Pay as you go phones are better value than contract!

Robert Powell takes a look at the best mobile phone deals across the pay as you go and contract markets...

In the bedroom, in the bathroom and at the dinner table – yes, there are now few locations where we will not use a smartphone. Indeed, according to Ofcom we are nation addicted to our handheld pals.

The regulator’s research also highlighted the rapid rise of the mobile phone in general. 99% of 25-34 year olds now own a mobile phone and one in seven households are now mobile only.

However the pay as you go – contract balance is still fairly equal. 49% of mobile subscriptions were contract in 2010, up from 41% in 2009.

But which is better value? Pay as you go or contract?

We’ve teamed up with mobile phone comparison and review site Recombu to find out...

Light users

Here are the best deals around at the moment for light mobile phone users:

Source: Recombu

For light users pay as you go really seems to have the edge over contract. However one of the best deals around at the moment isn’t actually a pay as you go package at all. T-Mobile’s £10.21 a month Sim Only deal is theoretically a contract phone, however it only comes with a rolling one month contract. Meaning you just need to give 30 day’s notice to ditch the package.

In fact – as you will see – some of best deals around at the moment are either Sim Only or rolling contracts.

The T-Mobile deal comes with 100 minutes and 100 texts as well as a ‘Flexible Booster Pack’. This add-on allows you to get hold of either unlimited texts, 500mb of data, unlimited landline or T-Mobile calls or overseas call packages at no extra cost.

However because this deal is Sim Only you will need to already have a phone for the card to work in. T-Mobile does actually offer the same deal along with a choice of one of eight free phones (including three Blackberry models and three Nokia handsets) although you will need to lock into a 24 month contract to get hold of this.

Verdict:  For light users, it seems that pay as you go will almost always be better value and more flexible than the equivalent contract options.

Medium users

Here’s a breakdown of the best deals for medium usage customers:

Source: Recombu

These medium-level pay as you go and contract deals are actually fairly similar. Choosing between the Vodafone and Virgin Mobile Sim Only deals is essentially a choice between extra texts and a 12 month tie-in with extra internet data. The only difference in the two T-Mobile deals is that the operator will chuck in a free phone if you sign up for 24 months.

Providing you don’t use mobile internet, the best offers from this selection are the two Tesco Sim Only packages offering 500 minutes and a stonking 5000 texts each. The only difference between these two deals is that the 12 month contract is £2.50 cheaper a month than the rolling contract.

Verdict: When it comes to medium use deals – I’d say it’s too close to call between pay as you go and contract.

Heavy users

Here’s six of the best deals for heavy users...

Source: Recombu

Again, fairly similar packages for both contract and pay as you go.

Like T-Mobile in the previous category, Three has two identical (and equally good value) deals on offer across its ‘The One Plan’ tariff. You’ll be able to snap up a free handset (choices include HTC, Nokia or Samsung models) if you sign up for two years while the rolling contract is on a Sim Only basis – so you’ll need your own phone.

Vodafone’s £30 per month rolling Sim Only contract also stands out, offering more data and texts than its 24 month contract equivalent. Again, you’ll need your own phone for this deal, but can of course ditch the package at anytime by giving just one month's notice.

The O2 pay as you go deal is also worth a look if a majority of your friends and family use O2. As long as you top up £15 or more per month you’ll get unlimited calls and texts to other O2 handsets.

Verdict: Several good value deals across both tariff types – but for the high value and flexibility, I’d say pay as you go is just ahead.

Text obsessive

Four tariffs for those of you who just can’t stop texting...

Source: Recombu

Taking advantage of T-Mobile’s free text booster makes the operator’s £10.21 per month contract tariff very competitive. Again, this deal offers a free phone, but you’ll need to sign up for 24 months.

But if all you need your phone for is texting, then the best deal here is clearly O2’s simplicity tariff. This Sim Only deal will give you unlimited texts for a monthly top up of just £7.50. And with this £7.50 credit you’ll be able to make just over 20 minutes of calls.

Verdict: For the O2 Simplicity tariff alone – the best value for texters has to be on pay as you go.

Smartphones

Now, so far the best deals around do mostly seem to come from the pay as you go market. Granted, most of them are Sim Only and hence do require you to have your own phone already, but if your family and friends are anything like mine, tracking down a spare phone shouldn’t be too difficult.

However as I mentioned at the start of this article, for a majority of people, the handset now matters as much as the contract. And this is where pay as you go deals really start to lag behind, as if you are after the latest smartphone model but don’t fancy signing up to a contract, you’ll probably find yourself confronted with a hefty upfront handset charge.

What’s more, in the contract world, loyalty pays, as operators will often throw in free handset upgrades if you’ve been with them for a while.

To be brutally honest (and speaking as a smartphone owner), smartphones and top-value call packages tend not to be common bedfellows. So if you can do without millions of apps, mobile internet and a digital camera, you’ll save a lot of money plumping for a rolling contract or pay as you go deal and sticking with a bog standard mobile.

Nevertheless, here are some of the best deals currently around for contract smartphones...

Source: Recombu

If you’re after a pay as you go smartphone, your best option is to pick up a Sim Only package from an operator that comes with unlimited data (Three’s ‘The One Plan’ for example) and then simply buy the handset separately. But be warned, the latest iPhone 4 will set you back around £500, while the newest Blackberry and Android phones will range from around £200 - £400.

Indeed, no addiction – especially not a smartphone one – is ever cheap!

Pay as you go or contract?

What do you prefer?

Let us know in the comment box below.

More: Ditch these mobile phone insurance policies | New rules to end this holiday rip-off | Eight ways to get your next mobile contract for less