MCA consultation on inflation-linked contract price increases

Author: Jackie Mallia

Article 20 of the Universal Services Directive provides that service providers must ensure that consumers have the right to a contract which must include (amongst other things) details of prices and tariffs. When service providers make changes to their contract, subscribers have a right to withdraw from that contract without penalty.

In the past few months, service providers in Malta (following trends in other jurisdictions including the UK, Italy and Ireland) have introduced clauses allowing for automatic price increases linked to inflation.  This follows from a 2015 judgment of the ECJ following a Preliminary Reference by an Austrian Court in Austrian Consumers’ Association v A1 Telekom Austria AG.  In that judgment, the ECJ held that a change in the charges for the provision of an electronic communication service resulting from a price adjustment clause does not constitute a modification to the contractual conditions within the meaning of Article 20 of the USD.

It therefore meant that service providers could apply the terms of the clause, increase their monthly tariffs in accordance with the rate of inflation, while subscribers would not beable tobenefit from their rights under Article 20 and withdraw from that contract without penalty.

The Perceived Issue

MCA is concerned that this practice will have a negative impact on end-users.  MCA concludes that in order to protect consumers, consumer protection measures need to be introduced.

The MCA perceived harm includes:

• Lack of awareness of inclusion of such a clause
• Lack of comprehension of the effects of such a clause
• Uncertainty viz. future tariffs
• Consumer hardship
• Consumers do not have the right to terminate subscription if the increase takes place
• Difficult for consumers to make an informed decision viz. different tariff plans

Who is impacted

It is proposed that the measures will apply to all providers of publicly available electronic communications services (other than number-independent services e.g. WhatsApp and Skype or services used for M2M communications).  

Which fees are covered

The Decision would apply very broadly to “any charge/s and/or fee/s, howsoever so described, of their service/s plans”. The decision would also apply to the provision of communication services to microenterprises, small enterprises and non-for-profit organisations.  It covers bundles of services or when a communications service is bundled with terminal equipment.

What are the proposed measures

MCA proposes 6 measures[1] which are described below:

Measure #1

Service providers’ websites must clearly indicate the application of such clauses.

Measure #2

Service providers must obtain an explicit consent indicating that the subscriber is aware of the inclusion of such clause within the contract acknowledging that the subscriber has no right to terminate the contract without the application of early termination fees.

Measure #3

Service contracts which contain such a clause may not include a minimum contract term of more than 6 months.  Existing service contracts which mandate a longer minimum contract term, “shall become null and void and shall not be applied by providers after the initial six (6) month period from when the contract was signed by the consumer has elapsed.”

Measure #4

Service providers wishing to introduce such clauses within existing contracts must notify their subscribers and such notification (i) must not exceed a one single-sided A4 page and (ii) may only include information related to the introduction of such a clause.

Measure #5

Before implementing any price increase, service providers must notify the MCA 10 working days in advance of:

• The services which are impacted
• The tariffs which will be increased
• The amount of the increase
• The computation
• The Consumer Price Index issued by the competent entity used to calculate the increase in tariffs.

Measure #6

Service providers must notify their subscribers 30 days in advance of any increase.

Timing of the proposed measure

 MCA proposes that the decisions will become applicable immediately upon publication with the exception of Decisions 1 &2 which will be applicable within 30 days.

If you are a stakeholder and you wish to share your views or would like us to assist with the submission of your feedback to the MCA, please get in touch on tmt@gvzh.mt

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[1] MCA lists 7 measures in total but in reality, measure #7 speaks of the application of the decision which is covered in this note in the preceding section titled ‘Which Fees are Covered’.