I D A

COVER NOTE ISSUED BY THE INFOCOMM DEVELOPMENT AUTHORITY OF
SINGAPORE

ADVISORY GUIDELINES ON CONTRACT PERIOD AND EARLY TERMINATION
CHARGES FOR TELECOMMUNICATION SERVICES OFFERED TO END USERS

15 December 2009

PART I: INTRODUCTION

PART II: SUMMARY OF COMMENTS RECEIVED ON THE PROPOSED
GUIDELINES

PART III: IDA’S DECISIONS ON THE PROPOSED GUIDELINES

PART IV: CONCLUSION AND ISSUANCE OF FINAL GUIDELINES

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ADVISORY GUIDELINES ON CONTRACT PERIOD AND EARLY TERMINATION
CHARGES FOR TELECOMMUNICATION SERVICES OFFERED TO END USERS

PART I: INTRODUCTION

1. One of IDA’s key policy objectives is to promote and facilitate effective and
sustainable competition in the telecommunication services sector so that End
Users would benefit from having greater choice of service providers and
innovative services, at competitive prices and quality. To this end, some of
IDA’s regulatory measures have been specifically targeted at removing or
lowering any barriers that unfairly prevent End Users from terminating
services and switching operators.

2. IDA has generally refrained from intervening in contractual matters for
telecommunication services in competitive markets – End Users would be in a
best position to make their own decisions on the types of service contracts
that best suit their needs. IDA had therefore so far left it to operators to
determine the contract durations and the early termination charges (“ETCs”)
applicable for their services, and left it to End Users to decide whether the
terms of the contract are acceptable, so long as these terms are disclosed
upfront by the operator prior to providing the service.

3. However, there has been growing concerns, particularly amongst residential
End Users, regarding the current industry practice of mobile, fixed-line
telephony, and broadband operators, who impose long contract periods, and
fixed or high ETCs that do not decrease over time. There were concerns that
the contracts might be becoming unduly long, and ETCs excessively high,
which together hinder residential End Users from terminating services and
switching operators. IDA therefore conducted a study and reviewed these
industry practices. To ensure that these industry practices remain reasonable
and fair to both operators and residential End Users, IDA had proposed to
issue a set of guidelines (the “Proposed Guidelines”) on contract periods
and ETCs.

4. The Proposed Guidelines, to be applied to contracts for mobile, fixed-line
telephony, and broadband services offered to residential End Users, proposed
to require operators to:

(a) Limit the duration of contract periods to no more than 24 months;

(b) Ensure that ETCs for contracts that are longer than three months are
graduated (i.e. decrease over time); and

(c) Ensure that the quantum of ETCs imposed on End Users excludes any
costs that will be avoided by the operator when an End User terminates
the service.

5. IDA conducted a public consultation on the Proposed Guidelines between 23
December 2008 and 20 January 2009. At the close of the public consultation,
IDA received comments from 13 respondents, namely:

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(a) MobileOne Limited (“M1”);
(b) Singapore Telecommunications Limited (“SingTel”);
(c) StarHub Limited (“StarHub”); and
(d) 10 members of the public (henceforth referred to as the “Individual
Respondents”).

6. IDA would like to thank all the respondents for their comments.

7. In making a final decision on the Proposed Guidelines, IDA took into account
IDA’s policy objectives as well as the views received in the public consultation.

8. This cover note sets out the following:

(a) A summary of the comments received from the public and industry
participants on the Proposed Guidelines;

(b) IDA’s response to the issues raised by respondents on the Proposed
Guidelines; and

(c) IDA’s decision on the final guidelines on contract period and ETCs for
residential End User mobile, fixed-line telephony, and broadband
services (the “Final Guidelines”).

PART II: SUMMARY OF COMMENTS RECEIVED ON THE PROPOSED
GUIDELINES

9. The Individual Respondents were in general strongly supportive of IDA’s
Proposed Guidelines and felt that it would ensure that residential End Users
are not hindered from switching operators and unfairly penalised for
terminating their contracts before the end of their contract periods.

10. Comments from the operators were mixed. SingTel argued that absent a
verifiable failure in the market, there are no reasons for IDA’s intervention in
the market for consumer telecommunication services. SingTel also noted that
competition in the broadband and mobile markets is strong and any
interference by IDA would restrict operators’ “ability, flexibility and creativity in
developing new and innovative service offers”. The other two operators, M1
and StarHub expressed varying levels of support for IDA’s Proposed
Guidelines. The following is a summary of the comments received in the
public consultation.

Comments on Proposed Guidelines on Contract Period

11. Individual Respondents strongly supported IDA’s proposal to limit the duration
of contract periods to no more than 24 months. In fact, one Individual
Respondent expressed the view that a more stringent cap of 18 months would
be ideal.

12. On the other hand, SingTel argued against IDA’s proposal to cap the contract
period to 24 months. SingTel opined that such a guideline would “deprive
consumers of the opportunity to obtain attractive premiums … and services at

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a lower monthly subscription” and contended that such a move by IDA would
arguably restrict consumer choice. SingTel noted that consumers already
“have the choice to subscribe to services on shorter contract terms” and that,
therefore, “the maximum contract term should be left to the market and
consumers to determine”.

13. The other two operators did not raise any objections to IDA’s proposal. In fact
M1 and StarHub suggested that IDA extend the guidelines on contract periods
to other services (which IDA will address in the ensuing sections). M1 noted
that long contracts arising from the bundling of expensive “free gifts” by
operators actually “detract from the fundamental objective of competition
based on quality of services delivered, and unfairly lock-in customers”.

Comments on Proposed Guidelines on ETCs

14. The Individual Respondents welcomed IDA’s Proposed Guidelines on ETCs,
agreeing with IDA’s views that ETCs that are fixed, or equal to the sum of the
remaining monthly charges of a contract period, are unfair. They also urged
IDA to require ETCs to be graduated.

15. Conversely, the operators opined that the Proposed Guidelines on ETCs
would effectively render term contracts to be no different from customers
taking up a service on a month-by-month basis. Operators also indicated that
they could foresee significant operational issues that need to be overcome in
order for them to comply with the guidelines. For example, their billing
systems might need to be modified in order to compute and track graduated
ETCs for their customers.

16. SingTel went on to state that requiring ETCs to be set in such a manner does
not take into consideration operators’ intentions in choosing to offer packages
with gifts or discounts to residential End Users – it argued that if operators
had been aware that customers are only going to fulfil a portion of their
contract periods, they might not have offered an attractive service package in
the first place.

17. M1 also highlighted that, in the case of mobile service contracts, the ETCs
imposed by operators are “often set at the quantum which is similar or
equivalent to the handset subsidy” provided to the residential End User. M1
expressed the view that the cost of the handset subsidy “must be reimbursed
to the operator in the form of the ETC, and it remains a fixed cost regardless
whether the termination occurs in the first or twenty-third month”.

Other Comments Received

18. Besides providing feedback on the Proposed Guidelines, one Individual
Respondent also took issue with the industry’s practice of packaging gifts and
discounts with telecommunication services and appealed to IDA to stop it, on
the grounds that it “unnaturally inflates” prices and “affects [Singapore’s]
competitive edge”. No other Individual Respondents took issue with this
industry practice however, and in fact one Individual Respondent expressly
welcomed the gifts and discounts, and opined that they create value for
customers and serve as a reward for their loyalty.

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19. Another issue that was raised relates to extending the Proposed Guidelines to
business/corporate broadband contracts outside of the central business
district (“CBD”). StarHub had argued that business/corporate customers
outside the CBD “lack bargaining power and access to market information” as
such customers tend to be served by SingTel. As such, these customers
have no choice but to take up services that come with long contract periods
and high ETCs.

20. Separately, M1 suggested that IDA direct an “end date” for all broadband
contracts before the arrival of the Next Generation Nationwide Broadband
Network (“Next Gen NBN”). M1 recommended that both retail contracts and
wholesale contracts for broadband services should end before the first half of
2010. It argued that by doing so, IDA could help ensure that “all customers,
including RSPs, are not penalized for switching to NGNBN [the Next Gen
NBN]”.

21. M1 also called upon IDA to implement a set of guidelines to ensure that
consumers taking up “cross-product” packages are not unfairly locked into a
contract and are able to switch operators, for selected service offerings within
the “cross-product” package, without being penalised excessively.

PART III: IDA’S DECISIONS ON THE PROPOSED GUIDELINES

22. IDA has carefully considered all the comments received in the public
consultation. IDA’s assessment and final decision are set out in the following
sections.

IDA’s Policy Objective

23. As highlighted above, one of IDA’s key policy objectives is to promote
effective and sustainable competition in the telecommunication services
sector so that End Users would benefit from having greater choice of service
providers and innovative services, at competitive prices and quality. IDA’s
specific objective in conducting this review is to address residential End
Users’ concerns that contract periods might be becoming unduly long, and
ETCs excessively high, which together hinder them from terminating the
service and switching between operators. Therefore, in our review on the
Proposed Guidelines, IDA sought to ensure that: (i) residential End Users are
not hindered from terminating services or switching service providers by
unduly long contract periods as well as excessively high ETCs; and (ii) there
is a balance between the legitimate interests of both residential End Users
and operators.

Effects of Long Contract Periods

24. Having reviewed all the comments, IDA considers that a guideline on contract
periods is necessary to protect residential End Users of mobile, fixed-line
telephony and broadband services, and to promote more rigorous competition
in these markets. IDA is concerned by the growing trend of operators
competing on offering more high value “freebies”, and tying residential End
Users down to longer contracts. IDA notes that competition based on freebies

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could be viewed by some as destructive and unsustainable. IDA also notes
that the Individual Respondents’ comments to the public consultation strongly
support limiting the duration of contract periods to no more than 24 months.

25. IDA considered SingTel’s opinion, that there should not be a need for
restrictions on contract periods since residential End Users already have a
choice of short contracts for mobile and broadband services today. However,
IDA notes that the shorter contract plans are usually packaged in such a way
that makes them very much less attractive than plans with longer contracts –
which usually come with freebies or discounts. Service providers also
advertise or market those service packages on long contract period
aggressively, and residential End Users may not even be aware of service
packages on short-term contracts. As a result, most residential End Users
would likely end up subscribing to plans with long contracts and high ETCs.

26. To be clear, IDA does not object to operators offering “freebies” or discounts
to residential End Users in return for a commitment to a fixed contract period.
IDA recognises that in general, bundling of services with gifts or discounts is
welcomed by many residential End Users. However, IDA is primarily
concerned that contract periods might be getting longer, and service
packages with contract periods that are unduly long may soon become the
default package, and hinders residential End Users’ ability to terminate
services and switch between operators.

27. IDA is of the view that limiting the contract period to no more than 24 months
strikes a good balance between allowing operators enough room to be
creative and devise their service plans to compete, and protecting residential
End Users from being locked in to unduly long contracts. While this may
restrict the operators’ ability to offer more high value “freebies” tied to longer
contract periods, IDA observes that, with rare exceptions, the 24-month
contract is already the industry norm for promotional offers today, and
operators could already offer all kinds of incentives to differentiate themselves
with a 24-month contract. Limiting contract periods to no more than 24
months should therefore not materially impact operators’ ability to innovate or
compete.

28. Moreover, IDA notes that other regulators 1 , including the Competition
Commission of Singapore2, have also expressed opinions that long contracts,

1
The issue of contract periods is also being reviewed by regulators in the European Union and the
United States:
(a) In a hearing on early termination charges held in June 2008, the chairman of the United
States Federal Communications Commission proposed that, to protect consumers, rules
should be established to guarantee that “any contract for service should be for a reasonable
length of time”.
(b) The European Union had recently introduced a set of Telecoms Reforms which, amongst
other requirements, specifies that the maximum initial contact periods of a contract signed by
a consumer with a operator will be no longer than 24 months. Operators must also offer
consumers the possibility of agreeing to a contract with a maximum duration of 12 months
(see http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/491).
2
The CCS stated in its Oct 2008 guidelines on competition impact assessment for government
policy makers, “the ability of buyers to easily switch to a seller that provides a lower price, better
service or quality, incentivises sellers to compete vigorously and so promotes efficiency in a
market. Long-term contracts with high financial penalties for leaving before the stipulated time
period make it harder for buyers to switch between sellers.”
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coupled with high ETCs, do form significant barriers to switching operators for
residential End Users. To effectively reduce such barriers, IDA is of the view
that the issue of contract periods and ETCs should be addressed holistically –
addressing one but not the other is unlikely to effectively resolve the barriers
to terminating services and switching operators for residential End Users. For
example, if IDA were to implement the guidelines on ETCs without any
guidelines on contract periods, nothing prevents operators from imposing
longer contracts instead. Therefore, whilst IDA may succeed in reducing the
quantum of ETCs and getting ETCs to be graduated, residential End Users’
ability to switch service providers could continue to be restricted as they get
tied down to increasingly longer contracts.

29. Based on the above reasons, IDA determines that it is appropriate to
introduce a guideline on contract period for mobile, fixed-line telephony, and
broadband services offered to residential End Users, limiting the duration of
contract periods to no more than 24 months. IDA continues to encourage
operators to offer a variety of plans, e.g. no-frills plans, standard plans with
fixed subscription periods of three to six months etc., in order to provide more
options for residential End Users.

Fairness of Fixed ETCs and ETCs that do not Exclude Avoided Costs

30. As mentioned in the consultation paper, IDA is of the view that fixed ETCs
that do not decrease over time, and ETCs that do not exclude costs that will
be avoided once a subscriber has terminated his contract, do not meet the
standard described in Sub-section 3.2.3 (Prohibition on Disproportionate Early
Termination Charges)3 of the Telecom Competition Code (the “Code”), which
requires operators to ensure that the ETCs are reasonably proportionate to
the discounts given and the amount of time the End User has completed on
the contract.

31. IDA recognises that operators do incur certain costs in order to serve their
customers. These costs would include administrative and installation/roll-out
costs, as well as costs of gifts, discounts or subsidies that were provided to
their customers. In the event of an early termination of a contract by a
customer, it is reasonable for operators to seek to recover the portion of these
costs which have yet to be recovered from the customer, including the cost of
any special consideration (in the form of gifts, subsidies or discounts), but less
any costs that will be avoided by the operator when a customer terminates the
service.

32. In their responses to the public consultation, operators have raised a number
of concerns about the recovery of such costs through ETCs. To justify having
a fixed ETC, M1 had raised the view that regardless of when a customer
terminates his contract, the cost of any subsidy provided remains a fixed cost.
IDA does not agree with M1’s view that, at the point of premature termination
by a customer, operators should be entitled to recover the full sum of the
subsidies that had been provided to the customer. Such a view disregards
the fact that customers may have fulfilled part of their contractual obligations

3
Section 3.2.3 of the Telecom Competition Code states that: “the amount of any early termination
liability must be reasonably proportionate to the extent of the discount or special consideration
that the Licensee has provided and the duration of the period which the End User took service”.
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and operators have already recouped part of their costs. As highlighted in
IDA’s consultation paper, IDA’s view is that an operator would continuously
recoup the costs of any subsidy throughout the course of the customer’s
contract period. Indeed, when designing a promotion, operators would
already have factored in all subsidies when determining the promotional price.
This being the case, at the point of the customer’s early termination, the
operator should only recover the portion of the subsidy which it has yet to
recover, and not the full subsidy via a flat-rate or fixed ETC, as though the
customer has not served out any part of his contract.

33. IDA considers that fixed ETCs on a long term contract cannot be considered
to be “reasonably proportionate”, since such fixed ETCs do not take into
account the length of time that the End User has completed on his contract
and the costs already recouped by the operator. Instead, IDA is of the view
that graduated ETCs, that take into consideration the length of time that a
customer had served on a contract – by decreasing in tandem with the
number of months left on the customer’s contract period – are more
consistent with the Code requirement on proportionate ETCs.

34. IDA also considers that ETCs that are equivalent to, or higher than, the sum
of the remaining monthly charges do not meet the Code standard of being
“reasonably proportionate”. This is because such ETCs do not take into
account the variable costs that the operator would have avoided by stopping
the provision of service to the End User.

35. Accordingly, IDA is of the view that, for ETCs to be consistent with the Code
requirement of being "reasonably proportionate", such ETCs must, at the
minimum, meet the following requirements: (i) ETCs should be graduated on
at least a month-by-month basis; and (ii) ETCs must exclude avoided costs.

36. Based on the above reasons, IDA determines that it is appropriate to
introduce a guideline on ETCs for mobile, fixed-line telephony, and broadband
services offered to residential End Users, stipulating that:

(a) ETCs for contracts that are longer than three months are graduated (i.e.
decrease over time); and

(b) The quantum of ETCs imposed on residential End Users excludes any
costs that will be avoided by the operator when a residential End User
terminates the service.

37. A guideline on ETCs will provide residential End Users and the industry with
clarity on what IDA deems to be proportionate ETCs, as required under Sub-
section 3.2.3 of the Code.

38. IDA notes that SingTel had referred to the fact that the requirement for
proportionate ETCs have been in place in the Code since 2000, and that
“there had never been any suggestion that the ETCs [ETCs imposed by
SingTel that are fixed and/or do not exclude avoided costs] are not compliant”.
IDA would like to clarify that notwithstanding this, nothing precludes IDA from
issuing Advisory Guidelines clarifying what IDA considers as necessary
requirements to be met by operators going forward in order to remain

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compliant with the Code, when determining the ETCs in respect of the
relevant service agreements.

39. As IDA had set out in its public consultation paper, IDA recognises that it may
be impractical to require all ETCs to be graduated. In the case of short-term
contracts (of between one to three months), IDA is of the view that fixed ETCs
which may not exclude avoidable costs are acceptable. This is because it is
unlikely that operators would have recovered their upfront costs within such a
short period, and the contract period is not too long for residential End Users
to see it through if they wish to avoid paying the ETCs.

Other comments

40. On the suggestion for an “end date” to be set for all broadband service
contracts before the arrival of the Next Gen NBN, IDA does not think this is
necessary. Firstly, IDA does not intend to interfere in contracts that have
already been concluded between operators and their customers. Secondly,
IDA finds such a measure to be impracticable. Since the Next Gen NBN
network and services will be rolled out in stages across the island, there will
not be one specific “start date” for the Next Gen NBN. Accordingly, it would
not be practical for IDA to set an “end date” for all broadband contracts. IDA
also considers that operators should be encouraged to continue to offer
innovative services in the run-up to the Next Gen NBN, and End Users should
take into consideration all factors before deciding on the best packages that
meets their needs.

41. IDA also considers it unnecessary for IDA to introduce a separate set of
similar guidelines for “cross-product” packages, as the Final Guidelines are
already intended to apply to any single or multiple-product packages which
comprise of residential mobile, fixed-line telephony, and/or broadband
services. Operators must therefore ensure that, for any multiple-product
packages which contain mobile, fixed-line telephony and broadband services
offered to residential End Users: (a) any contract period does not exceed 24
months; and (b) any ETCs imposed for termination of any multiple-product
packages must be "reasonably proportionate", and in line with the Final
Guidelines and the Code.

42. Finally, on the suggestion to expand the Final Guidelines to cover business
broadband contracts outside of the CBD, IDA is of the view that similar
guidelines covering business contracts, if necessary, would have to be distinct
from those for residential End Users, to take into account differences in
service offerings to business / corporate End Users, the customisations
prevalent in certain business contracts as well as the difference in bargaining
power and market information available to such customers. IDA will consider
the need for these guidelines separately.

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PART IV: CONCLUSION AND ISSUANCE OF FINAL GUIDELINES

43. In summary, IDA’s Final Guidelines stipulate the following:

(a) Operators offering residential mobile, fixed-line telephony, and
broadband services must limit the duration of contract periods for such
services to no more than 24 months.

(b) Operators offering residential mobile, fixed-line telephony and
broadband services with contract periods longer than three months
must ensure that ETCs are graduated on a month-by-month basis.
This means that ETCs must decrease monthly, in tandem with the
number of months that are left on an End User’s contract.

(c) Operators offering residential mobile, fixed-line telephony, and
broadband services must ensure that any ETCs for early termination of
a service contract do not include costs that will be avoided by the
operators when they cease the provision of the service to the End User.

44. The Final Guidelines will take effect on 1 March 2010. The guidelines will not
apply to contracts concluded before this date. Notwithstanding this, IDA
would like to remind the affected operators that this period of transition is
meant to allow operators to adjust or modify their processes, systems and
existing service offerings, if necessary, to comply with the guidelines. IDA
expects that, in the interim, any new service offerings introduced by operators
should comply fully with the Final Guidelines.

45. For avoidance of doubt, the Final Guidelines will apply to any single and
multiple product packages which include any residential mobile, fixed-line
telephony and/or broadband services, including those multiple-product
packages that may also include other types of residential services. The
guidelines will also apply to all value-added services offered pursuant to any
residential mobile, fixed-line telephony and/or broadband services.

46. The Final Guidelines will not apply to mobile, fixed-line telephony and
broadband services offered to business/corporate customers.

47. IDA would also clarify that the Final Guidelines are advisory and do not
impose any binding legal obligation on IDA. However, the Final Guidelines do
clarify the standards that IDA will generally apply in assessing whether a
service agreement contravenes the Code. Accordingly, IDA expects
operators offering residential mobile, fixed-line telephony and broadband
services to comply with the Final Guidelines. If IDA discovers that any
operator offering residential mobile, fixed-line telephony and broadband
services does not meet the requirements set out in the Final Guidelines, IDA
will consider taking regulatory actions that IDA deems necessary or
appropriate.

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