If you are looking at getting a new phone, consider your options: buying a phone outright is often cheaper and more flexible in the long run, but buying a phone on a contract doesn’t come with a big upfront payment. Take a look at the pros and cons below.
In this comparison of choices, I will use the example of the iPhone 6s on the Optus network with at least 1GB of data per month.
The iOS and Android Difference
If price is your main criterion, I’ll say this straight up: get an Android phone. Apple’s brand name and status puts a big mark-up on the price you can expect to pay for a phone of equal performance:
The Google Nexus 6P, for example, smashes Apple’s iPhone 6s in major performance categories and will cost you $300 less outright or up to $500 less over 24 months on a contract.
Outright vs Contract
Purchasing a phone outright is almost always cheaper in the long run in absolute dollars.
Tip: never buy a phone outright from a phone company. Optus is currently selling the iPhone 6s for $1,080 and the online store Kogan is selling it for $940.
Optus currently has the iPhone 6s available on a $70 per month contract which provides you with unlimited calls and texts and 1GB of data.
An iPhone 6s will currently set you back $940 outright. Purchasing outright, however, leaves you with a phone with no mobile network. This is where a lot of savings comes in: some companies can resell mobile network services. Vaya and Jeenee Mobile are my two favourite wholesalers of the Optus network. Essentially, by using a Vaya or Jeenee SIM, you’re using an Optus SIM.
For $20 per month, Vaya currently gives you unlimited calls and texts and 1.5GB of data. For $18 per month, Jeenee currently gives you unlimited texts, 200 minutes of calls and 1.8GB of data.
Assuming you can keep your calls to less than 200 minutes per month, Jeenee’s $18 contract beats Vaya and smashes Optus with its data allowance. Over the 24-month period that Optus locks you in for, the Optus contract will cost you $1,680 whereas buying the phone outright from Kogan and using Jeenee’s $18 contract costs you $1,372.
- Outright gives you 800MB of extra data per month
- Outright costs you $308 less over 24 months
Using a SIM-only contract with Vaya or Jeenee means that if you want to upgrade to the Telstra network for better coverage or if you aren’t happy with their service, swapping is easy. The worst case scenario is that they slap you with a $20 exit fee. Though usually you just sign up with the next company and they port you over for free. You just pay your last monthly bill then you’re done.
Going into the Optus contract locks you into Optus for 24 months. If you aren’t happy or you change your mind, you can leave if you want but you’ll have to cough up every last cent of the $1,680 you haven’t finished paying in the 24-month contract — not worth it.
Buying a phone through an online store like Kogan or eBay can make phone support less convenient.
If the phone is faulty in any way, you’re covered financially. Kogan is a reputable store and will likely refund or replace your purchase if there is something wrong with it. eBay purchases are generally covered by PayPal protection — if an eBay seller screws you over in any way, PayPal will make sure you get your money back.
However, if there is nothing seriously wrong or you would simply like some in-person advice on how to do something with your new phone, an online store can’t help you.
In contrast, buying a phone from an Optus store gives you the support and service of their staff in any retail outlet in Australia.
Additionally, if you are having network service issues, you will likely have to contact Vaya or Jeenee, not Optus. Even though you’re using Optus’ network, you didn’t pay Optus so they won’t help you — you’ll have to contact Vaya or Jeenee. These companies keep costs low by not having any physical buildings you can walk into for support. I used to be with Vaya until I got sick of their ridiculously long wait times whenever I wanted to call them (they might have improved by now). Jeenee wait times for me are normally about 4 minutes. That’s much faster than driving to your nearest Optus store anyway.
I thought it worthwhile to mention that purchasing a phone outright has the extra benefit of making you fully aware of how much your phone is worth.
Shelling out $940 for an iPhone is likely to make you cautious about damaging your phone. I think you would be more likely to buy a phone cover, protect the phone from falls, and just generally look after it more than if you were only paying attention to the much smaller $70 amount.
Additionally, purchasing a phone through a contract has the side effect of attracting upgrade pressures from Telco you bought it from. When you are nearing the end of your 24-month contract you are likely to be asked if you want upgrade your phone for free.
What’s actually happening is that Optus (or whoever) would be aware that you might be tempted to leave them after the contract ends, or perhaps even earlier if you don’t mind paying out the remaining month or two. Accordingly, they will entice you to lock into a brand new contract with them when in reality your phone is likely to be fine for another year at least and during that time you could swap from your $70 Optus contract to an $18 Jeenee contract!
Optus actually has a ‘new phone trade-up’ option for some of their phones where, at any time during your contract, you pay them a $100 one-off fee and you can trade in your old phone (in decent condition) for a better one, locking you into a whole new contract. Unless you’re worryingly careless with your phones and they break all of the time, there is simply no need to upgrade phones this frequently.
There are only two reasons why you might choose to buy your next phone through a contract:
- You don’t have the money to buy a phone outright at the moment (in which case I suggest you wait until you have the money or pick a cheaper phone. You can buy the iPhone 5c on eBay for $265 at the moment!); or,
- You live or work right near an Optus store and you think you’ll be hopeless without in-person service from an Optus employee.
Otherwise, the clear winner is Outright.