Mobile phone contracts - Do you really understand them?
Today really brought home the fact that people don't really understand what a mobile phone contract actually is. Now I'm not talking about the legal fine print of a contract, but instead the top level view of what a contract represents between you and the phone company.
I was sitting in a coffee shop today when I overheard a conversation between a couple, where the man was trying to convince the women to renew her mobile phone contract. A scenario most of us go through at least once every two years. What really made me sit up and listen (don't judge, we all eavesdrop was the man was giving false information to the women. Now this could well have been because the man wanted to accomplish his apparent goal of convincing his girlfriend to renew her phone contract, or (the more likely explanation) he believed what he was saying to be true. His justification to her for renewing seemed to be entirely based on the fact that, in his words;
"But what if I don't want a new phone?"
"Why wouldn't you? You could sell it if you didn't want it".
Just in that small exchange of words, there is one main false statement, and one major fact that was not addressed by the man (thankfully she would be made of aware of this fact when renewing her contract).
I would like to think that most people know that the majority of a phone contract's monthly payment is for the phone and not actually for the service received by the phone companies. But this statement proves to me that there are still people (even if they are a minority) that still think that your phone is free. This misconception is probably down to the wording of tariff information from the phone companies, but even so, people should realise, in life there are no freebies.
I'll give a fairly average example to represent this. Say you wanted a phone that cost £500 and you took out a 2 year contract. Simple maths would show that;
£500 / 24 (months) = £20.83 (per month)
So you can see, that for a modern phone at least, £20 of your phone contract is just paying back the price of the phone itself. Phone companies may decide to subsidise some of phone cost and reduce their service charge etc. to win business, but the facts still remain, the phone is the most expensive part of the contract.
To reinforce this point, take the phone out of the equation and look at what some phone companies call; Sim only contracts. These are contracts that tend to last 30 days and roll over from month to month, meaning you can exit them on any month you want. Most of these contracts start at £10. All you are paying for here is service, nothing more, giving you an idea of what service costs are.
 What was the fact that was not addressed?
During their conversation, the man did not once mention that by renewing her contract the women would be again tied into another contract term, whether that is 12/18/24 months. In my mind this is one of the most important factors to consider before deciding to renew or not. As the women was not even bothered about a new phone, is signing up for another 24 months worth it? It is true that she could sell the phone, but lets consider the possibility that at some point through her contract she wishes to cancel. Termination fees plus the months she had already been paying for the new contract, could out weigh any gain from selling the phone.
It is easy to see that there are many factors to consider when deciding to take our or renew a mobile phone company, certainly more factors than simply; "You get a new phone".
