Smartphone bonus sends operators wrong message

Paris: Some French smartphone users are getting an unexpected holiday gift this year — their handsets — as a tax hike allows them to get out of their service contracts and keep their subsidised phone.

Analysts say the development is a disaster for France's main mobile operators and could lead to a major shake-up in the market if users move to lower-priced virtual operators.

French telecommunications companies have been pushed by the EU and French government to end lower value added tax (VAT) charges for internet services, which some mobile operators have applied to some smartphone contracts.

These customers may now escape their one- or two-year contracts under which they received their smartphones at a heavily discounted price thanks to French consumer protection laws.

They get to keep their smartphones and not pay any penalties and can switch to another operator of their choice.

"As there has been a substantial modification of the contract, there is the possibility for clients to quit their operator within four months from the moment the higher rates come into force, which is on February 1," Orange, one of France's three main mobile operators, said in a letter to clients.

Customer plans hit

Another of the main operators, SFR, plans to send a similar letter to its clients before the end of the year.

Bouygues has not announced yet which of its customer plans are affected and said it intends to implement progressively the increase in VAT from 5.5 to 19.6 per cent.

"It's fantastic for the client, but economically, it's catastrophic for the operators," said telecommunications analyst Stephane Dubreuil.

In order to attract new clients, French mobile operators offer smartphones at highly subsidised rates, but clients have to sign service contracts lasting one or two years.

The development comes during the holiday buying spree when mobile operators earn 20 to 30 per cent of their annual revenue and will affect primarily customers on their top-priced service plans.

Virtual mobile operators, which buy time in bulk from the main operators and generally offer lower prices, also see this as a holiday gift as they have an opportunity to pick up clients that are high users of services.

Pascal Rialland, managing director of Omea Telecom group which runs Virgin Mobile and several other virtual operators, said they are "quite euphoric" about the development.