GSM market is called to order

Date: 06/06/1996

By Fiona McHugh

THE European Commission is to fire a warning shot across the bows of GSM mobile phone-makers and operators, ordering them to stop signing illegal restrictive deals or risk punishment.

Mobile phone manufacturers in several EU countries currently agree - though often under duress - to make 'SIMLock' handsets which only work with a single operator. Motorola, for instance, makes phones which can only be used with the UK operator, Orange, and not with its rivals.

This practice allows service providers to hang on to dissatisfied customers who, were it not for the cost of buying a second handset, would switch operators.

According to the Commission, such agreements between makers and operators distort competition and are therefore illegal. They also split the internal market into national fiefdoms run by a handful of operators, making them doubly damaging.

In a letter due to be sent soon to all manufacturers and operators in the European Economic Area, Competition Commissioner Karel Van Miert will ask phone makers not to make SIMLocked handsets and phone operators not to request them. He will give offenders two weeks on receipt of the letter to respond to the Commission.

“In view of the likely negative impact they (the agreements) would have on the development of a competitive GSM market in the EEA, they would be likely to constitute serious infringements of Article 85 and/or 86 of the EC Treaty, justifying the imposition of fines,” warns the letter.

The move has been warmly welcomed by manufacturers, most of whom resent being forced into shotgun marriages with operators.

“This is excellent news,” declared Otto Björklund of Nokia, a leading phone hardware company. “Operators force us into these agreements because they refuse to buy handsets which do not have the SIMLock feature. Now perhaps we will have some order in the market.”

Björklund pours scorn on the excuse used by service providers for demanding single-operator phones, namely that they prevent thieves from using stolen phones. Officials from the operators Orange, Mobistar and Vodafone were unavailable for comment.

In his letter, Van Miert will also denounce the practice - similarly rife in Europe - of bundling the cost of handsets and phone services together.

Operators frequently subsidise the cost of handsets - usually to the tune of 120 ecu - but force customers to sign up to their services for a minimum period of time (up to 15 months) in exchange. That allows them to recoup the money spent on handsets and more, by charging customers often excessive fees for phone calls and other services.

Consumer groups say fixed-term contracts are the source of enormous discontent among mobile phone users, with one in four in the UK regretting his or her choice of operator. Many contracts, for instance, deny consumers the right to switch operators if their operator's prices change.

“Phone users are far too often trapped into unfair contracts which are excessively long and difficult to understand,” said Katrin Schweren of the European consumer group BEUC.

Manufacturers are equally opposed to fixed-term contracts because, they say, they give the mobile phone business a bad name.

“Customers find out sooner or later that there is no such thing as a free lunch. They may get a cheap phone, but they pay for it in high phone bills,” said Björklund. “We do not want unhappy customers, and we do not want a fragmented market.”

The Commission is also due to write to the European Telecoms Standards Institute (ETSI) to ask it not to go ahead with SIMLock standardisation plans and to withdraw any proposed modification of the GSM standard to account for SIMLocks.