09-12-2019
The AdC recommends changes in the rules regarding loyalty clauses in the telecom market to facilitate switching and enhance freedom of choice for consumers
Press Release 23/2019
The AdC recommends changes in the rules regarding loyalty clauses in the telecom market to facilitate switching and enhance freedom of choice for consumers
The Portuguese Competition Authority (Autoridade da Concorrência – AdC) developed an analysis to the telecom sector and identified vulnerabilities in terms of competition, such as higher prices relative to the EU average, low consumer mobility and high level of consumer complaints. The analysis focused on loyalty policies and switching costs which, together with other aspects, contribute to Portuguese consumers perceiving this sector as the least competitive.
The telecom sector – which is amongst the priorities of the AdC for its relevance for a well-functioning economy – is characterised by services that include minimum contract periods and early termination charges for consumers. The telecom operators claim that this allows them to offer discounts in the prices of terminal equipment, the activation/installation and supply of services.
However, current loyalty policies reduce the share of consumers that are available to switch supplier, thereby reducing the disciplinary effect on market prices, innovation and quality of service. As a result, the incentives to compete are weakened, making consumers more vulnerable to market power.
The low mobility driven by loyalty clauses is strengthened by the generalised practice of renewing these clauses, which account for more than 48% of loyalty contracts. This context, together with other factors such as the complexity of the procedure for contract termination and the lack of transparent information, weaken the competitive dynamics of the sector.
Furthermore, the AdC considers that the strategies adopted by telecom operators hindered the effectiveness of the 2016 legislative intervention, aimed at widening the effective choice set for consumers, in terms of loyalty contract duration. The telecom operators were obliged to offer contracts with loyalty periods of 6 and 12 months, as well as an option with no loyalty clause. However, telecom operators reacted by increasing the prices charged to consumers for the services activation/installation, thus setting substantially higher prices for those options vis-à-vis contracts with 24 months loyalty period.
Given this, the AdC decided to issue a set of eight recommendations to the legislator and the sector regulator, aimed at mitigating the competition concerns.
AdC’s recommendations to the legislator:
- Amend the electronic communications law, establishing that new minimum contract duration clauses on pre-existing contracts can only be set when the new contract entails the operator providing subsidized new terminal equipment or installing new services.
- Amend the electronic communications law so as to eliminate the exception by which operators do not need to obtain the consumer’s written consent to the conditions established by a new contract, when the first contact is made via phone call by the consumer.
- Amend the electronic communications law so as to identify the situations where a change of address by the consumer constitutes “an extraordinary change of the circumstances” in which the consumer based its subscription decision, according to objective criteria to be defined by the sectoral regulator (ANACOM). ANACOM should be provided with monitoring powers in this regard. These change aims at eliminating the conflict of interest that currently arises from the fact that operators are, at the first instance, responsible for determining if a change in address entitles the consumer to terminate the contract without early termination charges.
- Transpose the European Electronic Communications Code to the national legal framework as early as possible, in particular the information requirements regarding the most competitive tariffs available in the market and the creation of a mechanism to ease the process of switching providers.
- Establish, in the Electronic Communications Law, that all methods available for service subscription are also made available for contract termination, with similar conditions of ease and simplicity.
AdC’s recommendations to the Sectoral Regulator (ANACOM)
- Assess, for each offer, the minimum contract duration needed to recoup investments undertaken by the telecom operator in the installation of the services and subsidized terminal equipment.
- Define rules that enhance the transparency of information for consumers regarding the exact value of early termination fees.
- Undertake a cost-benefit analysis on the implementation of switching procedures by which the gaining provider is the only interface with the consumer.
In February 2010, the AdC had already issued a report on “Consumer Mobility in the Telecom Sector”. Since then, the market has experienced relevant developments.
Notwithstanding, the results regarding consumer mobility remain relevant given that in September 2019 the majority of contracts included loyalty clauses.
The report on “Loyalty in telecom services” is available at the webpage of the AdC, and open to public consultation until the 8th of January, 2020.
Lisbon, 9 December 2019
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