Regulator Icasa is to probe the subsidisation of cellphones with a view to ensuring that customers benefit from number portability and shorter contracts.
A discussion document released by the Independent Communications Authority of South Africa (Icasa) proposes a regulatory framework to govern the use of subsidised handsets, which it identifies as a “key marketing strategy to gain subscribers”.
The document also points out that heavily subsidised handsets may negatively affect the uptake of number portability, whereby subscribers can change service providers yet maintain their current telephone number.
The Communication Users Association of South Africa has welcomed the inquiry by Icasa. Spokesperson Ray Webber said, “We think that at long last Icasa is starting to flex its muscles.”
The practice of subsidising handsets was introduced in 1993 to increase the uptake of mobile telephony after predictions at the time that South Africa would have 500 000 subscribers by 2003.
South Africa’s current mobile tele-phone market is above 17-million subscribers, yet handsets are still subsidised, even for subscribers who already have contracts.
Practices such as offering subscribers a handset upgrade before the termination of their contract are viewed by Icasa as a concern because they act as an inducement to prevent the subscriber moving to another provider.
“Because of the way the market works, you have this incredibly high turnover rate of cellphones, where people have new phones when they may have been happy with a two-year-old phone,” saidWebber.
Icasa says that consumers may not be aware that they are indeed paying for the handset as it is built into their monthly subscription fee, and even if they are they do not have a choice but to accept the handset as part of the package.
“At present a consumer goes to a service provider and says, ‘I want a contract, but I already have a phone’, and they are told that they can’t get the contract for less than that. Do the cellphones actually cost that much or is this just a racket?” asked Webber.
In the pre-paid cellphone market the practice of SIM locking means that a particular handset is tied to that service provider. Icasa sees this as “anti-competitive”.
Icasa has also questioned the length of contract periods, which vary between 12 and 24 months, since “unreasonably long” contracts may encourage subscribers to continue with a poor, unwanted service.
“If you are a person with a contract, which is about 15% of the total users, you will only change service providers if you are really annoyed as you face losing your telephone number,” said Webber.
Belgium, Finland, Italy and Korea have placed restrictions on subsidising handsets while operators in Australia have begun to remove subsidies, choosing to focus on customer service instead.
Research has shown that in Korea the termination of handset subsidies did not affect the profitability of the market and has also highlighted the fact that mobile-number portability was implemented more successfully in countries with restrictions on handset subsidies.
Vodacom spokesperson Gugulakhe Masango said the company would defend the position of handset subsidies as it believes that growth in the industry is a result of this practice.
Masango said that contract subscribers make up 20% of the market and, even though they could not renew a contract without receiving a new phone, the transfer of phones from the contract to pre-paid markets was a substantial positive of the practice.
“The great benefit is that people who get new phones when they renew their contract pass their old phones on to pre-paid subscribers,” said Masango.