iPhone goes on sale from Tesco on Monday. So where’s the price war?

It has been all the rage to offer actual iPhone units to consumers for free, as long as they are paying a high enough monthly rate. Those that buy generous monthly quantities of texts, minutes and data can expect to walk out of the shop without paying an initial lump sum for the iPhone itself. Tesco Mobile is following along that proven path, and is claiming to have the lowest monthly payments available – 20 quid. But is it really all that great a deal?

Tesco Mobile:

When Tesco decided to branch into consumer mobile devices, it couldn’t do all of the work on its own. So it needed a partner, and chose mobile operator O2. Tesco Mobile sells branded Tesco phones through all of its available sales channels (shops, online, Tesco Direct), and O2 provides the technology and the network.

What’s this “cheapest” price plan, then?

The £20/month price plan gets you £60 worth of calls and text every month, along with “unlimited” mobile data. Ah, but it doesn’t come with a free iPhone, does it? No, because that would be crazy. Getting the 20 quid a month deal requires you to pay a lump sum of £222 first – and that’s for the bottom of the range 3G with 8GB storage. You have to go for the £60/month plan to get your device for free.

Here, it’s all summarised in this handy dandy chart:

Lance Batchelor, Chief Executive Officer of Tesco Mobile and Tesco Telecoms: “iPhone is now available and affordable for all, with the best deals in the UK market. This is a fantastic announcement for us and we’re delighted to make iPhone available to our customers. It shows what a serious player in the mobile market Tesco Mobile has become.”

What we think?

I know that operators were worried about some kind of Price War being waged by Tesco, but really I don’t think they’ve got too much to worry about. Take a look at Orange, for example. The lowest monthly tariff that Orange offers for iPhone is a shade under £30 – but for that you get your 3G for £95 – over £100 cheaper than Tesco. That price gap widens as you scale up the device, with the iPhone 3GS 32GB selling from Orange for £133 cheaper.

Even so… after 10 months with the 3G, a Tesco Mobile customer will have caught up with an Orange customer. By the time each of their 12 month contracts is up, the Tesco customer will be £20 ahead. But as you scale up the devices and plans, Orange customers draw ahead on the monthly payments. Tesco is offering the highest-range iPhone available on a 12 month contract. The minimum length of contract you can go for on Orange is 18 months. So if you want a shorter contract, go with Tesco. Just bear in mind that if you do go for the lowest monthly tariff with the highest range iPhone, you end up paying around £10/month more with Tesco (including the cost of the handset).

So the question remains: does it make that big a difference? And I have to answer no. The price breaks are low enough that it doesn’t really matter which of the monolithic corporations you choose to side with. Tesco or Orange, it doesn’t really make a difference. As with most price wars, it only really exists in the marketing campaigns of the companies involved.