Protection of consumers with prepaid accounts
26.06.2020Regulating to protect consumers with prepaid accounts
The ability to pay for mobile service in small increments,[1] as and when they are needed and resources permit, is a major factor in making the service affordable to people on low or unpredictable incomes. Affordability remains a barrier to Internet usage for large groups in Africa, South Asia, and Latin America (After Access 2017: 26, 37, 59). Despite a drift away from prepaid packages towards postpaid contracts (generally fostered by service providers, especially in richer countries), prepayment remains the dominant payment mechanism for mobile service throughout the developing world, and is still popular in most developed countries.[2]
Reasons for regulating
Consumer protections in many countries are based on the historic assumption of a postpaid contractual relationship, and do not fully cover the risks to which this large (and relatively low income) user base is exposed. This is well illustrated by the passage on usage costs and the quotation in the box below. People are understandably upset if their credit expires, often without warning, after a short life.
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Affordability was an often-cited barrier to Internet use. Some female survey respondents in particular spoke of how they didn’t have sufficient budget to spend on Internet access after spending on household expenses. One had thus resolved to be satisfied with only making network calls via her basic phone. Survey respondents faced two levels of problems in gaining accessibility to the Internet. The first was the need to buy a device that would allow them to gain access, which would necessitate a larger, one-time, outflow of money. GSMA cited this as being the largest barrier to Internet use for both men and women in India. Even though lower cost smart phones (made in China) are available in the market for under USD 50, given income levels, this represents a significant investment for many. This was observed even in the case of Jio, where though data (on 4G) was available free to anyone for 6 months, the cost of obtaining a 4G-compatible smartphone was a barrier to use. The second was the ability to afford a more consistent, though smaller, outflow of money to pay for mobile data. Many spoke of how mobile data was unaffordable. This sentiment was most often echoed amongst individuals who had previously used mobile data, but had stopped subsequently due to budgetary constraints. One of the key problems identified by this group was that the short validity period of the data packs available in the market resulted in wasted funds. Those who brought forth this issue were light users who also struggled to find time to use the Internet due to juggling full time jobs and seeing to their children. “After 28 days I get the message that it’s time to recharge my data pack. That really pinches very badly. I mean, I have not used the previous one, and that has gone waste.” Prakash, 36, M, Supervisor at a factory (R2) |
Source: Adapted from Hurulle and Galpaya 2017.
The reasons for this situation may include:
- The lower propensity of less advantaged consumers to complain, especially when their maximum risk exposure is limited to the amount they have already paid, and they may be unaware of their right and ability to complain.
- The non-transparency of use of prepaid credit. Often, the only way for users to check whether they are being correctly charged is to check their balance before and after each transaction, while being fully versed in the details of the charging algorithm. This may feel like (and arguably is) a disproportionate burden – meaning that charging errors will often go undetected.
Of course, mobile service providers are unlikely to perceive additional consumer protections as being desirable, and may well argue that they are unnecessary (citing low complaint levels) and costly to implement (not having been included in initial system design).
A big advantage of prepaid for mobile providers is the absence of bad debt. Effectively, the risk of payments not matching service use is transferred from the provider to the user. In practical terms, additional risks for prepaid users include:
- Loss of paid-for credit on expiry. Typically, smaller credit increments have shorter lives.
- Higher unit charges when using smaller credit increments. As in other fields, “the poor pay more.”
- Exposure to effectively undetectable charging errors.
- Inability to redeem unspent credit on account closure, or simply if it is needed for other purposes.
- Lack of compensation for missing or low quality service – a base station could be out of action for the entire duration of a top-up, with no prospect of redress.
Possible regulatory measures
In principle, consumer protection rules about, for example, tariff transparency may be thought to apply to all users regardless of payment method, but in practice it is much easier for a postpaid user to check a bill than for a prepaid one to check the fate of a credit balance. Some regulators have therefore introduced specific protections for prepaid users, of which an example from India is given below.
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Special provisions in India for prepaid consumers Information to Prepaid subscribers on activation of voucher Immediately on activation of a voucher, the telecom service provider (TSP) should inform the prepaid consumer through SMS the following information: (a) On activation of plan Voucher: (i) Title of the plan; (ii) Validity period of the plan; (b) On activation of Top Up Voucher: (i) Total amount charged; (ii) Processing fee or administrative charge, as the case may be; (iii) Taxes deducted; (iv) Net monetary value added; (v) Total available monetary value; (c) On activation of Special Tariff Voucher: (i) Total amount charged; (ii) Validity period of the voucher; (iii) Benefits specific to the voucher. (d) On activation of a Combo Voucher: (i) Total amount charged; (ii) Benefits specific to the voucher; (iii) Validity period of the specific benefits; (iv) Net monetary value added; (v) Restrictions, if any on usage or validity period of monetary value. Information to prepaid subscribers relating to usage Immediately on making any deduction from the account of a prepaid subscriber, the TSP needs to inform them through SMS or USSD, the following information: (a) After every call: (i) Duration of the call; (ii) Charges deducted for the call; (iii) Balance in the account; (iv) In case of Special Tariff Voucher, minutes of usage deducted and balance minutes of usage available; (b) After every session of data usage over mobile: (i) Quantum of data usage; (ii) Charges deducted; (iii) Balance left in the account; (c) After activation of any service including value Added Service (VAS): (i) Amount deducted; (ii) Purpose for which the amount deducted; (iii) Balance in the account; (iv) Validity period of the value added service. Note: These provisions will not apply in case the subscriber is roaming outside their service area. Deactivation of a mobile connection due to non-usage – No Prepaid mobile connection shall be deactivated on account of non-usage for a minimum period of 90 days. – Non-usage means absence of any incoming or outgoing call or outgoing SMS or data session or usage or value added services or payment of rental. – Beyond 90 days, an amount not exceeding Rs 20 shall be deducted from the prepaid account, if balance is available, for extension of the period of non-usage by 30 days at a time. Safeguards for prepaid subscribers Majority of the mobile subscribers are prepaid subscribers. Some of the specific orders and directions intended to safe guard their interests are: – The charges for replacement of lost/damaged SIM card shall be based on cost with a reasonable mark-up. – If there is any amount that is unused at the end of the validity period, this amount should be carried over to the renewed card, if such renewal is done within a reasonable, specified period. – All services which do not affect “talk time value” including incoming voice calls/SMS shall continue to be available to the prepaid subscriber during the entire validity period even after the talk time value is exhausted. – In case of straight tariff reductions, the subscriber should automatically get the benefit of such reduction without any precondition of any explicit action by the subscriber. – Subscribers in the existing lifetime validity plans or unlimited validity plans can migrate to new lifetime plans or unlimited validity plans with lower entry fee without having to make additional payment or recharges. – Every service provider should offer and make available to the consumer at least one top up voucher of Rs 10 denomination for adding monetary value in the amount of prepaid consumers. – The processing fee levied on top-up vouchers shall not exceed Rs or 10 per cent of maximum retail price whichever is less. Safeguards common to prepaid and postpaid subscribers Tariff plan with pulse duration of one second – Every service provider providing mobile service should offer to the subscriber at least one prepaid and one postpaid tariff plan with pulse duration of one second for local and national long distance calls. – This provision would not apply to calls terminating outside the country. Tariff plans with misleading titles prohibited (i) No tariff plan should be offered, presented, marketed or advertised in a manner that is likely to mislead the consumer. For example, title of a tariff plan, which suggests absence of rental, (e.g. ‘zero rental’) would be misleading if the plan has monthly mandatory fixed charge in one form or other. (ii) All monthly fixed recurring charges, which are compulsory for a subscriber under any given plan, should be shown under one head. (iii) Charges for CLIP facility cannot be made compulsory item of tariff for subscribers in any tariff plan. Whenever, CLIP charges are sought to be levied by the service providers it should be optional for the subscribers. Q. A prepaid subscriber feels that they are being overcharged. Can they get itemized usage details in respect of their mobile connection? A. Yes, if a prepaid subscriber makes a request for itemized usage details, the service provider is required to supply to them the same for a period of six months preceding the month in which the request has been made. The service provider may charge a reasonable cost not exceeding Rs 50 for providing such details. |
Source: TRAI 2018.
The effect of minimum top-up amounts and short credit expiry periods on the cost of service to a prepaid user is not always appreciated. The table below illustrates how much difference these can make to a user who wants to permanently preserve the option of making outbound calls.
| Measure | Case A | Case B | Case C |
| Credit expiry (days) | 28 | 7 | 28 |
| Minimum top-up (EUR) | 5 | 5 | 10 |
| Price per minute (EUR) | 0.25 | 0.25 | 0.25 |
| Minimum top-up buys (min) | 20 | 20 | 40 |
| 4-weekly cost (EUR) for user making: | |||
| 0 minutes of calls | 5 | 20 | 10 |
| 30 minutes of calls | 7.5 | 20 | 10 |
| 60 minutes of calls | 15 | 20 | 15 |
Source: Adapted from Lewin and Milne 2010.
Recommendations incorporating this sort of thinking, from the same source, are shown below. The regulator in Brazil, among others, has recognized the importance to consumers of long expiry periods for credit and required them to be provided. Mobile service providers in Brazil must also allow at least two months after all credit has expired on a number before cancelling the number (so the consumer can recharge during that period and keep the number).
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Recommended features of a no-frills prepayment package European regulators should require or encourage mobile operators to offer at least one no-frills prepay package to consumers for both telephony and broadband services, and ensure that this package is well publicized to groups who may wish to take advantage of it. While many mobile operators offer commercial prepay packages which meet the needs of low-income households well, others do not. This package might have some or all of the following characteristics:
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Source: Adapted from Lewin and Milne 2010.
Interestingly, the increasing popularity of mobile payments (whether using an airtime balance or a separate account, possibly accessed via an app) has brought to the fore the issue of whether mobile operators should be regarded as banks, and regulated as such. It has been argued that subjecting mobile airtime balances to the prudential regulation typically applied to banks is disproportionate and all too likely to cramp developments. An upper bound for airtime balances that are exempt from banking regulation may be a sensible approach.[3]
Endnotes
- Often called “sachets” by analogy with the packaging of individual portions of shampoo or sauce. Another attraction of prepaid service in some countries has been its informality – the absence of a contract meaning that phones, SIM cards, and top-ups could be available over the counter with no need for the purchaser to be identified. Increasingly, however, this aspect has disappeared, with prepaid service requiring registration as a safeguard against use for criminal purposes. ↑
- Mobile prepayment originated in Europe, in the 1990s – probably in Portugal or Italy (Rees 1999). In 2020, according to GSMA Intelligence as quoted by Kemp (2000: slide 192), 73 per cent of global mobile connections were prepaid. ↑
- On the successful Kenyan M-Pesa service, in order to avoid banking regulation, transactions were initially limited to KSh 50,000 (about USD 625), later raised to KSh 75,000 (Omwansa and Sullivan 2012). Currently the maximum permitted account balance is 300,000 KSh and the maximum daily transaction limit is 150,000 KSh. ↑
References
After Access. 2017. Let the People Speak: Using Evidence from the Global South to Reshape our Digital Future. IGF 2017 Panel (WS188), Geneva. https://afteraccess.net/wp-content/uploads/AfterAccess_IGF2017v2_1.pdf.
Hurulle, Gayani and Helani Galpaya. 2017. Cost-Strained Optimization: User Perspectives on Internet Use in India. Colombo: LIRNEAsia. https://blog.mozilla.org/netpolicy/files/2017/07/India-LIRNEasia-2017.pdf.
Kemp, Simon. 2020. Digital 2020: Global Digital Overview. https://wearesocial.com/digital-2020.
Lewin, David and Claire Milne. 2010. Are Telecommunications Services Universally Affordable Across the EU? An Independent Assessment for Vodafone. Plum Consulting.
Omwansa, Tonny K., and Nicholas P. Sullivan. 2012. Money, Real Quick: The Story of M-Pesa. London: Guardian Books.
Rees, Simon. 1999. The Strange Success of Prepaid Mobile Phone Services. Master’s thesis, University of Lincolnshire. http://telecomsblog.ie/wp-content/uploads/2015/06/Simon-Rees-Masters-dissertation-1999.pdf.
TRAI (Telecom Regulatory Authority of India). 2018. Consumer Handbook on Telecommunications. https://trai.gov.in/sites/default/files/TRAI_Handbook_2018_Eng.pdf.
Last updated on: 19.01.2022