Guiding consumers since 2009

Is your cell phone contract fair and legal?

By Staff Writer

Contracts have terms and conditions which state the company’s, as well as the consumer’s rights with regards to the agreement that they are entering. However, these can be difficult to understand.

How many people actually read through all the fine print of their cell phone contract and understand it, before signing?
 
Justmoney spoke to experts to see what you should look for when taking on a cell phone contract, as well as the pros and cons of taking out a contract.
 
Pros and cons of a cell phone contract
 
Karin Fourie, the executive head of communications at Cell C, says that there are several advantages to a cell phone contract which are not offered on pay-as-you-go options. These include: Airtime, including voice minutes, data and SMSs, are automatically loaded; the fact that you would never run out of airtime, unless you agree to a limit; and you don’t have to put up money upfront to buy an expensive phone.  
Richard Boorman, Vodacom’s executive head of media relations, concurs and adds: “These services are generally charged at a lower rate than on prepaid.”
 
One of the cons of taking out a contract, is that you could overspend. But there are ways to ensuring that you don’t.
 
Fourie explains: “Prepaid and hybrid offers make it easier to manage spend and control budget.  However, with contracts there are measures that can be put in place to curb overspending including setting a usage limit on your account.”
 
However, to help consumer monitor their spend, Boorman points out that Vodacom offers a range of services, such as the Vodacom app and notification SMSs, which alert consumers when they reach a certain point in their data usage, for example, 70% depletion or 80% depletion. This notification also includes “a link to where you can purchase additional bundles.”
 
The consumer’s rights
 
The Consumer Protection Act (CPA) deals with consumer rights. Matilda Lasseko-Phooko, an associate at Bowman Gilfillan, reveals that a cell phone contract is classified as a fixed term contract under the CPA.
 
Lasseko-Phooko says: “The rights provided in the Act that are specifically relevant to fixed term contracts and enjoyed by an individual consumer in a cell phone fixed contract are not enjoyed by juristic persons. However, they do apply to a cell phone contract where the consumer is a sole proprietorship, which is, for legal purposes, not separate from the individual, natural person who owns it.”
 
Bonita Hughes, complaints officer at the Consumer Goods and Service Ombud, notes that “Section 48 to 52 of the CPA deals with consumers’ rights to fair, just and reasonable contract terms. Section 2(10) CPA also provides that no provision of the Act must be interpreted as to preclude a consumer  from exercising any rights afforded in terms of the common law. Agreements should therefore be in a plain and understandable language.”
 
When taking out a fixed term contract, as a cell phone contract is, Hughes highlights that the CPA states that “a consumer must be informed that a fixed term agreement is about to end and will roll over onto a month-to-month basis with [or] without new terms.”
 
Lasseko-Phooko adds: “All cell phone contracts entered into on or after 1 April 2011, are subject to and have to comply with the Act. Certain specified contractual provisions that are in conflict with the Act are automatically overridden by the Act’s provision allowing an individual consumer to rely on the rights conferred by the Act.”
 
What should you do before signing a contract?
 
Lasseko-Phooko highlights that the maximum length of a fixed-term contract is 24 months from the date that the consumer signs the agreement. However, it is possible to have a longer contract term, if it can be proven that there is a financial benefit to the consumer.
 
“For example, if it is possible to show that a consumer will enjoy a reduced monthly instalment on the basis that he or she enters into a contract with a five-year term, and the consumer agrees to this, a service provider could conclude a cell phone contract for a term longer than two years.”
 
Hughes stresses: “Consumers should read the agreement and ask for explanations before signing.
 
“Regulation 44 of the CPA provides for a list of terms which are presumptively unfair, this might be useful to take note of this list so you know what to look out for.”
 
According to regulation 44 (h), suppliers can “increase the price agreed with the consumer when the agreement was concluded without giving the consumer the right to terminate the agreement.”
 
Furthermore, when signing a contract with a service provider, Lasseko-Phooko stresses that a supplier cannot impose a condition on the sale that the consumer must purchase additional goods or services from the supplier, “enter into an additional agreement/transaction with it or with a third party; or agree to purchase goods or services from a third party.”
 
According to Lasseko-Phooko, this will only be allowed “if the supplier can show that the convenience to the consumer in the bundling outweighs the limitation on consumer’s right to choose or results in economic benefit for consumers.”
 
Price increases
 
Hughes reveals that some cell phone networks recently increased the prices of their existing contracts. “In terms of regulation 44 a term in a contract which allows the unilateral increase of a contract price would be presumed unfair unless the consumer is given the option to cancel the agreement.”
 
Lasseko-Phooko adds: “It is deemed unfair, unreasonable and unjust to provide that the supplier can increase the price but the consumer is not given an opportunity to terminate. The method by which prices vary must be explicitly described in the contract.”
 
However, Vodacom and MTN argue that they are not in violation of the law, see here
 
(For more information on the recent price increases, click here)
 
Cancelling a contract
 
In addition to stipulating a consumer’s rights when it comes to a fixed term contract, the CPA also looks at cancelling contracts. According to Section 14 of the CPA, a consumer can cancel a fixed term contract at any time by giving 20 business days’ notice either in writing or another recorded form, and pay a reasonable cancellation fee.
 
When cancelling a fixed term agreement, you remain liable for “any amount owed in terms of the contract up to the date of cancellation,” says Hughes.
 
She adds: “The cancelation fee may not have the effect of negating the consumer’s right to cancel the fix term contract. This means that a supplier may not indirectly circumvent the consumer’s right to cancel by charging a high cancelation penalty.”
 
Lasseko-Phooko agrees, stating: “Although the supplier may charge a cancellation penalty, which may ordinarily have the effect of discouraging a consumer from cancelling a contract early, the amount of the cancellation penalty that is charged by a supplier should not have the practical effect of negating the consumer’s right to cancel the cell phone contract..”
 
Hughes highlights that what constitutes a reasonable cancellation fee will depend on the specific circumstances of the contract. However, some of the factors that the supplier must consider when calculating the cancellation fee are:
·         The value of the transaction up to cancellation;
·         The value of the goods which will remain in the possession of the consumer after cancellation;
·         The value of the goods that are returned to the supplier; and
·         The duration of the consumer agreement as initially agreed.
 
Eddie Moyce, chief customer experience officer at MTN, says “MTN complies with the CPA with regard to contract cancellations.  Customers have the option to cancel a contract at any time on 20 business days’ notice. MTN has reasonable cancellation fee which is in line with the CPA and regulations.”
 
Hughes says: “Should you believe the cancelation fee is unreasonable or the supplier refuses to cancel the agreement you can refer the matter to our office (Consumer Goods and Services Ombud) to investigate. Our office cannot make binding recommendations but we can report it to the National Consumer Commission should a supplier not comply with request or recommendations made by our office. The NCC or Tribunal can then take it into consideration when they issue a compliance notice or determining an administrative fine.”
 
Cell C contract buy-out
 
In May Cell C launched its contract buy-out service, which will pay up to R10 000 to help consumers buy themselves out of their current cell phone contract in order to join Cell C.
 
 
Cell C has not revealed the number of consumers how have made use of contract buy-out promotion, but Fourie says that the company may be releasing these statistics in the third quarter of this year.
 
She adds: “Consumers' response to the Cell C Contract Buy-Out promotion, and in particular the guarantee that prices will not increase during the contract term, has been phenomenal and has exceeded our expectations.  The demand has been such that it is very likely Cell C will extend this promotion.”
 
 
The expiry date of the contract
 
When the expiry date of the contract is approaching, Lasseko-Phooko notes that it is the responsibility of the supplier to contact the consumer no more than 80 days and no less than 40 days before the expiry date.
 
“The notice must indicate that the expiry date of the agreement is approaching, any material changes that would apply to the agreement if the agreement were to be renewed by the consumer and that the consumer may cancel the agreement with effect from the expiry date or agree to a renewal of the agreement for a further fixed term,” explains Lasseko-Phooko.
 
If after receiving this notice from the supplier the consumer does not inform the supplier whether or not they will be cancelling or renewing their contract, it will automatically continue on a month-to-month basis.
 
The terms of this contract will be the same as the previously agreed fixed term contract (the one that has expired), “subject to any changes of which the supplier notified the consumer in the written notice,” says Lasseko-Phooko.
 
Tips for consumers:
 
Lasseko-Phooko advises that consumers know their rights, as well as the obligations that are imposed on their service provider.
 
Hughes emphasises that consumers should read the notice or document, ask for explanations or get someone to advise them before signing the contract. “Especially if it is a big price tag item.”
 
Fourie advises that consumers assess their needs with regards to voice, text and data. Boorman agrees, stating: “Even if the cheaper contract looks like a good deal it might turn out to be more expensive in the long run.”
 
It’s important to read the fine print. “Do not only look at the offer at face-value.  Determine the rates operators charge for voice, text and data services, particularly when you go out of bundle (i.e. minutes, text and data not included in the package),” says Fourie.

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