I currently own an iPhone 5, off contract. I bought the phone outright from Apple shortly after release for £540. I use the cheapest carrier available to me in the UK. That happens to be giffgaff. I pay £12 a month for unlimited texts, unlimited data and 250 minutes. The coverage on giffgaff is great, because they run on O2's network. O2 have one of the best networks in the UK.
The reason I bought my iPhone outright is twofold. Firstly, it's cheaper. Sure, £540 upfront for a phone seems like a lot of cash to lay down — a regular contract would let me drop just £279 for the handset — but I'm given the luxury of £12 a month thereafter (with no lock-in), whereas contract users are tied to a specific company for at least 12 months, at a cost way above what I'm paying.
If you do the maths, over 12 months I pay £684 for my phone and data plan, whereas a similar 12 month contract on Vodafone would cost £771. That difference in price is a lot of apps. Or even a few of these.
There are additional benefits to buying an iPhone directly from Apple, which include the device being unlocked — if another mobile operator springs up who happens to offer a better deal than giffgaff, I can switch. I'm also not obligated to pay £12 every month. Because giffgaff have extremely fair pricing, sometimes it'd be cheaper for me to just top up a little and let it last me over a month1. This is especially true if I'm often using WiFi, and therefore little data. Because my iPhone is unlocked, it also holds a substantionally higher resale value.
The Device And Carrier Are Separate
The iPhone is a portable computer. It just happens to connect to the internet for most of the tasks it's used for. When you think of a traditional computer and the internet connection which accompanies it, they are clearly defined, separate entities.
All the power of mobile phones has ended up in the hands of the carriers. People buy their phones by walking into stores run by carriers. When compared to how people buy computers, it seems crazy. Imagine buying a desktop computer from a Vodafone store.
This coupling of mobile device and mobile carrier is coming to an end. The value in the device/carrier relationship is all in the device. The iPhone changed everything.
I believe we would be better off if we all treated mobile phones like computers and carriers like broadband providers. £540 for a portable computer isn't expensive. But £41 a month for 600 minutes, unlimited texts and 1GB of data is insane.
I look forward to a future where device manufacturers hold more power than carriers. The balance is shifting. It's only a matter of time before it topples completely.
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1: Even though it may be marginally cheaper for me to not always pay £12 every month, I tend to top up on a monthly schedule just for the convenience of knowing I have unlimited data if I need it.