No more 24 month lock-ins

Rudolph Muller

Rudolph Muller is the editor at MyBroadband and covers telecoms and broadband news. Rudolph comes from an academic background, but left the University of...

Full Profile

E-mail

24 month ‘lock-in’ contracts may be a thing of the past when the new Consumer Protection Act comes into effect in April next year.  The new Act gives consumers the right to cancel any contract with 20 days notice.

Cancelling a contract will however not be without penalties.  The consumer will still owe all outstanding costs to the supplier and there may be a contract termination fee for cancellations.  For example when cancelling a cellphone contract the subscriber will have to pay what is owed on the device/phone – if this cost was built into the contract fee – as well as a reasonable cancellation fee.

The other big implication of the Act is that everyone along a goods supply chain can potentially be held liable for losses incurred because of the goods.  This is particularly relevant for software vendors and suppliers where damage caused by software can result in claims stretching the whole supply chain:  from the development company to the organization installing and maintaining the software.

One interesting example mentioned was security flaws in software.  If a consumer or company can prove that a security flaw in software caused damage to their business they may have a case against the software supplier and vendors.

Effective date

The early effective date for the new Act is 24 April 2010, when some of the new laws will kick in, while the general effective date will be six months later.  According to Robby Coelho, partner at Webber Wentzel, many IT companies are unprepared for the potential impact this new law may have on their business.  

Coelho said that the provisions in the Consumer Protection Act will start to kick in from 24 April 2010, and that the new laws may well have a significant impact on the business model of many IT and telecoms companies.  

This is particularly relevant in the case of telecoms suppliers relying on annuity revenue from long term lock-in contracts.  Insurance against debilitating lawsuits aimed at software and hardware providers may also start to influence the cost structures and general business practices in the IT industry.

Enforcement

The big question is whether the new Consumer Protection Act will be easily enforceable and therefore provide consumers protection against unlawful conduct without having to engage in costly and time consuming legal action.  

Peter Grealy, Head of the IT & Telecoms Practice Group at Webber Wentzel, mentioned that this is always a problem as it is left to the individual consumer to ventilate his/her complaint and people do not always have the resources for this. 

But the good news is that the Consumer Commission and Tribunal is being set up which should provide for an easily accessible avenue to address practices which infringe the rights of consumers.

Webber Wentzel highlighted that the new Consumer Protection Act should prove to be more positive than negative, and that it gives consumers access to greater rights than what they had before.

24 month contract lock-ins – give your views