Contract or prepaid? We investigate which is cheaper

07 September 2017

In recent months, the cost of cellphone data and airtime has come under the spotlight. So much so, in fact, that the hashtag #datamustfall has been trending on Twitter as social media users call for service providers to slash their data prices. With good reason, research recently undertaken by Tarriffic, comparing seven countries, rates South Africa’s data costs second highest, behind Brazil. No wonder budget conscious Saffers are moaning. But until the glorious day that the cost of staying connected does come tumbling down, we have to make the best of what we have and shop wisely.

Today, I ask the question, which gives better value for money; contract or prepaid? Before attempting to answer, I need to preface it with the declaration that this is no simple task. There’s no such thing as comparing apples with apples in the cellphone world. With that in mind, please read the small print. (For the sake of legibility, the small print is the normal size.)

* I have not compared every contract. There is not enough space in this blog to do that, and even if there were, you’d end up as confused as I was.

** There are so many factors to consider when comparing, such as special deals, whether you use more voice or data, how much data you use, whether you want your “free” phone, what add-ons you buy, etc, that I have had to make an opinion based on simplified comparisons and I advise every individual to do a little of their own research before making the decision themselves.

*** Also for sanity’s sake, I limited the choice of phone on contract to a low- to mid-range Smartphone.

Let’s do the math

In this exercise, we will be comparing MTN PayAsYouGo options to My MTNChoice+ L. My MTNChoice+ L happens to be the contract that I am on. It is available on a 6, 12, 18, 24-month contract and includes a Sony Experia L1 Smartphone. A more expensive phone would increase the cost of contract.

MY MTNChoice+ L

Cost Voice Minutes SMS Data Smartphone
R799/month 500 500 7GB Costs R R283.25 per month over 12 months (Based on a Sony Xperia L1, valued at R3399 on
Out of bundle R1.50/minute 50c/sms 99c/mb  

Now let’s break it down in terms of what the writer actually uses.

On average, I use 450 voice minutes a month, 2.5GB of data and 5 SMSs (anyone heard of WhatsApp?). So, you could make the argument that I am over paying on my package. But wait, let’s have a look at those PayAsYouGo rates first.

MTN PayAsYouGo – per second billing

MTN Cost Call to all networks – 79c/min SMS – 50c/SMS Data – 99c/mb
My monthly cost based on usage 450 mins – R355.50 5 SMS – R2.50 2.5G data – R2 475

Okay, let’s stop right there, clearly data is a problem here. If you are going to just buy data willy-nilly, it’s going to get pricey. But, that’s why they invented data bundles. Let’s look at it again, this time using two MTN Fortnightly data bundles which gives you 1G of data for R89 and it last for 2 weeks each, and then a top up of a weekly bundle of 500mb for R45.

MTN Cost Call to all networks – 79c/min SMS – 50c/SMS Data bundle – R89/1GB for 2 weeks
My monthly cost based on usage 450 mins – R355.50 5 SMS – R2.50 data bundles – R223

By these calculations, my monthly cost will be R581 per month. That’s a saving of R218 a month. But that excludes the phone. So, assuming I don’t have one lying around, I will have to buy one upfront. These can range between R1 500 for an entry-level Samsung and R21 000 if you want the latest iPhone.

And the winner is….

I did warn you that this wasn’t going to be simple.

If you take the Smartphone out of the equation, and use under 3GB of data, prepaid is clearly the winner. And if you buy a cheap smartphone, or have a phone already, it’s still a winner from a cost perspective. But if you plan to use every last megabyte of that 7GBs that the contract gives you, the contract is the better deal as 7GBs of data, using the above bundle, will cost R623. Data is, without question, expensive and, if that’s what you primarily use, chances are you can find a contract that is great value for money.

So, should you ditch your contract at the first opportunity and embrace the cost savings of prepaid? You decide. Do the math. If nothing else this exercise proves that there is money to be saved when you take the time to research your options.

To learn more on  this topic, check out some of our  interesting blog posts:

Manage Your Ego, to Reduce Your debt

Chasing the Technological Tale/Tail

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.