Malcolm Murphy - Is my Mobile good value?

I’m fascinated by the pricing of mobile phones and phone contracts. The mobile business has always been dominated by a small number of providers, who offer suspiciously similar but subtly different price plans, that have always looked to me like they are designed to confuse me. Bundling a handset with my contract confuses this further: of course the handset isn’t “free”, a proportion of my monthly rental is going towards the cost of that. I just don’t know how much, and so I don’t know how much the bundled minutes and texts are actually costing me.

Except on my Three contract. What Three do is they show you the price for the tariff, then itemise the extra cost for the handset. And that means that I can see exactly how much I’m paying for those minutes. And it allows me to make an informed decision about how much the shiny new mobile is worth to me
Here’s an interesting perspective from regular contributor Malcolm Murphy.

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In my case, I pay 20 quid for 1100 minutes or texts. Or, to put it another way, less than 2p per minute or text. Just think about that. Less than 2p per minute to make a call, to a landline or a mobile, any time of the day or night. That’s cheaper than my landline provider, who want a connection fee, plus 5p per minute from me during the day, more if I want to call a mobile. Less than 2p per text message, when I’m continually informed by people in the industry that the wholesale cost of sending a message is around 3 euro cents – a little over 2p.

Except, it’s only less than 2p if I actually get round to using all those minutes or texts. And, as the people from Three are already well aware, I don’t. Well, not usually. So, I’m probably paying more like 3 to 4p per minute/text. Even so, that looks like good value. And it’s a good deal for both of us. The operator knows that I’m going to give them at least 20 quid per month for the rest of my contract. And in return for me probably buying more minutes than I need, I get a certain amount of predictability on how much my bill will be. Of course, anything international throws the predictability out of the window, but let’s put that to one side for the moment.

Now, my example may be extreme because I signed on when Three had a promotion, but it’s not massively out of kilter with the rest of the deals out there. Yesterday, for example, I walked past a Vodafone shop and saw a SIM only offer: 600 minutes and unlimited texts for 20 quid a month. So, let’s generalise and say that in bundle deals are around 3-4p per minute or text.

Things get interesting when we consider the out-of-bundle rates, or what you’ll pay on PAYG. These rates are at least four or five times the in-bundle rates. Ouch. So, either, the operators are gouging me if I go over my inclusive allowance, not to mention all their PAYG customers, or the in-bundle rates are very cheap.

I have no inside knowledge of how much it costs an operator to provide the service, but if I had to guess, I’d say that the answer to the above is somewhere in between. If I used all my minutes every month, then I suspect I wouldn’t look like a very good customer. I strongly doubt that the operator would be losing money servicing me, but they won’t be making the huge margins that their shareholders have come to expect.

I’m interested to see how the headline price for a contract will change over the next couple of years – my guess is that we will move from the 30-35 pound level that seems to be the norm currently to a 20-25 pound level. What I’m not so sure about is whether we’ll see handsets, or inclusive minutes, or both, compromised to achieve that.

But for now, while I despair at the packaging and marketing , I think that (contract) mobile price plans generally represent decent value. What do you think?