Phone bundles – those deals where you pay for both your device and airtime as part of the same monthly contract – once dominated the mobile industry. Back in 2014, three quarters of pay-monthly contracts (74%) in the UK involved paying off a new phone in installments.
In 2019, however, that figure is less than half (now 46%). Meanwhile, in the past five years, SIM-only contracts have more than doubled their market share, leaping from 15% to 34%.
When you take into account Pay-As-You-Go mobile services, this means there are now fewer people acquiring handsets as part of bundled contracts than there are buying their phones separately to their airtime. In half a decade, the consumer mobile market has been turned on its head. But what’s behind the change? Why are people untying their phones from their contracts like this?
The most obvious reason for this seachange is simple value. One of the big attractions of bundled contracts is the offer of a heavily subsidised or ‘free’ handset when you sign up for the deal. Rather than having to pay hundreds up front for the latest models, the impression was that high value phones were being offered as a sweetener for signing up for an airtime package.
However, as time has gone on, consumers have got savvy to the fact that the devices offered in bundled deals are not ‘free’ at all – customers pay a sizeable premium for their handset on top of their airtime. This has become more and more apparent as SIM-only deals have grown in popularity. As major operators began to offer SIM-only contracts, people could see that the airtime-only costs were often less than half of what was being charged for contracts including a phone.
This led to concerns that mobile companies were using the spread costs of monthly contracts to add a more than generous margin to the handsets they provided, effectively obscuring the fact that, over the course of 24 months, customers often paid a lot more than their phone was worth on top of equivalent airtime charges. In addition, UK regulator Ofcom has taken measures to combat automatic rollover of bundled contracts once the initial term expires. By continuing to charge the full bundled price, this effectively means customers keep paying for their handset even after they have paid it off according to the terms of the initial deal.
What About Used Phones?
Despite the upfront costs involved in buying a phone outright, more and more consumers have recognised that, long term, this is usually much cheaper than paying a premium of 100% or more on the airtime costs for 24 months. This has also been helped by the rapid growth of the used phone market, which has given consumers the option of affordable handsets that aren’t nearly so daunting to pay for upfront.
Growing awareness about the quality and value offered by second-hand phones has also likely contributed to people reassessing whether they want to be tied into contracts lasting two years or more. For one, if the handset you have is damaged or you simply decide you don’t like it, you are locked into paying for your own phone even if you choose to buy a new one. The same applies to your mobile operator – it’s costly to buy your way out of a long contract, meaning any benefit of switching provider would probably be negated.
Better value, greater flexibility and more freedom of choice therefore stand out as three compelling reasons why more people are buying their mobile phones separately from their airtime. It’s a trend we can expect to continue, with the once-mighty bundled contract more than likely to end up as a footnote of history.