There’s been a lot of buzz recently around the fact that some mobile networks are effectively overcharging their customers, and worse still, it has the worst effect on long term customers – the very people you would expect the mobile networks to be most keen to hold on to.
As with most businesses, and especially subscription based businesses, the cost of acquiring new customers vastly exceeds the costs of retaining existing ones. Mobile firms pay handsomely for new connections, especially contract customers as they will generally buy a new handset as well as taking on an airtime contract for the phone service itself. Furthermore, unlike a decade or more ago, the days of 12 month phone contracts seem to be long gone, especially where a handset is included in the deal. In today’s market, with iPhones costing upwards of £500, it’s common for minimum terms to start at twenty four months. That’s twice what used to be considered the norm, and also encourages people to fall into the trap we’re talking about today.
The way a mobile contract works, when you buy with a handset, is that part of the monthly fee covers the phone itself, and the remainder is the service element, that is the minutes you use to make calls, the SMS messages you send and the data you use for surfing the web, watching video and streaming music (among other things). Data use has also rocketed, but we’ll come to how you can minimise those costs later.
Our problem is in this charging model is that monthly fees can continue indefinitely, even though the minimum term is fixed. The minimum number of months you can pay for also happens to be the period that you pay for your handset over. That’s why there are often chunky early termination fees to leave beforehand – you need to buy the rest of your handset. It’s reasonable to assume that the phone companies aren’t lending you the money for free, so there’s likely to be an element of interest built into repayments too. That means that an entry level iPhone, priced around the £599 mark, is likely to cost a little over £25 per month (£599 divided by 24 months =£24.96 per month), so a typical contract costing £45 per month might be split as £25 for the phone and £20 for the service plan. In fact it’s probably slightly more weighted towards the phone, but let’s keep the numbers easy.
What that means for customers, is that if they don’t make a note of exactly when their contract reaches the end of its minimum term, they’re continuing to make payments for a handset they’ve already paid off. How would you feel about continuing to make monthly payments on a personal loan that’s been fully repaid? Not happy, yet it’s pretty much the same thing.
It should be noted at this point that some networks have already (at least partially) addressed this issue and reduce monthly fees after the minimum term, and others do invite their customers to upgrade handsets, but there’s not a lot happening to point out that they can simply reduce payments (in our example case down to £20 each month).
There is a solution, however. By making a note of the date that your minimum term ends (how about setting a reminder in the very phone you’re paying for?), you can choose to switch to sim only or even pay as you go plans and keep on using the same handset – it’s yours to do as you like with after all – you’ve paid for it! There are websites like the free sim cards website that will help you decide what you need and even show you how to get the replacement sim to be sent out in the post for you to pop into your phone.
There’s also another solution if you like Apple phones too – you can buy an iPhone from the Apple Store on interest free finance, instead of getting it from your network. You’ll have to do the maths, but for some people, it can be cheaper to do that and get a sim only contract than getting the same thing bundled from the phone company.
Really, the take away point here is to avoid paying the same monthly payment for years by taking out a handset and contract bundle and forgetting about it. It’s expensive, and it’s not really in your network’s interests to tell you that you’re effectively being overcharged. There are likely to be millions of people out there falling into this trap, and its so easy to fix!