Still no clarity on handset costs

Despite the introduction of the Consumer Protection Act (CPA), most consumers are still none the wiser as to how much they are paying for the so-called “free” handsets, often used to lure subscribers into signing fixed-term contracts.

Under the CPA, subscribers can get out of fixed-term contracts by giving 20 days' notice. In addition, companies can't enforce hefty penalties, because only a “reasonable” cancellation fee can be charged.

The new law doesn't specify what a “reasonable” amount is; instead the regulations provide guidelines on how to work out the cancellation fee.

The Independent Communications Authority of SA (ICASA) has been trying to get cellular companies to disclose the cost of devices on invoices for several years, but has finally conceded defeat.

This thorny topic will now be dealt with by the recently-created National Consumer Commission (NCC). The NCC came into being after the CPA came into effect in April.

Last week, ICASA councillor Fungai Sibanda said the regulator wants handset subsidies to be dealt with by the NCC. ICASA had attempted to regulate the issue, but the industry told the authority to “back off” and let the CPA take precedence, he commented. “We listened to you.”

However, neither of SA's two largest cellular providers strip out the cost of handsets on invoices, which will leave consumers at the mercy of mobile providers to work out a “reasonable” penalty if contracts are cancelled early.

“Free” handsets have long been a bone of contention with cellular subscribers, who end up locked into two-year deals they can't get out of, unless they pay hefty penalties. Only Virgin and Cell C will provide consumers with bills that clearly show how much handsets cost.

Richard Boorman, Vodacom's executive head of media relations, says the company isn't splitting handsets and airtime as separate contracts. “The regulations allow for a reasonable cancellation fee - we're still in the process of finalising that number.”

MTN SA corporate services executive Robert Madzonga says the operator amended its contracts from 1 April to comply with the CPA by changing terms and conditions.

However, MTN did not respond to a request to clarify whether handsets are split out on bills, or how the operator will deal with the cost of the phone if a deal is cancelled early.

ITWeb called MTN Direct's call centre and was told, if a contract is cancelled after the cooling off period, subscribers will have to fork out the entire amount for the rest of the contract, as well as a R1 700 payment for the handset.

Cell C is changing the layout of its bills to reflect the amount owed on handsets, says group general counsel Graham Mackinnon. “Customers that cancel their contracts prior to the expiry of the contract period will be liable to pay the outstanding amount owed on the handset.”

Mackinnon says the cellular company has changed its subscriber agreement to make sure terms and conditions are in clear and understandable language, to comply with the CPA.

However, Mackinnon points out the CPA is very broad and, until the law has been tested by the commission, tribunal or a court, there will naturally be some uncertainties with interpreting the CPA and the final regulations.

Virgin Mobile SA chief strategy and marketing officer Jonathan Newman says the company has always split out the cost of handsets on its contracts. Contract customers that cancel in full will only be liable for the balance owing on the phone, he explains.

Nicholas Hall, an attorney with Michalsons Attorneys, says most contract packages detail how the pricing plan is split, even if this isn't disclosed to the consumer. Cellular companies will need to show the split if the consumer asks for it, he says.

If a client feels the cancellation fee is unfair, they can challenge it by taking it to the NCC, notes Hall. “The onus will then be on the mobile operators to prove that it is reasonable, which will entail showing what the cost of the handset is.”

However, cellular companies must indicate what the “reasonable” cancellation cost is upfront, so consumers know what they are getting into, argues Arthur Goldstuck, MD of World Wide Worx.

Under the CPA, companies can be charged hefty penalties for non-compliance, which could be as much as R1 million, or 10% of turnover. Goldstuck says if companies are fined “what they are trying to get out of consumers will look like chickenfeed”.

However, Goldstuck points out that the CPA is a challenge to implement and is akin to asking “huge aircraft carriers to turn on a R2 coin”. He says the law will force cellular operators to disclose handset costs. “It's only a matter of time.”