iPhone and Android smartphone subsidies and network locking in South Africa

South Africa’s cellular operators don’t believe their customers are interested in subsidised high-end devices that are restricted to just one network, even if only for a temporary period.

This strategy is used by mobile networks in some other countries to make premium devices more affordable.

For example, US mobile networks like AT&T, Boost Mobile, T-Mobile, and Verizon offer high-end smartphones at very low prices as long as a customer is willing to use them on just one network for some time.

For example, the recently launched iPhone 16 is available locked to AT&T on a 36-month contract from $22.30 (R395) per month.

The total cost of the device over three years will be just about the same as the phone’s $799 prepaid price.

That means that customers are effectively paying off their devices without interest.

On the mobile plan of their choice, the customers also get a $30 once-off connectivity discount.

The carriers are willing to offer these attractive terms because they can recoup any financial hit through the customer’s use of their services until the locking period lapses.

In South Africa, the total lifetime cost of a cellular contract is generally much higher than the prepaid price of the device.

Mobile networks have to build additional costs into the plans to account for the financial risk of a certain portion of customers defaulting on payments.

Local subsidies on smartphones are only applicable to certain entry-level prepaid devices, which Vodacom, MTN, Telkom, or Cell C will lock to their network for 12 months.

Although network-locking was once prevalent in South Africa, backlash from the South African public and the emergence of dual SIM capability eventually led to the end of this practice.

However, in recent years, the local prices of premium smartphones like the iPhone and Galaxy S series have skyrocketed, in part due to a weakening rand.

These phones now typically start at well over R20,000 prepaid and around R1,000 per month on conventional 24-month contracts.

Mobile networks have introduced 36-month contracts to bring down monthly payments and began using the starting prices on these longer-term contracts in their advertising.

Vodacom recently also launched 48-month contracts to bring down monthly payments further.

Subsidies already happening — Vodacom

MyBroadband asked local mobile networks why they did not offer similar subsidised product structures for high-end devices as US operators do.

Vodacom said it was already subsidising the prices of some high-end devices on postpaid.

“When a customer signs up for a postpaid contract, Vodacom subsidises a portion of the device cost,” the company said.

“This method allows customers to acquire the latest devices without paying the full price upfront, thereby making it easier to stay updated with the latest technology.”

The cheapest monthly price on an iPhone 16 on Vodacom is R799 per month, working out to a total cost of R38,352 in four years.

This package includes 1.3GB of anytime mobile data and 200 voice minutes, which costs R411 on a SIM-only option.

Therefore, the data and voice minutes alone would be worth R19,728 over 48 months.

Subtracting this from the total cost over 48 months leaves R18,624, which is about R2,400 less than the prepaid price of the iPhone 16.

Based on this analysis, Vodacom’s statement that it is already subsidising high-end devices holds up.

MTN South Africa said it could not provide specific details on its device subsidy strategy for competitive reasons.

However, it also said it continually evaluated its offerings to meet market demands effectively.

“It’s important to note that network-locked devices involve various considerations, including our partnerships with manufacturers, customer demand, and the ever-evolving market dynamics,” MTN said.

Low demand among Telkom customers

Telkom said demand for network-locked, premium smartphones was low among its customers.

“We are conscious that premium devices have dual SIM capability as well as eSIM functionality and network locking them could impact customer experience negatively, which is not always evident to the customer when buying the device,” Telkom said.

“Long-term frustrations and drawbacks might outweigh any possible short-term savings.”

“Network locking limits customer choice and flexibility, especially where customers are drawn to Telkom’s best-value offers and invest in a premium device.”

The operator added that it carefully selected which devices it subsidised.

“There is a specific market segment for this, with specific needs,” the operator said.

“Telkom always develops these offers based on customer demand with a balance between best-value offers, the financial risk of the device subsidies, and any potential negative impact on customer experience.”

The mobile network added that if there were customer demand for network-locked premium devices, it would consider the financial implications.

“Importantly, we will also need to educate customers on the implications of opting for a network-locked premium device,” Telkom said.