Cell C has stopped subsidising phones. What are the implications?

[Vulk]

I've been playing around with with the Cell C contract builder: http://www.cellc.co.za/99c-build-your-own-contract

I see that you can now "upsize" the individual components, such as data. I'm not sure whether you could do this before, but either way, this addresses the biggest criticism I had with Cell C's new contracts, which is that it doesn't make sense to link data, SMS and voice minutes together in a fixed 1:1:1 ratio. Now you don't have to do this.

Cell C's rates are really good. For example, if you select "no phone", "Straight Up 30", and then "upsize" your data to 1gb per month, you get a total figure of R185. This is, to put it mildly, pretty great. Compare this with Vodacom, where I have to pay R279 just for 1gb of data, and that doesn't even include any voice minutes on the side.

And yet, one of the interesting things about Cell C's contracts is that they still feel pretty expensive once you've added in a phone. In fact their pricing advantage largely disappears.

Let's say you take a Galaxy SIII and upsize the data by 100mb. This means you get a phone, 130mb of data, 30 minutes of airtime, and 30 messages, for R378. Meanwhile, if you go with Vodacom, you can get the Galaxy SIII on Business Call for R369 per month. Admittedly, this doesn't come with any free minutes or SMS messages, but it does give you 250mb of data, nearly twice as much data as the equivalently-priced deal on Cell C. You might still prefer to take the Cell C deal (depending on how much value you place on having some bundled voice minutes), but certainly, it is no longer the obviously superior choice.

After playing around with Cell C's sliders, it becomes evident what they're doing. They've stopped subsidising phones. In a traditional cellular contract, you make a promise to your network to keep using their service for at least 24 months, and not switch to a competitor. In return, they reduce the price of your handset. So, if you're on Vodacom prepaid and you spend roughly R135 per month on airtime, you can sign up for a TopUp 135 contract, and make a promise to keep buying R135 of airtime for at least the next two years. If you do that, Vodacom will drop the price of any handset you want by R2000. If you were going to buy that airtime anyway, that's a good deal.

This is a time-honoured business model that is used by mobile service providers all over the world. It's also a business model that has been widely criticised, because it creates perverse incentives and encourages the networks to try to lock their customers in rather than compete with each other on price. But it does also make it much easier for ordinary people to afford high-end phones, and it drives the rapid adoption of new technology. To be honest, we probably wouldn't have such rapid progress in mobile technology if it weren't for the two-year upgrade cycle that is encouraged by contracts and subsidies.

Cell C seems to have completely stopped using this business model. If you take a longer or more expensive contract, it doesn't reduce the price in any way. Let's say you take a Galaxy SIII on Straight Up 30 contract that lasts 24 months. This means you're paying R363 per month. If you subtract R30 (the value of the contract without the phone), that works out to R7992 for the phone. By contrast, if you reduce that to a 1-month contract (yes, you can do such a thing), it costs R8029. Subtract R30 for the airtime and data, and you're left with... R7999. On a Straight Up 400 contract over 24 momnths, the amount you'll pay for the phone is (you guessed it) R7992, ie (733-400)*24. Essentially, the value of the subsidy on a 24 month contract is now R7.

This is a really interesting ideological shift on the part of Cell C. The one thing that all other cellular networks agree on is that they don't want to become a dumb pipe. But Cell C is saying, in effect, that they actually don't mind being a dumb pipe. They don't really want to sell us shiny gadgets. (*With exception of the iPhone - more on this in a bit.) They don't really care about locking us in for long periods of time. (If you select the "no phone" option, their contracts cost the same regardless of whether you take the 24 month option or the 1 month option.) If you want a new phone with your contract, they are willing to sell you one, in which case they will simply take the purchase price and divide it over however many months your contract is. But they're not going to incentivise you to buy a new phone by subsidising it, nor are they going to pretend that your upgrade is "free". Instead, they take the radical step of making it completely transparent what your new phone is actually costing you. In the case of the SIII, it's R7992.

From the consumer's point of view, this is both good and bad. Cell C is doing a lot of things right here - they're making their costs transparent, competing purely on the price of their services, and they're not trying to lock their customers in. That's awesome. On the other hand, the fact remains that if you buy a phone from Cell C, you'll end up losing most of the money you would otherwise have saved from their cheap services.

So, what's the solution? As I see it, there are two:

1. Take the iPhone. I mentioned that before that iPhone is the only device that Cell C does subsidise. It's not a direct subsidy - instead, Cell C adds an extra 300mb of data to your contract for free if you take an iPhone. This means you can spend less on data, which in turn makes the contract cheaper, so it has the exact same effect as a subsidy in the end. You can complain that this is unfair to Android users. In fact, I have made this very complaint on this forum. Nevertheless, the fact the remains that of all the devices on Cell C, the iPhone is clearly the best deal. In fact, I would say that if you want an iPhone, Cell C offers a better deal than any other network in the country. If you're an iPhone fan, the choice is really simple.

2. If, on the other hand, you want something other than an iPhone, the best option is to buy a phone from someone else that sells it for less than what Cell C does. Buy one of the special offers on Guzzle.co.za (note: not all of them are good); buy a phone second-hand; from your bank (if you're with FNB or Standard); from another network that is offering a good deal on a particular device (eg the infamous Desire S for R89 pm special); or if you're an international traveller, from overseas. (The last one is a particularly compelling option now that Google has started selling its unlocked Nexus devices for very reasonable prices.) Just don't buy your phone from your own cellular network.


tl;dr Cell C's services are cheap, but their phones are expensive. You should buy your cellular service from Cell C, and your phone from someone else.

[BluStorm]

I've been looking at the Cell C contracts recently, and I've come to the conclusion, that they're better than anything else out there. I'm currently on an MTN AnyTime 350 contract, which means I get R350 of Airtime (and 50 Free SMSs) for use with any of combination of Phone calls and data. Now, if I look at the cost of making calls and the cost of Data for this package:
It's R1.95 per minute for calls, and R2 per MB of data.
MTN say there is about 179 minutes of call time on this contract, presumably if you incur 0 data costs.
So the equivalent Cell C contract, is the Straight-Up 200. This comes with 200 minutes airtime, 200 SMSs and 200MB Data.

Using the S3 as an example, a CellC StraightUp 200 with the phone, will cost you R533 per month, and an MTN 350 with the phone will cost R499.

So, for R34 per month more, you're getting 200MB of Data, 50 more SMSs AND 21 extra minutes of Airtime.

Also, how often do you only use the airtime and data allotted to you? With the MTN contract, Out of bundle airtime is R2.75 a minute, vs R0.99 for CellC. Data, is R2/MB vs R0.99/MB for CellC.

If you're like me, and you don't just upgrade your contract when it's due, "because you can", and you leave it a few months to get the phone you want, then you suddenly save R333 a month for as long as you need.

All in all, I think I prefer the concept of the CellC StraightUp contracts. All that's left is for me to take the plunge and actually migrate networks. I've been with MTN for 15 years, and I've always been happy with their service, but now for the first time, I have a reason to leave.

[ajax]

Data, is R2/MB vs R0.99/MB for CellC.

We're still waiting for confirmation but there is reasonable evidence from the news articles that OOB on Cell C will be 15c/MB as long as you load a 12 MB bundle at R1.50. This you can easily do on contract by having this set as a monthly recurring bundle.

[onlyoneken]

Some very valid and well thought out points Vulk. It doesn't really bother me much that Cell C has stopped subsidising phones, especially at their new contract prices. Something that is a minor annoyance for me however is the fact that you end up paying a premium for the phone. How is it that at a place like CaCell or Expansys you can get the SIII for example for a shade over R6500, while Cell C you pay almost R8000. Surely it can't be R1500 for the extra years warrenty? In addition I would think that Cell C would move lot higher volume of phones, hence they would most likely get a bigger discount than the previously mentioned online portals.

But as you concluded, this just emphasizes the fact that it would be silly to get the phone from them, if you can afford to buy the phone cash, or obtain it from your bank.

[scuzzy]

I love the new Cell C structures and am moving my contracts to them slowly as they expire, however I fully agree that they should slightly relook their phone subsidising business model.

For starters - Don't sell / bundle the phones at the retail price + profit. As mentioned above, they have the Galaxy SIII for R8000. I'm sure it could be around R6000.
Right now they're making a profit on the phone, whereas they should break even on this to keep giving their StraightUp packages the competitive edge.

As an example - here's what I did to get a Galaxy SIII:
- On Cell C StraightUp 100 it would be R433pm.
- Pick 'n Pay had a contract special for the Galaxy SIII at R279pm on Off Peak 120. I took that out (and unfortunately had to sign with Vodacom again, but hey, I won't really be using the SIM other than calling my family over weekends :P )
- Take out StraightUp 100 month-to-month with the no phone option - R100pm.
- Total R379 (vs R433) plus I scored 120 off-peak minutes.

(PS PnP sells the phone cash for R6700 - surely Cell C must match this!)

[reactor_sa]

Eventually all the networks will have to make the costs of your contract transparent to comply with the CPA. I think this new way of doing from cell c is great. However, my 100 free minutes plus Galaxy s2 for 280pm for 2months is better value for money.

[Wyzak]

I wasted 3 hours in Cell C Bayside over the weekend. Their incompetent staff managed to activate the wrong contract and they had to cancel it to open the correct contract. At first I was told to come back on the Sunday and that the branch manager would take personal responsibility for the mess and give me a call on Sunday so I can only come in and collect. On Sunday at 12:45 I still had not received a call and I decided to go to the branch. When I walked in and asked for the manager he proceeded to phone Cell C only then. He then told me that the cancellation department is not open over weekends and I would have to come back on Monday.

I cancelled everything and left.

This would have been my first Cell C contract, but after wasting 3 hours to open a R45pm contract I decided to take my business elsewhere.

Update: This morning they debited my account for R114 even though it was cancelled on Saturday already...

[The_Librarian]

From my POV this means that you should be able to cancel the contract at any time without incurring hefty penalties.

But it's gonna be iffy should you want a brand new Galaxy 4 and you don't have the money for it...

[ajax]

Update: This morning they debited my account for R114 even though it was cancelled on Saturday already...

This is the same with all the shops from all the networks. I had the same experience with 8ta. The problem is once you have signed on the dotted line, the contract is in the system. You WILL get billed, but with some persistence you will get your refund.

[Wyzak]

This is the same with all the shops from all the networks. I had the same experience with 8ta. The problem is once you have signed on the dotted line, the contract is in the system. You WILL get billed, but with some persistence you will get your refund.

Yep, I full well intend to make them bleed for that R114 and the three hours of my time they wasted...

[cerebus]

MrsC is now due for a contract upgrade but yeah..... the options aren't as great as they could be. The one attractive deal is actually the Lumia 610 for 50/50/100mb @ 149. That's an attractive smartphone and a decent amount of airtime inclusive. But given that their actual bundle price is a steal as you pointed out, I'm actually leaning more towards buying her a 2ndhand iPhone or something, and just getting the 100/100/100 @ R100. You can't really argue with that value.

[Vulk]

Some very valid and well thought out points Vulk. It doesn't really bother me much that Cell C has stopped subsidising phones, especially at their new contract prices. Something that is a minor annoyance for me however is the fact that you end up paying a premium for the phone. How is it that at a place like CaCell or Expansys you can get the SIII for example for a shade over R6500, while Cell C you pay almost R8000. Surely it can't be R1500 for the extra years warrenty? In addition I would think that Cell C would move lot higher volume of phones, hence they would most likely get a bigger discount than the previously mentioned online portals.

I think it's important to recognise that Cell C isn't just offering us better-value data bundles. Not to sound too grandiose, but they're offering us a whole new model of smartphone ownership here.

The essential features of the traditional model:

1. You buy your phone from your cellular network, not from the company that manufactures it (or anyone else).
2. The cost of your phone is subsidised by your network.
3. You're limited to the selection of phones, manufacturers and OSes that is carried by your network.
4. You upgrade on a regular 24 month schedule.
5. You're locked into your contract for the full 24 months.
6. Your network is allowed to make alterations to the phone before they give it to you (eg locking the bootloader, installing bloatware that you can't remove) (note: this isn't such a problem in SA, but it's a very big problem in the US).
7. Software updates have to be tested by the network before they can go out.

Here's the model that Cell C is effectively offering us:

1. You buy your phone from wherever you can get it the cheapest.
2. The full cost of your phone is paid by you.
3. You can choose any phone or OS that supports GSM.
4. You upgrade whenever you feel that an upgrade is necessary, and you're willing to pay.
5. You can leave your contract whenever you want.
6. Your phone comes to you clean, without alterations to the software that the manufacturer installed.
7. Software updates are handled by the manufacturer.

This is pretty much what geeks like us having been saying we want since forever. It's almost like Cell C is offering to be an ISP for your phone, in the same way that Mweb is the ISP for your computer. It's also kind of similar to prepaid, but while prepaid tends to be aimed at low-income consumers, Cell C seems to want to make this a viable solution for high-end smartphones. And like I noted before, their data prices are indeed really good, which in turn makes buying your own phone an actual workable option.

The sticking point is, of course, #2. As much we say we want flexibility and freedom, what people really want is get something that is shiny and fancy for cheap. Perhaps that will change if we start to see price competition amongst retailers. But right now, there isn't really a consumer market for smartphones in this country. You can buy direct from the manufacturer, but it tends to be really expensive.

Still... I think I might try this. My contract with Vodacom ends in November this year. I really don't need an upgrade at this point; I'm still incredibly happy with my Galaxy Nexus. Maybe I'll switch to Cell C and take the 30:30:1000 deal for R185 a month that I mentioned earlier, and save a crapton of money compared to what I'm spending right now. And maybe in another year I'll decide I need a new phone, and I'll figure out what's the cheapest way to get one then. Like I said, it's a very different way of structuring your relationship with your cellular network.

[Ancalagon]

Another thing I've noticed is that with Cell C recently having dropped their data price to 15c per MB, you would expect the contracts to change in some way. But they havent! I dont even think the upsize data options have changed - have they? If not, then if you want a lot of data, it would be more economical to either go prepaid, or a cheap contract, and buy your data yourself on top of that, at 15c per MB.

[Vulk]

Another thing I've noticed is that with Cell C recently having dropped their data price to 15c per MB, you would expect the contracts to change in some way. But they havent! I dont even think the upsize data options have changed - have they? If not, then if you want a lot of data, it would be more economical to either go prepaid, or a cheap contract, and buy your data yourself on top of that, at 15c per MB.

I don't think so. If you do the math, their data bundles work out to about 15c per megabyte.

It would be more accurate to say that there is no longer any difference between IB and OOB pricing on Cell C.

[scuzzy]

Another thing I've noticed is that with Cell C recently having dropped their data price to 15c per MB, you would expect the contracts to change in some way. But they havent! I dont even think the upsize data options have changed - have they? If not, then if you want a lot of data, it would be more economical to either go prepaid, or a cheap contract, and buy your data yourself on top of that, at 15c per MB.

Upsize has changed and reflects new data bundle prices...