Fixed-term contracts restrict consumer mobility in the market, and they are particularly unsuitable for the communication services sector. In the opinion of the Finnish Consumer Agency, shortening the maximum period of fixed-term communication service contracts could play a key role in information society development.
The consumers’ needs, wishes and possibilities related to using various services are in constant flux. Old services can be replaced by new or different ones, and the consumers should be able to make use of the evolving selection. However, long fixed-term contract periods in mobile phone or internet subscriptions, for example, have a negative effect on competition and the development of services. They also undermine consumer trust by preventing consumers from selecting the services that are optimal for them in their life situations and needs at any one time.
Maximum duration of six months as a goal
The majority of shortcomings encountered by the consumer are clearly associated with factors arising from the long period of fixed-term contracts. The Finnish Consumer Agency highlighted these shortcomings in its statement to the Ministry of Transport and Communications on the draft collection of provisions to be included in the Information Society Code.
Operators of communication services are obliged to offer a slightly shorter contract period of 12 months.What remains a problem, however, is that through emphasis in marketing efforts and, in particular, pricing strategies, it is possible to make yearly contracts so expensive for consumers that purchasing them is not a genuine alternative in practice. For this reason, many consumers commit themselves to a 24-month contract.
A maximum contract period length of six months has been in place in Denmark for several years. The Nordic Consumer Ombudsmen also published a press release in spring 2012 in which they favoured legislation that lays down a maximum contract period of six months.
In the conclusions to its analysis of the Swedish consumer market, Konsumentverket, the authority monitoring consumer rights in Sweden, stated that shortening contract periods is a key factor for improving market performance.
Shortening the maximum period would tackle a number of problems
In its statement, the Finnish Consumer Agency also expressed its opinion on provisions related to cancellations and terminations of contracts and pointed out that shortening the maximum duration of contracts would considerably reduce the number of problems arising from the application of these provisions.
In bundle contracts that are typical of communication services, the Finnish Consumer Agency finds the overly long maximum contract period a key problem in terms of consumer protection. As an example can be cited contract cancellations where, under the valid legislation, the consumer may be billed not only for fees concerning the unused contract period but also for any other fees agreed upon in case of this type of situations.
Teleoperators thus currently often include in their price lists a cancellation fee that applies to all situations in an equal amount. These fees often come as a surprise to consumers, who find making such payments unreasonable. In certain situations, these fees can be considered a type of contract penalty, as the consumer is obliged to pay the list price regardless of how much of the contract period remains or what type of subscription the consumer has.
This problem has also come up in other OECD countries, and interventions in unreasonable fees have been made. In the rationale of the act, the consumer’s position in such situations should be clarified. This is to a great extent also a question of free completion and mobility in the market, or the consumers’ possibilities of cancelling a contract and switching service providers.
Nordic Consumer Ombudsmen: Maximum period of fixed-term contracts should be limited to six months (Finnish Consumer Agency press release, in Finnish, 2 April 2012)
Residents’ position as a communication services user must be secured (Current Issues in Consumer Law 7/2012) .