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Telecom wins phone-locking stoush with 2degrees

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

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

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

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

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

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

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

It will monitor Skinny, but take no action.

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

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

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

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

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

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

Mission creep
Telecommunications Users Association CEO Paul Brislen agreed.

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

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

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

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

2degrees goes to Commerce Commission over Skinny phone locking

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

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

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

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

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

2degrees sees the practice as anti-competitive.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

More by Chris Keall

Comments and questions

Maybe 2Degrees should find something better to do than running to the comcom all the tme, Mummy Mummy!

And this is why im with 2Degrees... Awesome stuff 2D, keeping dodgy telecom honest...

Telecom has always locked its CDMA handsets and when Vodafone moved into this minefield telecom said it would never lock handsets.

Pretending that Skinny is a different company won't work. It's telecom and sadly it would appear its the old telecom at work.

Go 2Degrees.... more old hand tricks from Telescum!!

What a stupid stupid stupid brand name another TelecomNZ fail just like putting up a Christmas tree with a Helicopter it will all come crashing down around them!! oh and we can't forget the pink fisted car from Rugby World cup!! Another FAIL!!!! I can think of a new same for them " FAIL Moible "

What a stupid stupid stupid brand name another TelecomNZ fail just like putting up a Christmas tree with a Helicopter it will all come crashing down around them!! oh and we can't forget the pink fisted car from Rugby World cup!! Another FAIL!!!! I can think of a new name for them " FAIL Moible "

Sam, maybe you could be taken seriously if you didn't send it twice, and learnt to spell mobile!

Rob Roy they are just typo errors and if you look at the second message you will see it's different so get your hand off it!

If they offer competent service and cheap phones I'll be happy to be "locked in"... $30 to unlock isn't much people get a grip! Competition is welcome - bet 2degrees is wetting their pants that they won't be the cheapest any more...

2Degrees is not the cheapest now for many things

Maybe one day 2degrees could provide a IMEI Blacklist service, Got a stolen phone use it on 2Degrees the stolen phone network provider

Doesn't matter if there cheaper, this type of 'promo' from Telecom reminds us all of the perception most people have of them predatory and usually the last cab of the rank in terms of a company I'd want to spend money with... remember the Gauting years.

When I tried to move to XT from Vodafone I found that my phone didn't work on XT. Looks like Telecom aren't the only ones locking their phones. Someone needs to do their homework on this.

Vodafone don't lock handsets. 99% of mobiles sold by Vodafone or 2degrees won't work on XT however as they don't support the 850MHz frequency. I wonder if the Commerce Commission think this is anti competitive also?

Apparently XT only works if you happen to be an small man stuck on a container in a harbour, or you a Scotsman out trout fishing ... don't bother with major cities.

Comcom are world class idiots!!

Maybe the comcom should look at 2Degrees and how they don't hav an EIR (blaclist) for handsets, So got a stolen phone just use it on the 2degrees network they support criminals

I'd move to XT hahahaaa yeah right

"It could change the whole industry. Vodafone could start locking SIM cards again," Mr Bolland - hmmmmmm 2degrees get your own iphones

[For customers, the more networks an iPhone can be bought on, or used on, the better. Same goes for any handset - CK]

If you don't like the service don't use it - no one has a gun at your head.

This will only benefit little asian shops that unlock handsets!! Pointless

Quit whinging 2Degrees - as long as the customer is aware of the charge why can't they make the choice? Don't tell me how I should buy my mobile service.

I agree. Quit whinging 2degrees!

And Paul your argument is weak too. Correlate the target market of skinny with those who take regular international sojourns and you'll find it's smaller than the margin of error.

Let's see
Skinny provides cut-rate service to attrack the budget minded user who needs or wants mobile communications. Their caveat - you are SIM locked for 9 months, and if you want off the lock - its a $30 fee

If you were SIM locked and wanted to hack your phone to get off, it would probably cost you more than $30 anyways

Voda and 2Degrees sell phones which essentially ONLY work on their networks (because is some places they share transmitters). So even with their unlocked phones - if you tried to get on Telecom XT network, you are stuffed....What would you call that.. PHONE LOCK-IN....which is worse?

Telecom XT phones are sold able to connect to ANY network. I know, cuz I just bought a smartphone from them and my wife hijacked it and uses it on her 2degrees SIM.

All of the mobile providers are trying to protect their business model. THAT IS THE WAY IT IS. At least Skinny gives you an out - clause, and you are aware of it - so its not a lock-in. Its more of an opt-in with a small fee to get out.


Was it the Commerce Commision, 2D or NBR that wrote:
"Company's don't like ..."

Hey I've got an idea 2degree's - how about you sort out why you're losing $50m/year rather than being that annoying little nark all the time.

The way you're going with losses you'll be out of business before a lock-out period expires anyway.