Welcome back and Happy New Year! As usual, most of my greeting conversations this week have included a longing look back at the seasonal break, a probe into upcoming projects and of course, the annual post-Christmas present comparison! It seems that amongst other gifts, many people were lucky enough to find a shiny new iPhone under their tree. This Time magazine: Invention of the Year winner has had astounding success ever since hitting the markets in 2007. Back then it cost £269 and customers had to sign up for a contract costing between £35 and £55 a month for at least 18 months only with O2. Three years on and the iPhone’s quintessential appeal coupled with its market dominance has meant that the only real change is the additional competition from the new telecom service providers in the market who are bringing a number of new deals for the consumer. But which deal is the best? This week’s Figure It Out aims to make sense of the market, work out how different the deals really are and work out which is best for someone like you. If we approach this as an investment appraisal/business case we can identify the drivers which will, in turn, define the options: • What service provider? Currently there are 4 service providers for the iPhone: Orange, Vodafone, O2 and Tesco. There will be costs implications for each one but there are also soft benefits. Consumer loyalty and signal quality play a big part in choice. If the deals turn out to be similar these can be determining factors. • What tenure? There is a choice of 18 and 24 month contracts. • What hard drive capacity? There is a choice of 16GB (Gigabytes) or 32GB • What colour? There is a choice of White or Black • What tariff? A number of pay monthly deals across the service providers The ultimate goal is to choose an option where we spend the least amount of money as possible over the life of the contract (tenure). The decision tree below shows that in the current market, I have 98 options to choose from: (click on image to expand) Each deal has its own financial implication – some allow you to receive a free phone whereas others have a high text message allowance. The question is which one of these will reduce my overall payment to the service provider. To evaluate this, I built a model (see foot of page to download) which takes the above drivers as inputs and presents the cheapest option. A variable that is different for all users is the amount of the minutes and texts that are used on a monthly basis. In looking at my last 3 bills I have discovered that I tend not to go over 600 minutes and 100 texts per month. Results For a user of my profile, the model shows that the best/cheapest option for me is the Orange £35 monthly tariff totalling £801.18 over the tenure. This is followed by O2 with a similar £35 monthly deal totalling £801.48. The Worst deal for me is the Orange £122 monthly deal which although tempting for the free iPhone, unlimited calls and texts totals a whopping £2,936 over the tenure. That’s a 266% increase over the best deal! Orange and O2 clearly have consumers in mind featuring in the top 5 deals. The best Vodafone deal comes in at 7th and although has unlimited texts and a reduced cost for the handset, the overall tenure is £100 more than Orange and O2’s best deals. Hypotheses The model also helped to answer a few hypotheses that I wanted to test as a ‘savvy’ consumer: 1. Deals with free phones are the most expensive For my type of call usage the free phone deals were ranked joint 17th, joint 29th, joint 43rd and joint 97th. So not always the most expensive, but not exactly the best deals either. Incidentally, the free phone deals top the rank when users speak for more than 1400 minutes a month. That’s around 46 minutes a day: power talker! 2. Pay as You Go deals are cheaper than pay monthly For my profile of calls/texts, pay monthly costs are significantly less than Pay as You Go. The cheapest Pay as You Go totals £1,493 and it ranked 34th. Analysis shows that Pay as You Go deals favour the light users with calls of 100 minutes or less a month. 3. Increased market competition mean that deals vary significantly between providers. There is a healthy mix of Orange and O2 ranked as the cheapest. Vodafone’s deals are weaker and only become attractive for ‘power’ text users (possibly the younger generation?) Recommendation For a moderate user like myself, choose Orange or O2’s £35 a month deal. Which service provider is up to you and the soft benefits highlighted earlier will help you make that decision. Pick a monthly deal as the call charges for Pay as You Go deals make them very unattractive. The average Pay As You Go deal costs £2,490 over 18 months. Tesco’s deals are ranked 80th and 87th so avoid these deals at all costs! The right deal is dependent on your individual phone usage, so why not have a go on the model (click here) and see which one is tailored just for you. (Remember to Enable Macros when you open the file) .
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