Cellular handset rip-off exposed

Contract subscribers could be over-paying for handsets, while the Independent Communications Authority of SA (ICASA) hides behind a set of regulations that have been postponed indefinitely.

During an investigation by ITWeb, it emerged that more than a million South African contract subscribers could be paying too much, as the handset subsidies remain unclear.

Last year, ICASA began the process of regulating handset subsidies for contract subscribers, which would have forced the cellular operators to detail the exact cost of the handset on each bill.

However, following court action by Vodacom, preventing the regulations from being implemented, the authority postponed implementation. As of this morning, implementation is still pending.

Yet the regulator uses these unimplemented regulations as a smokescreen, as allegations again surface that cellular companies are ripping off contract customers. It is alleged that operators are not informing contract customers that they will continue to pay the same amount on their contracts when the initial 24-month contract period lapses. This causes customers to unwittingly continue to pay for a handset that has already been paid off.

At least one consumer is so irate with a cellular operator that he has lodged a complaint with ICASA. The subscriber argues that contract costs should come down after the initial 24-month period has lapsed, as the handset has been paid for during this time and should not be part of the monthly contract payment any longer.

In response, an ICASA spokesman says: “In implementing and administering the handset subsidy regulations, the authority would be engaged in a series of public awareness campaigns wherein members of the public are informed about their rights with respect to concluding postpaid contacts. This include, among other things, terms for postpaid contracts, the billing systems and procedures, transparency in the terms of the contacts that they conclude and the unbundling of charges for the postpaid contracts.”

However, the spokesman refers to regulations that have no clear implementation date.

Cellular companies are also not keen to tell subscribers that they should renew contracts immediately after the 24-month period, or warn them of the financial consequences if they do not.

None of SA's three largest operators directly answered ITWeb's question as to whether contracts should automatically become cheaper once the 24-month period has lapsed.

A snap survey in ITWeb's office indicated several staff members had let their contracts roll over, and had continued paying the same amount as before. No one had informed them they were paying for a phone that had already been paid off.

At the end of last month, Vodacom had four million contract subscribers, while MTN had 2.8 million contract customers at the end of December. Cell C does not quantify the amount of subscribers who are on contract or prepaid, but - at the end of December - it had 6.4 million active subscribers.

Arthur Goldstuck, MD of research company World Wide Worx, says the practice could affect up to 20% of contract subscribers at any given time. He says the cellular operators should be required to remove the cellphone subsidy once the 24-month contract has come to an end.

Frost & Sullivan senior ICT industry analyst Lindsey Mc Donald says, although consumers should read their contracts and have a duty to do so, cellular companies should try to retain subscribers and should be more proactive.

“Anyone who doesn't upgrade when their contract comes up for renewal is incredibly stupid, because they are paying for something they haven't received,” notes Absa Investments analyst Chris Gilmour.

The consumer complaint lodged against Vodacom alleges this practice is tantamount to “stealing”.

The complainant, whose identity is known to ITWeb, was informed via SMS that he was due for an upgrade, but was not warned he would be billed the normal contract amount if he did not upgrade.

“Failure to deduct this amount effectively means the cell operators are stealing the amortisation amount and this is pure profit,” he alleges in his complaint.

The complainant is not the only one who believes the practice is wrong. In June 2006, just before Virgin Mobile was launched, Virgin Group chairman Sir Richard Branson said: “Millions of South Africans are duped into thinking they're getting a 'free' phone and then locked into long-term contracts that are riddled with hidden fees and extra charges.”

ICT lawyer Lance Michalson says, while the contracts are for a fixed term of two years, there could be a clause that allows the continuation of the arrangement on a month-to-month basis, until cancelled. “In most instances, the contract continues on the same terms and conditions as the previous one.”

Michalson says this is standard practice, unless forbidden by law. He points out that handset deals are prohibited in Finland, the only country he is aware of where this practice is not allowed. “As a matter of interest, the operators don't need to provide a handset with a contract; it's a marketing ploy,” he adds.

Vodacom's Web site offers a Talk 200 contract, at per-second billing, for R430 a month, which comes with a Nokia N85 “on a 24-month contract”. However, subscribers will have to pay in R899 to get the phone. On a “no handset deal”, the same contract is R345.60 a month.

A Vodacom spokesperson says the company offers two types of deals, one with a handset and the other without. The company is able to offer the handset, because the 24-month period offers security of revenue.

“The monthly subscription charge, over a 24-month period, is taken into account when a handset offering is made to the subscriber,” the spokesperson says. However, when the contract gets to the end of the period, “if we don't hear from a customer, or if they do not upgrade their handset, the contract will continue on a month-to-month basis”.

Vodacom did not respond to the question as to whether the tariff should automatically be dropped when the two-year period has expired.

Priya Rajmoney, Cell C's customer operations executive, says: “The contract amount does not only cover the cost of the handset. Airtime costs are also included.”

Eddie Moyce, MTN's GM of customer services, points out that “handset costs are heavily subsidised by the service providers”. He says, as a result, the monthly instalment and the cost of the cellphones are not “in direct proportion”.

Moyce explains that the contract cost is generally less than ICASA's specified tariffs. “The discounted subscription costs are advertised as being only for 24 months; thereafter, the standard subscription cost applicable to that tariff package will apply.”

However, MTN says many people do not remember when their contracts are due for renewal.

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