Why the Apple iPhone costs £120 more than you think

November 11th, 2009

Consider the hidden costs of the iPhone tariffs and the true cost of the iPhone costs £120 more than it initially seems.

At Ken’s Tech Tips, we’ve answered the whole “What is the total cost of ownership of an iPhone?” question before. There’s one more thing that I want to bring clarity to: how much does the iPhone itself cost? We’re just talking about the cost of the phone – not the contract.

Easy you say! O2’s website clearly tells us the price of the device. It’s £87.11 for a 16GB iPhone when you sign up on the £35/month contract. In this article, I want to argue that the true cost is actually £207.

O2 iPhone tariffs
Image: The iPhone tariff page on the O2 webpage

The hidden cost in the tariff

If we look very carefully, we see there is actually a hidden cost which is absorbed into the tariff.

To summarise, the £35/month (or £34.26 with the VAT cut) iPhone tariff gives us:

  • 600 minutes
  • 500 texts
  • Unlimited data & wi-fi

How much would it cost to get the exact same tariff if we didn’t have an iPhone? We can compare by finding the exact same tariff from the standard O2 Pay Monthly tariff page. The same allowance of 600 texts, 500 texts (double if you buy online, we can ignore that) and unlimited data costs just £30/month (£29.38 after the VAT cut). To re-iterate: we’re comparing exact like-with-like here. The iPhone and standard tariffs are both 24 month long and both have the same call, text and data allowance.

You can get the exact same tariff for £5/month less if you didn’t have an iPhone.

o2 tariffs
Image: The standard tariff page on the O2 webpage

Why is this a hidden cost?

Creative Commons License photo: e-magic

Think about it: iPhone customers and standard Pay Monthly customers get the exact same service. It’s the same network, the same customer support and the same tariff. Yet iPhone customers pay an extra £5/month for an identical service. It’s obvious that you’re not paying for extra service. The only logical conclusion is that the extra £5/month is actually a hidden charge for the phone itself. Over 24 months, this amounts to £120.

Ask yourself: Would you rather pay £207 for a phone and £30/month after that or £87 for a phone and £35/month after that? Of course, they are actually identical in that the total cost of ownership is the same, but the second option sounds much more attractive.

People don’t want to pay for a phone when they sign up for a contract – and certainly not £207 for one. The special iPhone tariff allows O2 to disguise the true cost of the 16GB iPhone 3G S which is really £207. That’s an awful lot to pay for a phone on contract especially when most phones are free on contract.

The real cost of the iPhone – What you’re really paying

If you buy on the £35/month iPhone contract:

  • £207 for the 16GB iPhone 3G S
  • £295 for the 32GB iPhone 3G S

If you buy on the £45/month iPhonecontract:

  • £120 for the 16GB iPhone 3G S
  • £217 for the 32GB iPhone 3G S

If you buy on the £75/month iPhone contract:

  • £120 for the 16GB iPhone 3G S
  • £120 for the 32GB iPhone 3G S

Creative Commons License photo: William Hook

Why does it matter?

I’m a firm believer that if we’re to make a well informed decision we need to have clear information about all the choices.  From a consumer point of view, prices are a lot easier to compare when we have a firm distinction between what we pay for the phone and what we pay for the service. I’ve argued in this article that O2 has blurred this distinction and hidden most of the cost of the iPhone within the tariff.

I can’t blame O2 (and equally Orange) for doing it – it makes business sense because nobody would pay almost £300 for a mobile phone on a contract. But as a journalist, I think it’s important to reveal what you’re really paying for the iPhone – It makes it easier to compare against other phones, whether to buy the phone on PAYG or contract and to make an informed decision.

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About Ken

Ken Lo

My passion is helping people to get the most out of their mobile phone. I've been blogging at Ken's Tech Tips since 2005.

Aside from writing about mobile technology, my interests are in software development, digital marketing and physics. Outside of the blog, I work with numerous technology companies helping them to explain their product and helping them to market it to consumers. Please get in touch for more information.

Your Comments

We'd love to hear your thoughts and any questions you may have. So far, we've received 5 comments from readers. You can add your own comment here.

  1. Spike said:

    The iphone plan includes wifi access to BTopenzone/and theCloud. That accounts for some of the cost.

  2. arak said:

    I’ve worked in mobile phone sales for around 6-7 yrs; last time I did so was about a yr ago. To be honest even I prefer to have the cost “absorbed” as:
    -I have to come up with less money upfront and so keeps my monthly budget intact
    -it makes getting my head around the numbers easier if I have a nice round number

    And before you say it…I’m not stupid: I’m a computer science graduate from a top-10 uni, musician and do well in all IQ tests.

  3. Luke said:

    It’s because they heavily subsidize the prices, as they announced on Twitter.

  4. Paintball Kolbudy said:

    This is just amazing how they pop with the people 🙂 I wonder how it would work in my country, for sure the same mechanism, but the prices???

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