Why You Don't Need a Big Expensive Phone Contract Any More

By Chris Mills on at

Back when a 'smartphone' was one that could play Snake and people actually sent SMSs, pay-as-you-go was the poor cousin of real phone contracts, stuck outside in the cold sending 12p-per-160-character messages while contracted moneybags partied it up with their 'unlimited' plans. Nowadays, though, rolling 30-day contracts and pay-as-you-go numbers offer all the benefits of contracts, without having to suckle on the 24-month-long corporate teat.

Let's get something straight. Back in the good old days of the Motorola Razr and Symbian, the determining factors in the price of a phone contract were calls and texts. WAP data was so laughably unusable that data allowance wasn't a major concern when you were signing on the dotted line. In fact, you'd have to pay somewhere in the region of £60 a month for a nice phone, unlimited calls and texts.

That's all changed with data. Now, unlimited calls and texts -- or at least a huge load of minutes -- come with a top-tier smartphone, for around £35. The kicker? Data. Data is the only thing that matters when you're shopping around for a phone contract now.

Conventional wisdom has been that you had to be on contract if you were a heavy phone user. That was probably true, back when the costs were texts and calls, and those beauties ran you 35p or so per minute. At that rate, you'd be paying a good £20 for an hour of calling, which is pretty steep. On that basis, then, it's better to be on contract.

But there's an alternative, now. These days pay-as-you-go is less about paying for individual phone calls, and far more about buying 'bundles'. Basically, you pay a set amount each month, and get a 'bundle' of texts, minutes and data in return. It's very much like a contract, but on a per-monthly basis.

Obviously, buying bundles is more flexible -- it lets you vary mobile phone usage on a month-by-month basis, rather than over-paying for 5GB of data every month, when it turns out you only need 500MB. Surprisingly, it's also often cheaper. If you are with cheaper service providers like Three or GiffGaff, you can often get all the service you need -- a couple hundred minutes, unlimited texts and unlimited data -- for £10-£15 per month.

"Aha!", I hear you exclaim, "but that doesn't include a handset!". That's true -- like pay-as-you-go plans of yore, those plans only account for mobile service; you still have to buy the kit yourself (although GiffGaff is now looking into that little problem). But even taking that into account, pay-as-you-go still works out cheap. For example, to get the same kind of SIM-only deal from Vodafone or O2, you're looking at more like £25 per month -- and that's on a 12-month contract, which loses all the flexibility of pay-as-you-go.

What happens when we take the cost of the phone into account? That's a harder question, requiring the use of grown-up tools like colour-coded spreadsheets to tackle.

Take the recently launched Samsung Galaxy S4 as an example. To buy the phone on a contract with what I'd call a decent amount of data (more than 2GB) costs anything between £888 and £1,134 over the course of two years. To get the same kind of contract, but with a rolling 30-day contract (and buying the phone upfront) costs about the same, all in.

So there's no difference, right? Wrong. As outlined above, buying a phone on a 30-day contract (or pay-as-you-go -- there's little real-world difference between the two) has significant advantages in flexibility. If your phone provider screws you over with a mandatory inflationary price increase in your contract, or the reception where you live gets messed up, it's easy to change. It's capitalism as Adam Smith intended it: vote with your wallet, and if you're unhappy with the service provided, you, your cash and your number go somewhere else.

Not to mention, two years is a long damn time. If you want to upgrade to a new phone after a year, you're better off doing so if you've bought the handset upfront. Typically, smartphones that come from a network are locked, so if you bought a phone from Vodafone, it can only be used on Vodafone. That lowers the second-hand value, so if you're going to sell your iPhone 5 and upgrade to a 5S after a year, you're better off on a rolling contract and an unlocked phone.

Being on SIM-only is also handy for snapping up better deals or service when they appear. Gizmodo's News Editor, Sam, has just defected from GiffGaff PAYG to T-Mobile PAYG to take advantage of faster data in London -- you can too. Ever since Ofcom stepped in and made it easier to switch mobile providers, it's become pretty easy to network-surf and without losing your number. So, over the course of two years, while contract prices are going up in line with inflation (that's likely to be around 8 per cent over two years, at current inflation levels), the amount you pay is likely to fall.

All that said, there are still a few, isolated cases where contracts are better. For certain networks, like Vodafone, roaming rates, especially for data, are far better for contract customers. Networks also often offer insurance with contracts (though it's generally cheaper to get insurance yourself). Finally, there's little niceties like O2's TU Go app that are only offered to customers on contract.

There's one big thing working in the favour of contracts, though. Although the wonderful magic of spreadsheets illustrates that the price difference over two years is negligible, people off-contract who want a cutting-edge smartphone are going to have to pony up £500 in cold, hard, cash upfront. When all's said and done, that's a big chunk of change to sacrifice, and one compelling argument for staying on contract -- being able to spread the payments out over the course of two years makes it easier to justify a new smartphone to yourself (and your better half).

If you can stomach the big price tag, though, there's no reason to sign away your life for 24 months any more -- and especially not now, when there's so much 4G change afoot. Contracts look great on a corporate balance sheet -- after all, it's a steady, guaranteed revenue stream for 24 months -- but the flexibility of pay-as-you-go is much better for you, the noble individual.

Image credit: Tearing contracts from Shutterstock