An investigation by the Independent Communications Authority of SA (Icasa) into whether cellphone handset subsidies are detrimental to consumers has concluded that there is no need for the subsidies to be scrapped.

Icasa believes "there is insufficient competition in the handset market", but it will not intervene in the marketing practice of subsidies.

Instead, it will force the three operators, Vodacom, MTN and Cell C, to offer shorter, less restrictive contracts. Icasa will also insist that contracts are made far clearer so consumers understand exactly what they are paying for and can compare different offerings more easily. The current 24-month contracts were "customer capture", and the operators would be required to draw up contracts for as little as six months, Icasa said.

Contract customers who buy their own handset now pay the same airtime rates as those who accept a new handset as part of the contract, and Icasa believes that people who do not want a new phone should be offered more favourable terms.

The rulings come after Icasa held hearings last year because it suspected that "free" handsets ended up costing consumers dearly through hidden costs in contracts. It was also concerned about the difficulty of working out exactly what users were paying for and even determining which operator offered the best value.

Last week MTN CEO Phuthuma Nhleko described handset subsidies as "unacceptable". Speaking at the 3GSM Congress in Barcelona, he said other markets were ahead of SA as they did not subsidise handsets and allowed entrepreneurs to import them directly.

Cell C was also eager to scrap the subsidies, which raised the cost of acquiring customers and made it hard to poach users locked into contracts with MTN and Vodacom. However, none of the operators has dared to withdraw the subsidies in isolation, as users would simply sign up with a rival offering the latest hi-tech handset. Last week Cell C corporate communications executive Vanashree Pillay welcomed the call for shorter contracts. Contracts apply to fewer than 10% of users of cellphone users in the country.

Business Day