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The possibility to switch.pdf

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									                       Report number    Date
                       PTS-ER-2010:22   21 October 2010




The possibility to
switch
- A survey and analysis of
conditions in consumer contracts
that affect customer mobility in
the electronic communications
market
The possibility to switch
A survey and analysis of conditions in consumer contracts that affect customer
mobility in the electronic communications market

Report number
PTS-ER-2010:22

File reference
10-9345

ISSN
1650-9862

Authors
Johan Rydberg and Anna Montelius

Swedish Post and Telecom Agency
Box 5398
SE-102 49 Stockholm
Sweden
+46 (0)8-678 55 00
pts@pts.se
www.pts.se




PTS

Swedish Post and Telecom Agency                                                  2
Contents

Sammanfattning                                                                   5
Abstract                                                                         7
1     Introduction                                                               9
      1.1 Purpose                                                               10
      1.2 Method                                                                11
      1.3 Delimitation                                                          13
      1.4 Structure                                                             15
2     Why options are important                                             16
      2.1 Limited options in the electronic communications market            16
          2.1.1 Increased options through competition law regulation         16
          2.1.2 Increased options through consumer law regulation            17
          2.1.3 The importance of switching in the electronic communications
                  market                                                     18
      2.2 The importance of customer mobility                                19
          2.2.1 Customer satisfaction in the electronic communications market21
      2.3 Problems associated with customer mobility                         22
3     How do contract conditions create obstacles to the possibility to
      switch?                                                                   24
      3.1 Description of transaction costs, opportunity costs and switching costs24
      3.2 How do switching costs affect the incentive of consumers to switch
           service provider?                                                     27
4     Contractual conditions that affect the possibility of consumers to
      switch                                                                   28
      4.1 Conditions that affect the capacity of consumers to make comparisons28
           4.1.1 Price conditions                                              29
      4.2 Conditions that affect the consumer’s possibility to leave a service
           provider                                                            34
           4.2.1 Notice periods                                                35
           4.2.2 Lock-in periods                                               39
           4.2.3 SIM card locks                                                45
           4.2.4 Bundling                                                      45
      4.3 Summary                                                              47
5     Nordic comparison                                                        50
      5.1 Sweden                                                               51
      5.2 Denmark                                                              52
      5.3 Norway                                                               53
      5.4 Finland                                                              55
      5.5 Summary                                                              56
6     Analysis and conclusions                                                  58
      6.1 Complicated price conditions make comparisons difficult, but variation
           is important for competition                                         62
      6.2 Three-month notice periods impede customer mobility and conflict
           with the rules aimed at making switching easier                      64
      6.3 There is a need to consider a shorter maximum lock-in period          71
      6.4 Specific investigation into the effects of bundling                   73
      6.5 Question over the application of SIM card locks                       74
7     Measures proposed to increase the possibility for consumers to
      switch service provider                                                  76




PTS

Swedish Post and Telecom Agency                                                 3
PTS

Swedish Post and Telecom Agency   4
Sammanfattning
Möjligheten för konsumenten att kunna göra aktiva och medvetna val genom
att byta tjänsteleverantör är en viktig förutsättning för konkurrensen och
särskilt betydelsefull på marknaden för elektronisk kommunikation.

Även om det finns möjlighet att välja mellan ett stort antal erbjudanden på
marknaden är det inte säkert att valmöjligheten kan utnyttjas om konsumenter
inte samtidigt har en förutsättning att byta tjänsteleverantör. Långa
bindningstider och uppsägningstider i kombination med sampaketering av
tjänster och komplicerade prisvillkor gör det svårare för konsumenter att
jämföra fördelarna mellan olika abonnemang och att vid en given tidpunkt byta
mellan de tjänsteleverantörer som finns att tillgå.

Det blir allt vanligare att avtal om abonnemang kombineras med bindningstid
eller lång uppsägningstid samtidigt som en ökad sampaketering förstärker
redan befintliga problem att jämföra tjänster.

I den här rapporten konstateras att:

- Prisvillkoren för mobiltelefonitjänster är mycket svåra att överskåda, vilket
bl.a. speglas i att det finns en stor okunskap hos konsumenter om vad som
påverkar den totala kostnaden av ett abonnemang.

- Uppsägningstider som kräver tre månaders framförhållning tillämpas i nästan
alla konsumentavtal på marknaden, vilket står i kontrast med en marknad som
präglas av snabb teknisk utveckling med många tillfälliga erbjudanden.

- En lång bindningstid utgör ett stort hinder för möjligheten att byta
tjänsteleverantör och utvecklingen på marknaden riskerar leda till att allt fler
konsumenter blir beroende av bindningstid för att byta tjänsteleverantör. En
lång bindningstid ökar också konsekvensen av val som konsumenter gör på
felaktiga grunder.

- Tillämpningen av SIM-kortlås som inte upphör att gälla förrän konsumenten
betalar sig fri från villkoret utgör ett orimligt hinder för möjligheten att byta.

- Sampaketering både skapar nya och förstärker befintliga problem att byta
tjänsteleverantör.

Den här rapporten visar också att det generellt sett är både dyrare och svårare
att lämna en avtalsrelation till förmån för en annan på slutkundsmarknaden för
elektronisk kommunikation i Sverige än vad det är i våra nordiska grannländer.
I Danmark är t.ex. bindningstiden begränsad till maximalt 6 månader och i
Finland är uppsägningstiden för telefonitjänster begränsad till två veckor.




PTS

Swedish Post and Telecom Agency                                                      5
Att konsumenter avstår från att göra rationella byten kan på lång sikt få
negativa konsekvenser för konkurrensutvecklingen och den långsiktiga
konsumentnyttan på marknaden.

PTS föreslår därför att lagen om elektronisk kommunikation ändras så att PTS
ges befogenhet att ingripa mot avtalsvillkor som hämmar byten av
tjänsteleverantör. PTS föreslår också att effekterna av en begränsad
bindningstid utreds närmare av regeringen och att fördelar och nackdelar med
sampaketering utreds särskilt av myndigheten.




PTS

Swedish Post and Telecom Agency                                                6
Abstract
The possibility for consumers to be able to make active and informed choices
by switching service provider represents an important precondition for
competition and is particularly important in the electronic communications
market.

Although there are a large number of offers in the market from which
consumers can choose, this does not necessarily mean that these options can
be utilised if consumers simultaneously lack the preconditions required to
switch service provider. Long lock-in periods and notice periods in
combination with service bundling and complicated price conditions make it
even more difficult for consumers to compare the advantages of the different
subscriptions and to switch between the service providers available at a given
point in time.

It is becoming increasingly common for contracts for subscriptions to be
combined with a lock-in period or long notice period, while increased bundling
makes it even more difficult to compare services.

This report draws the following conclusions:

- Price conditions for mobile telephony services are very difficult to
understand, which, among other things, is reflected in there being a distinct
lack of knowledge among consumers in terms of what affects the total cost of
a subscription.

- Three-month advance notice periods apply to almost all of the consumer
contracts on the market, which appears to be incompatible with a market
characterised by rapid technological change where there are many temporary
offers.

- A long lock-in period constitutes a major obstacle to the potential to switch
service provider and there is a risk that trends in the market will lead to
increasing numbers of consumers being in effect governed by lock-in periods
in conjunction with switching service provider. A long lock-in period also
amplifies the consequence of a choice that consumers make on the wrong
grounds.

- The application of a SIM card lock that applies until the consumer pays to be
released from the condition constitutes an unreasonable obstacle to the
opportunity to switch.

- Bundling both creates new and reinforces existing problems as regards
switching service provider.




PTS

Swedish Post and Telecom Agency                                                   7
This report also demonstrates that it is generally both more expensive and
more difficult to withdraw from a contractual relationship in favour of another
provider in the retail market for electronic communications in Sweden than is
the case for our Nordic neighbours. For example, the lock-in period in
Denmark is restricted to a maximum period of six months and the notice
period for telephony services in Finland is restricted to two weeks.

If consumers refrain from making rational switches, this behaviour may in the
long term have an adverse effect on the development of competition and long-
term consumer welfare in the market.

For this reason, PTS proposes that the Electronic Communications Act is
amended to give PTS the power to intervene in relation to contract conditions
that prevent consumers from switching service provider. PTS also proposes
that the Swedish Government investigates in more detail the effects of a
limited lock-in period and that the Agency should conduct a specific
investigation into the advantages and disadvantages of bundling.




PTS

Swedish Post and Telecom Agency                                                   8
The possibility to switch




1              Introduction
Competition creates options for consumers. In actively using these options,
consumers in turn generate the conditions necessary for competition. In order
to promote competition, it is thus just as important to ensure that consumers
have options to choose from as it is to ensure that consumers have the right
conditions for making a choice.

One important purpose of sector-specific regulation for the electronic
communications market is to create options for consumers by making it easy
for consumers to compare alternative offers and choose between the services
and service providers available. If consumers are able to make active and
informed choices, competition will function properly, with consequent long-
term benefits for the consumer.

In practice, however, there are many limitations on the actual options available
for consumers in the market and this becomes particularly apparent when
consumers are faced with switching. In addition to obstacles in the form of
infrastructure, which restrict access to different service providers, the contracts
between service providers and consumers have different kinds of standard
condition that affect the incentive and possibility of consumers to switch from
one service provider to another. When long lock-in and notice periods are
combined with service bundling and complicated price conditions, consumers
find it even more difficult to compare the advantages of the different
subscriptions and to switch between the service providers available.

Considering the objectives for competition, the greatest possible benefit and
selection of services in the market that form part of both economic theory and
sector-specific legislation 1, this kind of contractual obstacle to the possibility to
switch becomes something that should be questioned, and in the long run
something that jeopardises competition, range and the level of quality as well
as raises prices.

The content of contract conditions in the market has not become more
transparent and has not increased the options available. Contract models and
their associated price and contract conditions have continued to change over
the past ten years and have developed in two clear directions: there has been an
increase in the number and complexity of price plans for telephony services,




1   Cf. Chapter 1, Section 1 of the Electronic Communications Act (2003:389)



PTS

Swedish Post and Telecom Agency                                                      9
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while there are even more lock-ins for consumers in the markets for both fixed
and mobile telephony and broadband services. 2

In parallel with this trend, many services have become less expensive over the
same ten-year period. For example, the price of mobile telephony services
reduced significantly at the start of the decade, but has abated in recent years,
while there has been an increase in the length and use of conditions for lock-in
and notice periods. 3

Today, conditions that make it complicated to switch between service
providers are considered to be common in the electronic communications
market. 4 The link between lock-ins, customer mobility and price trends raises
questions about the effects that more lock-ins in the retail market are having
on competition and long-term consumer welfare.

PTS, as the public authority responsible for this sector, is responsible for
following up this market trend, but the Agency does not currently have any
power to take measures against lock-in conditions in contracts.

PTS’s report ‘Open networks and services’ (PTS-ER-2009:32) previously
highlighted the problem of inadequate transparency and the use of lock-in
conditions in contracts. The complaints that PTS receives from the general
public also regularly show that many consumers regard it as unreasonable to
have lock-in conditions in contracts.

The Swedish Consumer Agency recently reviewed the conditions required for
customer mobility in a selection of markets, studying, among others, the
electronic communications market. The report highlighted the market for
electronic communications services as a sector with a clear incidence of lock-in
effects.

1.1          Purpose
The purpose of this report is to investigate whether and how notice periods,
lock-in periods, SIM card locks, bundling and price conditions affect the desire
and actual possibilities for consumers to switch provider of electronic
communications services and the consequences that this has in turn on long-
term consumer welfare. The report will also include proposals for how the
obstacles identified can be removed without having any detrimental effect on
consumer welfare in other respects.

2 Price trends for telephony and broadband – first half year 2009 (PTS-ER-2009:30)
3 Price trends for telephony and broadband – first half year 2009 (PTS-ER-2009:30)
4 Customer mobility – examples of barriers facing consumers in some key markets (KOV 2009:5)




PTS

Swedish Post and Telecom Agency                                                                10
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1.2           Method
The analysis of whether and the extent to which contract conditions affect the
preconditions for consumers being able to switch service provider is based on
theory and statistics.

The first section explains the theory behind why it is important to be able to
make a switch in the electronic communications market. This theoretical
analysis is based on literature relating to macro economics and the theory of
competition together with reports that specifically focus on switching costs.

A description is then provided of the occurrence and development of
conditions in retail markets that affect the possibilities and incentives for
consumers to switch service provider.

The occurrence and development of conditions in retail markets are described
by summarising the statistics available at PTS. This description has drawn on
data from the statistics provided in the Survey of Individuals (PTS-ER-
2009:28), the Swedish Telecommunications Market (PTS-ER-2009:29) and
Telepriskollen 5 in particular.

Telepriskollen’s statistics have been used to generate a picture of the market.
Telepriskollen’s information about prices and conditions does not encompass
the entire Swedish market but should still provide a good insight into trends
within the sector. The same statistical data is used, for example, in PTS’s
recurrent study of price trends in the market – the Price Report. 6

Telepriskollen’s statistics have certain limitations and consequently the data
used in this report only encompasses basic services (mobile telephony, fixed
telephony, fixed broadband and mobile broadband) taken out in the form of a
subscription 7 and offered without being combined with the sale of subsidised
terminal equipment, such as mobile phones.

The statistical basis for the report has limitations as regards:

– conditions for subscriptions combined with subsidised terminal equipment
(such as computers or mobile phones),

5 ‘Telepriskollen’ is a price comparison service provided by PTS in cooperation with the Swedish

Consumer Agency. The aim of Telepriskollen is to give consumers an overall picture of the total monthly
cost of a subscription for a contract. All of the companies that have notified PTS of their operation under
the Electronic Communications Act can participate in Telepriskollen.
6 Price trends for telephony and broadband – first half year 2009 (PTS-ER-2009:30)
7 In this context, ‘form of subscription’ refers to services purchased under an ongoing contract for

payment in arrears. Offers involving prepaid cards have been excluded from the comparison.



PTS

Swedish Post and Telecom Agency                                                                         11
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– conditions for services bundled with other services 8; for example, broadband
and fixed telephony subscriptions,

– conditions for campaign offers. Telepriskollen only includes services where
ordinary prices are charged for subscriptions.

– conditions for supplementary services (such as packages with additional text
messages and data traffic) or value–added services (for example, music
applications for mobile phones).

The report also excludes pre-paid cards from the comparisons made on the
basis of Telepriskollen’s data.

However, many services are currently being offered through various campaigns
as well as in combination with other services or with subsidised terminal
equipment. It is common for such campaigns and combined offers to include
additional conditions, usually relating to a lock-in period. Statistics from
Telepriskollen has been used to show the prevalence of lock-in periods. This
has then been supplemented with data from the Survey of Individuals (PTS-
ER-2009:28) and the Swedish Telecommunications Market (PTS-ER-2009:29)
which has helped to show how various services are consumed. This
information has then been used to assess the prevalence of such conditions in
the market.

The actual use of a telephone subscription by a user has been used as a base to
work out the relevance of price conditions to the total cost of a telephony
subscription. The use of electronic communications services measured by the
number of call minutes and data transmitted, etc. is changing continuously and
generally shows that the average user currently generates more traffic than
he/she did a couple of years ago.

However, pricing needs to be compared over time to enable the assessment of
price trends in a market. This has been done in the report by comparing trends
in the relevance of various price parameters to the total quarterly cost of a
telephone subscription for the average user9 during the measurement period.
Usage by the average user is assumed to have remained the same for the entire
measurement period (that is, at the 2009 level) to enable prices to be compared
over time.
8 At Telepriskollen, a comparison can be made of a large number of ‘Triple Play’ bundles that combine

Fixed Broadband, Fixed Telephony and Television Services. There are no statistics for other kinds of
bundled services.
9 ‘Usage by the average user ’is based on the average use of a subscription within the sub-markets for

‘mobile call and data services’ and ‘fixed telephony services’ in 2009.



PTS

Swedish Post and Telecom Agency                                                                          12
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Finally, a comparative analysis has been conducted of the rules that apply to
this kind of condition in the Nordic countries together with a comparison of
how often consumers have utilised the possibility of porting a telephone
number.

Interviews have been conducted with the relevant regulatory authorities in
Norway (Forbrukerombudet – the Consumer Ombudsman), Denmark (IT- og
Telestyrelsen – National IT and Telecom Agency) and Finland
(Kommunikationsverket – Finnish Communications Regulatory Authority) for a
better understanding of how these countries deal with issues relating to lock-in
conditions in contracts.

Publicly available porting statistics from SNPAC (Swedish Number Portability
Administrative Centre) have been compared with corresponding data from
Norway, Denmark and Finland.

1.3         Delimitation
Besides access to alternative service providers, the opportunity for consumers
to switch service provider in the electronic communications market is
essentially determined by two factors: 1) the conditions that consumers require
to compare alternative services; and 2) the content of existing contracts.

In this report PTS intends to specifically investigate the latter of these two
factors; that is contractual obstacles preventing consumers from switching
service provider and the effect that these obstacles have on the market.
Conditions relating to lock-in periods, notice periods, SIM card locks and
bundling are examples of what may be deemed in this context to comprise
‘contractual obstacles to the possibility of switching’.

In order to be able to draw some conclusions about how this kind of contract
condition affects the incentive of consumers to switch service provider, it is
also important to discuss whether consumers are able to compare services, as
both of these factors affect the cost of consumers switching service provider.
For example, if it is difficult to compare services, conditions that make it
difficult for consumers to withdraw from a contractual relationship may have a
greater combined effect on the incentive to switch and a greater impact on the
market than would be the case if it were simple to compare services.

Consequently, the report also describes the conditions required for consumers
to be able to compare alternative services. In this context, the report only
discusses comparisons of price conditions. There are several other user
conditions that are important in terms of the potential for consumers to make


PTS

Swedish Post and Telecom Agency                                                  13
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informed choices, for example restrictions in the use of the services. This
particularly applies to the provision of broadband and Internet access. 10
However, a review of how these conditions are defined, described and
marketed, together with the effect they have on transparency, does not fall
within the framework of this report. For this reason, the description of the
conditions required for consumers to be able to compare alternative services
has been restricted to whether consumers can compare prices, as price is the
reason given by most consumers for switching service provider. 11 To the extent
that further user conditions or factors make it more difficult for consumers to
overview and compare services, the effects of lock-in conditions in contracts
become even more significant than those described in this report.

Furthermore, the report only deals with conditions in contracts between
consumers and service providers where electronic communications services are
provided. This report does not deal with other contracts where the consumer
is not a party to the contract, but which may still limit the actual options of
consumers (such as right of use contracts for property networks concluded
between property owners and operators). In this context, ‘consumer’ means
the definition contained in consumer protection legislation; that is, natural
persons who do not trade within the framework of a business operation. 12

Finally the report is limited so that it only compares conditions in national
contract offers directed at a large number of Swedish consumers on equal
terms.

In the fixed broadband sector, this means that the subscriptions compared are
offers from TeliaSonera, Glocalnet, Bredbandsbolaget, Tele2, AllTele and
Bahnhof via TeliaSonera’s copper access network, subscriptions from Com
Hem via the cable television network and subscriptions from
Bredbandsbolaget via fibre LAN. It is estimated that 70-80 per cent of all
private broadband customers had one of these broadband subscriptions in
2009 and these subscriptions can be considered to be ‘nationwide’ as they are
offered throughout most of Sweden. Internet subscriptions offered in local
networks are thus not included, unless the same service is offered throughout
most of Sweden at the same cost in all networks. 13


10 Cf. conclusions contained in the ‛Open networks and services’ report (PTS-ER-2009:32)
11 Survey of Individuals (PTS-ER-2009:28)
12 In the Electronic Communications Act (2003:389), consumer law rules also cover business operators;

this means that a number of the conclusions drawn in the report relating to the opportunities available
for consumers may in certain cases be extended to cover small and medium-sized businesses.
13 Telia Sonera’s offers via fibre LAN are thus not included in the comparison, as the same broadband

product is offered with different conditions depending on the network in which the service is provided.



PTS

Swedish Post and Telecom Agency                                                                           14
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1.4         Structure
The second chapter describes the importance of options and how more
options can be ensured by regulating the electronic communications market
both in terms of competition and consumer law. The chapter also describes
how opportunities to switch affect options in the market.

The third chapter describes how contract conditions may constitute an
obstacle to the possibility to switch service provider, the conditions under
which such obstacles may arise and the effect that this impact has on
competition and socioeconomic benefit.

The fourth chapter describes the contract conditions that affect the
possibilities for consumers to switch and also the extent to which they arise in
the respective sub-market.

In the fifth chapter, a comparison is made of the regulations applicable in
Sweden, Denmark Norway and Finland.

The sixth chapter describes the report's conclusions.

In the seventh chapter, PTS reports on proposed measures that aim to increase
the possibilities for consumers to switch service provider.




PTS

Swedish Post and Telecom Agency                                                15
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2           Why options are important
The ability for consumers to choose products or services based on their
individual preferences represents an important precondition for the
competition mechanism in all markets. The active choices made by purchasers
when choosing one product or service over another ensures that supply in the
market will move towards the variation, price and quality demanded and that it
is socio-economically effective.

Freedom of choice for consumers may differ considerably depending on the
market. Some markets may not have the scope for more than one player to
offer goods or services, while other markets may have the conditions required
for a large number of competing undertakings.

In markets where a certain infrastructure is required to provide services, it is
not uncommon for there to be limited access to different services and
suppliers. Consumers’ freedom of choice is also adversely affected in these
cases.

2.1         Limited options in the electronic communications
            market
Like the electricity or rail markets, major investments in infrastructure must be
made before services can be provided in the electronic communications
market. The size of the pre-investments required means that there is no
financial scope for more than one or, at most, a few parallel infrastructures.
The stakeholder(s) that control the infrastructure have a disproportionately
strong influence over the services offered and the formulation of prices. This
market power may be used to prevent new players from entering the market.

Sector-specific competition and consumer regulation can be used to counteract
such market power being exploited to limit options in the retail market.

2.1.1       Increased options through competition law regulation
There is sometimes a need to take regulatory measures against certain
stakeholders to safeguard competition and options in the electronic
communications market. The aim of this regulation is to enable other
stakeholders to get access to the regulated stakeholder’s infrastructure on
reasonable terms. This will make it possible for several stakeholders to offer
services to consumers in competition with each other. Improved competition
at a wholesale level and the ensuing reduction in dependence on stakeholders
with significant power create opportunities for more competitive suppliers.
This in its turn increases the options available for consumers.


PTS

Swedish Post and Telecom Agency                                                    16
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Ensuring that consumers have access to options, as permitted by access
regulation, represents an important step in the pro-competitive measures that
may be required in the electronic communications market, but on its own
cannot guarantee actual options in the market. For actual options to be
available there must also be opportunities for consumers to choose. Ensuring
that options can be utilised is just as important as securing quantitative options.

2.1.2        Increased options through consumer law regulation
Even though there are a large number of offers in the market from which
consumers can choose, this does not necessarily mean that they can be utilised
if consumers are unable to choose between them. For example, increasingly
complicated pricing conditions, which make it difficult for consumers to
decide which offer would benefit them the most, make consumers less willing
to switch subscription or operator even if there is an extensive range.

It is therefore important that consumers have the right opportunities and are
effectively able to choose so that the choices made in a market reflect actual
demand as far as this is possible.

Here, consumer protection law and marketing law constitute an extensive,
mandatory 14 regulation, the aim of which is to counterbalance the weaker
position that consumers are presumed to have in relation to businesses their
counterparties in the market. The primary aim of consumer law regulation is to
ensure that consumers have access to the information they need to make well-
informed decisions 15 and to ensure that businesses do not exploit their stronger
positions to negotiate imbalanced and unreasonable contracts. 16

In addition to general consumer law regulation, the Electronic
Communications Act includes market-specific regulation that aims to ensure
that end users are actively able to make well-informed choices. These rules
have been introduced to make it easier for consumers to compare services and
switch service provider by guaranteeing access to clear and objective
information about, among other things, prices and conditions 17 and also to




14 Consumer protection legislation is largely mandatory, which means that it cannot be eliminated by

negotiation.
15 Price Indication Act (2004:347), Swedish Marketing Act (2008:486), Consumer Sales Act (1990:932)
16 Consumer Sales Act (1990:932), Consumer Service Act (1985:716), Consumer Contracts Act

(1994:1512)
17 Chapter 5, Sections 15-18 of the Electronic Communications Act (2003:389)




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Swedish Post and Telecom Agency                                                                        17
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allow end users to keep their telephone number when changing telephone
provider (number portability). 18

The consumer-promoting 19 regulation mentioned above generally aims to make
mobility easier in the market – i.e. switching between different service
providers – and thus be a tool for achieving better competition.

2.1.3        The importance of switching in the electronic communications
             market
The possibility for consumers to switch service provider is of particular
relevance to consumers’ options in the electronic communications market and
is an area that has in recent years attracted increased attention in Europe.

This was noted in particular in the last revision of the law contained in the EU
legislation – the ‘Telecoms Reform Package’ 20 – which entered into force early
this year. The Telecoms Reform Package has introduced a number of new
rules at an EU level, the aim of which is to improve the possibilities for end
users to switch service provider. 21 Number portability between operators will
be quicker. A common upper limit of twenty-four months has been introduced
for lock-in periods, in combination with a requirement that it should always be
possible to conclude contracts with a maximum lock-in period of twelve
months. 22 Member States are also obliged to ensure that when a contract is
terminated there are no conditions and procedures that will have an adverse
effect on the incentive of end users to switch service provider. 23

One important reason why the possibility to switch is as important is because
the electronic communications market provides basic services for society that
are being consumed continuously and in enduring contractual relationships
with one or more service providers. These services are essential and it is not
possible in practice to do without them. The above mentioned circumstances
mean that the market rapidly achieves an extremely high level of saturation, i.e.
basically all potential purchasers consume the service. Demand-driven
development and the general competitive situation are particularly dependent




18 Chapter 5, Section 9 of the Electronic Communications Act (2003:389)
19 In the Electronic Communications Act, consumers are encompassed by the wider term ‘end user’.
However, ‘end users’ do not just mean private individuals as business operators are also included in the
consumer-promoting regulation referred to.
20 Generic term for the EU Directives regulating the electronic communications market
21 Cf. the preamble (47) to Directive 2009/136/EC
22 Directive 2009/136/EC, Article 30.5
23 Directive 2009/136/EC, Article 30.6




PTS

Swedish Post and Telecom Agency                                                                            18
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on the possibilities for consumers to switch, as there are few new purchasers in
the market to which services can be sold. 24

Another contributory reason for why the possibility to switch is more relevant
in the electronic communications market is that the services in the various sub-
markets are closely interconnected and are becoming even more so. The
interconnection between different services means that when consumers
purchase a completely new service, they often have to make decisions about
their contractual relationships for other services 25 as well, as consumers often
receive some form of cross-subsidy when services are bundled. 26 The
possibility to switch provider for one service may thus affect the possibility to
switch for another service as well. If a consumer cannot change their fixed
telephony provider without simultaneously changing their ADSL provider, the
possibility of switching fixed telephony obviously depends on whether they are
able to switch their ADSL provider. It is consequently not enough just to
establish that there are good opportunities to switch within a certain part of the
market without simultaneously taking into the calculation the possibility to
switch in other sub-markets.

The possibility to switch should therefore be viewed from an overall
perspective as this convergence of services means that a difficulty in switching
service provider within one service category is itself sufficient to also have an
impact on other services.

2.2          The importance of customer mobility
The changes made by consumers between different service providers
constitutes a strong signal to the market about what is good about one
particular service or supplier and what is poor about another. Switching
suggests that consumers can influence their situation and that the market has
the conditions required to develop according to demand.

The number of switches and the way that these switches are made signal the
consumer’s preferences to the whole market and are thereby an important
indicator of consumer welfare and an important factor for the overall
24 Survey of Individuals (PTS-ER-2009:28). 97% of the Swedish population have mobile phones, most of

whom have these phones for private use (95%). 84% of the population state that they have fixed
telephony at home. 89% state that they have access to the Internet at home.
25 Fixed telephony and ADSL are examples of services that are strongly linked. PTS’s Survey of

Individuals (PTS-ER-2009:28) shows that, for example, as many as 69% of subscribers who have
contracts for fixed telephony also purchase other communications services from the same operator,
where the most common is broadband via ADSL (51% of respondents).
26 Survey of Individuals (PTS-ER-2009:28). 44% of those questioned in the same survey replied that they

received some form of discount on the services they purchase in addition to fixed telephony, while 33%
replied that they did not know or refrained from answering. Only 22% answered ‘No’ to this question.



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Swedish Post and Telecom Agency                                                                      19
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development of competition in the retail market. This particularly applies to
utilities such as power, banking, insurance, financial products and electronic
communications services, where the possibility to switch between different
service providers is particularly important for competition. 27

Customer mobility (i.e. the number of consumers who switch between
different service providers) can be used to assess whether consumers are able
to switch service provider in the market.

A high level of customer mobility may suggest that it is easy for consumers to
switch service provider and that the competitive situation is good, while the
converse may indicate that there are obstacles to competition.

The reason for a market being characterised by high customer mobility is of
subordinate importance from the perspective of competition. High customer
mobility indicates that consumers can influence their situation and thereby also
influence the range of services and products. The development of competition
in a market with high customer mobility generally has better preconditions to
generate greater consumer welfare in the long run than in a market with low
customer mobility, as it is the actual process of switching that drives businesses
to develop and adapt the services in line with demand. However, high
customer mobility can also indicate low consumer welfare. A large number of
consumers switching between different service providers may suggest that
there is widespread dissatisfaction among consumers in the market.

Low customer mobility in a market may suggest that there are obstacles
preventing consumers from switching, but this does not have to be the only
evidence of problems. Switching service provider is far from the only way in
which a consumer can indicate demand. One explanation for consumers
choosing not to switch service provider is that they are satisfied with the
service provider with whom they currently have a contract, and that
competition between service providers is rather good in spite of the absence of
actual switches.

The information must consequently be analysed against the background of the
willingness among, and potential for, consumers to make a switch in order to
determine whether high or low customer mobility in a market signifies
something good or bad. If a market is characterised by a combination of low
customer mobility and obstacles that prevent consumers from switching
service provider, and customer satisfaction is simultaneously low, it may
consequently be appropriate to question the general competitive situation.
27   Draft BEREC report on best practices to facilitate switching, BoR (10) 34



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Swedish Post and Telecom Agency                                                  20
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2.2.1          Customer satisfaction in the electronic communications
               market
The Swedish Quality Index has tracked customer satisfaction trends within the
Telecom and Datacom Sectors since 1996. The index for customer satisfaction
– the key measure for the Swedish Quality Index – can assume values between
0 and 100. The higher the value, the better actual customers consider that
products and suppliers are meeting the demands and expectations of
consumers. Dissatisfied customers are shown within the index interval 0-60,
satisfied customers within the interval 60-75 and very satisfied customers
within the interval 75-100. 28

Trends in the electronic communications market are indicated by the diagram
below.

Figure 1 Swedish Quality Index – Customer Satisfaction in the
         Telecom Sector, 1996-2009




[Text for diagram above:
Left axis: Customer satisfaction
Key at bottom: Mobile telephony, private         Mobile telephony, undertakings
                  Fixed telephony, private       Fixed telephony, undertakings
                  Broadband, private             Broadband, undertakings
                  Mobile broadband, private      Mobile broadband, undertakings]

Source: Swedish Quality Index, Telecom and Datacom Sectors, 2009



28   Swedish Quality Index, http://www.kvalitetsindex.se/index.php?option=content&task=view&id=168



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Swedish Post and Telecom Agency                                                                 21
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Customer satisfaction has improved continuously since 1996 and private
customers within all sub-markets are generally satisfied at the present time. At
the same time, the findings show that customers are not 'very satisfied' with
any of the sub-markets reported.

The summary for 2009 also establishes that the sector clearly falls down in
terms of complaints and that more than one in four customers has had reason
to complain. 29

In light of the above information, it is unlikely that the reason for low
customer mobility in the electronic communications market in Sweden would
be high customer satisfaction in the market.

2.3            Problems associated with customer mobility
Besides customer mobility representing something positive from a competition
perspective, customer mobility also generates significant costs for service
providers. As described in the previous section (see Section 2.1), the provision
of services in the electronic communications market is often combined with
the assumption of a financial risk, where there is for example a need for major
financial pre-investments in infrastructure before services can be provided.

Lock-in periods have been one of the ways of managing the risks ensuing
investment in new technology as well as a means of accelerating the use of new
services. Many users can be offered access to these services by subsidising
terminal equipment or a connection that is required to use the services. How
rapidly customers assimilate new technology and the extent to which the new
services will be used have a major impact on the capital investment appraisal
made by operators when faced with a decision to upgrade or establish new
infrastructure. This makes the subsidising of terminal equipment an important
precondition for the development of new networks and services.

In addition to an increased exposure to risk, a high rate of customer turnover
also entails administrative costs for providers.

If service providers are unable to secure the repayment of costs incurred or
reduce the financial risks assumed when making major pre-investments, there
could be risk that free customer mobility between service providers prevents
them from investing in and developing new services, and also increases the
price of some services. Another aspect is that the establishment of electronic
communications networks, including associated services, is something that is
desirable, among other things as it is deemed to be of major strategic
29   Swedish Quality Index, http://www.kvalitetsindex.se/index.php?option=content&task=view&id=168



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Swedish Post and Telecom Agency                                                                 22
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importance to the growth and welfare of society. 30 There is consequently a risk
that it would be counterproductive from a socio-economic perspective for
customer mobility to be too high. The positive effects of options and customer
mobility should therefore be considered in relation to the costs thereby
generated.




30   Government Bill 2002/03:110, p. 102



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Swedish Post and Telecom Agency                                               23
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3               How do contract conditions create
                obstacles to the possibility to switch?
Contract conditions constitute an obstacle to mobility to the extent that they
incur costs on consumers switching service providers. Here, ‘cost’ not only
means the monetary investments that a consumer may need to make; in this
context, investments in time, knowledge and feelings also fall within the
framework of what constitutes a ‘cost’.

Conditions that affect transparency in respect of prices and conditions or that
make it difficult for consumers to leave their existing service provider for
another provider, generate costs for consumers. If it is expensive, difficult or
complicated to change from one provider to another, or if it is difficult for a
consumer to find and compare the various services, the consumer’s incentive
to switch service provider will reduce in direct relation to the scope of the
costs that the switch involves in terms of time, money and knowledge.

Within economics, the cost of reaching an agreement is defined as the
‘transaction cost’. Transaction costs that refer to the more specific transaction
that a switch between various providers involves are commonly described as
‘switching costs’. 31

3.1             Description of transaction costs, opportunity costs
                and switching costs
‘Transaction costs’ is a generic term for all of the costs required for purchasers
and sellers to be able to make financial exchanges in a market. The cost in
terms of the time required to find a product or service in the market, the cost
in terms of the time and knowledge required to compare the alternatives and
the cost in terms of the time and money required to negotiate and conclude a
contract with the supplier are all typical examples of transactions costs that
consumers are faced with in all markets.

Transaction costs are regarded as something that is negative within economics
in general and competition theory in particular, as they affect the basic
prerequisites for a market moving towards ‘perfect competition’. 32 The
assumption that there are no transaction costs represents an important
precondition for the results produced by the economic models used to
describe the benefits of competition and how markets are expected to develop.
If the transaction costs are high, this may result in it becoming rational for a

31   Swedish: ‘byteskostnader’
32   Modern Industrial Organization, Third Edition, Dennis W. Carlton & Jeffrey M. Perloff, 2000, p. 57



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Swedish Post and Telecom Agency                                                                           24
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consumer to purchase a product or service from a seller despite a better
alternative for the consumer being offered in the market. The advantages of a
competitive market are eliminated in such a situation. If supply and demand
are distorted and the choices made in the market are irrational, then the
mechanism of competition will not result in the socio-economic benefit that it
is intended to achieve. 33

One explanation for high transaction costs arising in a market can be found in
the opposing competitive interests that are built into all profit-maximising
undertakings. As a rule, competition is something that has an adverse effect on
the individual undertaking’s balance sheet and something that any company
would prefer to restrict.

A seller has an incentive to both increase and reduce switching costs in the
market as far as possible. The optimum strategy for sellers in general is to make
it easier for purchasers to see the advantages of the seller’s products or services
at the same time as the opportunity cost, i.e. the cost associated with
purchasers choosing a competing product or service, deters the purchaser from
buying the same product or service from any of the seller’s competitors. 34 This
opportunity cost may be generated in two different ways: either by making the
product or service better than those of competitors or, to the extent possible,
by making it expensive for the purchaser to turn to one of the seller’s
competitors. In continuous contractual relationships, the latter kind of cost can
be generated on the part of the purchaser by, for example, inducing the
purchaser to tie themselves into purchasing a certain service or product
exclusively from one seller.

In those cases where customer turnover leads to significant costs for the
undertaking, all means of reducing customer turnover, and thereby also costs,
constitute a natural competitive response. As described in Section 2.3,
customer turnover comprises a cost for service providers in the electronic
communications market. Undertakings that can reduce customer turnover in
various ways can thereby retain a cost advantage in relation to their
competitors. Making it less advantageous by various means for consumers to
withdraw from a contractual relationship therefore becomes an obvious way of
competing in the market.

From the perspective of individual undertakings, constantly adapting one’s
products or services to improve them can be more expensive than making it

33 Modern Industrial Organization, Third Edition, Dennis W.Carlton & Jeffrey M. Perloff, 2000, p. 69 f
34 Competitive Advantage – Creating and sustaining superior performance, 1985, Michael E. Porter,
p. 273 ff



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Swedish Post and Telecom Agency                                                                          25
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difficult to withdraw from a contractual relationship, as long as this can be
done without generating other consequential costs in the form of, for instance,
a large fall off in new customers. On the other hand, there is a risk from a
socioeconomic perspective that high switching costs and limited customer
mobility become significantly more costly when compared with the value-
creation process offered by effective competition. 35

However, switching costs can seldom be generated in a competitive market
without any form of direct or indirect demand on the part of the purchaser. A
rational consumer, for instance, would not tie themselves into purchasing a
service from a provider for a fixed period without getting something in return
from the provider. Foregoing the possibility of benefiting from more
advantageous offers for a fixed period would involve both a sacrifice and an
assumption of risk on the part of the consumer.

There are probably several contributory reasons for the existence of switching
costs in the electronic communications market:

      •      The consumers’ capacity to act rationally is limited36 and they often
           do not have the capacity to anticipate the long-term consequences of
           their choices. 37 For example, if it is advantageous in the short term to
           accept a lock-in, this is perceived as rational for the consumer despite
           there being a risk that this will in the long term impair the possibility
           of switching and generally restrain competition in the market. With
           limited time, knowledge and information, a short-term gain may be
           perceived as greater than the long-term cost.

      •     It is likely that rapid technological progress and an increased demand
           for terminal equipment (such as for instance mobile phones) have
           contributed towards creating an indirect demand for lock-in periods,
           as subscriptions that are combined with subsidised terminal equipment
           often apply conditions relating to lock-in periods.

      •     High market concentration and a limited number of service
           providers, in combination with the cost savings and competitive
           advantages that low customer mobility provide, afford service
           providers the incentive and opportunity to limit mobility generally.



35 Modern Industrial Organization, Third Edition, Dennis W.Carlton & Jeffrey M. Perloff, 2000, p. 72 f
36 Modern Industrial Organization, Third Edition, Dennis W.Carlton & Jeffrey M. Perloff, 2000, p. 421 f
37 Economic Behaviour and Consumer Policy, Ministry of Integration and Gender Equality, 2009, p. 23 f




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Swedish Post and Telecom Agency                                                                      26
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      •    Furthermore the importance of these services to society means that
          consumers are unable to refrain from consuming the services, which
          also hampers the possibility of influencing the conditions contained in
          contracts.

It is expected that the above circumstances may help to explain why the
electronic communications market in Sweden has developed towards increased
lock-ins. If the market maintains this kind of cost, this will constitute a long-
term problem regardless of the reason for the existence of high switching
costs. If consumers eventually decide against making advantageous switches or
are increasingly prevented from switching service providers, this will have
consequences for both competition and long-term consumer welfare.

3.2         How do switching costs affect the incentive of
            consumers to switch service provider?
Switching costs affect the incentive of consumers to switch service provider by
affecting the benefit that the consumer will gain by switching.

If the cost of switching service provider is as great as or is greater than the
benefit that consumers perceive they will gain from a switch, they will of
course hardly have any incentive to switch. High switching costs mean that it
may consequently become rational for a consumer to decide against switching
service provider, despite the fact that – in the absence of or with low switching
costs – the consumer would benefit more from such a switch. The effects that
switching costs have on a market cannot thus be analysed in absolute terms,
but must be set in relation to the benefit that consumers perceive they will gain
from a switch. If the benefits of a switch are not perceived to be particularly
significant, the switching costs do not have to be particularly high for
consumers to decide against making an active choice.

However, consumers deciding against making rational switches may have
serious adverse consequences on the long-term development of competition in
the market, even though the individual advantage of a switch may be rather
low for the consumer.




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Swedish Post and Telecom Agency                                                27
The possibility to switch




4           Contractual conditions that affect the
            possibility of consumers to switch
The possibility for consumers to switch service provider in the electronic
communications market is essentially governed by two factors:

      1. The possibility for consumers to form an opinion on the alternatives
         available together with the respective advantages and disadvantages of
         the different alternatives.

      2. The possibility for consumers to quickly and easily withdraw from a
         contractual relationship in favour of another without incurring costs.

If it is difficult to compare prices and conditions, it becomes difficult to
appreciate the advantages and disadvantages of switching.

If it is expensive or complicated to withdraw from a contractual relationship in
favour of another, there is a risk that the advantages gained from the switch
will not outweigh the cost of switching.

Contract conditions that increase the cost for the consumer to compare offers
or to withdraw from a contractual relationship therefore have an adverse effect
on customer mobility and may result in consumers forgoing an advantageous
switch. If the perceived benefit of a switch is low, the costs do not have to be
particularly high for the consumer to decide against switching.

A description is provided below of the contract conditions that affect the
possibility of consumers to switch service providers and of the extent to which
they exist.

4.1         Conditions that affect the capacity of consumers to
            make comparisons
First, a description is provided of the conditions affecting the consumer’s
capacity to form an opinion on the alternative services, i.e. conditions that
make it more difficult or more complicated for consumers to compare
different offers. The first thing that a consumer has to do before considering a
switch is to make a decision about whether or not the switch is advantageous.
Here, the conditions for use of the service and their impact on transaction




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Swedish Post and Telecom Agency                                                   28
The possibility to switch




costs become particularly relevant. However, this report only deals with price
conditions as an example of such conditions. 38

4.1.1        Price conditions
Price conditions are recognised as the most important condition in terms of
the consumer’s incentive to switch service provider in the market. 39 It is not
just the clarity of the information about price conditions that has an impact on
the capacity of consumers to compare different offers. As regards price
conditions, the problem is rather the complexity of the price models and the
difficulty for consumers to understand the relevance of the conditions in terms
of the total cost.

This particularly applies to mobile telephony services, where there is currently a
very fragmented price situation which has been adapted to how the consumer
uses the service. The complexity of the price conditions imposes a high
requirement for knowledge on the part of consumers, who have to be aware of
a number of different parameters for how the service is used before they can
draw any conclusions about the respective advantages and disadvantages of an
offer.

Example: If the price is SEK 150 for service A and SEK 200 for service B
and the services are otherwise fully comparable, it may be assumed that a lot of
consumers would choose service A. In this example, it is extremely easy to
choose between the services. If the price depends instead on a number of
variables for service A and is SEK 250 for service B (the price for the service
the consumer switches from should be known), it is not as definite that the
consumer would switch, particularly not if the difference in price is minor in
relation to the time that the consumer would need to spend finding out the
relevance of the different parameters. In order to make an overall assessment
of which service is the least expensive, the consumer has to ascertain what all
the parameters mean and how they affect the total cost of the service. The
complexity of making a comparison can thus mean that the consumer decides
against switching, regardless of how clearly the individual prices are presented.

As a consumer, it is not sufficient to know the total length of calls and the total
number of SMS sent per month in order to be able to identify the least
expensive telephone subscription. The consumer must also be aware of how
many calls are made (opening charge), the networks in which calls are
terminated (different network tariffs), the total length of calls made (cost of

38See Section 1.3 – Delimitation
39Price was given as the main reason for switching operator for mobile and fixed telephony as well as the
Internet. Survey of Individuals (PTS-ER-2009:28)



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Swedish Post and Telecom Agency                                                                        29
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calls) and the length of the individual calls (charging interval) in order to have a
sufficient good basis from which to make a comparison. Further price
parameters must also be considered if the subscriber also uses data services
and MMS.

The complex price situation in the telephony services market has been
illustrated in the past by both PTS and the Swedish Consumer Agency. 40
Within the area of price indication, the Swedish Consumer Agency can in
certain cases produce regulations under the Price Indication Act (2004:347).
For example, the Agency has produced regulations regarding unit prices for
electricity. However, there are no special provisions on price information for
electronic communications services. In the guidance about price information
issued by the Swedish Consumer Agency in 2008 41, Section 5.3 states that "The
way prices are designed within the communications services sector is often
complicated and complex. Up until now, the Swedish Consumer Agency has
not produced any special regulations for how unit prices in the
communications sector should be indicated. Prices and tariffs for
communications services must comply with applicable law.”

There are also surveys that show that consumers lack knowledge about some
of the price parameters. 42

The figure below shows how the total monthly cost for an average user of a
mobile telephony subscription is broken down (on average) between the
different price parameters included for the subscriptions offered on the price
comparison site Telepriskollen.




40 Price trends for telephony and broadband – first half year 2009 (PTS-ER-2009:30), Kundrörlighet –
exempel på hinder inom några viktiga marknader [Customer mobility – examples of barriers for consumers
within some important markets] (KOV 2009:5)
41(http://www.konsumentverket.se/Global/Konsumentverket.se/Best%c3%a4lla%20och%20ladda%20

ner/V%c3%a4gledningar/Dokument/KOV_vagledning_prisinformation_2008.pdf)
42 Survey of Individuals (PTS-ER-2009:28)




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Swedish Post and Telecom Agency                                                                     30
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Figure 2 The importance of price conditions on average to the
         total subscription cost – mobile telephony

  100,0%


   90,0%


   80,0%


   70,0%


   60,0%
                                                                                           Minidebitering
                                                                                           Månadsavgift
   50,0%
                                                                                           Etableringsavgift
                                                                                           Deb_tot
   40,0%
                                                                                           SMS/MMS/DATA
                                                                                           Totala samtalskostnader
   30,0%
                                                                                           Total öppningsavgift


   20,0%


   10,0%


    0,0%
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20 03-
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      3-
    -0
    -


    -


    -


    -


    -


    -


    -
    -


    -


    -


    -


    -


    -


    -


    -
  03
20




[Text for graph:
Change commas in the percentages to dots, e.g. 100,0% to 100.00%
Key on right:
Minimum charge
Monthly charge
Set-up fee
Charge – total
SMS/MMS/DATA
Total call costs
Total opening charge]

This illustration shows how the total monthly cost for an average user of a mobile
telephony subscription is broken down (on average) between the different price
parameters included for the subscriptions offered (not including pre-paid cards) on
Telepriskollen.

The graph above illustrates how difficult it is to get an overall view of the cost
of a mobile telephone subscription for a consumer and how price models for
subscriptions have changed in recent years.

The comparison is made with a pattern of use that represents an average user
in 2009. Compared with 2003, the average length of calls increased to a certain


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Swedish Post and Telecom Agency                                                       31
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extent, and in particular the number of SMS sent, which may have the effect of
magnifying the change in the relative importance of the various price
parameters. However, the length of calls has not increased to such a significant
extent that it can explain the major difference in call costs between 2003 and
2010.

Call costs per minute (the red field), which is the most common price
parameter referred to when marketing mobile subscriptions and on which
many consumers are presumed to base their choice of subscription, is the price
parameter that has lost most relevance to the average total subscription cost
for subscribers.

According to the above comparison, the relevance of the cost of calls per
minute for an average user fell between 2003 and 2010 from 59% of the total
cost to approximately 22%. Deciding on the most advantageous subscription
on the basis of the cost of calls would have been relevant for today’s average
consumer in 2003, but is far from adequate today. At the same time, an
increasingly large proportion of the subscriber’s total average cost comprises:
the opening charge made for each call connected (16%); and the minimum
charge comprising the surcharge on the fixed charge for which the consumer
pays monthly but may also make calls for (15%).

In light of the above comparison, of previous and current charges, the average
subscriber today should base their choice of telephony subscription to a greater
extent on the opening charge for calls and the minimum charges per month. If
this is set in relation to the awareness of opening charges - which is indicted in
the Survey of Individuals for 2009, where as many as 53% of those questioned
stated that they did not know how much they were paying as an opening
charge - it may in any event be concluded that consumers are largely unaware
about at least one important price indicator for the total cost of a subscription.
The low level of awareness about the cost of the opening charge is not
necessarily due to the information not being available for consumers, which it
often is, but demonstrates how difficult it is for consumers to be aware of the
price parameters that are essential for calculating the total cost. Many
consumers probably view the opening charge as less important than, for
example, the per-minute price, when making decisions about the service they
are going to choose, despite the fact that these two price parameters are
approaching each other in terms of their relevance to the total cost.

Fixed telephony services do not have the same level of complexity in terms of
the relative importance of the price parameters to the total cost, which is partly
explained by this service not having as many areas of use.



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Swedish Post and Telecom Agency                                                   32
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Figure 3 The importance of price conditions on average to the
         total subscription cost – fixed telephony

  100,0%


   90,0%


   80,0%


   70,0%


   60,0%


   50,0%


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    0,0%
 20 -05 1
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       3-
 20 -03
   03
 20




                        Öppningsavgift - Totalt         Fasta samtalskostnader   Mobila samtalskostnader
                        Debiteringsintervall - Totalt   Etableringsavgift        Månadsavgift
                        Kostnad för minimidebitering



[Text for graph:
Change commas in the percentages to dots, e.g. 100,0% to 100.00%
Key at bottom:
Opening charge – total         Fixed call costs        Mobile call costs
Charging interval – total      Set-up fee              Monthly charge
Cost of minimum charge]

This illustration shows how the total monthly cost for an average user of a fixed telephony
subscription is broken down (on average) between the different price parameters included
for the subscriptions (not including pre-paid cards) on Telepriskollen.

The price models for mobile telephony have not changed in the same way as
for fixed telephony, but the fixed subscription charges still constitutes the
major part of the cost of a subscription in 2010. However, the opening charge
for fixed telephony has also become more relevant to the subscription’s total
cost compared with 2003 and awareness of the opening charge is also low in
this context. 43

In summary it may be concluded that there is generally a fragmented price
situation for telephony services and that the price situation for mobile

S Survey of Individuals (PTS-ER-2009:28) - 65 % of those questioned were unaware of the amount of the

opening charge that they pay per call for their fixed subscription.



PTS

Swedish Post and Telecom Agency                                                                            33
The possibility to switch




telephony services is complex. In addition to this, there is a low level of
awareness about certain price conditions that are proportionately of major
relevance to the total cost of the subscription. The complexity of the price
situation and low level of awareness support the assumption that price
conditions currently constitute a relevant switching or transaction cost in the
market for mobile telephony services and that this in itself may be assumed to
have an adverse effect on customer mobility.

Price conditions for fixed and mobile broadband services do not currently
constitute the same obstacle to the ability to compare different offers as for
telephony services. The pricing of this kind of service is usually rather
uncomplicated. Instead it is the transparency of other kinds of user condition
such as, for instance, transmission rates and traffic restrictions, that may
constitute an obstacle to the ability of consumers to compare services and
make informed choices within these categories of service. 44 It is still unclear
whether the transparency of these conditions currently constitutes a relevant
cost in terms of consumers comparing services and whether it affects customer
mobility in these markets.

4.2             Conditions that affect the consumer’s possibility to
                leave a service provider
When a consumer has managed to find an alternative provider for the service
in question, which involves a higher benefit and which justifies the consumer
switching service provider, the consumer needs to further evaluate the cost of
switching. There is highly likely to be a number of conditions that apply to the
existing contract and that generate a cost for a consumer who withdraws from
the contractual relationship at short notice.

Many of the European regulatory authorities consider contractual obstacles for
switching to be a significant problem in the electronic communications market.
This situation is also confirmed by organisations such as BEUC (a European
consumer organisation) having identified contractual obstacles as the single
most important challenge for the entire communications sector. 45

A number of conditions are referred to below that typically cause costs for
consumers withdrawing from an existing contractual relationship.




44   Report – Open networks and services, PTS-ER-2009:32
45   Draft BEREC report on best practices to facilitate switching, BoR (10) 34, p. 49



PTS

Swedish Post and Telecom Agency                                                         34
The possibility to switch




4.2.1            Notice periods
The ‘Notice period’ decides how far in advance the contract parties need to
notify their intent to exit the contract before the contractual relationship is
terminated.

A notice period requires that the subscriber plans the decision to terminate a
contract in advance and prevents an immediate withdrawal. The length of the
notice period dictates how far in advance a subscriber needs to give notice
terminating the contract for it to cease on a certain date. The longer the notice
period, the greater the requirement for the subscriber to plan in advance, and
conversely an even greater cost for disregarding the condition.

A long notice period means that it becomes complicated and often costly for
consumers to switch service provider. The electronic communications market
is characterised by rapid technological change. Sales of services also encourage
consumers to consume on impulse, as many service providers have extensive
direct consumer sales operations via telephone or ‘canvas sales’ campaigns. A
long notice period, set against technical progress and the consumption pattern
in the market, consequently becomes something that creates problems for
consumers when switching service provider.

The problems associated with long notice periods for consumers are
particularly obvious when subscribers wish to move (port) their telephone
number to another operator. Sales of telephone subscriptions are largely
characterised by temporary offers, campaigns and direct marketing, which
seldom give consumers the chance to adopt any position on a long notice
period before entering into a new contract. Consumers who wish to quickly
take their number to another operator, for example in order to take advantage
of a temporary offer, will receive a final invoice for costs referable to the
disregarded notice period. A long notice period in relation to short-term offers
may therefore generate an additional cost that may prevent consumers from
switching provider. For consumers who have not previously noticed this
condition before, the final invoice from the previous supplier can also have the
effect of a deterrent, discouraging them from switching providers in the future.

At the same time, the porting process in Sweden is currently adapted to the
legal rules under EU legislation, where there is an express ambition 46 to enable
consumers to switch service provider for their telephony service as quickly and
easily as possible. The Regulations formulated by PTS for how the procedure
should be conducted is in line with this ambition. In the current situation,
porting between service providers may take no more than three days for both
46   Cf. Directive 2009/136/EC, Article 30, item 4



PTS

Swedish Post and Telecom Agency                                                   35
The possibility to switch




fixed numbers and mobile telephone numbers when the subscriber is a
consumer. 47

Applying a condition relating to a long notice period may be one way of
service providers reducing the costs associated with customer turnover and
thereby freeing up space so that they can compete at lower prices. As
wholesale products are input for some of the services offered to consumers,
conditions relating to notice periods can also be attributable to the dependence
of similar conditions for suppliers in the wholesale market.

The overwhelming majority of consumer contracts for electronic
communications services currently include a three-month notice period in
Sweden. As the condition is applied in the general conditions contained in the
subscription’s basic configuration, a rather comprehensive picture of the
condition’s presence in the market can be generated on the basis of the
statistics from Telepriskollen. The figure below illustrates trends in notice
periods for mobile telephony subscriptions on Telepriskollen since 2003.

Figure 4 Proportion of post-paid mobile telephony subscriptions
         on Telepriskollen with a notice period



     100%

      90%

      80%

      70%

      60%

      50%

      40%

      30%

      20%

      10%

       0%
         03




                           04




                                             05




                                                               06




                                                                                 07




                                                                                                   08




                                                                                                                     09




                                                                                                                                       10
                  03




                                    04




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                                                                                                                              09
         -




                          -




                                            -




                                                              -




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                                                                                                                    -




                                                                                                                                      -
                p-




                                  p-




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                                                                                                                            p-
      ar




                       ar




                                         ar




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                                                                                                                                   ar
              se




                                se




                                                  se




                                                                    se




                                                                                      se




                                                                                                        se




                                                                                                                          se
     m




                       m




                                         m




                                                           m




                                                                             m




                                                                                               m




                                                                                                                 m




                                                                                                                                   m




                                         Andel 3 mån              Andel 1 mån           Andel 0 mån


[Text for graph:

47   PTS Code of Statutes – PTSFS 2010:4



PTS

Swedish Post and Telecom Agency                                                                                                             36
The possibility to switch




Left axis – delete space between figure and percentage sign, e.g. change 100 % to 100%
Capitalise dates, e.g. change mar-03 to Mar-03 and sep-03 to Sep-03
Key at bottom:
Proportion 3 months          Proportion 1 month        Proportion 0 months]

This illustration shows trends in the length of notice periods and proportion of
subscriptions (not including pre-paid cards) with a notice period on Telepriskollen for
mobile telephony between 2003 and 2010
The proportion of mobile telephony subscriptions without notice periods has
reduced dramatically since the start of the 2000s and has primarily been
replaced by subscriptions with a notice period of three months. There were no
subscriptions with a notice period on Telepriskollen in 2003, which may be
compared with 85% at the end of the second quarter of 2010. Since the start of
the current year, none of the contracts for mobile telephony services have had
a one-month notice period, but have instead been completely replaced with
notice periods of three months.

A similar trend can be noted for both fixed broadband services and fixed
telephony services, although the trend in the area of fixed telephony services
has not been quite as dramatic.

Figure 5 Proportion of fixed telephony subscriptions on
         Telepriskollen with a notice period



  100%

   90%

   80%

   70%

   60%

   50%

   40%

   30%

   20%

   10%

      0%
      03




                      04




                                      05




                                                      06




                                                                      07




                                                                                      08




                                                                                                      09




                                                                                                                      10
             03




                             04




                                             05




                                                             06




                                                                             07




                                                                                             08




                                                                                                             09
      -




                     -




                                     -




                                                     -




                                                                     -




                                                                                     -




                                                                                                     -




                                                                                                                     -
             p-




                             p-




                                             p-




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                                                                                                             p-
   ar




                  ar




                                  ar




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                                                                                                  ar




                                                                                                                  ar
           se




                           se




                                           se




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                                                                                                           se
  m




                  m




                                  m




                                                  m




                                                                  m




                                                                                  m




                                                                                                  m




                                                                                                                  m




                                  Andel 3 mån            Andel 1 mån         Andel 0 mån

[Text for graph:
Left axis – delete space between figure and percentage sign, e.g. change 100 % to 100%



PTS

Swedish Post and Telecom Agency                                                                                            37
The possibility to switch




Capitalise dates, e.g. change mar-03 to Mar-03 and sep-03 to Sep-03
Key at bottom:
Proportion 3 months          Proportion 1 month        Proportion 0 months]

This illustration shows the trends in the length of notice periods and proportion of
subscriptions with a notice period on Telepriskollen for fixed telephony between 2003 and
2010

Figure 4.5 Proportion of national offers for fixed broadband on
Telepriskollen with a notice period

Figure 6 Proportion of national offers for fixed broadband on
         Telepriskollen with a notice period


   120%



   100%



    80%



    60%
                                                                                                                                                                                                                                                                                                                                                Ingen
                                                                                                                                                                                                                                                                                                                                                1 månad
    40%                                                                                                                                                                                                                                                                                                                                         3 månader



    20%



      0%
           2004-03-31
                        2004-06-30
                                     2004-09-30
                                                  2004-12-31
                                                               2005-03-31
                                                                            2005-06-30
                                                                                         2005-09-30
                                                                                                      2005-12-31
                                                                                                                   2006-03-31
                                                                                                                                2006-06-30
                                                                                                                                             2006-09-30
                                                                                                                                                          2006-12-31
                                                                                                                                                                       2007-03-31
                                                                                                                                                                                    2007-06-30
                                                                                                                                                                                                 2007-09-30
                                                                                                                                                                                                              2007-12-31
                                                                                                                                                                                                                           2008-03-31
                                                                                                                                                                                                                                        2008-06-30
                                                                                                                                                                                                                                                     2008-09-30
                                                                                                                                                                                                                                                                  2008-12-31
                                                                                                                                                                                                                                                                               2009-03-31
                                                                                                                                                                                                                                                                                            2009-06-30
                                                                                                                                                                                                                                                                                                         2009-09-30
                                                                                                                                                                                                                                                                                                                      2009-12-31
                                                                                                                                                                                                                                                                                                                                   2010-03-31




[Text for graph:
Key on right:
None
1 month
 3 months]

This illustration shows the trends in the length of notice periods and proportion of
subscriptions with a notice period on Telepriskollen for national offers for fixed broadband
between 2003 and 2010

It is worth noting that there was a notice period for all of the national offers
for fixed broadband services on Telepriskollen in the middle of 2005 and, just
as for mobile telephony, the proportion of subscriptions with a three-month
notice period is more than 80% (89%) of all offers.


PTS

Swedish Post and Telecom Agency                                                                                                                                                                                                                                                                                                                           38
The possibility to switch




For post-paid mobile broadband services, the three-month notice period has
completely replaced other alternatives and thus constitutes a mandatory
condition for all subscription offers on Telepriskollen within this category of
service.

In summary, a review of Telepriskollen’s statistics shows that conditions
relating to notice periods are very common within all categories of service. The
three-month notice period has more or less completely replaced the one-
month notice period, and this form of notice period forms part of almost all
offers within three out of four categories of service.

4.2.2       Lock-in periods
A ‘lock-in period’ refers to the period during which the subscriber is locked
into purchasing a certain service from one and the same service provider. The
length of the lock-in period varies, but 12, 18 or 24 months are the main terms
found in consumer contracts today. It is particularly common for conditions
relating to lock-in periods to form part of the contract with the consumer in
conjunction with the bundling of several services or when the consumer
purchases some form of subsidised terminal equipment in combination with
this service.

The effect of lock-in periods on the consumer’s possibility of switching service
provider is self evident. As the lock-in period constitutes a commitment by the
consumer to purchase a service from a service provider for a certain period of
time, switching to another service provider (with or without notice) means that
the consumer becomes liable to pay for the remaining period of the
commitment. A consumer who wants to switch service provider during the
time that a contract with a lock-in period is running must consequently work
out the cost of breaching the contract in relation to the advantages gained by
switching. The consumer thus becomes in practice bound to the service for the
entire lock-in period.

The statistical data available from Telepriskollen does not provide a complete
picture of how common conditions relating to lock-in periods are in consumer
contracts in the electronic communications market. Conditions relating to
lock-in periods is to some extent part of the subscription’s basic configuration,
although it is significantly more common for the condition to be applied when
two or more services are bundled, in conjunction with campaigns or when a
service is combined with an offer for subsidised terminal equipment. Offers
that combine subscriptions and terminal equipment are not reported on
Telepriskollen. Offers made during campaigns and many bundled service
offers are also not included in Telepriskollen’s statistics. However, since 2009



PTS

Swedish Post and Telecom Agency                                                   39
The possibility to switch




information is reported regarding a number of different ‘triple play’ offers,
where a combination of fixed broadband, fixed telephony and television
services are offered. A review of these show that all such offers on
Telepriskollen require consumers to tie themselves for 18 or 24 months.

The application of a long lock-in period in conjunction with several services
being bundled may be due to the fact that use of several services also requires
several different items of terminal equipment (e.g. modem, telephone and TV
box).

Conditions relating to lock-in periods are thus significantly more common on
the market than as indicted by the graphs below. 48




48 There is much to suggest that shop sales of subscriptions in combination with mobile phones represent
an increasingly large proportion of subscription sales. For example, it is shown in the Survey of
Individuals 2009 that after ‘low price’ (36%) an offer for a ‘new phone’ is the most common reason given
(21%) for consumers switching mobile telephony service provider. Many operators have increased their
presence in this market segment in recent years and have opened several physical shops. In Norway, a
survey was conducted that showed that a large proportion of new mobile telephone subscriptions were
signed in combination with the sale of mobile phones in retail stores (Kampen om Mobilkunden [The fight
for mobile customers], Norwegian Post and Telecommunications Authority, 2008). The Swedish
Telecommunications Market 2009 also shows that in recent years there has been a significant increase in
the number of subscriptions that involve bundled services. This category increased by 43% between 2008
and 2009.



PTS

Swedish Post and Telecom Agency                                                                       40
The possibility to switch




Figure 7 Proportion of post-paid mobile telephony subscriptions
         on Telepriskollen with a lock-in period

   100%

    90%


    80%

    70%


    60%

    50%


    40%

    30%

    20%


    10%


      0%
        2003         2004          2005          2006         2007          2008         2009          2010


       Andel 12 mån      Andel 18 mån     Andel 24 mån     Andel andra antal    Andel utan bindningstid



[Text for graph:
Key at bottom:
Proportion 12 months Proportion 18 months Proportion 24 months Proportion other figure Proportion without lock-
in period]



This illustration shows the trends in the length of lock-in periods and proportion of
subscriptions (not including pre-paid cards) with a lock-in period on Telepriskollen for
mobile telephony between 2003 and 2010

Despite this, it is still possible to distinguish a certain trend in lock-in periods
for the basic subscriptions listed on Telepriskollen. The proportion of mobile
subscriptions with a lock-in period has increased since mid-2007, with the
greatest increase being to the proportion of subscriptions with a lock-in period
of twenty-four months.

The increase in the proportion of subscriptions with long lock-in periods in
2009 may be explained by the recent introduction of a new type of
subscription to the market, where the price of calls is determined on the basis
of how long the consumer is tied. The longer a consumer is locked in, the
lower the call price offered.




PTS

Swedish Post and Telecom Agency                                                                               41
The possibility to switch




A similar situation as for mobile telephony applies to mobile broadband
subscriptions. PTS does not have a complete picture, but can discern certain
changes in the statistics available. When looking at the trends in lock-in periods
for this category of service, the proportion of subscriptions with 12-24 month
lock-in periods on Telepriskollen fell from 82% in 2007 to approximately 31%
in 2010. The decline in the number of basic subscriptions with conditions
relating to lock-in periods is likely to be due to the increasing number of
subscriptions being offered in combination with various kinds of terminal
equipment, where conditions relating to lock-in periods become a
supplementary condition and are therefore not shown in the statistics on
Telepriskollen. The length of lock-in periods for mobile broadband has
changed at the same time. Twelve month lock-in periods have been completely
replaced by eighteen and twenty-four months.

The national offers for fixed broadband and fixed telephony that can be found
on Telepriskollen provide a better description of the presence of lock-in
periods within these categories of service, as they are less likely to be combined
with additional conditions in the sales phase. 49




49 However, it is common for both broadband subscriptions and fixed telephony to be packaged together

and with associated equipment. This type of bundled contract is not included in Telepriskollen’s statistics.
The occurrence of a lock-in period and its length in a fixed telephony and broadband offer can thus be
even more common in this case than as shown by the statistics.



PTS

Swedish Post and Telecom Agency                                                                           42
The possibility to switch




Figure 8 Proportion of fixed telephony subscriptions with a lock-
         in period on Telepriskollen

  100,0%


   90,0%


   80,0%


   70,0%


   60,0%


   50,0%
                                                                                   12 månader
                                                                                   Annan
   40,0%                                                                           Ingen


   30,0%


   20,0%


   10,0%


    0,0%
   03 01

   03 01

   03 01

   04 01

   04 01

   04 01

   04 01

   05 01

   05 01

   05 01

   05 01

   06 01

   06 01

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   06 01

   07 01

   07 01

   07 01

   07 01

   08 01

   08 01

   08 01

   08 01

   09 01

   09 01

   09 01

   09 01

   10 01
         01
 20 03-

 20 06-

 20 09-

 20 12-

 20 03-

 20 06-

 20 09-

 20 12-

 20 03-

 20 06-

 20 09-

 20 12-

 20 03-

 20 06-

 20 09-

 20 12-

 20 03-

 20 06-

 20 09-

 20 12-

 20 03-

 20 06-

 20 09-

 20 12-

 20 03-

 20 06-

 20 09-

 20 12-

       3-
     -0
     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

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     -

     -

     -

     -

     -

     -

     -

     -

     -

     -

     -
   03
 20




[Text for graph:
Change commas in the percentages to dots, e.g. 100,0% to 100.00%
Key on right:
12 months
Other
None]



This illustration show the trends in the length of lock-in periods and proportion of
subscriptions with a lock-in period on Telepriskollen for fixed telephony between 2003 and
2010



The proportion of fixed telephony subscriptions that have a lock-in period has
increased to 35%, but it is still more common for subscriptions to be offered
without a lock-in period (65%). The most common length of existing lock-in
periods is twelve months (33%).




PTS

Swedish Post and Telecom Agency                                                             43
The possibility to switch




Figure 9 Proportion of national offers for fixed broadband with a
         lock-in period on Telepriskollen

      90%

      80%

      70%

      60%

      50%                                                                                                                                                                                                                                                                                                                                        Ingen
                                                                                                                                                                                                                                                                                                                                                 3 månader
      40%
                                                                                                                                                                                                                                                                                                                                                 6 månader
      30%                                                                                                                                                                                                                                                                                                                                        12 månader

      20%                                                                                                                                                                                                                                                                                                                                        18 månader

      10%

       0%
            2004-03-31
                         2004-06-30
                                      2004-09-30
                                                   2004-12-31
                                                                2005-03-31
                                                                             2005-06-30
                                                                                          2005-09-30
                                                                                                       2005-12-31
                                                                                                                    2006-03-31
                                                                                                                                 2006-06-30
                                                                                                                                              2006-09-30
                                                                                                                                                           2006-12-31
                                                                                                                                                                        2007-03-31
                                                                                                                                                                                     2007-06-30
                                                                                                                                                                                                  2007-09-30
                                                                                                                                                                                                               2007-12-31
                                                                                                                                                                                                                            2008-03-31
                                                                                                                                                                                                                                         2008-06-30
                                                                                                                                                                                                                                                      2008-09-30
                                                                                                                                                                                                                                                                   2008-12-31
                                                                                                                                                                                                                                                                                2009-03-31
                                                                                                                                                                                                                                                                                             2009-06-30
                                                                                                                                                                                                                                                                                                          2009-09-30
                                                                                                                                                                                                                                                                                                                       2009-12-31
                                                                                                                                                                                                                                                                                                                                    2010-03-31
[Text for graph:
Key on right:
None
3 months
6 months
12 months
18 months]

This illustration show the trends in the length of lock-in periods and proportion of
subscriptions with a lock-in period on Telepriskollen for national offers of fixed telephony
between 2003 and 2010

There is a limited number of national offers for fixed broadband, which
explains the rapid changes in the statistics. The comparison primarily includes
offers directed at subscribers in the copper network (xDSL) or the cable
television network. 50 The above comparison does not include local
stakeholders whose offers apply to homes connected to local fibre networks, as
each of these providers directs their offers to a limited group of users.

However, it is interesting to note that there have not been any national
broadband offers without lock-in periods since the start of 2008. There are
thus no options for consumers at all in this respect. The only choice that can
be made is the length of the lock-in period that the consumer can sign up for.



50   See Section 1.3 Delimitation



PTS

Swedish Post and Telecom Agency                                                                                                                                                                                                                                                                                                                               44
The possibility to switch




In summary, it could be said that conditions relating to lock-in periods are
commonly applied to contracts, primarily within fixed broadband services, and
it is highly likely to be significantly more common within the remaining
categories of service than as indicated by Telepriskollen’s statistics. Conditions
relating to lock-in periods are most common in combination with subsidised
terminal equipment, during campaigns or in conjunction with bundled services.
Statistics show that this kind of sale represents an increasingly large proportion
of subscription sales. However, lots of services can still be taken out in the
form of a subscription without a lock-in period, with the exception of fixed
broadband services where there are no national offers without lock-in periods.
The statistics on Telepriskollen have also shown a trend towards longer lock-in
periods within the categories of service ‘mobile telephony’ and ‘mobile
broadband services’.

4.2.3       SIM card locks
A SIM card or operator lock is both a technical lock and a contract condition
found in the market for mobile telephony service and the market for mobile
broadband services. The condition means that terminal equipment sold in
combination with a subscription for a certain period of time may only be used
with the operator to which it is linked, and that it is locked technically so that it
cannot be used with another operator’s services. The period for which a
mobile phone or modem is locked to a specific operator often coincides with
the lock-in period that has been agreed, after which the consumer can unlock
the terminal equipment for a charge.

A SIM card lock is often applied in combination with a lock-in period to
increase the likelihood of a service being used by the consumer and to
simultaneously give service providers a further assurance that subsidised
terminal equipment will not be used for the services of competing providers.
Furthermore, as applied in Sweden, the SIM card lock means a further lock-in
owing to the charge imposed to allow the consumer to pay to be released from
the condition.

As previously described, PTS does not have access to any statistics for shop
sales of subscriptions and the conditions with which such subscriptions are
combined. The Agency thus lacks the data required to describe how common
this type of condition is in the market, other than that it exists.

4.2.4       Bundling
In this context, ‘bundling’ means two or more services being offered within the
framework of one single contract. Besides the advantages of bundling, the
conditions found in this contractual arrangement have been demonstrated to


PTS

Swedish Post and Telecom Agency                                                    45
The possibility to switch




have a significant effect on the possibility for consumers to switch. 51 It is
primarily the cross-subsidy that occurs between the bundled services that in
combination with long lock-in periods make it difficult to withdraw from
bundled contracts.

Bundling has existed in the market for some time, but has become more
noticeable in recent years as more and more services are being offered within
the framework of one and the same contract.

Today, mobile telephony, fixed telephony, broadband and television services
are offered either as separate services or as components of different kinds of
service bundles. The more services that the consumer includes within a bundle,
the higher the relative discount. Bundled contracts may offer the consumer
rather significant cost savings, but in turn make it very difficult for the
consumer to exchange the included services. This kind of contract is likely to
be combined with a long lock-in period and with a notice period of three
months. 52

Bundled contracts are becoming increasingly common in the electronic
communications market. 53 The major advantage for the consumer is the price
subsidy that they receive when purchasing several services from the same
service provider. It is also easier for consumers to see their expenses when the
costs for the different services are combined in one bill.

The problems associated with increasingly extensive bundling is that the effects
of a long lock-in and notice periods are extended from one individual service
to apply to all services and the cross-subsidy that bundling involves means that
it becomes even more difficult for the subscriber to compare prices and switch
service provider even after the lock-in period has come to an end. A subscriber
who wishes to switch a service in a service bundle must consider how the other
services will be affected by the decision to switch. The contract is often
designed so that if the consumer switches a service, the discount is reduced for
the other services. Exchanging one service can also often be regarded as
switching subscription, i.e. the entire contract is terminated, which means new
fixed costs for the subscriber. This increase in cost often removes the
incentives for consumers to take individual services out of the bundle. As a
result, in order to switch one service, consumers often have to exchange the
other services in the bundle as well. Taking an acute example, consumers who
51 Price trends for telephony and broadband – first half year 2009 (PTS-ER-2009:30) and Draft BEREC
report on best practices to facilitate switching, BoR (10) 34
52 See, for example, ‘Triple play’ offers at Telepriskollen where lock-in periods and three-month notice

periods apply to all offers. www.telepriskollen.se
53 The Swedish Telecommunications Market 2009 (PTS-ER-2010:13), p. 9




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want to exchange a fixed broadband service may thus have to make decisions
about conditions such as SIM card locks, despite this kind of condition only
arising for mobile telephony and mobile broadband.

The difficulties in comparing and switching individual services in a service
bundle may explain to some extent the reason why customers who purchase
more than one service from the same service provider are also less willing to
switch service provider. 54

4.3             Summary
The conditions described above have together an effect on the possibilities for
consumers to switch service provider through either generating costs in terms
of being able to compare the different services or to withdraw from a
contractual relationship.

Overall, a review of the conditions found in Telepriskollen’s statistics provides
the following illustration:




54   See ‘Price trends for telephony and broadband – first half year 2009’ (PTS-ER-2009:30), p. 73



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[Text for table above:
Price conditions            Lock-in period      Notice period                      SIM card lock
                                         Mobile telephony
Complicated.                37% of subscriptions        Very common. 85% of        Occurs.
Lack of knowledge           apply lock-in periods.      subscriptions include
among consumers             The trend is towards        a three-month notice
                            lock-in periods             period.
                            becoming longer (24m).
                                             Fixed telephony
Lack of knowledge           33% of subscriptions        Very common. 75% of
among consumers.            include a lock-in period.   subscriptions include a
                            The most common             notice period. 18% apply
                            period is 12 months.        a notice period of one
                                                        month and 57% three



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                                                        months.
                                            Fixed broadband
                            There are no national       There are no national
                            offers without a lock-in    offers without a notice
                            period. 82% include a       period. A three-month
                            12-month lock-in period     notice period applies to
                            and an 18-month lock-in     90% and a one-month
                            period applies to 18%.      period applies to 10%.
                                           Mobile broadband
                            Lock-in periods in          Mandatory condition.       Occurs.
                            subscriptions have          All offers include a
                            become less common          three-month notice
                            while the length has        period.
                            increased. A lock-in
                            period of either 18 or 24
                            months applies to 31%
                            of subscriptions]


The table above provides a summary of how common these kind of conditions
are in the basic configuration of the various subscriptions. Many of these
services are currently being offered within various kinds of bundled offer or in
combination with subsidised terminal equipment. The general conditions are
then supplemented primarily with a condition relating to a lock-in period or
SIM card lock. The prevalence of conditions relating to a lock-in period in
contracts with consumers is therefore likely to be much more common than as
shown by the statistics.




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Swedish Post and Telecom Agency                                                              49
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5           Nordic comparison
The regulations on contract conditions in the electronic communications
market relating to lock-ins differ in the Nordic countries. The potential for a
service provider to directly or indirectly lock the consumer into a contractual
relationship therefore varies considerably between the countries.




[Text for table above:
                         Lock-in period   Notice period         SIM card lock
Sweden                   24 months        3 months              Yes
Denmark                  6 months         1 month               Yes*
Norway                   12 months        1 month               Yes*
Finland                  24 months        2 weeks/1 month**     Yes*]

* SIM card lock permitted subject to the precondition that it is unlocked free of charge at
the end of the lock-in period

** Two weeks for telephony services and one month for other electronic communications
services

Denmark, Norway and Finland have all actively regulated the contractual
relationship between the service provider and the consumer with the aim of
safeguarding the consumer’s possibility to switch. Sweden is distinguished by a
lack of regulation or guidelines in this particular area.

A detailed description of how Sweden, Denmark, Norway and Finland have
dealt with contract conditions relating to lock-ins is provided below.



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5.1         Sweden
Relatively long lock-in periods for subscriptions in the electronic
communications market have been common in Sweden for many years. Lock-
in periods of twenty-four months are not uncommon and there have even
been cases of 36-month lock-in periods when several services are purchased
from the same operator.

There is no express regulation in Sweden against contract conditions that lock
consumers in, such as conditions relating to lock-in and notice periods.

However, the reasonableness of contract conditions can always be examined in
accordance with the general rules on contract conditions contained in the
Consumer Contracts Act (1994:1512 – AVLK).

The Consumer Ombudsman (KO) can issue an injunction or bring
proceedings at the Market Court to push through a prohibition against a
commercial seller using unreasonable contract conditions in its contracts with
consumers.

Guidance as to whether a contract condition is considered to be unreasonable
can be found in the travaux préparatoires to the Act. Page 62 f. of Government
Bill 1994/95:17 states that a contract condition is normally regarded as
unreasonable in relation to the consumer if it, among other things – deviating
from the applicable non-mandatory legal rules – establishes such an imbalance
in terms of the parties’ rights and obligations under the contract, that there is
no longer a reasonable balance on average between the parties. This must
involve a deviation that affords the trader an advantage or deprives the
consumer of a right. An overall assessment is made of the effect of the
contract, in which connection both the price and other contract conditions
must be taken into consideration.

PTS has not found any case-law from the Market Court that directly refers to
the reasonableness of long lock-in or notice periods.

AVLK is a consumer protection law that aims to achieve a better balance
between traders and consumers. A contract condition that locks in the
consumer does not have to mean an imbalance between the parties if the
consumer gains other benefits from the contract. The purpose of the law is
thus not to promote competition by prohibiting conditions that hamper
mobility in the market.




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5.2         Denmark
The length of lock-in and notice periods in Denmark has been regulated since
sector-specific legislation was introduced in conjunction with the liberalisation
of the market in 1996. There was no corresponding regulation in other
consumer areas at that time. The Danish Government paid particular attention
to the problem of lock-ins in the sector for electronic communications services
because of the special situation that prevailed in the market at the time of
liberalisation. At that time there were only two major stakeholders that were
offering publicly available electronic communications services, and the Danish
Competition Authority saw an imminent risk that these suppliers would make
competition between each other and for new undertakings more difficult by
locking customers into long contracts.

Section 13 of Utbudsbekendtgørelsen states that those providing electronic
communications services to end users must ensure that contracts do not
include conditions that directly or indirectly lock end users in for longer than
six months and that five months after the contract has been concluded end
users can always give one notice’s terminating the contract.

In practice this means that contracts can lock an end user in for no more than
six months (5 + 1). If no notice is given terminating the contract after six
months, the contract can be terminated with one month’s notice at any time.
Furthermore, contracts may not create an indirect lock-in through conditions
or parallel contracts that impose a cost for the consumer to withdraw from the
contract for the provision of the service. An example of this is where a
contract for the provision of a particular electronic communications service is
combined with an instalment contract for associated terminal equipment that
runs for more than six months, but where the instalment contract may not
include clauses that financially penalise the end user if he or she withdraws
from the first-mentioned contract. On the other hand it is still not
unauthorised to make it financially advantageous for the end user to stay in the
contractual relationship by, for example, lowering the price for the service the
longer the customer stays.

Two supplements to the Act have been issued since 1996 to include dealing
with unused call credits and SIM card locks, which could previously be used to
achieve the same effect as lock-in periods. Currently service providers are
obliged to repay credit balances in excess of 25 kronor and providers of
terminal equipment must ensure that it is possible to cease any SIM card lock
without charge to the end user after six months.


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There are both advantages and disadvantages to the regulation of a maximum
six-month lock-in period in Denmark. Advantages include the effects brought
about by improved competition. Denmark currently has a large number of
service providers that compete intensively for end users and has been able to
abolish its specific regulation for undertakings that have significant power in
the market for mobile access lines. According to the National IT and Telecom
Agency, the potential for end users to be able to switch service provider
quickly is a contributory factor to Denmark also having one of the lowest
mobile telephony prices in the world.

The major disadvantage of the relative stringent regulation of lock-in periods is
that operators may find it difficult to manage the risks associated with investing
in new technology. A high level of pre-investments in new or existing
infrastructure is required in order to be able to provide new electronic
communications services. The risk associated with the investment may partly
be managed through the potential to bind customers to contracts for a longer
period of time. The investment risk will increase if providers are unable to
make use of such a possibility, which in turn may result in the investment
ultimately being regarded as unprofitable.

In Denmark, the six-month lock-in period rule became controversial in
conjunction with the transition to the third generation mobile network (3G).
The company Hi3G stated at the time that the rule was the main reason for the
company not being able to establish itself successfully in the Danish market.
The Ministry raised the issue of exemptions from the rule for services that
require technology, but did not achieve any political unanimity on the issue.
Other stakeholders and relevant authorities, such as the Consumer Authority,
TDC and Telia, saw no reason for a change or exemption.

On 1 January 2010, a general rule entered into force for a maximum six month
contract period for all consumer contracts in Denmark through the
introduction of Clause 25 of Forbrugeraftaleloven [Consumer Contracts Act].
Television services are currently exempted because of the transition from
analogue to digital television, and will only become subject to the rule with
effect 1 January 2012.

5.3         Norway
In Norway, the issue of contract conditions relating to lock-ins has primarily
been dealt with by the Consumer Ombudsman (Forbrukerombudet – FO), which
is Norway’s equivalent to the Consumer Ombudsman (Konsumentombudsmannen
– KO) in Sweden. The restrictions that apply to the length of lock-in and notice



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periods consequently apply to all consumer contracts and have been achieved
through sectoral agreements, guidelines and case-law.

Since 2001, no contracts with consumers in the electronic communications
market may stipulate an aggregate lock-in period of more than twelve months.
The Norwegian Electronic Communications Act will be amended in
accordance with this principle in conjunction with the implementation of the
new “Citizens Rights” directive. The Ministry responsible has proposed that
the principle of a maximum lock-in period of twelve months for electronic
communications services should be laid down in law. It has also been
proposed that service providers shall have an obligation to offer a subscription
that automatically expires, without any special notice of termination, after
twelve months.

FO is pursuing the matter that contracts may only be combined with a lock-in
period if this affords the consumer an advantage corresponding to the sacrifice
made by the consumer by foregoing the opportunity to switch to a more
advantageous contract during the period. The requirement for an advantage for
the consumer in the event of a lock-in period is rather far-reaching and means
that the consumer shall be entitled to a subsidy corresponding to a significant
investment in the contract. In practice, the requirement for an advantage for
the consumer means that the contract can only contain a condition for a lock-
in period if the consumer simultaneously gets some form of subsidised
terminal equipment or a subsidy for actual establishment costs.

FO recently took an offer for an extension of a contract for a mobile
telephony subscription with a lock-in period to the Market Council in Norway,
as the offer, which only offered the subscriber a discount on the invoice, was
not deemed to correspond to the sacrifice made by the consumer in being
bound to the subscription for a further twelve months. The Market Council
ruled that the condition in question did not contravene the rules relating to
unreasonable contract conditions. However, in the consultation response
relating to the above-mentioned statutory amendments, the Consumer
Ombudsman has proposed that the Act should be amended so that the
principle of a requirement for subsidised terminal equipment or actual
establishment costs is laid down in law.

The FO has also drawn up an industry standard in collaboration with Internet
access operators, which stipulates that the notice period may not exceed one
month after the expiry of the month in which the operator received the notice
of termination. Stakeholders in the telephony services market do not normally




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Swedish Post and Telecom Agency                                                54
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apply a notice period to consumer contracts. The few stakeholders that do
apply a notice period, all have a notice period of one month.

The electronic communications market was one of the markets that led to the
Consumer Ombudsman restricting lock-ins in consumer contracts and actively
working to produce agreements in various sectors. Applicable agreements
currently exist for both the ‘mobile telephony’ and ‘Internet access’ services
sectors.

The Norwegian Post and Telecommunications Authority has also taken an
active role in attempting to influence complex price conditions by imposing
conditions on the services ‘marketed’ via their price comparison service. In
order to be able to have its service on the ‘telepriser.no’ price comparison site,
service providers must, for example, charge for the services marketed there by
second and kilobit. This requirement has meant that there is generally no other
way of charging for calls and data traffic.

5.4         Finland
As is the case in Sweden, lock-in periods of up to 24 months are generally
permitted in Finland and, as in Sweden, the maximum length of a lock-in
period is assessed on the basis of the rules concerning unreasonable contract
conditions.

However, in Finland the use of lock-in periods and the length of notice periods
are specifically regulated in the market for electronic communications services.
Just as in Denmark, the national regulatory authority in the market for
electronic communications services (Finnish Communications Regulatory
Authority) supervises compliance with the rules specific to the market.

Lock-in periods may be applied to all contracts for electronic communications
services, but may only be combined with sales of terminal equipment in
particular cases. The legislation states that lock-in periods may only be used for
sales of terminal equipment that are deemed to be compatible with the third
generation mobile network and also for sales of certain kinds of equipment
used in the fixed network. There is thus an indirect prohibition to market other
kinds of telephones in combination with a lock-in period.

The possibility of selling telephone subscriptions with a lock-in period in
combination with terminal equipment was introduced in Finland in 2006. This
kind of sale had previously been completely forbidden. The aim of introducing
the very specific regulation that applies today was to promote the transition to
the third generation mobile network.


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Swedish Post and Telecom Agency                                                 55
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Since 2006, service providers have also been obliged to offer consumers an
opportunity to conclude contracts with a maximum twelve-month lock-in
period, in conformity with the new EC legal rules in the sector. 55 The Finnish
Communications Regulatory Authority’s experience of this regulation is that it
has had no practical impact. When there is a possibility of locking consumers
in for twenty-four months, operators often have no interest in marketing
contracts with a twelve-month lock-in period and, to the extent that consumers
actively request twelve-month lock-in periods, the pricing is in relative terms
significantly higher than the twenty-four month alternative.

Finland distinguishes itself as regards the length of notice periods permitted for
telephony services. According to Section 75 of the Communications Market
Act, consumers are entitled to give notice terminating a telephony contract
within two weeks counted from the time when the notice of termination was
given. The rule on notice periods has formed part of the legislation ever since
the market was deregulated. Other electronic communications services practice
one month’s notice of termination.

Following a decision issued by the Finnish Communications Regulatory
Authority in 2004, contracts concluded in Finland with a lock-in period may
not be ported until after the lock-in period terminates. This means that
consumers cannot switch service provider for telephony during the term of the
lock-in period, even by paying for the remaining lock-in period; instead they
are basically completely locked in to using this service for the entire period to
which the lock-in period refers. The decision issued in 2004 has meant as a
consequence that lock-in periods have become more common in contracts
with consumers and may to a certain extent explain part of the reduction in the
number of porting transactions in Finland after 2004.

The decision issued in 2004 is currently being reviewed in Finland in
conjunction with the introduction of new rules under the Telecom Reform
Package.

5.5             Summary
Denmark, Norway and Finland apply more stringent rules in relation to lock-in
periods than is the case in Sweden. The Nordic countries have in various ways
dealt with the issue of contract terms that create switching costs. Denmark and
Finland have sector-specific legislation in their regulatory framework for
electronic communications services, while the Norwegian rules have so far
been established on the basis of case-law and sectoral agreements, using the

55   Directive 2009/136/EC, Article 30, item 5



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Swedish Post and Telecom Agency                                                 56
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rules on contract conditions in consumer relationships as a starting point. A
proposal has been presented in Norway to codify the principle of a maximum
12-month lock-in period by an amendment to the Electronic Communications
Act. In Sweden, there are still no sector-specific rules on contract conditions
relating to lock-ins. Nor does Sweden have any case-law or industry rules
directly governing the use of contract conditions, such as lock-in periods,
notice periods and SIM card locks.




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6            Analysis and conclusions
The possibility for consumers to be able to make active and informed choices
by switching service provider represents an important precondition for
competition and is particularly important in the electronic communications
market.

At the same time as the possibilities for consumers to switch and make choices
help to achieve socioeconomic advantages, there is a risk that a level of
mobility that is exceedingly high will generate costs that may have an adverse
effect on investments in, for example, the development of new infrastructure.
The benefit of improving the preconditions for customer mobility must thus
be balanced against the costs of the increased risks, such as a poorer
investment climate and other potential adverse effects such as, for instance,
high one-off or installation costs for end users. It was considered important
both in Finland and in Denmark – where the most sweeping regulations to
benefit consumer mobility 56 have been applied – to review this balance in
conjunction with the transition to third generation mobile networks.

It is also important to consider the situation in the wholesale market, as the
preconditions for the supply of retail products sometimes depend on the
situation at a wholesale level. Measures to improve the possibilities for
customer mobility in the retail market need to be proportionate to the
conditions prevailing in the wholesale market.

The difficult question is thus not how to create possibilities for mobility, but
rather how to manage to balance the respective interests in order to achieve
maximum social benefit.

However, in this context, it is important to emphasise that the potential for
consumers to compare and actively choose a service is of great importance in
order to achieve the overall objective of competition and the greatest possible
benefit in the electronic communications market. The potential to choose and
switch service provider ensures that the range, price and quality requested is
available in the market. There is a risk that the costs that arise from a lack of
possibility to switch service provider will result in a significantly greater costs
to society in the long term than the costs that high mobility may involve. If it is
possible to limit the potential for service providers to lock consumers into
contractual relationships, a greater emphasis may be placed on other ways of
maintaining a low level of customer mobility, such as, for example, making
56Six-month maximum lock-in period in Denmark; prohibition against subsidising terminal equipment
with a lock-in period (as of 2006) in Finland



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Swedish Post and Telecom Agency                                                                     58
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products or services better than those of competitors. 57 In Denmark, for
example, the transition to the third generation mobile network has ultimately
been implemented without having to change the comparatively tough
regulation. On the contrary, the rule imposing a maximum six-month lock-in
period was extended and currently covers all consumer contracts. Locking
consumer into long contracts in various ways and using long notice periods to
prevent switching is ultimately not the only way of managing risks in
investment.

This report demonstrates that in Sweden it is generally both more expensive
and more difficult to withdraw from one contractual relationship in favour of
another in the retail market for electronic communications than is the case for
our Nordic neighbours.

The figure below provides a summary of the findings of this report from the
customer mobility survey together with the obstacles impeding consumers
from switching service provider:




57   Cf. Section 3.1



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Swedish Post and Telecom Agency                                               59
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[Text for figure above:
Telephony services Customer mobility (porting) Mobile number          The number of porting transactions corresponded to 4.3% of existing mobile subscriptions in 2009
                                                 Fixed number         The number of porting transactions corresponded to 5.1% of existing fixed subscriptions in 2009
                     Customer mobility (Survey of Individuals 2009)   11% state that they switched mobile subscription last year
                                                                      13% state that they switched fixed subscription last year
                     SIM Card Lock                                    Charge          Occurs
Switch               Lock-in Period                                   12-24 months 33% of fixed telephony subscriptions (12 months)
                                                                                      37% of mobile subscriptions (as many 12 as 24 months)
                     Notice Period                                    3 months        85% of mobile subscriptions
                                                                                      57% of fixed telephony subscriptions
Compare              Complicated Price Conditions
                                                                                                 Contracts with subsidised equipment and contracts for bundled services
                                                                                                 (Involves a significantly increased proportion of subscriptions with lock-in periods
                                                                                                 and also helps to complicate comparisons)
Broadband services
                     Customer mobility (Survey of Individuals 2009)   10% state that they switched Internet operator (includes both fixed and mobile
                                                                      broadband) last year

Switch               Lock-in Period                                   12-24 months 100% of fixed broadband subscriptions (12-18 months)
                                                                                   31% of mobile broadband subscriptions (18-24 months)
                     Notice Period                                    3 months     80% of fixed broadband subscriptions
                                                                                   100% of mobile broadband subscriptions
Compare              User Conditions?]




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6.1          Complicated price conditions make comparisons
             difficult, but variation is important for competition
Complex price conditions constitute a relevant switching cost for telephony
services in general and for mobile telephony services in particular.

However, as described in this report it is not merely poor marketing or the lack
of information about prices that makes it difficult for consumers to compare
services; the complexity of the applied price conditions are just as important in
this context. Naturally, it is important that all relevant information is clear and
accessible to enable comparisons to be made, but this reduces in importance if
the difficulty involved in setting this information in a context generates a
higher cost than the advantages gained by switching.

Just making it easier for consumers to find and compare prices is therefore
only likely to reduce the problem of switching costs to some extent. PTS’s
price comparison service, Telepriskollen, and similar price comparison services
are good tools that are very important for comparing different subscriptions,
but which may not help consumers to make decisions about the effect that
many offers may have on the total cost, as these comparison services do not
include many kinds of campaign offer and offers in physical shops, where it is
likely that a large proportion of sales are made.

Consumers still have to be aware of the details regarding their use of the
service if they are to be able to make a relevant comparison, and this can often
be perceived as not worth the effort. 58 It will probably have to become easier
for consumers to assimilate the price models to completely eliminate the search
costs attributable to the complexity of the conditions.

However, attempting to produce simple pricing for telephony services through
regulation is not desirable. The large number of different price variables in a
market means that services can be adapted in a very good way to individual
wishes for use. The possibility of varying pricing thereby constitutes an
important tool for competition in the market. Paradoxically it may be said that
the development of complex price conditions is to a certain extent the result of
competition and the demand for varied areas of use for the underlying services.
As pointed out in a previous context 59, the various kinds of information activity
58 Survey of Individuals (PTS-ER-2009:28). Of the 46% who did not switch service provider for fixed
telephony, 40% stated as a reason that it was not worth the trouble or that there was not point in
switching as circumstances for why they had not switched operator for fixed telephony. Thirty-four per
cent stated this as a reason for mobile telephony.
59 Price trends for telephony and broadband – first half year 2009 (PTS-ER-2009:30)




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Swedish Post and Telecom Agency                                                                          62
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being carried out should reduce the difficulty of comparing different services.
However, it is important to point out that it is not likely to be the lack of
quantitative information that is the problem, but rather the lack of appropriate
information.

In light of the existing lack of awareness about which price parameters are
relevant to the total cost of in particular mobile telephone subscriptions, there
is a need to draw the attention of consumers to, for example, the relevance that
the different price conditions have in relation to total cost. Besides having a
tool such as Telepriskollen – which does the calculation for them – consumers
need to have access to simple information about how they can calculate the
expected cost of a service offer themselves.

Price is however not the only condition required to be able to compare
services. There are several other conditions of use that are important in terms
of the consumer’s possibility to switch services, but which are not dealt with
within the framework of this report. 60

The most effective way to ensure that consumers can compare both prices and
other conditions of use is to ensure that the market stakeholders are provided
the right incentives.

This report demonstrates that it is not only the conditions required to compare
services that affect the possibility for consumers to switch, but that there are
also often contractual obstacles that consumers have to include into a decision
to switch. Consumers who manage to find an advantage in switching
consequently face additional conditions at the time of the switch that affect the
total cost of switching.

These additional obstacles to switching may reduce the incentive for operators
to compete by using, for example, simple pricing. If there is greater potential
for consumers to switch operators, this creates better incentives for service
providers to make it easy for consumers to see the advantages of the services
they provide. Reducing the obstacles that prevent a consumer from
withdrawing from a contract may thus create the preconditions to also reduce
obstacles impeding consumers from making comparisons. For example, in the
report entitled ‘Open networks and services’ (PTS-ER-2009-32), customer
mobility and the possibility for consumers to ‘vote with their feet’ have been
identified as important aspects for ensuring openness at both a service and
content level. 61

60   See Section 1.3 – Delimitation
61   Open networks and services (PTS-ER-2009:32), p. 79



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Swedish Post and Telecom Agency                                                   63
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In the comparison made, it becomes clear that there are greater obstacles for
consumers to switch service provider in Sweden than is the case for our
Nordic neighbours. More progress has been made in Denmark, Norway and
Finland as regards reducing switching costs in the market, and the respective
NRA´s are still actively working to make it easier for consumers to switch
between service providers.

6.2           Three-month notice periods impede customer
              mobility and conflict with the rules aimed at
              making switching easier
The length of the conditions applied for notice periods constitutes a major
difference between Sweden and other Nordic countries. Conditions relating to
notice periods are prevalent within all services in the market and also constitute
a condition that may be assumed to have a major impact on the incentive of
consumers to switch service provider. A condition that requires three-month
forward planning in a market characterised by rapid technological change and
fixed-period offers constitutes a relevant obstacle to the possibility of
switching service provider. Indeed, a considerable number of the complaints
received by PTS regarding the reasonableness of contractual conditions relate
to the application of notice periods in conjunction with switching service
provider.

There has been a gradual trend towards a three-month notice period and this
currently constitutes the most common length of a notice period for all
categories of service.

In parallel with more and more offers in the market being subject to a three-
month notice period, there are also signs indicating a reduction in customer
mobility. 62 When looking at mobile telephony services, where a condition
imposing a three-month notice period applies to a very high proportion of
subscriptions on Telepriskollen, an interesting comparison may be made with
the trends in the proportion of ported subscriptions.




62Survey of Individuals (PTS-ER-2009:28). The trend within all categories of service is that there has
been a gradual reduction in the number of consumers switching between service providers.



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Swedish Post and Telecom Agency                                                                          64
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Porting statistics do not provide a complete picture of customer mobility in the
telephony services market63, but a low proportion of ported subscriptions may
indicate that consumers find it difficult to make use of the potential specifically
created to make it easier to switch telephony provider.

Figure 10 Proportion of number portings out of the total number
          of telephone subscriptions in Sweden

  7,0%




  6,0%




  5,0%




  4,0%

                                                                                       Fixed
                                                                                       Mobile
  3,0%                                                                                 Total




  2,0%




  1,0%




  0,0%
         2002      2003     2004      2005     2006      2007     2008      2009




[NB change commas to full stops in the percentage figures on the left axis, e.g. 7,0% to 7.0%]

This illustration shows the number of fixed and mobile porting transactions in relation to
the total number of fixed and mobile subscriptions in Sweden between 2002 and 2009

The proportion of ported mobile telephony subscriptions has reduced in pace
with the increase in the proportion of mobile telephone subscriptions with a
three-month notice period.

This statistical correlation (see Figure 4, p. 36) does not necessarily mean that
there is a link in reality, as there are many different factors that may affect the
porting statistics. However, there is a need to investigate this correlation
further in light of the complaints received by PTS concerning long notice
periods in relation to switching service providers.

63 Customer mobility is most clearly shown by looking at the operators’ customer turnover, which was

more than twice as high as the proportion of mobile telephony subscriptions ported in Sweden between
2003 and 2008. However, corresponding turnover during the same period were significantly higher in
Norway and Denmark and up until 2008 were also higher in Finland. (Gartner 2008) – Evaluating the
Swedish mobile communications market: Switching costs and network effects, Pratompong Srinuan,
Chalmers, 2010, Paper 1, p. 7



PTS

Swedish Post and Telecom Agency                                                                    65
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The existence of problems when switching mobile operator is supported by the
fact that a quarter (26%) of those who made a switch stated that they had
encountered problems when switching mobile operator in 2009. 64 The
problems described can largely be related to the application of a long notice
period. 65 In addition to this, in a comparison of the Nordic countries (see
Figure 6.2), Sweden has the lowest number of ported mobile numbers in
relation to the total number of mobile subscriptions. This suggests that
subscribers may have problems in switching service provider of a kind that are
also specific to Sweden.

A major difference in the potential for subscribers to port a number in Sweden
compared with other Nordic countries is the length of the most common
notice period applied in the market.

Figure 11 Proportion of mobile numbers ported out of the total
          number of mobile telephone subscriptions in Sweden,
          Denmark, Norway and Finland


              Andel porteringar av totalt antal abonnemang
                            per land, mobila
     30,0%


     25,0%


     20,0%
                                                                                               Sweden
     15,0%                                                                                     Norway
                                                                                               Finland
     10,0%                                                                                     Denmark

      5,0%


      0,0%
             2001   2002     2003    2004     2005    2006     2007    2008     2009



[Proportion of portings out of the total number of subscriptions per country, mobile
NB change commas to full stops in the percentage figures on the left axis, e.g. 30,0% to
30.0%]

64Survey of Individuals (PTS-ER-2009:28)
65From the 26% who stated that they had experienced problems when switching, 12% stated that it was
difficult, 11% that it took a long time, 11% that they lost money and 4% that it was not possible to take
their telephone number with them.



PTS

Swedish Post and Telecom Agency                                                                          66
The possibility to switch




This illustration shows the number of ported mobile numbers in relation to the total
number of mobile subscriptions in Sweden, Denmark, Norway and Finland between 2001
and 2009

Sweden was on a par with Denmark as regards the proportion of number
portings out of the total number of mobile telephone subscriptions before the
break in the porting statistics trend in 2005. The most significant increase in
the proportion of subscriptions with a three-month notice period in Sweden
also took place during the same time period, after which the disparity between
Sweden and other countries increased. Sweden is now in last place in the
comparison, with a porting frequency corresponding to 4.7% of subscriptions,
which may be compared with almost 8% in Denmark and Finland and 11% in
Norway. At the same time, the proportion of mobile telephone subscriptions
with a three-month notice period in Sweden currently amounts to 85%.

The length of the notice period cannot be the sole explanation for the
difference in the proportion of number portings in the different countries. 66
Awareness of the possibility of number portability, the existence of lock-in
periods, the number of administrative portings and the competitive situation in
general are examples of other factors that are also likely to affect the variations
between the countries. However, the complicated procedure for number
portability that a three-month notice period involves for the consumer could
constitute a relevant factor in respect of the incentive of consumers to switch
service provider.

The comparison below also clearly shows that the low proportion of number
portings in Sweden is not due to there being any generally higher level of
customer satisfaction in the market for mobile telephony services in Sweden
compared with other countries.




66 In the report ‘Evaluating the Swedish mobile communications market: Switching costs and network

effects’ (Chalmers 2010) for example, on-net/off-net pricing is attributed great importance in respect of
the reduced proportion of portings in the market for mobile telephony services.



PTS

Swedish Post and Telecom Agency                                                                         67
The possibility to switch




Figure 12 International comparison of customer satisfaction in
          the consumer market for mobile telephony, EPSI 2003-
          2009




Source: Swedish Quality Index, Telecom and Datacom Sector, 2009

Finland also had a negative trend in respect of the proportion of mobile
number portings after 2005, despite applying the most stringent rules in terms
of notice periods for telephony services. 67 The significant increase in the
number of ported mobile numbers in Finland that took place in 2003 and 2005
can be explained by the extremely intense competition for customers during
this period. The reduction in the number of number portings that followed the
year after can largely be explained by the market having normalised, but a
contributory explanation to the negative porting trends can also be found in
the decision taken by the Finnish Communications Regulatory Authority in
2004 in respect of the possibility to port during ongoing lock-in periods. The
interpretation made by the Finnish regulatory authority in this decision was
that the rules on number portability did not allow the possibility to port
numbers during lock-in periods; a decision that had a major impact on the
possibility of porting numbers in Finland. It is likely that both the increase in
the number of subscriptions with lock-in periods and the continued fall in the
number of numbers ported in Finland are linked to this decision.



67   The maximum notice period for telephony services in Finland is two weeks.



PTS

Swedish Post and Telecom Agency                                                  68
The possibility to switch




The assumption that long notice periods in Sweden have an adverse effect on
the incentive for consumers to port is supported by the fact that Finland still
has double the proportion of ported mobile numbers, despite not being able to
port during a lock-in period.

There are no corresponding statistics for broadband regarding the number of
subscribers who switch service provider but, based on the answers provided in
the course of the annual survey conducted by PTS, only 10% of those
questioned in 2009 stated that they had switched Internet operator (includes
both fixed and mobile broadband) in the past year. 68 The proportion who
stated that they had switched service provider for Internet access was lower
than for both fixed and mobile telephony. 69 Subscribers who had made a
switch also referred in this context to various kinds of problem in conjunction
with switching broadband operator. In 2009, a full 37% 70 of the subscribers
who had switched operator for Internet access in the past year stated that they
had encountered problems when switching, and 26% 71 of these referred to a
problem that may relate to a long notice period.

Finally, the three-month notice period has a reasonability aspect that should be
dealt with in this context.

According to Chapter 5, Section 16 of LEK, a service provider who wishes to
amend the conditions in a contract to the disadvantage of a consumer is
obliged to notify the consumer of the amendment no later than one month
before it enters into force. There is no restriction as to the extent of the
amendments that may be made, which basically means that in practice service
providers can give notice terminating a contractual relationship and state that a
completely different contract is to apply. 72 Thus it is only in exceptional cases
that a service provider will consider giving notice terminating a contract in line
with the notice period stipulated in the consumer contract applicable between
the parties. This effectively means that the consumer becomes the only party
tied to a condition for a three-month notice period. There may therefore be a
question as to whether it is reasonable for it to be more difficult for consumers
to give notice terminating their contractual relationship with the service
provider (3-month notice period) than is the case for the service provider to

68 Survey of Individuals (PTS-ER-2009:28)
69 Survey of Individuals (PTS-ER-2009:28): 13% stated that they had switched service provider for fixed
telephony and 11% stated that they had switched provider for mobile telephony in the past year.
70 Survey of Individuals (PTS-ER-2009:28). Problems comprised the connection having taken a long

time, losing money to the previous operator or the connection being faulty.
71 Survey of Individuals (PTS-ER-2009:28). Problems either relating to connection taking a long time or

losing money to the previous operator.
72 Subject to the precondition that the contract does not run with a lock-in period




PTS

Swedish Post and Telecom Agency                                                                       69
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achieve a corresponding change in the relationship with its customer (amended
contractual content on one-month’s advance notification).

Considering the arguments presented above and having regard to the
regulations contained in Article 30, page 6 of Directive 2009/136/EC 73, PTS
considers that there are strong grounds for limiting the length of the notice
period permitted in consumer contracts in the retail market for electronic
communications. The purpose of limiting the length of a notice period in this
way is to increase the opportunities for consumers to switch service provider
and thereby improve the conditions necessary for competition and long-term
consumer welfare in the market.

One possible consequence of restricting the possibility of applying a long
notice period could potentially be a short-term price increase for all retail
services in the market, as increased customer mobility will also lead to costs
increasing for service providers in the market. However, it is likely that the
increased opportunities for consumers to switch service provider that
restricting the length of the notice period would entail will in the long term
lead to improved competition and higher consumer welfare.

PTS proposes that such a limitation is achieved by extending the powers of the
Agency to take measures against conditions that prevent consumers from
switching service provider.

As wholesale products are input goods for retail products, there is a close link
between the wholesale and retail markets within the electronic communications
sector. It is therefore important to ensure that any intervention in the retail
market does not create unreasonable conditions in the wholesale market. The
conditions required to be able to achieve a limited notice period must
consequently be proportionate to the possibility for operators to in their turn
give notice terminating the service in the wholesale market. An impact
assessment of this aspect thus needs to be conducted in conjunction with any
market intervention.

A solution that enables PTS to take action in relation to conditions that are
applied when notice is given terminating a contract and that prevent
consumers from switching service provider should also mean that it is possible
to ensure that a restriction of conditions does not conflict with the
requirements of the wholesale market.


73 ”Without prejudice to any minimum contractual period, Member States shall ensure that conditions

and procedures for contract termination do not act as a disincentive against changing service provider.”



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Swedish Post and Telecom Agency                                                                            70
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6.3         There is a need to consider a shorter maximum
            lock-in period
Lock-in periods have become a means of dealing with the investment risks
associated with new technology and a means of accelerating the use of new
services. More users can be offered access to these services through the
possibility to subsidise terminal equipment or a connection required to use the
services. How quickly customers take to the new technology and how much
the services are used may have a major impact on the capital investment
appraisal made by those operators faced with a decision to upgrade or install
new infrastructure, which makes, for example, subsidies of terminal equipment
an important requirement for developing new networks and services. This kind
of subsidy would be difficult to achieve without the possibility to reciprocally
agree on a certain lock-in period.

It would consequently not be desirable, even if it were possible, to completely
exclude the possibility of applying a lock-in period in the electronic
communications market.

However, conditions relating to lock-in periods simultaneously involve an
almost insuperable obstacle to consumers switching service provider. The cost
that the premature termination of a contract entails means that there is no
possibility in practice to switch service provider during the period covered by
the lock-in period. It also becomes apparent that the longer the lock-in period
applied, the more of an obstacle the condition represents in relation to the
possibility of switching.

A long lock-in period also affects not only the possibility of consumers to
switch but also the consequences of choices made by consumers. There is a
risk of consumers, who have made the wrong choice, being locked in for a
very long time through the inclusion of a long lock-in period in the contract.
The length of lock-in periods should therefore also reflect the conditions
required for consumers to make rational choices, i.e. the transparency of
conditions and the capacity to compare. In a market where it is difficult to get
an overview of the advantages of the various services, there may be a need to
question the application of lock-in periods amounting to two years.

The statistics examined give a divided picture of the market and demonstrate
that the lock-in periods applied to subscriptions for mobile telephony and
mobile broadband are becoming longer and that conditions relating to lock-in
periods are included as part of all fixed broadband offers. At the same time,
there has been a significant reduction in the proportion of subscriptions with
lock-in periods within mobile broadband.


PTS

Swedish Post and Telecom Agency                                                   71
The possibility to switch




It is apparent that PTS lacks access to statistics providing a complete picture of
the prevalence of conditions relating to lock-in periods in the electronic
communications market and PTS thereby lacks the information to assess the
effect of these conditions on customer mobility in the market. Consequently,
PTS cannot provide any concrete proposals for how lock-in periods should be
dealt with.

As reported in Section 4.2.2, there is often a condition relating to a lock-in
period in combination with campaigns, in the case of bundling or in
combination with subsidised terminal equipment. Indeed there is much to
suggest that an increasing number of subscriptions within all categories of
service are taken out within the framework of this kind of sale and package. 74
Even if PTS is currently unclear about the prevalence of conditions relating to
lock-in periods in consumer contracts, this trend means that the possibility for
consumers to switch service provider will probably become increasingly
dependent on a condition relating to a lock-in period in the future.

Although it is not possible to produce any concrete proposals for how lock-in
periods should be dealt with within the framework of this report, there is thus
reason to suggest that the issue should be investigated more closely.

The EU has already taken the first step to limit the potential to use lock-in
periods in contractual relationships with end users in the electronic
communications market. It is prescribed by Directive 2009/136/EC that lock-
in periods in contracts with end users may not exceed 24 months and also that
there must always be an alternative for consumers to conclude a contract with
a lock-in period of no more than twelve months. However, a maximum lock-in
period of 24 months will not make any real difference in Sweden, where lock-
in periods of over 24 months rarely are applied in consumer contracts.

Other Nordic countries have chosen to deal with lock-in periods more
stringently than Sweden and in several respects have also gone further than the
limitation proposed by the new EU regulation. The fact that the limitation of
lock-in periods has been extended in Denmark to cover all consumer contracts
and that in Norway it has been proposed to lay down the practice that has
been developed in the form of law, shows that the limitations introduced have
led to some positive experiences.


74Swedish Telecommunications Market 2009 (PTS-ER-2010:13): there has been a significant increase in
the number of bundled subscriptions in recent years. Survey of Invididuals (PTS-ER-2009:28): 69% of
those who have purchased fixed telephony purchase additional services from the same operator. After
low price (36%), the most common reason stated for consumers switching mobile telephony service
provider is consumers being offered a new phone (21%).



PTS

Swedish Post and Telecom Agency                                                                   72
The possibility to switch




There may consequently be a need to further investigate whether the
Directive’s rule on a maximum lock-in period of 24 months should be
transformed directly into Swedish law. It would be possible to introduce a
shorter maximum lock-in period in conjunction with the current review of the
Electronic Communications Act. Such a measure would also help to increase
the possibilities of consumers to switch service provider in the long term and
at the same time reduce the consequences in situations within certain
categories of service where there may be a risk of choices being made on
mistaken grounds.

It should also be possible to diversify the use of lock-in periods in the market
to a greater extent than is currently the case. To the extent that there is
considered to be a need for a longer notice period, it should be possible to
permit this for a fixed period and with clear delimitations, such as for instance
in conjunction with rolling out new networks and services 75, with a shorter
maximum lock-in period to cover services offered within established
infrastructure or where a long lock-in period is deemed to be inappropriate for
other reasons.

However, a tougher restriction on the possibility of using lock-in periods in
consumer contracts than that proposed by the current EU rules would
probably have a major impact on the market. PTS consequently wishes to
stress the importance of investigating in detail the advantages that a reduced
lock-in entails in relation to the costs generated by such a proposal.

6.4          Specific investigation into the effects of bundling
The growing importance of service convergence and bundling in terms of how
electronic communications services are consumed clearly has both positive and
negative effects for consumers. Bundling can often result in prices that are
lower than if the services were to be purchased individually. On the other hand
bundling makes it very difficult for consumers to both compare the advantages
of different services and exchange individual services within a package.

Bundling all of the services within the framework of one and the same
subscription opens up the potential for the exchange of a service to be
regarded as the consumer switching the form of subscription. It is not
uncommon for operators to even make a fixed charge for consumers for




75 A similar rule was considered in Denmark, as it was apparent that a six-month maximum lock-in period

could constitute a problem in conjunction with the transition to the third generation mobile network.



PTS

Swedish Post and Telecom Agency                                                                      73
The possibility to switch




switching a subscription internally, which in addition to the reduced subsidy
may serve as a further obstacle to the incentive and possibility to switch. 76

Bundling consequently often makes it practically impossible for consumers to
exchange one service without simultaneously having to cancel other services in
the subscription.

Bundling reinforces the effect of the pre-existing lock-in and the difficulties in
making comparisons in the market. To the extent a reduction in the inclusion
of lock-in conditions in contracts can be reached, such as lock-in and notice
periods, the adverse effect on the possibility to switch in the case of bundling
will be reduced to a certain extent. However, there are still a number of other
aspects associated with bundling that are relevant to the possibility of
consumers to switch service provider and that are not affected by shorter lock-
in or notice periods.

Not all of the effects of bundling have been investigated within the framework
of this report. 77 The trend towards an increased bundling is rather new and
PTS does not currently have a full picture of the advantages and disadvantages
that bundling involves in terms of competition and long-term consumer
welfare. Both technical and legal aspects need to be considered in this context,
which in combination with the effect on the potential to compare, means that
a study of the combined effect of bundling on the possibility for consumers to
switch service provider in Sweden should be investigated separately as soon as
possible.

6.5          Question over the application of SIM card locks
Conditions relating to SIM card locks go one step further than lock-in periods
as – in addition to locking the consumer to a certain service provider – they
also lock the consumer into using services with the terminal equipment that
has been combined with the subscription. Operators may thus use this
condition to reduce commercial risks in the same way as lock-in periods.

However, it is noteworthy that the condition does not cease to apply free of
charge for subscribers in conjunction with the cessation of the lock-in period,
particularly as a rather high charge is usually made to release consumers from
the condition. It is difficult to see this charge as anything other than a charge to
prevent consumers switching to other service providers.
76 PTS has learned via complaints that operators deal with bundled services in this way. A consumer who

wishes to exchange one of two services that are bundled in one subscription will be obliged to pay a
further administrative charge for changing the form of subscription. This charge amounts to more than
SEK 500.
77 See Section 1.3 Delimitation




PTS

Swedish Post and Telecom Agency                                                                      74
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PTS therefore considers that the application of conditions relating to SIM card
locks should only be permitted for a fixed period, subject to the precondition
that the lock ceases to apply free of charge after the end of the lock-in period,
in accordance with the situation applicable in all neighbouring countries. When
a SIM card lock is combined with a lock-in period, the condition should cease
to apply at the same time as the lock-in period ceases.

PTS proposes that such a limitation be achieved by increasing the powers of
the Agency to take action against this type of condition (see Section 6.3).




PTS

Swedish Post and Telecom Agency                                                75
The possibility to switch




7           Measures proposed to increase the
            possibility for consumers to switch
            service provider
Price conditions

PTS hopes that reducing the obstacles to switching may help to give operators
stronger incentives to make it easier for consumers to compare services (see
Section 6.1).

In combination with this, it is of immediate importance for PTS to implement
information activities that provide a simple clarification of which price
parameters affect the total cost of a subscription, so that consumers can make
comparisons themselves without having to use price comparison services.

Notice periods and SIM card locks

PTS considers that there are strong reasons to limit the length of notice
periods (see Section 6.2).

PTS considers that a condition relating to a SIM card lock may prevent
consumers from switching service provider and that this condition, as applied
in Sweden, constitutes an unreasonable obstacle to the possibility of switching
(see Section 6.4).

PTS proposes that the Electronic Communications Act is amended to give
PTS the power to intervene in relation to contract conditions that prevent
consumers from switching service provider as referred to in Article 30, item 6
of Directive 2009/136/EC (‘the USO Directive’). This would afford the
Agency a possibility to intervene in relation to, for example, the application of
three-month notice periods and SIM card locks for which charges are made in
the market for electronic communications services.

A solution that affords PTS the possibility of intervening in relation to
conditions that are applied when a contract is terminated and that prevent
consumers from switching service provider would also include the possibility
of ensuring that a limitation of the conditions does not conflict with the
preconditions applicable in the wholesale market.




PTS

Swedish Post and Telecom Agency                                                 76
The possibility to switch




Lock-in periods

PTS expresses the view that, when LEK is amended as entailed by
Directive 2009/136/EC, the legislator should carefully consider the
introduction of a rule for a shorter maximum lock-in period (see Section 6.3).

PTS does not currently have any legal powers to take action in terms of the
length of a lock-in period, but would welcome an investigation of the effects of
a requirement for a shorter lock-in period in the electronic communications
market.

At the same time, PTS wishes to stress the importance of investigating in more
detail the advantages resulting from a reduced lock-in in relation to the costs
generated by such a proposal.

Bundling

PTS proposes that a special investigation is conducted by the Agency into the
long-term effects of the increased bundling of services on competition and
consumer welfare (see Section 6.5).




PTS

Swedish Post and Telecom Agency                                                  77
The possibility to switch




Bibliography
- Competitive Advantage – Creating and sustaining superior
performance, Michael E. Porter, 1985

- Law & Economics (Third edition), Robert Cooter & Thomas Ulen, 2000

- Modern Industrial Organization, Third edition, Dennis W. Carlton &
Jeffrey M. Perloff, 2000

Reports

- Survey of Individuals 2009 – Use of telephony and the Internet by
Swedes, PTS-ER-2009:28, Swedish Post and Telecom Agency, 2009

- Price trends for telephony and broadband – first half year 2009 (PTS-
ER-2009:30), Swedish Post and Telecom Agency, 2009

- The Swedish Telecommunications Market 2009, PTS-ER-2010:13,
Swedish Post and Telecom Agency, 2010

- Kampen om mobilkunden [The fight for mobile customers], Norwegian
Post and Telecommunications Authority, 2008

- Beteendeekonomi och konsumentpolitik [Economic behaviour and
consumer policy], Ministry of Integration and Gender Equality,
Robert Östling, 2009

- Kundrörlighet – exempel på hinder inom några viktiga marknader
[Customer mobility – examples of barriers for consumers within some
important markets], KOV 2009:5, Swedish Consumer Agency, 2009

- Evaluating the Swedish mobile communications market: Switching
costs and network effects, Pratompong Srinuan, Chalmers, 2010

- Rapport om forbrukermarkedet for mobiltelefoni [Report on the user
market for mobile telephony], 9 February 2009, Consumer Representative,
Norwegian Post and Telecommunications Authority (PT), Competition
Supervision and Consumer Council

- Draft BEREC report on best practices to facilitate switching, BoR (10)
34, 2010



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Swedish Post and Telecom Agency                                            78

								
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