Time runs out for GSM firms

Date: 05/09/1996

By Chris Johnstone

COMPETITION officials are threatening fast follow-up action against mobile phone operators, service providers and handset manufacturers who have so far failed to respond to a warning letter ordering them to end restrictive practices.

None of the players in the booming GSM industry have so far replied to the letter sent out by the European Commission's competition directorate-general (DGIV) in early August warning them to shake up their procedures and drop features tying GSM subscribers to restrictive contracts. Officials say the firms will be given an extra week or so to reply before facing more official demands to explain what has been done.

The August letter required two specific measures to curb the use by the GSM industry of 'SIMLock' features on handsets to tie subscribers to a single mobile phone company. It said firms should spell out to subscribers the possibility of 'unlocking' the handset so that they could use it to sign up with a rival GSM and, if the handset was offered at a cut price together with the phone service, then subscribers should be freed to transfer once the handset subsidy was paid off.

The Commission action is aimed in particular at the British GSM market, where handsets are often offered for a few ecu as part of a package including restrictive subscriber contracts. Consumer complaints have been rife. Spain is also being targeted, while officials say legal consumer protection in France and Denmark means there are no problems there.

Mobile phone company Orange said it was not aware of any change in its procedures or fresh instructions to service providers to give a new deal to British subscribers. Finnish producer Nokia also said nothing had changed.

“Operators can still ask for the handset option,” said a spokeswoman. Motorola was not available for comment.

The UK's Consumer Association says the Commission's initial letter is a step in the right direction, but falls short of getting to grips with what it describes as “an horrific situation in Britain”.

Researcher Colin Meek points out that the initiative does not prevent the sale of subsidised handsets which tie subscribers through long repayment periods. “We would like to see these contracts ended and subscribers given the right to a trial period. We would also like a firm code of conduct,” he said, warning that the British GSM industry was in danger of becoming “the timeshare of the 1990s” if it did not act to protect consumers' rights.

European consumers lobby BEUC says it will watch to see whether GSM service providers change their procedures in the next two or three months and is ready to launch a fresh complaint with the Commission if they do not comply.

Despite expected opposition from consumer groups and the mobile phone industry, the Commission's telecommunications directorate appears set to support the idea of GSM operators signing up to a voluntary Europe-wide code of conduct. This follows a study into the viability of a code and its possible pitfalls by consultants Ovum Ltd and Intercai GmbH.

The consultants' report, which will be made public on 9 September, gives tepid support for a voluntary code. It admits flaws in the performance of many existing industry codes of conduct and highlights GSM operators' increasing reluctance to sign up to a code, but adds that measures are needed to meet the rising tide of consumer complaints.

“With the focus only on consumer issues, many people consulted felt either that competition was working to improve the consumers' lot or that laws and telecoms licences would be more effective instruments for coping with specific prescriptive conditions than a voluntary code of conduct,” says the consultants' report.

The report concludes that a 'softly softly' approach to introducing the code, with a gradual tightening of its demands, might offer the Commission the best chance of getting it adopted.

The Commission will ask GSM service providers to respond to the report by mid-October. The invitation will probably add that the option of a more concrete regulatory framework will be kept in the background if the industry does not submit to a voluntary code.

A report to EU telecoms ministers on the code of conduct must be made by the end of the year. BEUC says it will still press for a binding code of conduct as a first choice.