A few months ago, I heard a senior executive declaring enthusiastically that he had abandoned his expensive mobile phone contract in favour of the prepaid option and was saving a fortune.
Although prepaid charges used to be much higher than the contract fees, he said, the gap had since closed; he had proved over several months that prepaid call and data plans were much more affordable.
Today, prepaid calls actually do cost less than conversations on contract, for a variety of reasons.
Contract prices incorporate the cost of subsidised handsets, competition in the prepaid sector has led to an overall lowering of prices, and there has been a dramatic reduction in mobile termination or “interconnect” charges.
Tech guru and award-winning blogger Liron Segev, aka “The Techie Guy”, says he hasn’t looked back since making the switch himself.
“If you don’t have a working phone, or the resources to buy a phone outright, then the contract option that includes a phone might still be the right choice. However, if you already own a perfectly good phone, I urge you to spend 10 minutes doing a few quick calculations and then decide for yourself whether contract or prepaid would suit you best,” Segev says.
Before switching to prepaid, Segev says he subscribed to a Vodacom Talk 500 contract costing R800 a month. This was a pure voice data contract.
“I called Vodacom customer services and asked the operator to tell me how many minutes of talk time I used in November, December and January.
“My calculations showed that I used 930 minutes of airtime over three months, costing me R2 400. I then did the calculation again, this time plugging in the R1.20/minute charge as per the Vodacom Pre-Paid Anytime plan, with the same charge across all networks. From this I deduced that, in effect, I wasted R1 284 over three months, handing over my money to the network for no return.”
Surely there are catches associated with the prepaid option? Not if you use your head, retorts Segev.
“On a prepaid plan, you can make calls as long as you have a positive balance in your account, so the rule is: don’t let the account drop below a certain level.”
What about data? “My contract featured a 2GB data bundle for which I paid R249 a month. This sum was payable regardless of how much data I actually used. On prepaid, it works in exactly the same way: I top up my account with data at the rate of R249 for 2GB, but the difference is that if I exceeded my data bundle on the contract, I was automatically charged ridiculously high out-of-bundle data rates. On prepaid, once the data is used up, I get no more data at all until I top up. This puts me in control of my spending.”
And the expiry issue? “On prepaid, if you don’t make calls, send text messages or use data for 185 days, your number is deemed dormant and deactivated.
“However, voice airtime does not expire on prepaid, so if you have R1 000 in your account and you use only R200 worth of airtime (over a month, for example), the balance of R800 is still available.
“In the case of data bundles, prepaid is no different from contract: that is, if you buy a 30-day data bundle, it will expire at the end of the 30 days, regardless of how much you actually used.”
There is no quick answer to the question of whether you should go with prepaid or opt for a 24-month contract. Both come with certain advantages, so in the final analysis, your specific needs will determine the best way to go.
The major benefit of the 24-month contract is that you get your hands on the best and latest smartphones on the market. Instead of paying a large cash sum upfront, the cost of your device is paid off over the duration of your contract.
Also, you never run out of airtime.
If you must be accessible 24/7, a contract ensures that you are never left in a situation where you can’t make a call or go online because you’ve run out of airtime.
Against this, prepaid makes sense if you already own a smartphone and have no desire to possess the latest and greatest handset.
This allows you to pay only for the services you need.
This article was first published in the second quarter 2016 edition of Personal Finance magazine.