Vodafone today overhauled the way it sells phones, separating the cost of a new phone from the phone plan.
Postpaid customers will pick from a new suite of no-contract phone plans, regardless of whether they buy a new phone or not. The new plans start from $30 per month and step up over eight further increments to a $100 plan at the top end.
Customers who want a new smartphone then choose any model on interest-free payment terms of 12, 24 or 36 months. The total retail price of the phone is divided evenly over this period, with no admin costs or interest added on.
The plans closely resemble similar offers available overseas, namely in the US where carrier T-Mobile launched it’s ‘Un-carrier’ plan initiatives back in 2013. The T-Mobile plans have been so popular that the other major US telcos were forced to mirror the offers — something that could happen in Australia with Optus and Telstra.
Vodafone, like T-Mobile, believe these changes are about transparency. Vodafone’s Ben McIntosh, Consumer Business Unit Director, says the move to no-contract is about helping customers escape ‘the spider’s web of of telco contracts’.
“Let me let you in on a little secret, there’s no such thing as a free phone,” he said.
He acknowledges that a lot of phone customers have clued into the secret too, with Vodafone seeing a big shift away from contract phone plans already.
“64 percent of our customers between January and June this year chose a SIM only product, which suggests that they are getting their phones from somewhere else, and this worries me.” he said.
Not only are customers finding new places to buy phones, but as the cost of phones increases, they are holding on to them longer.
“The average smartphone customer is using their phones for three years…so we wanted to make it more convenient to spread the cost of the phone over three years.”
“The point here is, the telco is no longer telling you what term you take your phone over. There’s a hell of lot more flexibility in [our offer].”
Pros and cons
The obvious benefit of no contract phone plans is that as plans improve over time, customers will have the option to move to these better offers without having to start new contract terms. However, it is worth pointing out that customers will not be automatically shifted to new offers as they become available, they will need to contact Vodafone and make the change.
Also, customers buying a phone will not be forced onto plans with lower value inclusions. Recent changes in the market, specifically increased competition in SIM Only plans, means that BYO phone plans tend to be significantly better value, with higher data inclusions at much lower prices.
The shift to no contract phone plans addresses this, and the best example is the new $100 which includes a huge 50GB of data each month.
But it is important to note, that customers still have a contractual obligation with Vodafone if they choose to buy a phone, and though the terminology has changed, there is still a payment to be made if you choose to move to a different provider before paying out your phone. When porting, you’ll need to pay the balance remaining for your phone, as you can’t maintain the interest-free repayment terms without staying on a Vodafone plan. Also, Vodafone is introducing a new $8 porting fee on all postpaid plans.
In fact, the same is currently true for Optus and Virgin Mobile plans (minus the porting fee). Both don’t charge early termination fees if you break contract, but you do need to pay the balance remaining on the phone you’ve bought.
We do like the the option to pay off a new phone over 12 and 36 months, especially with new phones like the iPhone 8 and Galaxy Note 8 expected to cost around $1500 in Australia. Even over 36 months, this would end up as a $40 per month charge.
It is also interesting to see that while it would seem that a monthly phone repayment of $30 or more would make Vodafone uncompetitive in comparison, the total is actually similar to comparable plans offered by the other providers. This shows just how much of the phone cost is secretly wrapped up in the plan cost of standard contract phone plans.