Regulators have done extensive work to facilitate consumers’ ability to switch providers, to foster competition and consumer benefit. Yet switching is still seen as a pain point in some countries. In recent months, initiatives to help customers become proactive in choosing a new contract have taken place in the UK, Japan, and Germany. In all three cases, regulators are taking steps to ensure consumers don’t get trapped once their initial contract expires – either by reducing the length of such contracts (Germany), by reminding customers of their options when they are out of contract (UK), or by forbidding practices that would discourage switching (Japan). Stronger rules to increase transparency of charges customers face are also imminent all three countries. In Japan and UK, regulators are explicitly separating airtime charges from the cost of handsets; in Germany, this will happen when the new European Electronic Communications Code comes into force. The intention is to reduce prices, and help customers better understand what they are paying. While these measures will have an impact on operators’ revenues in the short run, they could also turn out to be beneficial in the long run by fostering customer engagement. This is an aspect on which the industry has strived to improve for a long time; more fairness and transparency about the best deals customers can get is likely to result in a better perception of the sector.
The German government aims to halve minimum contract lengths
The German government is proposing a bill to set the cap on mobile and other service contract durations at 12 months instead of 24. Customers who forget to terminate their plan will only face an extension of three months, instead of one year as commonly happens under current rules. The government’s objective is to “make things fairer” for consumers, reducing contract lengths and the hidden extensions that can come with them. Tying up customers for a long time, and extending contracts ahead of their expiry, in practice prevents customers from switching to more convenient offers.
Unsurprisingly, the proposal has promoted a range of responses from stakeholders. Telecom industry group VATM said in a statement that a ban on two-year contracts would not improve consumer protection, because consumers rely on long contracts to spread out the costs of a smartphone, or of a fibre connection, over a longer period. The VATM also noted that existing rules already require all operators to offer at least one 12-month contract option, and that consumers can still turn to prepaid options. The VATM proposes to enhance transparency when signing contracts, and shortening notice periods to leave, as better options; however, they also note that service providers are already subject to detailed transparency obligations. The consumer group VZBW was more in support of the proposed law, saying shorter contract period will help boost competition; it also demands increased checks and obligations for telecoms contracts agreed over the phone. The proposal is still in its initial stages (an official text was not yet available at the time of writing) although the matter is not seen as controversial within the current German coalition government, which means industry may have to voice its concerns quickly and effectively if it aims to seek amendments.
In the UK, Ofcom passed comprehensive measures to promote fairness for customers
Assembly’s Consumer Protection Tracker shows that Ofcom has been one of the most active regulators in passing measures to improve customers’ ability to switch over the years; however, the regulator is still noticing that consumers do not make the most of the options they have available to them. The regulator’s research on consumer engagement in the telecoms sector found that customers tied up in long contracts are less likely to shop around for better deals, thereby missing out on new offers which are often cheaper, or more valuable. It also found that, past the expiry date of their contract, customers continue to pay more than they need, because the cost of the handset is not presented separately from the charges for connectivity. Ofcom found UK customers collectively overpay £182m a year because of this. To address these issues, Ofcom has been passing a range of measures during 2019.
In the mobile sector, Ofcom has recently proposed to separate handset and airtime charges, to increase transparency; and to prevent operators from linking ‘split contracts’ when the contract for the device is longer than 24 months, so that the contract for the handset does not turn into an obstacle to switching. It is worth noting that the separation of charges is included in the new European Electronic Communications Code, which will come into force by December 2020, however, Ofcom aims to accelerate the adoption of those measures. As a result of Ofcom’s review, mobile operators have committed to start moving out-of-contract customers to cheaper tariffs (some of them will be equivalent to SIM-only deals), with the exception of Three, which did not commit to apply any discount. Another measure to make switching easier, adopted in May 2019, is the obligation to ‘wake up’ customers, i.e. to send them alerts ahead of the expiry of the contract, so that they become more likely to start looking for alternatives ahead of the end of the contract; providers must also inform customers of the best tariffs they have available at the time. In 2017, Ofcom also made changes to the switching process, which took effect on 1 July 2019. This remains a donor-led process, with customers required to obtain a Porting Authorisation Code (PAC) from the outgoing provider, however, operators are now required to make it possible through a text message, to which they have to respond within a minute with the PAC.
Handsets and airtime charges are now separate in Japan
The Japanese government has considered the way mobile contracts are sold as an issue since last year. In August 2018, Chief Cabinet Secretary Yoshihide Suga called out mobile operators saying they could reduce their retail prices by 40%. The government’s concern was that mobile operators were not presenting charges to the customers in a clear and understandable way; as a result, it proposed a bill in March 2019, to require operators to separate the airtime charges from the cost of devices, so that consumers can get a better idea of how much they are paying for each component of the contract. The bill also included stronger rights for consumers to opt-out during a contract (mobile contracts in Japan generally last between two and four years), and forbids operators to adopt conduct which ends up preventing users from switching freely introduced a registration requirement for retailers, as well as penalties for companies misleading customers to maximise their sales.
The bill was passed in May 2010; it will take effect in the Autumn, after the Ministry of Internal Affairs and Communications will have set out guidelines for mobile operator’s fee plans. However, ahead of the law’s entry into force, operators are already adjusting their offers to make it compliant with the new rules. For example, the industry leader, NTT Docomo, has already started separating handset charges from airtime charges, and now provides a simulation tool to help customers understand the breakdown of their recurring costs. Other large providers, such as SoftBank and KDDI, stated they are already aligning with the new rules and are considering lowering their fees.
