• ETF Enthusiast

Rethinking Buying a Phone - Contract versus Prepaid

Cellphones are something we can’t do without, we use them every day to keep connected with the rest of the world. They are also something that we can spend a lot of money on in the course of our lives and can be big money wasters, competing with things like unused gym memberships and dstv. It’s not that they go unused, it is normally quite the opposite, but they are something that a lot of people overspend on because they want the latest phones or models and get locked into contracts where they are paying for things they don’t use like free sms’s.

It is however a difficult topic to discuss because everyone has different needs when it comes to what they use a cellphone for. Some people use their cellphone for their business and some people do not have access to the internet and rely heavily on their cellphone and data in order to do this.

Rather than try catering for all these scenarios in one article I will rather just look at my own needs as a case study.

Analyse individual needs:

I think this is the most vital part of buying a phone – what is it that you use your phone for on a daily basis and how much data/airtime do you consume on average in a month. All decisions need to stem from here and proper understanding of this allows you not to waste or overspend on your contract. For me I use around R150 in airtime a month over half of this goes to buying data of which I am using about 15mb’s per day and the rest for making phone calls. I like to receive airtime every month because it won’t expire in 30 days like data does, and there are some months where I have a lot of wifi access I will use hardly any data. My airtime can then be carried over and kept for more expensive months. My cellphone is also only for personal use.

Prepaid or contract:

Phones which are not the latest models can often be found at really good deals on contract because the telecom companies want to clear out this stock so that they can make sales on the newer more expensive models which sell at a faster rate. If I take my phone as an example the Huawei P8 Lite which was released over a year ago now, Vodacom has a contract in which you pay R199/month for 24 months and you receive R200 airtime a month. In this transaction you are basically getting the phone for free and just paying for your airtime. This significantly beats buying it on prepaid for R3199 and then buying the same value of airtime every month.

If you are buying the latest top of the range phone it can often be a closer decision and your repayments will often cover the cost of the phone on prepaid, and it will just be the airtime or data that you are making a saving on. Most of the service providers offer these top range phone contracts with only R200 airtime per month and above.

Here is an example of the Apple iPhone 6s entry level contract offered by the 3 main service providers:

If you are someone who uses less than R200 airtime a month it will probably be better if you bought the phone prepaid (going for R11398 on takealot.com) and got a voice only contract which is the sim card only. A voice only contract would give you a discount on the monthly airtime cost.

Choosing a phone:

I used the example of my Huawei P8 Lite, this phone can do everything the latest P9 can. The P9 just has improved ever so slightly in most performance specs and in a few other areas but nothing that’s going to change my life. The difference is the latest Huawei P9 contracts with R200 airtime a month is going for R559 pm with MTN and R649 pm with Vodacom. That is an extra R350-R450 every month just for a slightly faster phone, with slightly more space and battery life.

So I don’t feel that the latest top of the range phone would be a good decision for me, like I said this phone is not going to make a significant enough difference to my life to warrant paying so much extra money for. A more entry-mid level smart phone which is slightly older and therefore offering more value for money at this time would be a better option. Something like the Huawei P8 Lite or the Sony Xperia C4 would offer this value as well as many other options.

Choosing a service provider:

It is very important that the service provider you choose offers you all of what you have gone through above. It is no use choosing them if they do not offer the type of cellphone you are looking for, and at the price you are willing to pay for it. Since I am looking to buy data with airtime and not have it part of my contract it is also important for me to look at the cost of data with each service provider against what my data needs are (300-500mb’s per month).

Some service providers can offer amazing contract deals too. When this happens it can outweigh things like data costs since your monthly charges are normally reduced. The offer from Vodacom I explained earlier where the P8 Lite with R200 airtime a month was offered for R199 per month was not offered anywhere else.

If you already have a phone or are buying a phone prepaid you could look to buy a voice only contract. Cell C is currently offering the most competitive prices in these contracts, and in prepaid data costs.

When it comes to contract costs when writing this MTN had 24 contract options under R200 pm, Vodacom had 15 and Cell C had 5.

I did not find it easy researching anything to do with MTN, their website is filled with way too many pages, and is very slow. I spent the least time going through Vodacom’s website; they had refined clear categories so I knew where and what I was going to. This kind of simplicity is important for me since I will have to deal with them if I have any issues relating to my phone or contract.

Lastly I think it’s also very important to use your phone until it dies, or until it is too slow or broken to carry on serving its purpose. There is no need to renew your contract and get a new phone after the two years is up if you still have a phone in good working condition. I would rather purchase prepaid airtime so that I have the flexibility to let my phone run its course and wait for really good deals to come up. Data is also going to get cheaper and cheaper so this allows me to look at good ways to get cheap data so that I don’t need as much airtime. Afrihost is offering a deal right now in collaboration with MTN in which you can get 250mbs of data for R1 every month until Jan 2017.

ETF Enthusiast

Use your money to build assets which generate more income than you require to live