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