The economics of buying a cell phone

Most people I know tend to buy their cell phones on a contract, and therefore pay a subsidized price for their shiny new toy. They think it’s a good deal, because their new phone “only” cost them $129. What they don’t realize is that these days, the major cell phone carriers have come up with a stratified pricing scheme. In other words, if you go in and sign up for a contract with a hot new phone (the Samsung Galaxy S4, the newest iPhone 5s, for example) you’ll only be eligible for a certain selection of plans, which will cost a minimum of, say, $65. If, on the other hand, you purchase a less expensive model (maybe last year’s Galaxy S3 or iPhone 5), you’ll be able to get a better/cheaper plan. In addition to this, the older phone also costs less. You’ll often find them offered at $0. So not only do you get a better/cheaper plan, your phone costs you less too. It’s a double-whammy. It gets even better if you shop around a bit at the “discount” carriers (Fido, Koodo, Virgin).

 Let’s take Bell, for example. A 16GB iPhone 5s will cost you $230 on a 2 year contract. You can get an $85 plan that includes unlimited Canada-wide talk + text and 2GB of data. The exact same plan at Koodo is currently on promotion for $60. You could get the new Nexus 5 for $200, and that will only add an extra $5 to your monthly bill. So, for $200 at Koodo, you get the Nexus 5 and the plan for $65. At Bell, for $230, you get the iPhone 5s and the plan for $85. Your total cost over the next two years at Bell (after tax) will be $2,565. At Koodo, it will be $1,989. That’s a $576 difference, just so you can get your stupid iPhone 5s, which is not any “better” than the Nexus 5.

Now, let’s think even further outside the box. What if, instead of buying a phone on contract, you went to Koodo and bought the new Moto G from Motorola outright, with no 24-month contract. This will set you back $200 + tax. That’s right: you can buy a brand-new phone for $200. And this isn’t one of those cheap, discount phones: the Moto G is just as good, if not better, than phones like the Galaxy S3. Additionally, if you bring your own phone (or buy one outright), most carriers, including Koodo, will give you a 10% discount on your monthly bill. So, in the case of the Moto G, your total two-year cost will be $1,833 – that’s $732 less than buying the iPhone 5s with Bell for the same plan and a phone that, while not quite as powerful and top-notch as the iPhone, is still very good.

So ask yourself this – is getting that shiny new iPhone 5s worth spending an extra $732 (in addition to being tied to a two-year contract)?