additional monthly fee. If, however, you wanted one of the better phones, be prepared to pay. An iPhone 8 64GB will bring your monthly subscription up to R 729/month. That is a difference of R 480/month. All of this for the privilege of having one of the top phones. The retail price of the iPhone 8 is in the region of R 11 500. Looking at the total cost over the 24 month contract period means that you will pay a total of R 17 496. This excludes any calls or data used above the inclusive amounts allowed. Of that, R 11 520 is the additional hardware subsidy that you paid in order to get the iPhone 8.

It is not just the iPhone that will set you back so much. A Samsung Note 8, on the same MTN package as above, will set you back R 829/month. That is a whopping R 19 986 over 2 years, again, excluding any additional calls or data you might use.

Don’t get me wrong, these are great devices. They look good, perform well and have a host of features. By way of comparison, you could pick up a Sony Experian ZA1 Ultra for only R369 a month or the Huawei P10 Lite for R339 (on the same package). Using the latter example, that would cost R 8 136 over two years, a full saving of R 11 850 over the contract period when compared to the Samsung Note 8.

For most people, that is a significant amount of money. Investing that money monthly or paying the extra into your bond will have a long-lasting positive return, long after your latest phone is a distant memory.

I simply used MTN to illustrate the point. The situation is identical on Vodacom, Cell C and Telkom Mobile. If you want the top phone on the market you will pay for it and pay dearly. There might be specials where one might pay R50 or R100 less per month but the end result is still the same.

The other reality is, although these phones sport all of these amazing features and benefits, there is very little they can do that the Sony or Experian can’t do. The vast majority of people only use a fraction of the available features and by using a less expensive smartphone, there is probably very little, if anything, that you will miss.

If you have the budget and you are set on a top of the range phone, by all means, go for it. Just work it out over the 24 months so you are aware of what you are paying in total for that advantage. For most people, such excessive monthly hardware payments are really unnecessary and they would be wise to go for a more affordable phone and put the additional money to better use. The choice is yours, just make an informed decision.