Chaos theory tells us that small changes can have huge implications in complex systems. The so-called butterfly effect is hard to predict, but we could be witnessing chaos theory in action when it comes to the European Union’s digital transition. Seemingly minor national provisions in the contracts between customers and operators are threatening the grand ambitions to ensure every EU household has 5G coverage and gigabit connectivity by 2030.
The connection between customer contracts and the rollout of fibre networks and 5G might not be obvious at first sight. It comes down to the way operators offset the massive investments in the infrastructure needed for the digital transition, which the European Telecommunications Network Operators’ Association (ETNO) says will add up to €300 billion by 2027. With such enormous numbers in play, operators are keen to minimise the investment risk by having a stable customer base.
The loyalty provisions in customer contracts are a crucial part of this. They cover the minimum length of the contract, customer benefits like discounts and upgrades, and the penalties incurred by customers if they are cancelled. In an already ultra-competitive environment, these loyalty provisions help balance investment uncertainty for operators with affordability and service to end-users. In the case of Portugal, the possibility of such provisions being eliminated, or in some way weakened, will effectively hamper SONAE’s ability (through its telecoms arm – NOS) to complete its roll out plan of a nationwide fibre network. This has direct negative repercussions on 5G connectivity and on its related ecosystem, as well as on the affordability to Portuguese consumers and enterprises of advanced communications services.
Of Codes & Contracts
However, some EU Member States have imposed restrictions that run against the spirit of the EU’s single market, and in particular the 2018 European Electronic Communications Code (EECC), which regulates networks and services, and includes provisions for contract loyalty clauses. Notably, Belgium, France and the Czech Republic limit penalties operators may set in case of breach of contract.
In Belgium, for example, while loyalty contracts are possible up until 24 months, the cancellation penalty only applies if the consumer leaves up until the first six months. After that, no penalty is possible. This effectively means the loyalty periods only last for six months. In Portugal, one of the leading countries in deployment of fiber-to-the-home, under the new law that will transpose the EECC, proposals from the national regulator are being considered that severely restrict renewals of loyalty periods and the level of penalties in case of contract cancellation. These would jeopardise the investments that have already been made and signal that most of the business risk will be passed over to operators.
These legal nuances in national regimes do not just undermine the EU’s Single Market. They also hamper the business case of operators – and the EU’s investment and connectivity goals. Indeed, EU data shows that the Belgian, French and Czech regimes have not served their countries well. Indeed, operators in these countries are lagging behind in fiber deployment. The most recent figures show Belgium only had around 6.51% of homes covered with fiber networks, the Czech Republic 33.3% and only France was able to surpass the 50% mark. Portugal, by contrast, has over 87.2%.
This imbalance is even more brutally felt in rural areas: only 6.36% of Czech rural households, 0.384% of Belgian rural households and 18,4% of French rural households are covered by a fiber network, whereas in Portugal more than 50% of these rural homes have a FTTH network available.
Stimulating investment without losing consumer choice
Loyalty conditions are a way to ensure increased connectivity with real take-up from consumers. Each operator offers a variety of packages that allow consumers to choose the combination of price and contractual duration that is best suited to them. Customer choice is empowered by information that must be clear, simple and timely, and thanks to the new European Code, there are specific measures that lay down operator duties on information to the customer throughout the contract lifecycle.
However, restrictions on the effectiveness of customer loyalty contracts ultimately risk promoting lower quality of service. As the data on connectivity above shows, it leads to less investment and lower network quality and fragments the EU’s Single Market.
This is about finding the right balance in the contracts between protecting consumer rights and allowing operators to define basic commercial terms. By restricting commercial flexibility, national governments are hampering private investment and service quality. Ironically, this short-term focus on consumer rights will hurt consumers in the medium and long term, putting Europe’s 2030 connectivity goals in jeopardy.
In this sense, we believe that the European Commission should directly address and tackle these differences of interpretation that risk further fragmentation of the internal market and jeopardize the achievement of the objectives set out for Europe’s Digital Decade.
Thus, we call the European Commission to publish policy guidance’s’ to national regulatory authorities, and governments, on the risks of further limiting the effectiveness of loyalty clauses, of electronic communications contracts, in recouping the direct setup costs incurred by operators when providing access to next generation services to customers.
In Belgium, for example, while loyalty contracts are possible up until 24 months, the cancellation penalty only applies if the consumer leaves up until the first six months. After that, no penalty is possible. This effectively means the loyalty periods only last for six months.
Loyalty conditions are a way to ensure increased connectivity with real take-up from consumers. However, restrictions on the effectiveness of customer loyalty contracts ultimately risk promoting lower quality of service.
