End to “free” cell phones on contracts?
Icasa says “subsidies have been identified as a potential problem for subscribers” as they may be “prejudiced in switching” networks due to being locked into a 24-month contract. “The major question that arises,” says Icasa,” is whether subscribers that enter into a 24-month contract are aware of the real cost of the handset and bundled minutes.”
Handset subsidisation was identified in the number portability rulemaking process as being “a possible barrier for subscribers to port to other operators” by the regulator in its discussion document on the matter, published in the government Gazette on May 24.
In the document, Icasa invited members of industry and the public to provide written comments on whether and how handset subsidies should be regulated. The deadline for submissions is July 5, 2005.
The regulator is concerned that handset subsidies raise questions about competition; it states that “post-pay customers have limited choices regarding the inclusion of a handset into the agreement,” and that “a post-paid subscriber does not have a choice but to accept the handset”.
It says the subsidies may “increase the barrier to entry into the market by new players in that customers cannot easily change service providers where the subsidies exist”.
Icasa’s concern is that “heavily subsidised handsets may negatively affect the uptake of number portability in the mobile industry”.
Icasa refers to section 8 of the Competition Act, which “provides for prohibition against a dominant firm requiring or inducing a supplier or customer to not deal with a competitor; from selling goods or services on condition that the buyer purchases separate goods or services unrelated to the object of a contract, or forcing a buyer to accept a condition unrelated to the object of a contract”. It asks whether the competitive gains outweigh the anti-competitive effects.
Despite subsidies having the benefit of lowering the cost of mobile telephony and allowing more people to access these services, Icasa cites international studies that have found subsidies may result in an increase in termination rates, as there appears to be cross-subsidisation. Also, with the bundling of costs, customers do not know – upon cancelling a contract – whether they are paying for the free “bundled” minutes or the handset.
The document refers to how the matter is handled in other countries; in Europe (except in Belgium, Finland and Italy, where bundling a handset with a contract is illegal), there are no restrictions on subsidies. Icasa adds that the Belgian, Finnish and Italian markets are developed, with high handset penetration levels, and successful implementation of number portability. In Korea, handset subsidies were allowed for a certain period, and once that was no longer allowed, the market remained profitable.
Icasa explains that the practice of subsidising handsets was introduced in order to improve the uptake of mobile telephony when initially introduced to South Africa in 1993 by Vodacom and MTN. At that stage, projections put the size of the market at 500 000 subscribers by 2003, says Icasa. Today, the mobile market has over 17-m subscribers.
Source: http://www.moneyweb.co.za
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