Cell cancellation clause fires concern

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A clause in the Consumer Protection Act (CPA) that allows cellphone companies such as MTN, Vodacom and Cell C to determine the fee for early cancellation of contracts could result in abuse of the right and market collusion, industry analysts have cautioned.

The new CPA promulgated into law in April grants companies the right to charge a “reasonable” penalty for consumers who terminate their cellphone contracts before expiry date.

But analysts say historically where the government has failed to take a strong stance, local telecommunication companies have taken advantage.

Spiwe Chireka, the manager for telecoms at the Industrial Development Corporation, said that this was evident with the high interconnection fees companies charged to accept each other’s calls. The government eventually intervened.

“What is going to define reasonable? The clause is open to abuse or some sort of collusion,” Chireka said.

This week it was reported that the government had bowed to pressure from the industry and removed a proposed clause from the CPA that would have limited cancellation fees to 10 percent of the contract value.

But Protea Hirschel, an industry analyst at Frost & Sullivan, said that cellphone companies could have afforded a 10 percent peg because there were more pre-paid than contract customers in the country.

In April the act was promulgated without a specified fee cap, creating an impression that cellphone companies had carte blanche.

Andisa Potwana, the director of consumer and competition law and policy at the Department of Trade and Industry, said research had revealed the 10 percent cap would have disadvantaged companies and consumers. He said a 10 percent fee for a customer who cancelled early was not the same as 10 percent to a customer who cancelled in the 23rd month of a two-year contract.

The “reasonable fee” clause left a window for the trade and industry minister to force a cap should the clause be abused, Potwana said.

Contract cancellations are no longer treated according to an industry standard scale but on a case-by-case basis by cellphone companies.

Tertia Smit, a senior analyst at BMI-TechKnowledge, said that the lack of a specified cap was “disturbing” because although one of the operators could charge a reasonable amount “when it is fairly vague they might see it as a competitive mechanism”.

Mamodupi Mohlala, the head of the National Consumer Commission which now regulates handset matters, said yesterday that cellphone companies who charged penalties in excess of 10 percent would have to justify the business imperative for their action. “It’s the only objective yardstick we have,” she said.

Analysts believe the fee will have to cover the handset cost that cellphone companies have built into the contract and are usually reluctant to divulge.

Cell C and Virgin Mobile SA say they charge a fee linked to the outstanding value of the handset that forms part of the contract.

MTN said: “The final regulations reflect a more appropriate approach to certain aspects of business in various industries.” - Business Report


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Marti Lombard, wrote

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08:46am on 24 June 2011
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While all of this is debatable, there is nothing to protect the client OF POOR SERVICE!! I probably double my account because poor reception left alone the business that I am loosing on calls that simply doesn't register on my phone. Countless times people comment that my phone was "switched off" and they could not get through whilst my phone was on and right next to me. CAN WE CANCEL because of default? No, we have to sit it out. WHY???

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Anonymous, wrote

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04:05pm on 22 June 2011
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THATS TRUE WHAT WAYNNE CAUSE WHEN U CANCELLED THE CONTRACT THEY WILL ADD SOME STORIES TO DEDUCT MORE MONEY

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Wayne, wrote

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12:29pm on 22 June 2011
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Yep, I wanted to cancel a R119 data contract two months before it was due to be up and the cancellation charged by MTN was R 1500. WTF, if they're doing that on the old system, just imagine what they'll do now there is nothing to stop them charging what they want to.

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Lynn, wrote

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12:25pm on 22 June 2011
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There is no such thing as "reason" when it comes to business - they will definitely take the utmost advantage - it makes the new Consumer Act a completely joke!!!

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PeterG, wrote

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08:11am on 22 June 2011
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One of the most used words in the CPA is the word "reasonable" which will cause wide parameters and disparities, and will no doubt be utilised to the fullest by many companies. It is the lack of specifics that will lead to this Act being just another worthless piece of legislation. Bad Acts lead to costly outcomes - just look at the fiasco that is debt counselling and debt review in terms of the National Credit Act...

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RollingStone, wrote

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08:08am on 22 June 2011
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How about 1.5% x the number of remaining months in the contract. Is it really that hard????

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