Tesco announces iPhone tariffs. Price war? What price war?

UK budget mobile network Tesco Mobile has announced its price plans for the iPhone but will they trigger a price war between British iPhone carriers?

There was surprise when Tesco recently announced that it was going to be carrying the iPhone. The once luxury handset was to be carried by a supermarket chain well known for its low prices.

If you’re looking for a significant saving, you won’t find it here – Tesco has presented its prices in a way that looks good value at first glance, but dig deeper and you’ll find that much of it is smoke and mirrors. There’s certainly value here, but you won’t be saving much, if any, money unless you’re a particular type of customer – the type who hardly uses the phone and text capabilities on your phone.

Take for example the bottom-rung iPhone 3G 8GB. The cheapest option offered by Tesco sees you paying £222 up front for the handset and then £20 per month after that for a 12 month contract (unusually short these days). You get unlimited data and £60 allowance for calls and texts per month. That might be enough if you’re a light user. Total cost over the year? £462.

By comparison, Orange and O2 don’t offer contracts as short as a year. However, look at what you’ll pay over the first year of a contract (including any upfront phone costs) and that same iPhone 3G 8GB will cost £448.02 on Orange or £449.45 on O2.

So, O2 and Orange are cheaper overall, but require a bigger commitment. The same holds true, generally, throughout Tesco’s other iPhone price plans – it’s best value if you’re a light-user of the phone who wants to get out of the contract as quickly as possible.

Unsurprisingly there’s no difference, bar a few pence, between pay-and-go handset prices.

So, why can’t Tesco offer a significant price reduction on the iPhone as it does with so many other items around its stores? Quite simply, the profit margin on selling the iPhone is so slim that there isn’t much room for maneuver. Tesco has done a good job at making its prices look more tempting, but when it comes to real savings there are none to be had.

Here’s Tesco’s iPhone price table for reference. The iPhone 3G and 3GS are available on Tesco Mobile from 14 December.