Telecom wins phone-locking stoush with 2degrees

The Commerce Comission has rejected a 2degrees' complaint about Skinny Mobile's phone locking policy.

Skinny Mobile - a new, youth-focussed Telecom sub-brand - locks its mobile phones to a Skinny SIM card for nine months.

2degrees complained the practice was anti-competitive. More, that it could suck in naive buyers attracted to the freedom implied by Skinny's weekly pre-pay model. 

2degrees also pointed out that the commission blocked a Vodafone attempt to introduce SIM card locking.

Skinny Mobile boss Paul O'Shannessey countered his company offered a low break fee ($30) for those who wanted to escape locking.

The commission seems to have bought that argument. The watchdog noted in a letter to 2degrees - dated February 24 and released to day - that the application of Skinny's phone locking was "limited in application".

It remained concerned about the "potential anti-competitive effects of handset locking, particularly where handset locking reduces the ability for customers to exercise choice."

It will monitor Skinny, but take no action.

2degrees' corporate affairs director Mat Bolland did not concede any ground when he talked to NBR this afternoon.

"Our take is that the commission is quite concerned," Mr Bolland said. 

2degrees is worried that Telecom will try to push SIM card locking further, and sees Vodafone as reserving the right to lock.

Mr Bolland noted the phrased that "A lock-in period that concluded that a lock-in period that reflects the recovery of subsidised costs, and which is transparent to consumers, is unlikely to undermine competition. Company's don't like to promote a negative, so we'll be interested to see how they the cost is communicated to customers."

Mr Bolland said if you were paying $4 a week on your mobile bill, then $30 represented 7.5 weeks payments, so was a disincentive.

"The pre-pay should be all about ultimate competition," Mr Bolland said.

Mission creep
Telecommunications Users Association CEO Paul Brislen agreed.

"Tuanz remains opposed to SIM locking. It's yet another barrier to switching between providers," Mr Brislen told NBR.

"Currently this is only Skinny, but Vodafone has always maintained it can look again at handset locking. If Vodafone does then so will Telecom and 2Degrees will no doubt be left to join or suffer.

"On top of that, locked handsets mean customers travelling overseas are stuck with the SIM they were issued. No more dodging those atrocious roaming charges by swapping to a local provider without a lot more hassle - hassle the customer doesn't need."

RAW DATA: The Commerce Commission's response to 2degrees

2degrees goes to Commerce Commission over Skinny phone locking

December 9: 2degrees has lodged a complaint with the Commerce Commission over Skinny Mobile's plan to lock its phones to a Skinny SIM card for nine months.

LATEST: Telecom's Skinny in social media push, hints at late December launch

Skinny is Telecom's new budget sub-brand, due to launch in the new year. Locking would mean a phone bought for use with Skinny could not be used with another provider - unless a customer pays $30 break fee.

"We're keen for the commission to take action before Skinny launches," 2degrees corporate affairs director Mathew Bolland said.

"Consumers don't understand the subtleties of SIM card locking."

2degrees sees the practice as anti-competitive.

"It could change the whole industry. Vodafone could start locking SIM cards again," Mr Bolland told NBR.

He pointed to 2008 correspondence between the Commerce Commission and Vodafone (supplied to NBR) in which the watchdog leans on the carrier to drop SIM card locking.

Vodafone subsequently abandoned its brief policy of locking phones. Unlocking helped Telecom and 2degrees jump onboard the iPhone bandwagon.

RAW DATA: The Commerce Commission's April 2008 letter to Vodafone over handset locking (PDF) | Vodafone's response (PDF)

The above screen shot (click to enlarge) was used in 2degrees' complaint as evidence Telecom plans to lock phones sold through its soon-to-launch Skinny sub-brand. It was snapped from a Skinny web page mistakenly made live for a brief time, and now living forever in Google cache. Telecom subsequently admitted the move to media.

A spokeswoman for the Commerce Commission confirmed it had received the complaint. "We are looking into it. We will be speaking with the players in the telecommunications industry and when that process is complete, we will be able to provide further comment. The timeline is likely to be within a few weeks."

Skinny Mobile is set to launch at an un-named "big youth event" in the new year (the brand's newly minted Twitter account has been tweeting about the Rhythm & Vines festival, being held Dec 29-31).

"Old tricks"
In a statement, 2degrees Chief Executive Eric Hertz said the move shows that the ‘new Telecom’ is up to its old tricks.

“This flies in the face of the competition New Zealanders have come to expect and deserve. Customers will stay if they get value and should have the right to leave if they don’t,” says Mr Hertz.

“2degrees has invested more than $350 million to create competition, backing itself to win and keep customers by giving them a better deal. We thought that this kind of monopolist behaviour was a thing of the past, but there’s clearly still a need for consumer protection from dominant players.”

Mr Hertz said Telecom’s comments that SIM-locking will help young people get cheaper phones were insincere.

“This is not about better handsets – improved competition is already driving down the cost of feature-rich smartphones. This is a cynical move to lock in the most cost-sensitive consumers so they can’t make a choice,” says Mr Hertz.

“We note Telecom says it will not SIM-lock customers on its XT network. That’s because business customers wouldn’t stand for it and neither should young New Zealanders.”

Analysts see the launch of Skinny as a vehicle for Telecom to gain share in the youth market - particularly in Auckland. The budget-priced, pre-paid sub-brand is also seen as a way of moving customers from the telco's older CDMA network (due to be switched off in June) without tarnishing the XT brand with low-price deals. It's also seen as a way to keep customers in the fold who might otherwise defect to 2degrees, which has been growing at a time Telecom's overall mobile customer numbers have been falling.