SIM-only vs contract phone plans: Why is sim only on the increase?

When you get a new phone, there are a few different kinds of plans available: you can either sign up to a contract on a handset, or buy a phone and get a SIM to put in it. But why are more users deciding to sim only (SIMO)?

What’s the difference between SIM-only and contract plans?

With a pay monthly mobile contract, you pay a fixed fee every month, usually for 24 months. There’s very little, if anything, to pay upfront when you sign up – but your monthly bill will include both your mobile tariff and payments on your handset.

SIM-only plan, on the other hand, only covers your mobile service. You’re just paying for the use of the SIM, as the name suggests. Lots of people choose to buy their phone outright, then sign up to a SIM-only plan to get a mobile tariff. It’s a lot less to pay per month, but a lot more to pay initially for the handset or continue to use your existing handset.

So, which should you choose?

In the early days of smartphones dominating the mobile market, pretty much everyone had a contract. Back in December 2010 over eight in ten (83%) were tied to monthly bills with one in ten (11%) having pay as you go and just one in twenty (5%) chose SIM-only.

Five years ago each new iteration of a manufacturer’s centrepiece device saw consumers calling their network provider’s customer service line to change their contracts to get their hands on the latest model and its ground-breaking features.

But things have changed greatly, and it has some very large ramifications for the mobile industry and beyond. Today, new device launches see incremental improvements meaning people are holding on to their phones for longer and running down their contracts. As a result, over a third of smartphone owners now are either on SIM-only deals (19%) or pay as you go (16%).

The decline in the level of contracts has loosened the bonds of loyalty between consumer and network.

Splitting the cost

Much like we used to go to a travel agent to arrange flights and hotel rooms for a holiday, packaging a sim card and a handset was traditional for people buying a mobile from one of the big operators – often at great cost.

Paying for the sim separately can cost less than £15.00 a month while buying the phone outright or financing it with an interest-free credit card can mean massive savings.

The airtime amount is becoming increasingly cheaper and increasingly transparent and customers are working out that they are therefore paying a huge amount in effect for a device. When a customer signs a traditional 24-month contract they are taking a loan from the mobile network to pay for that £600 device … the customers are taking that back over time so they are taking consumer credit off the mobile network to finance that device, albeit there is no transparency around the APR.

Consumers are increasingly moving away from traditional bundles and either financing the phone in different ways or buying it outright. That is because they are beginning to work out that there are better ways to finance their

With the rising cost of mobiles – the new iPhone being a prime example – people are now holding on to their handsets for longer. Last month, Dixons Carphone warned of a steep fall in profits this year, citing the trend as one reason.

Many people now understand the value they have in their pocket when they do go to buy a new one. Apple operates a “trade-up” system where older iPhones can be traded in for credit. An iPhone 5 gives an average of £40 while a 6s Plus brings an estimated £205.

Customers are becoming more savvy, they are using their old handset as a down payment on a new handset.

It makes sense to pay for a phone outright rather than spread out the payments over 24 months and pay interest on the purchase to a mobile phone operator. The problem is that many people do not have the lump sum – which will stretch to almost £1,000 for the new iPhone X – to buy it in one.

One solution is to buy the phone on a 0% interest credit card and then get a sim-only deal for calls, texts and data. MBNA, Sainsbury’s Bank, Post Office Money and Santander all offer cards with 0% interest for 30 months. Alternatively, the major handset manufacturers offer interest free payment plans such as Apple & Samsung and the networks are also offering leasing options.

However, users should be aware that they must make at least the minimum monthly repayments and ensure that the debt is paid off in time or else the interest rate will jump.

But it is not just the shift away from contracts that has affected the cost of running a smartphone and consequently operator revenues. In the past six years the average monthly amount paid by people with contracts has fallen from almost £32 to around £27 as the proportion of smartphone owners tied to a monthly bill fell. It is a similar story among those on pay as you go whose spend has decreased from £12 to £10 while the proportion of smartphone owners on PAYG has increased from 10% to 16%.

So is it a case of smartphone owners becoming more savvy, the deals now more consumer-friendly, or is there something else going on? It’s probably a bit of all three but one factor that can’t be ignored is that as there has been a drift to SIM-only and pay as you go deals, there has been a related move away from consumers using MNOs and towards MVNOs. In the past six years the proportion of smartphone owners on MNOs has declined from 86% to 72% with MVNOs growing as a consequence from 14% to 28%.

Tariffing can be a mine field so please contact Crystaline for open and honest advice on what package will suit you and your business.

If you have any questions and want Crystaline to demystify all the tech talk then please contact us on 0344 8464 222.