iPhone 7: Contract or buy outright?

Alex Kidman 14 September 2016

iPhone7_450

Is it worth buying your phone outright and throwing a standalone SIM into it, or going on contract to save money?

When Apple announced the iPhone 7 last week, as expected, it did so with predictably premium pricing. Apple simply isn’t interested in playing in anything but the high end of the market to speak of, although the iPhone SE is a slight tilt towards that position. That’s a phone based on the iPhone 6s, however, so we’re presumably a few months (at best) away from an iPhone 7 SE release.

Here’s what you’ll pay for an iPhone 7 or iPhone 7 Plus in Australia at launch:

ApplePrice
iPhone 7 (32GB)$1,079
iPhone 7 (128GB)$1,229
iPhone 7 Plus (32GB)$1,269
iPhone 7 (256GB)$1,379
iPhone 7 Plus (128GB)$1,419
iPhone 7 Plus (256GB)$1,569

That’s a fairly stiff kind of price, unless you’re in an income bracket where a thousand dollar phone is chump change to you. In which case, go forth, buy and enjoy your new handset. For the rest of us though, $1000+ is hardly a casual buying proposition, or the kind of cash we’d readily have on hand for a smartphone purchase.

That’s where the prospect of a contract for an iPhone 7 over two years can look enticing, because you’re not slugged with the hefty upfront cost of the phone itself. However, it pays to carefully do your sums, because you could pay a fair convenience price for that contract. In many cases the cost of a mobile contract across two years including a handset can subsidise the overall cost of the phone, but this isn’t always so. It’s also a complex equation, because it really rests on your expected usage over those two years, the specific model of iPhone 7 you want, and what you’re likely to pay for it across either contract or outright terms.

Let’s use some examples to illustrate. Say you’re a very budget-minded iPhone 7 fan, and you only wanted to opt for the entry level plans on the 32GB iPhone 7 handset.

Here’s what you’d pay across the four primary carriers stocking the iPhone 7 32GB at launch just in terms of plan handset repayments:

iPhone 7 32GBPhone RRPHandset repayment cost onlyContract saving
Virgin Mobile $30 Plan$1,079$768$311
Telstra S Plan $55$1,079$720$359
Vodafone Red $40$1,079$864$215
Optus My Plan Plus $40$1,079$672$407

Seems like a no-brainer, no? Not so fast! There’s a couple of issues to contend with. Firstly, those entry level plans come with quite low data allocations; the Telstra, Vodafone and Optus plans offer 1GB, while the Virgin Mobile plan comes with a measly 300MB. That’s highly unlikely to be enough to cover your needs, and if it is, then you’re arguably buying a phone that’s more than you require anyway.

Then there’s the issue of total cost of ownership across those two years. What happens if we plumb in the full contract costs of those phones, and then compare against the cost of a SIM-only contract with similar data allocations?

There’s some variance here across carriers, as Virgin does month to month SIMs (but with more data than that lousy 300MB), while Vodafone for example offers a discount on a 1GB SIM if you take up a 24 month contract. We’ll assume you’re after the best possible value for your buying dollar, so would sign up for longer and lower contracts where available:

iPhone 7 32GBMinimum monthly costMinimum 24 month costSIM only plan costSim Plan plus outright phone costPrice difference
Virgin Mobile $30 Plan$62.00$1,488.00$30/month, $720 over 24 months$1,799.00$311.00
Telstra S Plan $55$85.00$2,040.00$35/month, $840 over 24 months$1,919.00-$121.00
Vodafone Red $40$76.00$1,824.00$22/month, $528 over 24 months$1,607.00-$217.00
Optus My Plan Plus $40$68.00$1,632.00$30/month, $720 over 24 months$1,799.00$167.00

There's an astonishing quantity of variance there. Virgin Mobile's plan is the biggest "winner" for contract pricing, but you pay in terms of lousy data allocations, with the SIM-only plan giving you 1.5GB per month by way of comparison. Meanwhile, you'd save if you were a Telstra or Vodafone customer over the long term to buy outright.

More realistically, if you’re in the market for an iPhone 7 you’re probably going to be willing or able to cough up more cash for both a better handset and a more generous data package. Let’s see what happens to those figures for, say, an iPhone 7 Plus 128GB phone on a package with between 7-10GB of data, which is a healthy amount to allow yourself plenty of streaming, gaming or other data-intensive activities.

If you just consider the add-on handset payments, it all looks reasonably good.

iPhone 7 Plus 128GBPhone RRPHandset repayment cost onlyContract saving
Virgin Mobile $70 Plan$1,419$768$651
Telstra L Plan $95$1,419$648$771
Vodafone Red $70$1,419$864$555
Optus My Plan Plus $85$1,419$528$891

But what happens when you plug the total cost figures against outright purchase with a similar SIM-only offering?

iPhone 7 Plus 128GBMinimum monthly costMinimum 24 month costSIM only plan costSim Plan plus outright phone costPrice difference
Virgin Mobile $70 Plan$102.00$2,448.00$40/month, $960 over 24 months$2,379.00-$69.00
Telstra L Plan $95$122.00$2,928.00$70/month, $1680 over 24 months$3,099.00$171.00
Vodafone Red $70$103.00$2,472.00$40/month, $960 over 24 months$2,379.00-$93.00
Optus My Plan Plus $85$107.00$2,568.00$40/month, $960 over 24 months$2,379.00-$189.00

Here’s where it gets interesting. For customers on the Telstra network, there’s a slight advantage to going on contract, as it’s marginally cheaper if you do so. For the other carriers, however, the significantly lower cost of their SIM-only plans makes it cheaper over the longer term to opt to buy outright and match it with a contract plan.

Realistically, the answer to whether it’s cheaper to go on contract or buy outright is that it very much depends on your exact needs. Even if you’ve identified that you want or need a new iPhone, it’s well worth doing the full set of sums to identify the best possible deal. Obviously, if there's no way you can raise the $1000+ upfront for an outright phone, getting one on contract might make sense in terms of being able to access the phone at all, even if it does cost you more in the long run.

Equally, we’ve kept this comparison within the carriers themselves, but it’s also a good idea to consider a month to month or even prepaid MVNO option from a carrier such as amaysim, where you may find a data inclusion and price that drives that total cost down even lower.

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