Adv Kate Thambiran @ Lucid Living
South African cellular service contracts may be the most restrictive contracts in existence. Trying to get out of the two-year contracts that bind local consumers to a particular provider is a difficult and expensive undertaking.
Cellular contracts in their current form have been designed to cause snowballing costs for consumers. You will inevitably end up paying more by the time you are halfway through your contract than if you opted for a “pre-paid” or “cash” option.
The new Consumer Protection Act (CPA) is set to end years of exploitation by companies in South Africa where retailers regularly refuse to refund consumers for faulty goods and in the case of cellular providers, offer poor service but have contracts that prevent consumers from cancelling.
With the CPA in place South African consumers will be among the best protected in the world. No more “sure, we’ll take back our junk but you have to choose something else in our store to replace it with” – and cellular service providers will have to let you out of your contract within 20 days and with far less in terms of requirements.
The new legislation requires that providers cancel contracts within 20 days of notice from consumers. They will also no longer be able to force payment for handsets provided, and will instead be required to take back mobile devices where payment is outstanding.
The only grey area that exists is the amount of money service providers will be able to claim for early cancellation. The CPA stipulates that the calculation of reasonable contract cancellation charges have to take ten points into consideration.
These include some sensible considerations, such as outstanding contract fees up to date of cancellation, the consumer’s average monthly spend, the value of handsets that will remain with the consumer after cancellation and those that will be returned to the service provider, the duration of the initial contract, losses suffered or benefits accrued by the consumer and the length of the cancellation notice.
However, they also contain some subjective and potentially vague matters, like the “reasonable potential” of the service provider to find an alternative consumer, general practice of the relevant industry and the nature of goods and services that were detailed in the contract.
This creates leeway for cellular service providers to lash consumers for cancellations.
The CPA doesn’t do much to curb contract periods. The usual 24 month contracts are still allowed, and the act even makes it possible to have 36 month contracts, so long as “demonstrable financial benefit to the consumer” is shown.
The stipulation of the CPA relating to demonstrable financial benefit to consumers is wish-washy and doesn’t do much to encourage more reasonable fees and cancellation charges. How does one demonstrate financial benefits? Will this calculation take the spending patterns, income and personal budgets of each cellular subscriber into consideration?
The new legislation will raise the churn rate of cellular providers in South Africa and potentially favour smaller operators like Cell C and Telkom’s 8ta in the short term. In the longer term, however, it will force better service from all operators and third-party providers.
Ultimately, however, it is the free market that does the best job of protecting consumers. In a highly competitive environment customer service and fairness towards consumers is a differentiator and something that service providers have to be better at than their competitors if they are to retain customers. Consumers will be more likely to switch when they aren’t happy with service levels or find a better deal elsewhere.
Service providers will also have to rethink the provisioning of handsets and modems as they will be loath to deal with an influx of useless, second-hand devices.
While consumers will have greater recourse, I’m afraid there won’t be much of a difference in terms of how easily one will wiggle out of contracts.
That said, the Consumer Protection Act is a vast improvement over what we had before. It allows for recourse where consumers feel they have been wronged. It also brings the national consumer commission (NCC) into being as a body that will enforce the CPA and NCA and protect consumers.