Mobile operators may be forced to stop subsidising handsets next year when the Consumer Protection Act (CPA) takes effect in March.

The department of trade & industry has been working on the legislation for years and it’s expected to change fundamentally the way business is done in SA.

Telecommunications operators are not excluded from its net.

Alongside the law, trade & industry has drafted regulations that could spell the end of free mobile handsets on contract packages.

The regulations have not yet been finalised and there is still scope for them to be changed.

However, in its current draft the regulations state that consumers who cancel contracts will not have to pay more than 10% of the of the total contract as a cancellation penalty.

SA’s cellphone industry was built on the back of handset subsidies. Many attribute the industry’s success to precisely this practice.

Operators subsidise phones aggressively on contracts, with consumers paying off the value of the device through the period of the contract, usual 24 months.

Operators may have to stop subsidising handsets like Apple iPhone 4

Nick Altini, director of competition at Cliffe Dekker Hofmeyr, says if consumers cancel after two or three months, the best the operators can hope for under the CPA is to have the phone returned.

But, he says, there is “no real market for second-hand phones”.

Altini says changes could still be made by the time the draft regulations are gazetted. Trade & industry has received input from operators.

Operators have decided to keep the peace with the department, saying only that they will do what the law requires of them.

However, a legal source at one operator says the clause will not apply to cellular contracts and subsidised handsets, saying contracts can only be terminated if they are deemed “unreasonable”.

Altini says another concern for mobile operators is a stipulation that allows customers to demand a refund on a faulty product. At the moment, customers have six weeks to return a product they are not happy with and be given a replacement device.

However, the CPA allows customers three months to return a product and demand a replacement. This will almost certainly result in a higher rate of returns.

The CPA will will also affect the sale of prepaid vouchers, says Lucien Pierce, partner at Phukubje Pierce Masithela Attorneys.

Pierce says the act will force operators to roll over airtime and data for at least three years. Though good news for consumers, it will cause a headache for operators, which have to create network capacity for every minute of airtime they sell.

But operators will be required to cut off inactive users after seven months, in conflict with keeping airtime available for three years. — Candice Jones, TechCentral