Introducing Telstra’s new leasing plans
- Telstra’s new ‘go mobile’ phone leasing plan allows people to lease (rather than buy) a phone from Australia’s biggest phone company.
- In a leasing scheme, you will pay less per month for your phone / service combination – but you never actually own the phone.
- Apple launched a similar scheme in the USA last year.
- Leasing is a convenient way to separate the cost of your phone hardware and the SIM it needs to access network services like voice calls, SMS and data.
- 60% of Australians already buy their own phone and add a SIM later.
- Telstra’s network advantage has been ripped away during 2016.
- Optus has stolen the march on entertainment / content.
- Leasing is one of Telstra’s responses to those circumstances.
- It’s a confusing offer in some ways but is likely to become a useful feature for some.
- And it’s likely to herald some more change in the Australian market for phones which ultimately benefit us all.
What is Telstra’s leasing option ?
In essence, leasing a phone, instead of buying it outright is a way to pay monthly for the use of the device.
Leasing is a facility which many small businesses are aware of already. A lot of people lease (rather than buy) the car they drive. In essence, leasing a phone, instead of buying it outright is a way to pay monthly for the use of the device. Phones are expensive. Some can cost $1000 or more. With leasing, you can split the $1000 cost down in to smaller payments over 24 months.
Under the Telstra scheme:
- After 12 months, you can upgrade your phone for $99*.
- After 18 months, you can upgrade for $0*.
- Telstra will not charge you the $99 fee if you sign up before Christmas this year.
*There are, of course, terms and conditions associated with this offer. We cover some of the caveats to those terms and conditions below.
What were the alternatives to leasing ?
The alternatives to Telstra’s leasing scheme are the ways of buying and using phones that we have had for the last 25 years.
- Take out a contract: You know how this works. They give you an iPhone and you sign an agreement so that they get paidm by you, for both network services and device, for 24 months. At the end of the period, you own the phone. The challenging component of this sort of scheme is that the maths is hard to work out and often, you are worse off than if you’d bought it yourself and added a SIM afterwards. With the price of data falling 75% in the last 2 years, the chances are, signing a 2 year contract will not be as enticing by the end of your agreement as it was at the start.
- Buy outright: Around 60% of Australians now buy their phone outright and add a SIM themselves. This is a great option if you can afford to drop $1000 in a single month on a new device. Not everyone can.
How Telstra’s new leasing options will affect us all
- It will help those that use it avoid upfront cost: Leasing helps avoid the upfront cost of the device you are buying. Instead of buying the device you want yourself, they buy and lend it to you for a small monthly fee.
- It lowers the cost of running phone services: The total you pay each month will be reduced if you start leasing the phone. Remember though, your total cost of using the phone is likely to increase over the life of your phone. When you buy the phone yourself, it is yours to sell when you’re finished with it. eBay is filled with old iPhones.
The maths of leasing is easy to understand
- Leasing: If you lease, on most plans, you’ll save $10 per month. That’s $240 over the course of the contract.
- Contract: Imagine a Samsung Galaxy S7 on a $100 per month plan. You’d pay $2400 under contract or $2160 if you leased it. (That is, $2400 – $240)
- Buy outright: Or, you can buy the phone yourself and add a SIM.
This is quite a big deal for the Australian market
If leasing becomes standard it might grant people the opportunity to avoid the upfront cost of a phone and move between networks whenever they want to.
For the last eternity, people have taken a phone from the phone company in one of the two primary forms of agreement (see above.) Both, particularly contracts, had their downsides.
Leasing might end up being the best of both worlds. If leasing becomes standard (and is offered by companies independent of the phone companies) it might grant people the opportunity to avoid the upfront cost of a phone and move between networks whenever they want to. Securing the latest prepaid or SIM only deal means they’d be maximizing the data inclusions they get and minimizing their monthly spend. That’s exactly what people want.
It’s hard to overstate the significance of that. If it came to be, the industry would have separated the ‘church and state’ of telco – the phone and the SIM. Leasing could, conceivably, separate the two key things that make people go to big phone companies. The result could be far easier movement between phone companies and better value for those who offer it.
Found a deal on WhatPhone
Bought the iPhone 7 32 GB from Apple
24 months on Kogan x $33.30
( = Unlimited Oz Talk & Text + 8GB of 4G Data )
On Vodafone network
Went with a Vodafone contract
iPhone 7 32 GB
24 months contract on Vodafone x $103.00
( = Unlimited Oz Talk & Text + 9GB of 4G Data )
On Vodafone network
By finding a reseller deal on WhatPhone and buying his phone outright, Neil makes a
Telstra’s leasing plans – What’s good ?
- Not everyone can afford to buy a phone outright: Going to places like Kogan can help you get a phone on the grey market more cheaply than you would in Australia. But they still cost a lot. If you want a new Galaxy or iPhone you’re talking $1000 or more. Leasing schemes might be more expensive in the long term, as you’ve seen above, but they do cut the upfront cost of the phone down to a series of small monthly payments. Most people can afford those.
- Many people like to upgrade their phone regularly: Despite the reduction in the number of new, attention grabbing features in each new IPhone, some people (typically the very well off) love to upgrade their phones every year. Since this scheme allows that for a small fee, it’s likely to appeal to them.
What’s not so good about Telstra’s leasing scheme ?
- Consumer phone leasing is currently only available from Telstra: The scheme that’s been announced is available only through Telstra at the moment. This is such a fundamental shift in the mechanics of phone companies, that we don’t think it will be long before Optus react, Vodafone follow and perhaps, Kogan do the same thing. See below for what we think are the ramifications of that.
- It’s a confusing scheme: Telstra only offer their best entertainment options on high end contract plans. Entertainment can mean streaming music or streaming video. They have prepaid and postpaid plans and a plethora of extras. Amongst those things, Telstra provides a capability known as ‘new phone feeling.’ Under that scheme, you can pay $149 to get a new phone so long as you sign up to another 12 months with Telstra. In this scenario you DO own the phone! This layered complexity is part of what people hate about telcos.
- The phone has to be in good nick: If the screen is cracked, it’ll cost you $249. If the phone is all bad, it’ll cost you $499 to upgrade. A significant proportion of people who use their phones ‘normally’ – to the point they get scratched and chipped – are going to experience heartache when they try and trade in their device.
- Hard to move networks: If you take your phone from Telstra’s leasing scheme, you will have to stay with Telstra. That means that you still have a contract (of sorts) with them.
Summing up Telstra’s new leasing scheme
Considered as part of Telstra’s existing mix of offers to market, this leasing scheme sends a confusing message.
Telstra’s new leasing scheme is an innovative system for this market. It recognizes customer needs (low cost access to the newest cool phones) and provides the facility before the competition.
From Telstra’s point of view, the motivation behind leasing seems pretty clear. Most people are buying their phone outright and adding a SIM later. While some people love to have the latest device, the truth is that the new iPhone is not much different to the old iPhone these days. Increasing numbers of people are happy with the phone they have or a hand me down device. The result, from Telstra’s vantage point, is a world of no contracts in which people can move to the best prepaid plan or SIM Only (postpaid) deal they see, even monthly, if they’d like to, taking their slightly older and now uncontracted phone with them.
Leasing allows Telstra to tie people in to contracts when the majority are not now contracted – and therefore at risk of leasing (called churning in the industry.)
With that in mind, to most people, the interesting thing about Telstra’s new leasing scheme is how other companies might react to and perhaps replicate it. The implications could be good for us (the phone buying public) and bad for them (Telstra). In some senses, it’s those reactions which make this a strange strategy for Telstra to pursue.
If you could lease your phone from Kogan (there by avoiding the up front cost that some find so difficult) and move around to a new phone plan whenever it suited you, that would really benefit people.
Imagine if Kogan copied the leasing system that Telstra have proposed. As we’ve said above, leasing is a start to the separation of two entities which have been intertwined in the minds of Australians for a generation: The phone and the SIM. If you could lease your phone from Kogan (thereby avoiding the upfront cost that some find so difficult) and move around to a new phone plan whenever it suited you, that would really benefit people.
Even if Kogan don’t follow suit, Optus are likely to have to follow Telstra down this path. The two have been copying each other for years, not least, recently, when it comes to their ongoing content strategies. If Optus does do the same, Vodafone won’t be far behind. And then, with all three phone companies at it, soon, leasing a phone could be as much a part of the culture of phones as swiping right.
Big telcos all lose out when the device and SIM are separated. It’s easier for people to move providers. It creates the churn they hate.
In our view, however, it’s a poorly thought through proposal from an overall ‘Telstra proposition’ standpoint. Considered as part of Telstra’s existing mix of offers to market, this leasing scheme sends a confusing message. Telstra already offer the ‘new phone feeling’ which targets high end customers by endlessly contracting them in exchange for a new phone every year. This is a new flavor of that same scheme in which the user does not own the phone – which won’t work for high spend customers. It’s also weird from an holistically considerd stand point: They now have contract, lease, new phone feeling, SIM Only. As if it wasn’t complicated enough.
All in all, leasing will work for some people and it’s likely a lumbering stupid step in the wrong direction for Telstra which might just end up being a very good one for consumers.