When we learned last month that Tesco would stock the iPhone before Christmas, we naturally assumed that the shopping behemoth would use the opportunity to loss-lead, letting customers pay less than cost on the assumption that enough of them would hang around and buy groceries to make up the deficit and then some.

It seems not. The lowest Tesco iPhone tariff will be £20 a month for a 3G handset (the one down from the 3GS.) That contract will run for the unusually brief period of 12 months, but you’ll have to pay £222 for the handset.

Overall, that means you’ll pay £38.50 a month, or £462 in total for the whole year.

This is contrast to Orange’s £29.36 tariff for 18 months, and 02’s £34.76 tariff for the same period. With both of these deals the handset is free, meaning that they cost £352.32 and £417.12 a year respectively (or £528.48 and £625.68 for 18 months).

Tesco justifies its higher rate by pointing out that its customers will be eligible for an upgrade sooner than those on an 18 month contract. Whether this logic appeals is a matter for individual meditation, calculation, and reflection. However, one thing’s for sure: Tesco isn’t going to be as competitive as many hoped it would.

Perhaps Vodafone will have a better offer when it gets hold of the iPhone in 2010.

BBC News