After our blog post last month that suggested pricing strategies need to be reimagined with pay monthly allowances heading towards “unlimited everything” 3 UK has added device financing to its post-paid contract portfolio.
O2 was the first UK operator to offer device financing back in 2013 with their Refresh plans. Virgin Mobile & Tesco Mobile followed suit. 3, EE & Vodafone maintained the traditional subsidised upfront device price with monthly plan prices varying by device that provided little insight into the hardware element attributable to the total cost of ownership (TCO). In the last month 3 has broken from the well-established 24 month offer and has started to list smartphones with 36 month financing (subject to status). For those who didn’t fulfil the finance criteria (or preferred the 24 month offer) 3’s original plans were still available.
The PriceTRAX chart below compares weekly smartphone pricing for 3’s current plan and O2’s finance bundle for the week ending 19th June 2020.
For the analysis we took the major smartphones available from 3 UK with unlimited data on both finance (36 month) and traditional 24 month plans. TCO 36 month was calculated by adding appropriate unlimited Sim-only (SIMO) options onto the standard contract term. At present unlimited SIMO for 24 months is £22/month and £24/month for a one month rolling contract (although this is likely to change in the future).
3 is offering a level of subsidy for the Samsung devices listed with contract compared to the standalone device + 36 month SIMO option. There is a small subsidy for the iPhone 11, but nothing significant for the iPhone SE variants. The traditional 24 month contract plans (+ 12 month SIMO) provide the highest subsidies for the Samsung products with finance TCO’s much closer to device + SIMO.
Conclusions:
- O2’s finance option is significantly more expensive compared to 3 UK; TCO36m averages 25% higher for O2 (range 14-32%).
- O2 UK has lower upfront device prices and their plans include value-added services such as Amazon Prime, Disney+ & O2 Priority.
- 3 UK Advanced Plans have Go Binge offers for specific apps, however these are more relevant to fixed data allowances.
3’s aggressive entry into device financing will provide O2 with food for thought due to higher TCOs and 3 UK’s 24 month plans may become obsolete as finance takes hold.
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Phill Maling: pmaling@strategyanalytics.com or Stuart Robinson: srobinson@strategyanalytics.com