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back to article Vodafone and pals can't kick the habit of cheap mobe prices

Three Spanish operators have been trying to get rid of handset subsidies, which reduce the upfront prices of mobiles provided punters take out not-inexpensive contracts. But according to Strategy Analytics, the telcos' resolve is weakening in the face of falling subscriptions. Based on retail pricing, which Strategy Analytics …

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Anonymous Coward

The problem with subsidies is it results in less competition on price.

If you knew you had to spend £500 on a phone you probably wouldn't bother. But the fact that they still cost so much is as a result of subsidies, show the full price and the pressure to reduce price is there.

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Happy to buy.

So I can eBay whenever I like.

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Law

Re: Happy to buy.

I'll never buy a mobile on eBay... a friend used to do this regularly, until he got a phone that had its imei blocked within a week. eBay wouldn't refund him, the seller denied all knowledge, and police wouldn't get involved. In short, he'd spend several hundred on a brick.

Having said that, I've sold phones on eBay, and I am not a scammer, I know the majority of people on there are honest enough, but I wouldn't take the risk myself.

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Anonymous Coward

I'd rather pay for the handset, and pay a low monthly cost. No contract, no worries.

The English are used to "owt for nowt" and think they shouldn't have to pay. Then they complain about being tied into long expensive contracts.

Hardly surprising.

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HMB
Bronze badge

Easy to say just pay for the handset, but consider this:

3 give me the best deal on what I want, that is, they give me 2000 minutes, 5000 texts, unlimited data and a great data network. I loathed dropping to GPRS on Vodafone.

It's purely logical for my needs to go with 3, no one else comes close on bang for buck.

I can pay £25 for a rolling one month contract for the above, or... I can pay £27 and commit to 24 months and I get an S2.

It's almost not worth not getting the S2.

Crazy world.

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Never Never to Never Ever

I've switched from the never never to never ever on the subsidized handsets.

I don't really call or text much, but in order to get a free handset it seems one has to take out a contract which gives you a bazillion free texts and twelvety gagillion voice minutes* per month for say £35, for 24 months. So, thats £840 before you add in 'non-contract' spend like international roaming etc.

Or, I bought my Motorola Defy for about £150 as a second user device. Add into that my Tmo sim only contract which gives me 100 minutes & 100 texts, plus unlimited (subject to limitations) internet, for about £12.50 a month. Over the same 24 month period, I make that about £450, but with the freedom to change with 30 days notice if my provider decides to really extract the urine. I exceed my allowance once every 3-4 months by about £2, but rather that than be paying for excessive minutes I'd never use. I could get a more expensive tariff which would give me lots of minutes, and still save across the 'lifetime' of the contract.

I can't imagine tying myself into a 24 month contract on a phone that would be out of warranty after 12 months, and the operators having the freedom to change the goalposts at any time. The only way subsidised phone tariffs work is if you are constantly making voice calls and you want the shiniest phone in the pub, and only then just barely.

*numbers exaggerated just a little bit for comedic effect.

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@HMB

That's great, but what do you do when 4 months in, they drop the allowed data to something your G2 uses in 5 minutes, as well as increasing the monthly prices within the allowances on your 24 month contract. Or alternatively, they change their network, or you change your typical locations such that you get practically no coverage? I guess you just have to live with it for the remainder of your term.

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Anonymous Coward

Re: @HMB

Or you lose your job (for whatever reason) and find you can only afford £10 a month for phone.

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@Obviously - careful with your sums....

"I'd rather pay for the handset, and pay a low monthly cost. No contract, no worries.

The English are used to "owt for nowt" and think they shouldn't have to pay. Then they complain about being tied into long expensive contracts.

Hardly surprising."

This probably works if you're buying one of the lower end phones outright but bear in mind there's always a network subsidy. Take a Samsung Galaxy S3 (yes, yes, I like my toys), for example. £500 at launch but the most Orange were charging for the phone was £300, even on their lowest tariff.

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24 months warranty

>out of warranty after 12 months

Er, no. It would be 24 months... http://www.guardian.co.uk/money/2011/feb/05/how-long-electrical-goods-guaranteed

Basically, if a phone is sold on a 24 month contract, it is *reasonable* to expect it to last for 24 months. Likewise, a £15 MP3 player might be expected to last a year, but a £800 television should last for several years at least.

Mobile operators will try and fob you off with "But the phone is free, you have only paid for the service so we're not governed by the Sales of Goods Act", but remember, if you get into an argument with your operator that remains in deadlock for more than three months, the dispute has to be examined by one of two independent arbitrators (dependant on your operator- check the back of your bill or the Ofcom website).

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FAIL

5000 texts

I would struggle to use 5000 texts in 10years! The 2000 minutes I might get through in a year or so. The 'unlimited' data on most contracts rarely is; so I always get a prepaid phone

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Buying your phone up front

For once I completely agree with Obviously!

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Anonymous Coward

Contract length

Never agree to a 24-month contract. They are taking the mickey.

I have always managed to do a deal for latest handset that I want on an 18-month. Sometimes takes a bit of shopping around, but it's possible.

Recently for Galaxy Nexus the choice was 24mo @ £31 or 18mo @ £31 + £30 upfront. No-brainer and with unlimited Internet too. It's a T-mo tariff.

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Anonymous Coward

I'm all for subsidies being cut, sure I would have paid £500 for my phone, but then I would have expected to get a sim-only monthly deal with the same provider for around £20/month instead of £37 a month with no lock in...

When i buy on a contract i factor in the cost of the phone, so for me it was phone is £500, its a 24 month contract, so that is £20 month, to get a sim only deal its £25/month, I pay £37/month, hence I am getting a £8 a month discount, or over the whole contract I get the phone for £192 less than the list price...

So Sim only prices are too high still

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I look at phones on the numbers.

(Contract Price - Cheapest Sim Only Price) x Length of Contract

If it is less than the open market value of the phone then it makes sense to get it on contract. More often than not though, the phone is far cheaper to buy off contract, plus it isn't poisoned with the networks crapware

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Hi, Mr. Cynical here

Why are unsubsidised phones supposedly "worth" £500+ ?

Android tablets seem to be fairly cheap so I don't understand how come when these tablets shrink a bit and grow a GSM interface they suddenly become twice as expensive.

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Re: Hi, Mr. Cynical here

eBay auctions are usually a good indicator of the 'worth' of a phone. I use those prices to way up the resulting monthly contract. In every situation I've looked at, I'm better off with buying up-front on eBay + PAYG SIM + selling 6 months later on eBay. But then my usage is quite low (around £7pcm for talk, text and data).

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Re: Hi, Mr. Cynical here

Have a look at the teardowns on isuppli.com - a 16Gb iPhone 4S costs around $196 (say £125) to make. Transport costs, software licences not included.

Same phone is £499 on 3 PAYG, presumably simlocked. Same phone (sim free) is also £499 from the Apple Store.

A cynic might think "price-fixing"?

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Re: Hi, Mr. Cynical here

Two things, firstly as far as hardware goes, taking something big and reducing its size by 80% is usually difficult or in laymans terms, expensive. Secondly, profit, or what's the point?

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Re: Hi, Mr. Cynical here

"Have a look at the teardowns on isuppli.com - a 16Gb iPhone 4S costs around $196 (say £125) to make. Transport costs, software licences not included."

iFixIt's tear downs conveniently ignore all the hidden costs of producing devices like these. That miniaturisation doesn't just happen. There's the R&D needed to design the hardware; the manufacturing processes, which usually change with each new model; the logistics of ensuring all the components arrive just in time, and no earlier or later; the packaging design and manufacturing; the distribution and shipping logistics, and so on. (This is why Tim Cook was hired by Jobs, incidentally. He's very, very good at solving those logistical puzzles.)

Then there's the cash spent on marketing and PR—in multiple countries. Remember those "I'm a PC / I'm a Mac" ads? The UK ads used a different pair of comedians. As did the Italians. And they were adapted and localised to account for cultural differences. Again, that's not cheap.

And that's before you get into all the faff and hassle of getting certification from the FCC, EU, China, etc., after which you THEN have to test the phones on individual operators' networks to get them to sell it on their networks.

And then there's the customer service and support infrastructure. Someone has to pay for those call centres. Someone has to pay for the infrastructure to handle the WEEE regulations too.

ALL of the above has to be paid for. ALL smartphone manufacturers have to cover these costs, not just Apple.

Finally, there's the development of iOS itself. This is something most of Apple's rivals don't have to pay for, yet they somehow manage to have no trouble charging the same—or even more—money for their devices than Apple do for their iPhones.

Odd, that.

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Re: Hi, Mr. Cynical here

Rule of thumb is that price-to-retailer is around 3-4 times cost, and price to end user 4-5 times manufacturing cost.

That's to cover all the fixed costs of bringing a device to market - things like the hardware & software engineers, testing etc for compliance with standards and regulations, IP licences, marketing etc.

Then the retailer you buy it from needs to make some money as well to pay their rent and staff.

So those prices all sound pretty reasonable.

Also, remember why iSupply do those tear downs in the first place - they are advertising their services in finding suppliers and manufacturers for similar devices.

So they are probably going to underestimate the cost to get more business, as nobody can bring them up on it anyway.

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You should shop around. Sometimes it makes more sense to get the phone out of contract. The thing is most people can't afford the upfront cost so they don't want that. Phones are too expensive. You would hope that would change if they weren't subsidised but I suspect not.

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Alert

The elephant in the room ?

Surely the bottom line is the market is just completely saturated ? Apart from the dearth of apps, my Windows Phone (January 2011) isn't missing anything that would make me go out and get a new phone.

Ditto the Mrs HTC Wildfire (bought Dec 2011).

Ditto the lads Nokia 5800 (bought March 2009).

Therefore, for this household, it's completely irrelevant what the price of handsets is. We can't be the only one.

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Re: The elephant in the room ?

I think this is a very important point. I'm in the same situation. My Samsung Charge (purchased unlocked on eBay) is about a year old. The hardware is powerful enough to run everything I need on it. It has enough storage & memory that I have all the apps I can stand to use or test. I don't need a new phone, I won't for a long time, and this one is set up exactly the way I like. Many people I've talked to with smart phones also say they see no reason to upgrade their handset.

There's another factor that makes people reluctant to enter a new contract with a carrier. In the US, each carrier does something evil with the contract locked phones. For instance, they disabled features in the past to try to get you to pay them for the privilege of using your own hardware. They load the phone down with apps (some of which nag you to pay for them) which can't be uninstalled. This makes me unwilling to enter into another contract. I suspect many people don't want to get new subscriptions unless they think they are getting a phone cheap / for free (whether they actually save money has already been discussed).

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Anonymous Coward

Mrs HTC Wildfire?

I didn't know that mobile devices could get married now.

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Truth is...

...if it weren't for phone 'subsidies', most of us would be using 10 year old Nokias held together with sellotape. Instead, we upgrade to phones we would never have otherwise obtained. That said, you can often find very good contracts that are cheaper than buying SIM only and spending a tenner a month on usage.

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Re: Truth is...

Not quite sure that would be a bad thing. After around 14 years, I am only on my 4th phone and I am constantly amaze with people that feel that they need to get a new phone every year, even when the tech hasn't changed that much. It is a waste of money and resources.

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Re: Truth is...

I still have my Nokia 6210 from 10-11 years ago and it still works. Indeed, it's connected to the network at the moment and is used as a loan phone for foreign visitors.

However, my current phone is an HTC Wildfire S, bought non-contract because for my level of usage that's easily cheaper than any phone bought on a long-term contract. Its predecessor was a Nokia E71 that also still works. The guy in the phone shop tried to sell me the phone insurance so I pointed out that I was replacing a phone I'd had for three years and so I tend to take care of my phones. He saw the point I was making :-)

It's nice to have a phone that isn't locked to a network and isn't full of the telco's favourite crap apps, although I'd happily uninstall half of what comes as standard on an Android phone (I assume Facebook and others must pay to have their apps permanently installed) even when it isn't branded.

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Re: Truth is...@Cubical Drone

I'm with you on this one Cubical Drone.

I love my gadgets but didn't get a smart phone until the S2 last year as the previous Androids, IMHO, were always a little "light" and I didn't want an iPhone.

I was asked if I was getting the S3 this year by people and most were surprised when I said "no, don't see the point".

I think LOTR had it right with the character Gollum and "my precious" shiny thing!!

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Try Rogers in Canada

You get the ruinous monthly tariff, for 3 years!

If you buy your own phone, and pay month by month? Same price.

If you buy your own phone, and sign up for a 3 year contract, same price, but if you ask you can get a deal of about $2 off (wow) a month.

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Re: Try Rogers in Canada

Awfully big country, sparsely populated, perhaps they have to pay for a lot of cell transmitters transmitting at high power, which will get little usage to cover their cost? In the UK we're quite lucky in that it's quite small and densely populated, which has probably meant the cost base is lower and outlays more easily recoupable by operators.

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Anonymous Coward

Re: Try Rogers in Canada

That could be the reason except for the fact that coverage is sparser (is that word?) than the population. Rogers are indeed, as the OP said, worse even than UK Cellcos, hard as it is to believe.

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Sometimes its daft not to get the phone, a cfew weeks ago Carphone Warehouse did a deal for the HTC One S for 16 a month, 200 minutes, 500 texts and UNLIMITED INTERNET.

Total price £384, price for phone alone around £350.

So free internet and enough minutes and texts for what I use for 2 years for £34. Phone is unlocked as well so can sale anytime easily.

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My sim-only contract is 300 minutes, unlimited* texts and unlimited* internet for £15.32 per month. When I looked at the extra cost to get a handset, it worked out over the term of the contract to be pretty much exactly the same amount extra as buying the handset. That means that provided I remembered to either get a new phone or switch to sim only on the exact month the contract expires, I get an interest free loan. Any delays in doing so are their profit.

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That was the situation I had back when I bought my first Android phone. Given the terms of the promotion and the prices of comparable plans in the interim, the end result was all square, so I went with the contract to save the hit on my credit card. I've been paying dutifully and as of this month will only have 6 months to go. Once done, I can switch to their prepaid plan or perhaps look into one of the MVNOs running on the same network, and I'd have pretty much paid the same amount either way. As for the phone, it still runs pretty nice (I also like that part of the plan price included phone insurance--I've actually had to use it once when the touchscreen broke down), so I won't need to upgrade anytime soon.

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Flame

Carphone Warehouse = bastards

I found a deal just like yours, better, for a Samsung Galaxy Y worth £80, on a £7.50 a month deal, but with £7 or so of that monthly payment, repayable back to the customer at regular intervals via a cashback rebate.

The problem was, Carphone Warehouse (their Talkmobile subsidiary) wanted a £350 deposit from me, for them to keep for six months.

My credit record is spotless, I've had credit cards for 10 years, not a single late payment or anything like that, it's beautiful, no dodgy addresses, nothing.

I had a look on the net, and others had got deals similar to the one you quoted, people with terrible credit, with a lower deposit than me; people with perfect credit had been asked for the highest deposit. So my suspicion is that CPW would rather have people who can't manage their finances properly, because those customers will be less likely to successfully jump through the hoops required to claim every cashback rebate properly. That or they're having major cashflow problems because of their cashback deals and are viewing customers as a source of large-scale short-term lending.

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Crapfone Whorehouse

Actually their phones are no better than anybody else's...., same can't be said about the staff.

"I'm just browsing, thank you"

"what's your current contract?"

"just browsin', thanks"

"how many minutes do you use"

Leaves.

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pay your money, take your choice !

everyone has the power of choice.....

the only thing I find wrong with getting a "free" phone with my 2 year contract is that 12 months into the contract I am sick of the sight of the phone. 18 months in and I am looking at whats the best deal for when I upgrade...

If it suits you to buy your own phone and get a pay as you go sim then do it,

my missus pays £4 per month for her contract from 3, for unlimeted 3 to 3, 3GB data, 300 any network mins, and 1000 texts.... this is because she stayed with the same contract for the last 7 years and just uses my old phones....

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WTF?

The problem, is that they wouldn't make any more money.

There are plenty of SIM only deals (have a look on Quidco) and similar that'll give you whatever you got with your splangly new smartphone, for way under a tenner a month.

Spread the extra paid for your contract over 2 years, and it pretty much comes to the retail price of your phone. My point being that over 2 years it doesn't really make much difference if you buy the phone bundled with the contract or not.

The benefit of the contract the operators have now, is that they can tie you in. You pay for the 2 years, you may forget the contract is up and keep paying your £35 a month (free operator money). You may just ask for an upgrade, get it, and lock yourself in for another 2 years (cheaper than finding a replacement customer for them) - oh and this new phone might have some spanglier service they can bill you additionally for.

In a world of PAC and SIM only deals, removing phones from bundles is going to cause utter carnage to their customer base.

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The fact that Orange didn't follow suite is a bit surprising, I thought the main Spanish operators had it all planned out at those informal get togethers they have and the news at the time was that everyone was stopping subsidies within a few months of each other.

The other problem is that the main operators thought they could hold tariffs at the same price and get rid of the subsidies. Unsurprisingly, there have been two major stampedes, one to Orange for people who like their bling and one to MVOs who like have already got their bling.

Then there are those freaks who buy their phones SIM free and use whatever operator gives the best deal.

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FAIL

In other words...

They wanted to remove the subsidies, but continue charging their inflated service fees and so reap even greater profit.

Yeah, how's that working for ya?

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Flawed premise

The author never explains why telcos hate subsidies so much. Inasmuch as they bind the customers to longer contracts and guarantee higher cashflow and ARPU they seem to offer quite a lot. Complicating the price is like setting the odds at the casino: the house always wins as consumers are lousy at calculating value. Comments on this thread seem to agree. Good accounting and sale-or-return deals should be able to offset the cost of inventory, some of which will not be sold. So, what are the reasons for telcos wanting to unbundle contracts from phones must be elsewhere. Note, I'm not discounting the desire: the trend towards unbundling here in Germany started years ago and is becoming the norm.

The blanket classification of Europeans as a group of people who like to live on the never-never and then provide Spain as an example is completely flawed. Household debt in the EU is considerably less per person than in the US but is far from uniform. Countries with dysfunctional property markets such as Spain, Ireland and the UK have per person debt considerably higher than the EU average. Interestingly enough even as the number of delinquents (in the economic sense) rises, credit shifts from nominally low risk, low yield secured (houses) to high risk, high yield unsecured (phones). Just because someone can't pay their mortgage doesn't mean they won't buy mobile phones, power smartcards or fags.

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Re: Flawed premise

The reason is that Spain's going through a bit of an economic crisis at the moment and people are starting to not pay their €60/month bills for a 'free' iPhone or S2 (S3 wasn't out when the they tried to phase out subsidies).

Orange must have decided the numbers of customers coming Un them made higher the risk of nonpayment worthwhile.

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Re: Flawed premise

Un = to (spot the T9 error)

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Anonymous Coward

I don't understand

The article argues that operators are losing their nerve, but the graph does not seem to support that view at all. Looks like prices went up in April and have been bouncing around the higher level since.

Am I missing something?

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So, they want rid of subsidies too ?

Long term the EU must outlaw locked phones (as per Belgium) and separate the sale of hardware from airtime so that call costs are more transparent.

Phone purchase price "subsidies" just encourage people to dump working phones* after a couple of years, help keep them them in overpriced contracts and contribute to the "confusion marketing" which makes choosing such a chore.

* I'm not unhappy to have received my neighbour's Nokia E71 when she dumped it for (a less usable) Blackberry Torch.

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Childcatcher

The way it now works in Quebec, Canada

My understanding was this was all over Canada, but the Rogers comment above made me doupt. I know now, in Quebec, long contracts for cellphones with large fixed penalties are illegal. You can have a subsidised handset, but the "full price" on it as to go down each month, so the "penalty" for breaking the engagement is what is left to pay on the phone. In the end, you get a cheap/free phone and only have to pay for it if you decide to break the contract. They then have the legal obligation to let you unlock the phone.

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subsidies,no thank you.

i just buy used phones from ebay as and when i feel like a change.A year old phone will cost around £60 to £80 unlocked.

I dont do games music etc so a phone that does text too is fine and I use my pay as you go sim.So many people are slaves to their phones and the tariffs are extraordinarily expensive for what is after all,a phone.

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Anonymous Coward

Another way of doing this

Interesting that some retailers are now offering a "split" deal - buy a SIMO contract on the network of your choice, and take out a "proper" finance agreement for the SIM-free phone - upside is that you can upgrade independently of your network agreement, after as short a time as six months. Obviously an upgrade increases your monthly payment - but you get a guaranteed future value on your original phone. Begins to sound like a car lease, doesn't it - 'just add petrol (=airtime).'

AC because I work for said company ;-) - watch out for the ads :-)

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