Originally Posted by belleville1:
“In future, I'm planning to simply use the money I would have spent on a contract to save up for a phone I want, then run it on PAYG or a low-cost 30-day SIM free contract. Seems to make sense; you pay the market price for the phone, then choose who you use and what you pay for the phone service. Being locked into 18 months can work out more expensive!
Speaking of which, where will the minimum terms end? 12 month contracts are rare now and 18 months are commonplace. Now, with the advent of the iPhone and its ilk, we're starting to see two-year deals appearing. Will the next hot gadget require a 30-month commitment?”
This discussion has been had before by myself and other posters. Whilst this is becoming more popular for reasons I can understand, I will try to explain the worth of the contract relatively for the sake fo discussion.
Often when you do calculations for a phone and a particular bundle of minutes, you will either find the actual TCO after 18 months is lower on the contract or you get more minutes/texts on the contract for the same money. This is because the phone companies need to make a minimum amount of money from each account. On PAYG you are paying this money for the phone directly and on the credit you purchase whereas on the contract you are paying this minimum which then overlaps with the phone subsidy you receive.
On contracts free phones work effectively like financing for cars (except, for the phone it is interest-free). By paying the sum over the course of 18 months rather than entirely upfront you are actually paying less due to the effects of inflation and any interest earned.