I recently got the new iPhone 3GS. I wasn’t convinced by previous iPhones but this one, and the release of OS3, seemed to fix a lot of the problems with old models — copy & paste, video, HSDPA — as well as being thoroughly good-looking.

The one thing I don’t want ever again is an 18-month contract. I think they’re nuts. 18 months of lock-in in a sphere of technology where improvements seem to appear every 6 or 8 months just isn’t sensible, especially in a fiercely competetive market for service providers: I guarantee there’ll be much better tariffs available for new customers in a year than there are now.

So, I wanted to get hold of the phone without the contract. The obvious way to do it is to buy the phone on Pay & Go and then take out a rolling 1-month contract. I crunched the numbers and it’s a perfectly sensible thing to do, financially speaking. Over 18 months, the total cost is almost the same:

That’s for the 32Gb model. With the 16Gb model, SIM-only is actually slightly cheaper. But what do you get for your money?

My feeling is that SIM-only is definitely better. There’s no way to get visual voicemail, but that’s not a killer feature for me.

The lack of tethering is annoying, but not critical — partially since a dongle costs the same, but also because most of what I’d do with a tethered connection (email, twitter, the odd bit of web browsing) I can do on the phone almost as easily. That a dongle comes with unlimited wifi is a nice bonus, though I’m not sure how that’s managed: it might only work with the laptop, and not the phone, depending on how they authenticate people who are connecting to a hotspot.

Another nice plus is that with a dongle on SIM-only, you end up paying £35/mo — the same as what you’d pay on an iPhone contract without tethering — though the actual cost over 18 months is of course the same.

There is one caveat that’s worth mentioning: most mobile companies, presumably including O2, will actually let you change your tariff 15ish months into an 18 month contract. If you dropped down to the £20 iPhone tariff, that’d change the figures — but not by much. Also, if you’re anything like me, it’s worth making sure your phone is insured whichever route you take.

Coming up tomorrow: the saga of Harry’s phone switch, aka: “Mobile phone companies are crap“.