Given the context of rising inflationary pressures in Portugal and the consequent increase in the cost of living, and given the levels of poverty in our country, ANACOM, as regulatory authority for communications, decided to adopt on 25 October 2022 a recommendationhttps://www.anacom.pt/render.jsp?contentId=1732569 addressed to providers of electronic communications services to consider the impact of their pricing policies on households, who are facing an unprecedented increase in the cost of living in recent history. The situation is aggravated by the fact that, in Portugal, the proportion of household expenditure on communications services, which are an essential public service, is higher than the European Union average.
Of the four largest providers, only NOWO (with a market share between 2 and 3% depending on the type of service) decided to accept the recommendation, having decided not to increase its prices. In contrast to this decision, it may be observed that ANACOM’s recommendation was not accepted by the three main providers, MEO, NOS and Vodafone (which together account for market shares between 96 and 97% depending on the type of service), who decided to increase prices, with updates calculated with reference to the inflation rate, based on the Consumer Price Index for 2022, representing increases of up to 7.8%.
In Portugal, as in all other European Union countries, the retail prices of electronic communications services, i.e. those presented to consumers, are not subject to regulation, as they depend on the market’s operation. In this context, the setting of prices and decisions on price increases are the initiative of providers and their sole responsibility, not resulting from any decision by the regulator.
It should be noted that several providers in France (Free Mobile), Spain (DIGI) and Germany (Deutsche Telekom) have decided not to increase prices and others have decided to limit price increases to EUR 2, as in the case of Orange in France and TIM and WindTre in Italy, or to increase prices by between 50 cents and EUR 1.99, as in the case of Vodafone Italy. In Belgium, as in several other EU countries, most providers who decided to increase prices did so below the rate of inflation.
Price increases in Portugal decided by the three largest providers of electronic communications services, because they are substantially higher than increases observed in other countries, further widen the gap between Portugal and the countries of the European Union, bearing in mind that already before these increases, communications prices in Portugal were, in 2021, 19.3% above the European average, with Portugal occupying 8th position among the EU countries with the highest communications prices.
The worsening of this gap is all the more incomprehensible given that analysis of the financial data of companies in the sector shows that operating profitability remains at high levels.
In Portugal, price increases decided by the three largest providers, as regards contracts concluded, were announced as corresponding to the application of the respective contractual provisions.
It is recalled that ANACOM also carried out, in the pursuit of its assignments and within the scope of its powers, an assessment of the compliance of contractual clauses on price updates with applicable legal parameters, having determined the correction of certain contractual clauses, also in October 2022, in order to allow sufficient predictability, transparency, security of updates, as well as detailing the procedures required for termination of contracts, under the terms of the Electronic Communications Law.
Provided that the applicable rules on transparency of contractual information have been complied with and, where such clauses were introduced during the performance of the contract, the requirements for unilateral changes in contractual conditions by the companies have been respected, increases under such clauses will not, where binding periods are in force, uphold the consumer’s right to terminate contracts free of charge.
In this context it is important to emphasise the importance of providers following two of ANACOM’s recommendations:
- Not demanding the payment of contractually established charges in the event of early termination of the contract during the binding period by consumers subscribing to a social tariff offer for broadband internet access.
- Providing for contractual reduction without penalty, particularly for end users who prove to be in a vulnerable economic situation, even if not falling within the situations legally provided as grounds for temporary suspension or termination of the contract.
ANACOM clarifies that in the case of original or amended contracts which do not include a price updating clause, or where the increase does not correspond to that provided for therein, providers are required to notify consumers of the change, including information on the right to terminate the contract free of charge. Consumers are therefore advised to find out about the conditions of their existing contracts.
It should be noted that under the new Electronic Communications Lawhttps://www.anacom.pt/render.jsp?contentId=1727429, if providers intend to increase prices in contracts that do not provide for the terms and conditions of that increase, they must notify consumers clearly, comprehensibly and in a durable medium at least one month in advance, and must inform them, in the same communication, of their right to terminate the contract free of charge if they do not accept the new conditions.
Operators are responsible for the application of contract clauses. It is up to them to ensure that consumers are duly informed about these clauses, namely in the light of the regime resulting from the law on general contract terms, and that they understand their scope. An analysis of compliance with these rules in the application of such clauses involves verifying, on a case-by-case basis, the way in which they are implemented and their impact on the consumer.
Although the application of the referred clauses is subject to a case-by-case analysis and is ultimately a matter for judicial decision, in compliance with the separation of powers, ANACOM will closely monitor developments resulting from the application of such clauses, in collaboration and cooperation with other entities competent in the matter, and will continue to carry out its responsibilities in terms of protection of the rights and interests of consumers and other end-users, namely by providing and clarifying the information which they require in order to be able to exercise the rights guaranteed to them by law.
One of the options that may give customers greater ability to deal with these situations is, in our view, the reduction of the loyalty period, which allows them to have a greater number of offers and operators with whom to negotiate alternatives for the provision of the service.
As it is well known, the new Electronic Communications Law https://www.anacom.pt/render.jsp?contentId=1727429- which entered into force last November - has made changes to the regime that previously existed with regard to loyalty contracts, with the aim of strengthening the rights of end users.
Although the current Electronic Communications Lawhttps://www.anacom.pt/render.jsp?contentId=1727429 imposes several obligations on companies aimed at limiting the situations in which loyalty, initial or subsequent, is admitted, the legal framework continues to be insufficient to provide the necessary response to promote user mobility and foster competition, given the reduced competitive dynamics that have been observed in the Portuguese market with the convergence of commercial strategies adopted by the major players in the market.
It should be recalled that, already in the context of the proposed legislative amendment presented by ANACOM in 2019, as well as the preliminary draft law transposing the European Electronic Communications Code, ANACOM presented several concerns related to the detrimental effect of loyalty agreements on the market for electronic communications services and, in particular, on the mobility of end users. In this sense, the proposals presented at the time sought to address these concerns and to deal with the constraints of a competitive nature that had been identified. Specifically in the context of the transposition of the aforementioned Code, ANACOM stressed the importance of considering the possibility of reducing the maximum duration of the loyalty period to 12 or 6 months, if the proposal to reduce charges for early termination by contract was not considered.
It should be noted that, in some circumstances, positive effects may arise from the existence of loyalty contracts, since they allow fixed costs to be diluted over a certain number of months, and may contribute to these consumers having access to offers they would not otherwise have.
Nevertheless, in Portugal, given the characteristics of the national electronic communications market, loyalty arrangements have been crucial in the context of commercial strategies that have contributed to a market characterised by competition deficits. This is a market with significant barriers to entry and expansion, strongly concentrated in three network owner operators, with an aggregate market share close to 100%. The operators concerned have encouraged consumers to subscribe to services marketed in convergent packages, with relatively long associated loyalty periods (up to 24 months). In this context, alternative providers are likely to face difficulties in competing, in addition to the challenges of being new entrants in mature markets, since a significant proportion of consumers are loyalty-bound to each of the three network owner providers, which will limit their ability to gain market share.
In addition to the impact on competition, it should also be noted that the loyalty scheme in Portugal has not led to low prices. On the contrary, according to several benchmarks, Portugal is one of the European Union (EU) countries where electronic communications prices have increased the most (7.7% since 2009), in contrast with average reductions in the EU (10% reduction since 2009). Furthermore, unlike the situation in Portugal, price reductions have been recorded even in countries with shorter loyalty periods and with limits on charges in the event of early termination of contracts.
It follows from the above that limiting the length of loyalty periods is of the utmost importance, as ANACOM has been upholding.
This aspect was also highlighted by the Competition Authority, which stressed the fact that retaining customers during or after the end of the initial loyalty period has become an extremely common practice, occurring in more than 48% of loyalty contracts (data quoted by AdC). As AdC emphasises: “There seem to be no possible justifications motivating the need for an additional loyalty period with the same operator other than to remove from the market those consumers most likely to switch” (cf. Report “Fidelização nos serviços de telecomunicações” - Loyalty in telecommunications services- December 2019).
ANACOM has been recording, since the end of 2021, a worrying evolution of complaints about the contracting or activation of services without consent, which lead to new loyalty and re-loyalty agreements. The most frequent situations described in complaints are worth noting:
- Contracting services without valid consent of the contract holder by initiative of the service provider, namely in the conclusion of contracts through distance means, without any signature or written confirmation (e.g. through SMS) of the proposal presented;
- The complainant, for various reasons, in contact with the service provider is informed that the contract was previously renewed, and the complainant does not recall receiving a contractual proposal or giving consent for the renewal of the contract;
- Renewal of the loyalty contract after refusal of the complainant to subscribe to the contractual proposal presented by the service provider through distance means;
- Renewal of the loyalty contract without the customer’s consent, whereby the signature on the contract does not correspond to that of the respective holder;
- Renewal of the contract and corresponding loyalty period after telephone contact by the provider presenting commercial proposals, although the complainant only expressed interest in receiving the proposal in writing for subsequent analysis;
- The complainant is not a client of the operator, did not request any service, and was contacted by the operator to schedule the respective installation;
- Contractual amendment made through remote means (telephone or customer area), promoted by third parties vis-a-vis the existing legal relationship, namely by family members of the contract holder;
- Activation of add-ons, digital content or services by the operator without the customer’s consent, namely with regard to the ease of subscribing to add-ons, services or digital content through the box, by users lacking technological knowledge and intention to subscribe, especially children and the elderly.
ANACOM thus believes that the maximum duration of the loyalty period should be reduced from 24 to 6 months, given the clear benefits this will bring to consumers, who will benefit from greater power to choose and switch, encouraging providers of electronic communications services to review and adapt their commercial strategies in the interests of greater competition. With this objective in mind, ANACOM presented to the Government yesterday the respective draft legislative amendment.
At the same time, in the draft amendment presented ANACOM considers it to be of crucial importance to limit the possibility of establishing contractual loyalty periods in situations where equipment or the value of service installation is subsidised.
Given the content of the draft, the change in the way of calculating the charges that can be demanded from consumers for early termination of the contract is also recommended, so that they only concern the value of the monthly payments due.
The recent price increase by the three largest providers has reinforced this concern for mobility. In fact, the fact that the vast majority of consumers have signed contracts with loyalty periods excessively limits consumers’ mobility, even when faced with price updates that, although contractually provided for, prove to be very detrimental to their household budgets, in addition to jeopardising the activity of other players who offer more favourable conditions.
It should be noted, for example, that in Denmark this proposal has been established, i.e. a maximum loyalty period of 6 months, and that country has registered a significant reduction in retail prices (of 32.9% between the end of 2009 and April 2022). Belgium has also set a maximum duration period of 24 months but does not allow charges to be applied if termination is requested after the sixth month of the loyalty period, except for the recovery of values associated with equipment subsidy. In this context, it is also worth highlighting the cases of Norway and Hungary, with 12-month loyalty periods, i.e. shorter period than the maximum permitted under the European Electronic Communications Code.
As ANACOM has already pointed out on several occasions, the loyalty regime in Portugal does not favour the development of the sector on a competitive basis, with prices charged being higher than those which an operator would charge if the threat of switching to another operator were credible. Mitigating this effect by further restricting the ability of operators to retain their customers will tend to lead to lower prices.
In this context, ANACOM took into account in the draft presented to the Government the need to achieve a compromise and a fair balance between the competitive environment, consumer protection, the contractual freedom of economic agents and the stability and remuneration of investments in infrastructure and equipment by companies. ANACOM has also taken into account the fact that a high percentage of households are already covered by fibre-optic networks, located in predominantly urban areas, that there has been substantial funding from European funds for the development of rural networks and that new public funding is planned to bring very high-capacity fixed networks to areas that are poorer in terms of household coverage. This makes retail operators share the wholesale network installed with much lower investment costs and significantly reduces the justification that loyalty is intended to cover the costs of installing new customers.
