Vodacom appreciates the participative manner in which the PPC, together with the Department of Trade and Industry ("DTI") is and has conducted the formulation of national credit policy and the legislative process culminating in the promulgation of the Bill and formally requests an opportunity to make oral representations to the PPC at an appropriate scheduled time.

Vodacom respectfully submits that the Bill is not relevant to and should not be made applicable on the cellular telecommunications service contracts for the following reasons:

• Any regulatory and/or legislative intervention must be appropriate and proportionate to meet the objectives;

• Regulatory and/or legislative interventions should be justifiable in respect of the objectives that it serves to meet;

• Regulatory and/or legislative amendments must be focused on the problem and minimise side-effects

In this respect, Vodacom submits that in the cellular telecommunications services sector the respective rights and negotiating powers between the service providers (i.e. the cellular operators) and the consumers are to a considerable extent effectively balanced. This balance is due to the fact that, in order to obtain a cellular telecommunications service from a cellular operator a customer need not enter into a subscriber contract with a cellular operator. There is an equivalent alternative in the form of a prepaid package that a customer can purchase in order to gain access to a cellular service. In fact, the prepaid package is the most popular package amongst South African consumers; statistics will show that approximately 80% of subscribers opt for a pre-paid service.

Vodacom welcomes and supports the noble objectives of the Bill, specifically in respect of the following:

• development of a credit market accessible to all South Africans;

• promotion of responsible borrowing and avoidance of over-indebtedness;

• discouraging and preventing reckless credit granting by the credit providers;

• promoting equity' in the credit market with regard to the respective rights and obligations of consumers and credit providers;

• regulating credit bureaus and reporting of consumer credit information and providing mechanisms for resolution of disputes.

Based on the above1 however, it is Vodacom's considered view that most of the problems that are sought to be addressed by the Bill as stated in terms of the objects contained in section 3 of the Bill are not prevalent in the cellular services industry. and there is thus no reason to expand the scope of the Bill to include mobile cellular services within the ambit of the Bill.

It is also important to state in this regard that the intention of Bill (as stated in terms of paragraph 2.3 of the "Memorandum on Objects of the National Credit Bill, 2005") is not to regulate the provision of services on a cash and/or interest free basis. Prepaid packages provided by cellular operators to consumers, correctly, do not fall under the ambit of the Bill. There is, similarly, no reasonable rationale to include cellular subscriber contracts, in terms of which subscribers are billed monthly, on an interest free basis, for services consumed during the month and where consumers have a choice to opt for a pre-paid service, within the ambit of the Bill.

Vodacom is thus concerned that the application of the Bill as well as the general wording of some of the provisions may have unintended consequences which could detrimentally affect or even eradicate certain rights, privileges and benefits currently enjoyed by the consumers in the cellular telecommunications service sector.

In order to effectively highlight its concerns Vodacom has structured its submission as follows:

2.1 Application of the Bill to the telecommunications sector and other utilities sectors.

2.2 Concerns and suggestions on the scope of the key Provisions of the Bill.

2.3 Cost of Conducting business in South Africa.

2.4 Conclusion.

2. APPLICATION OF THE BILL TO THE TELECOMMUNICATIONS AND OTHER UTILITIES SECTORS

In terms of Section 4 of the Bill, the Bill applies to every credit agreement between parties dealing at arm's length and made within the Republic except a credit agreement in terms of which the consumer is a juristic person (subject to certain thresholds), the state or an organ of state. The term credit agreement is defined in section 1 as an agreement that meets all the criteria set out in section 8. Section 8(3), (4) and (5) sets out the criteria and requirements that have to be met for an agreement or transaction to constitute a credit facility, a credit transaction and credit guarantee respectively.

It is important to note that where an agreement or transaction meets the criteria and requirements set out in section 8(3) or (4) it will, without exception as to the duration of the agreement or service subject to the agreement, (other than the general exceptions contained in sections 4 (which excludes credit agreements under which the consumer is a juristic person subject to certain thresholds, or the state or an organ of the state), 5 (which excludes application of certain provisions of the Bill to incidental credit agreements) and 6 (which excludes application of certain provisions of the Bill where the consumer is a juristic person)) constitute a credit facility or credit transaction as defined.

During interactions between the DTJ and interested stakeholders (including the telecommunications licensees) in various processes prior to and after the Bill was tabled, the telecommunications licensees impressed upon the DTI the difficulties attendant upon the application of most of the key provisions of the Bill to the utilities sectors as well as the potential impossibility for compliance therewith. Such application is primarily a result of the wide and all encompassing definitions contained in the Bill, such as for example the definition of credit facility. These difficulties are discussed more fully in paragraph 3.1 below.

Based on the policy considerations which informed the promulgation of the Bill and the stated objectives of the Bill contained in section 3, the DTI advised that it is not the intention of the Bill to regulate the provision of interest free credit and/or credit provided free of finance charges. In particular where one provides services and bills the consumer for the service provided on a monthly basis with no interest charged, most of the provisions of Bill should not apply. This also appears from paragraph 2.3 of the "Memorandum on Objects of the National Credit Bill, 2005" which provides that the three key elements that make an agreement a credit agreement falling under the scope of the Bill are:

• "a deferral of repayment, or a prepayment; and

Furthermore, section 102 which deals with fees or charges provides that "if a credit agreement is an instalment agreement, ... or a lease, the credit provider may include in the principal debt deferred under the agreement delivery charges, connection fees registration fees" etc. This clearly indicates that the fees and charges contemplated in various sections of the Bill are over and above the principal debt i.e. over and above the sale price or cost of the goods or services provided.

However, it is unfortunate that the wording of the most of the provisions of the Bill does not clearly set out this intention. This is due to the fact that the key provisions and definitions of the Bill are all encompassing and inadvertently include the provision of interest free credit and or services under the general ambit of the Bill.

Vodacom respectfully requests the PPC to consider the intention of the Bill and the current wording and interpretation of the provisions of the Bill in giving effect to such intention in its analysis of this submission and the suggested amendments

3. CONCERNS AND SUGGESTIONS ON THE SCOPE OF THE KEY PROVISIONS OF THE BILL

In terms of section 8(3) of the Bill, an agreement constitutes a credit facility if (inter alia) in terms of that agreement:

"(a) a credit provider undertakes

(i) to supply goods or services or to pay an amount or amounts; as determined by the consumer from time to time, to the consumer or on behalf of, or at the direction of, the consumer: and

(ii) either to:

(aa) defer the consumer's obligation to pay any part of the cost of the goods or services. or to repay to the credit provider any part of an amount contemplated in subparagraph (i); (bb) bill the consumer periodically for any part of the goods or services, or any part of an amount, contemplated in subparagraph (i); and

(b) any charge, fee or interest is payable to the credit provider in respect of

(i) the agreement;

(ii) the amount deferred as contemplated in paragraph (a)(ii)(aa); or

(iii) any amount billed as contemplated in paragraph (a)(ii)(bb) and not paid within the time provided in the agreement"

The effect of this definition is that it is all encompassing without exception. The all encompassing nature of this definition is further illustrated by the fact that the term 'defer' is not defined in terms of the Bill. The consequence of this is therefore that where a service or goods are provided and payment is not payable immediately but is deferred or billed periodically (be it monthly, quarterly or otherwise) such a transaction will constitute a credit facility. This can be illustrated through the following examples.

Example 1:

A municipality provides water, electricity and other utility services (e.g. refuse removal) to a customer on an ongoing basis. The customer is billed on a monthly basis for the service i.e. the customer is only billed for services provided from 1 June 2005 to 30 June 2005 on for example 8 July 2005 and is given approximately ten working days to settle the bill. Thus the bill for the service provided in June is only due and payable on 22 July 2005. No interest is levied on the amount payable in respect of the services provided during the month of June unless and until the customer is default. In certain instances an administration fee may be levied.

Example 2:

A cellular telecommunications service provider (Vodacom, MTN or Cell C) concludes a two year subscriber I airtime contract with a customer. In terms of the contract the service provider provides a telecommunications service (i.e. airtime) to a customer on an ongoing basis. The customer is not required to pay the total price for the service that is to be provided over the two year period upfront (and in all cases the cost of the service is not known upfront). The customer is billed periodically on a monthly basis. Only once the customer has defaulted on payment is interest levied.

Though it is clear from the overall framework of the Bill that the transactions contemplated in the above examples should not constitute credit facilities, section 8(3) is not very clear and creates the confusion that they should.

The confusion arises because in both instances, there is a supply of services by a "credit provider" to a customer, the amount is not payable upfront but is "deferred" per month and or is billed periodically (monthly) and a "charge" or "fee" (please note that the terms "defer", "fee" or "charge" are not defined in terms of the Bill) is payable to the credit provider in terms of the agreement or the amount deferred (in the former case the charge or fee is the administration cost and in the latter it is interest in respect of outstanding payments).

Vodacom respectfully submits that such confusion is undesirable and section 8(3) must be amended to make it consistent with the overall framework of the Bill which clearly excludes the provisions of goods or services from the definition of a credit facility.

As confirmed during interactions with the DTI, it was not the intention of the legislature to create confusion as to what constitutes a credit facility in terms of the Bill. A further indication that this was not the intention of the legislature could be surmised from the dictionary definition of the word "defer", the definitions of the terms "consumer" and "credit provider" as contained in section 1 of the Bill and the sections in the Bill dealing with requirements for credit facilities such as for example sections 69, 75, 80, 113, 118, 119 and 123(3).

The term "defer" is defined in the Concise Oxford Dictionary as "put off to a later time or postpone". Vodacom submits that, by billing the consumer only at the end of the month for services consumed in terms of the subscriber contract, the cellular operators do not defer payment of the money billed as contemplated in section 8(3)(a)(ii)(aa). One can only defer (i.e. postpone or put off) payment of an amount that is determined, due and payable. In the case of subscriber contracts, the amount is only determined, due and payable at the end of the month i.e. the operator can only determine the value of the service utilised after it is utilised, which is only at the end of the month. As to the alternative requirement contained in section 8(3)(a)(ii)(bb), Vodacom submits that it does not bill the consumer for a part of the cost of the service or a part of the amount as contemplated therein, it bills the customer for the total cost of the service utilised during the month at the end of that particular month. The service cannot therefore constitute a service supplied under a credit facility.

The term "consumer" to the extent that it relates to goods or services and credit facility is defined in section 1 as inter alia:

• the party to whom goods or services are sold under a discount transaction. incidental credit agreement or instalment agreement or

It therefore follows that the consumer as defined in terms of section 1 of the Bill cannot be supplied with goods or services under a credit facility. This again serves to illustrate that it could not have been the intention of the drafters to extend the definition of credit facility to the supply of goods or services.

The definition of the term "credit provider" as contained in section 1 of the Bill is also consistent with that of "consumer" as set out above. A "credit provider" is defined, to the extent that it relates to the provision of goods or services and a credit facility, as:

• the party who supplies goods or services under a discount transaction. incidental credit agreement or instalment credit agreement ,a party who extends credit under a credit facility; or

• a party who advances money or credit to another under any other credit agreement.

The definition of credit provider thus covers a person who provides goods or services only to the extent that such goods or services are provided under a discount transaction, incidental credit agreement or instalment credit agreement as defined. not under a credit facility. It also covers the person who advances credit.

The term credit is defined in section 1 of the Bill as deferral of payment of money owed to a person, promise to defer such a payment or a promise to advance or pay money. It is also clear from this definition that a cellular operator cannot be a provider of credit. (Please refer to the discussion regarding the definition of defer above).

Furthermore the other provisions (such as for example sections 69, 75, 80, 113, 118, 119 and 123(3)) relating to credit facility contained in the Bill are not consistent with the provision of goods or services as falling under a credit facility.

Section 69 deals with registration of credit agreements and provides that if the credit agreement is a credit facility, the credit limit under that facility, and the expiry date of the agreement, if any, must be recorded. The provision of goods or services cannot be subject to a credit limit as defined as fully discussed above. Section 75 deals with advertising practices and provides that an advertisement of the availability of credit, or of goods or services to be purchased on credit must show rates of interest and all other costs of credit.

This section illustrates that goods or services may be purchased on credit. Such a purchase may for example be in terms of an instalment credit agreement as defined. The transaction in terms of which a person sells services to a consumer on credit is not per se a credit facility. The section also illustrates that a credit facility goes hand in hand with the charging of interest or other finance charges or cost for the provision of such credit. In the case of services provided by a cellular operator, no interest is charged until the time when the customer is in default. To the extent that it is credit it is interest or cost free credit the regulation of which has no basis or rationale.

Section 80 deals with prevention of reckless credit and provides that when making an assessment on the customer's overall credit exposure, the value of a credit facility is the credit limit at the time of assessment under that credit facility. Sections 118 and 119 deal with the manner and procedures of reduction and increase of credit limit respectively. In terms of section 123(3) a credit provider of a credit facility may either suspend or close the credit facility. Section 113 deals with statements of settlement amounts.

The concept of settlement value is not relevant to cellular subscriber contracts since the monthly bill submitted to cellular subscribers clearly sets out the total owed, unlike for example an instalment sale where early settlement is relevant and the customer is unable to calculate the settlement value. All of these sections presuppose that for a transaction to constitute a credit facility, there must be a credit limit under that transaction which is not the case in respect of cellular operators' subscriber contracts.

Vodacom draws the PPC's attention to the fact that in terms of the previous version of the draft Bill dated 27 November 2004, the definition of credit facility was limited to the payment of an amount by the credit provider to the consumer, or on his behalf or at his direction and did not include the supply of goods or services to the consumer. Vodacom submits that this definition (i.e. the definition as per the draft Bill dated 27 November 2004) is the most accurate definition as it does not result in the unintended scenarios set out in the two examples above and is consistent with the overall provisions of the Bill relating to credit facilities.

Thus Vodacom suggests the following amendment to the definition of credit facility:

(Please note that throughout this submission, insertions are indicated by way of underlining and deletions by way of strikethrough.)

Amend section 8(3) as follows:

"8(3) An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit facility if in terms of that agreement

(a) a credit provider undertakes-

(i) to supply goods or services or to pay an amount or amounts, as determined by the consumer from time to time, to the consumer or on behalf of, or at the direction of, the consumer; and

(ii) either to: (aa) defer the consumer's obligation to pay any part of the cost of the goods or services, or to repay to the credit provider any part of an amount contemplated in subparagraph (i); or

(bb) bill the consumer periodically for any part of the goods or services ,or any part of an amount, contemplated in subparagraph (i); and

(b) any charge, fee or interest is payable to the credit provider in respect of

(i) the agreement;

(ii) the amount deferred as contemplated in paragraph (a)(ii)(aa); or

(iii) any amount billed as contemplated in paragraph (a)(ii)(bb) and not paid within the time provided in the agreement."

Insert definition of "defer" in section 1 after the definition of the phrase "default administration charge" as follows:

"defer" means postpone or delay payment by a consumer of a determined amount payable in respect of the supply of goods or services to such consumer, and the levying of interest and/or other finance charges or fees on such payable amount. The phrase "deferral of payment" shall be construed accordingly.

It is important to note that Vodacom is of the considered view that the deletion of the phrase "to supply goods or services" from paragraphs (a)(i), (a)(ii)(aa) and (a)(ii)(bb) of section 8(3) will not result in the non-regulation of, as per the two examples above, the subscriber contracts concluded by cellular operators or the provision of water and other utility services by municipalities under the Bill. The two, together with all similar or related services will still be subject to the ambit of the Bill as incidental credit agreements from the time that the customer falls into default and interest is levied as contemplated in section 5(3) of the Bill. The deletion of the phrase will however clearly alienate the category under which such transactions would fall. Under the current provision the confusion is created that the transaction potentially constitute a credit facility at the outset, but should the customer fall into default at some later stage the problem arises as to whether the parties should, from that stage onwards, treat the transaction as an incidental credit agreement.

3.2 The definition of instalment credit agreement
Section 8(4) of the Bill provides that an agreement constitutes a credit transaction if it is an instalment credit agreement . An instalment credit agreement is defined in section 1 of the Bill as:

"a sale of movable property in terms of which-
(a) all or part of the price is deferred and is to be paid by periodic payments;

2. possession and use of the property Is transferred to the consumer: and
3. ownership of the property either-

1. passes to the consumer only when the agreement is fully complied with; and or
2. passes to the consumer immediately subject to a right of the credit provider to re-posses the property if the consumer fails to satisfy all the consumer's financial obligations under the agreement".

Vodacom's concern in respect of this definition is with regards to the provision of bundled goods (such as for example handsets) to consumers to enable them to access new technologies. In this regard, it should be emphasised that the goods (handsets) provided to the customer is provided merely as an instrument to enable the customer to access the service. The primary "product" that is sold by the cellular operator in terms of the subscriber contract is the telecommunications service. The cost of the handset is recovered over a period of time as part of the revenue associated with the service. No additional charge, fee or interest is levied in respect of the handset.

However, the effect of section 8(4) is that the provision of such a handset may be interpreted as constituting an instalment credit agreement i.e. there is a "sale" of movable property (handset), payment is deferred and the amount is paid periodically, possession is transferred to the consumer and ownership passes to the consumer on fulfilment of agreement (e.g. after two years).

It is important to note that though there is a deferral of the cost recovery of the handset, there is no fee, charge or interest imposed with respect to deferred payments as contemplated in terms of paragraph 2.3 of the "Memorandum on Objects of the National Credit Bill, 2005". On this basis, the provision of a bundled handset does not constitute a provision of interest bearing credit and should thus not be subject to the provisions of the Bill.

Vodacom respectfully submits that the definition of the term "defer" and or "deferral of payment" will create clarity and ensure that the provision of interest or cost free credit do not fall under the definition of instalment credit agreement as contained in section 1 of the Bill. As per paragraph 3.1 above, Vodacom strongly suggests that a definition of the term "defer" be inserted after the definition of the phrase "default administration charge" in section 1 of the Bill.

3.3 The retrospective application of the Bill
Vodacom is deeply concerned about the retrospective application of most of the key provisions of the Bill as provided for in terms of Schedule 3 to the Bill. Item 4 to Schedule 3 of the Bill deals with application of the Bill to pre-existing agreements and provides that the Bill applies to a credit agreement that was made before the effective date, if that credit agreement would have fallen within the application of the Bill in terms of chapter 1 if the Bill had been in effect when the agreement was made.

Though Vodacom recognises the rational behind the provisions relating to retrospectivity (i.e. to ensure that all valid agreements as of the effective date are subject to the same regulatory framework and no unfair or detrimental credit practices are perpetuated beyond the effective date) it is concerned about the implications thereof. In particular Vodacom is concerned that the retrospective application of some of the provisions will have the following negative impacts:

• It will be impossible for the credit providers to comply with;
• It will impact on the ability of credit providers to manage the debts and risk; and
• It will render credit providers criminally or civilly liable for acts and practices performed prior to coming into operation of the Bill and that were legal when they were performed.

These potential problems can be illustrated in terms of the following retrospective sections:
(a) Section 69: National register of credit agreements.

In terms of the table set out in item 4(2) of Schedule 3 to the Bill, it is provided that section 69 applies to a pre-existing credit agreement only after the date declared by the Minister in terms of item 3. Item 3(2) of Schedule 3 to the Bill provides that the Minister may prescribe information to be registered in respect of a pre-existing credit agreement, in lieu of the information required by section 69(2). Though it is not clear what kind of information may be required to be registered in respect of pre-existing agreement as no regulations have been prescribed in terms of item 3(2) of Schedule 3 to the Bill, section 69 contemplates the registration of information such as inter alia, the particulars of any previously existing credit agreement that was terminated or satisfied in connection with the making of the new agreement.

Vodacom cautions that. in the prescription of regulations as to what pre-existing agreement information must be registered, consideration must be had to the fact some of the information may not be available, either because it was not required to be retained in terms of previous legislative framework or it did not make business sense for the credit providers to retain such information. Vodacom therefore submits that, to ensure that there is no impossibility of performance by credit providers in respect of the retrospective application of section 69, the provision empowering the Minister to prescribe regulations in this regard (i.e. item 3(2) of Schedule 3 to the Bill) be amended by the deletion of the phrase "in lieu of information required by section 69(2)" and the addition of the proviso as follows:

Schedule 3
"3(2) The Minster may prescribe the information to be registered by a credit provider in respect of a pre-existing credit agreement in lieu of the information required by section 69(2) as contemplated in section 69 subject to the condition that such information is or was required to be retained by the credit provider in terms of any other applicable law or where there is no such legislative requirement such information is ordinarily reasonably retained by the credit provider in the course of business."

(b) Section 93: Form of credit agreements
The table set out in terms of item 4(2) of Schedule 3 to the Bill provides that section 93 of the Bill applies to a pre-existing agreement from the effective date. Section 93 requires inter alia, that a credit provider must deliver a copy of the document recording the credit agreement to the consumer and that the document recording a small agreement be in the prescribed form. The effect of the retrospective application of this section is to render legally challengeable or invalid or illegal, those credit agreements concluded before the coming into operation of the Bill and thus do not comply therewith unless they are post facto amended to comply with the Bill.

Vodacom submits that as a matter of legal principle, legislation cannot create retrospective invalidity. In this regard Vodacom suggests that the table set out in item 4(2) of Schedule 3 to the Bill be amended to the extent that it relates to section 93 as follows:

Vodacom suggests that section 93 be dealt with as a separate section under a dedicated column which must read as follows:

Section 93: Apply to a pre-existing credit agreement from the effective date subject to subitem 3 only to the extent that a document contemplated in terms of subsection (1 thereof has not already been provided to the consumer by the credit provider prior to the effective date.

(c) Item 4(5) of Schedule 3 : Changes to pre-existing credit agreements
Item 4(5) of Schedule 3 to the Bill provides as follows:

"Despite section 95, for the purposes of this item, a change after the effective date to any credit agreement that was made before the effective date constitutes the making of a new credit agreement, unless it is a change
(a) to the interest rate under a variable rate agreement; or
(b) the interest rate or credit limit under a credit facility."

Section 95 provides that "the provision of credit as a result of a change to an existing credit agreement, or a deferral or waiver of an amount under an existing credit agreement, is not to be treated as creating a new credit agreement for the purposes of this Act if the change deferral or waiver is made in accordance with this Act or the agreement".

Vodacom supports the sentiment and rational behind section 95 and item 4(5) of Schedule 3 to the Bill. Vodacom understands that the two provisions are not contradictory but are complementary as each deals with a different scenario. According to Vodacom's understanding item 4(5) deals with a situation where there is a material amendment to a pre-existing credit agreement and section 95 deals with a situation where credit continues to be provided under an extended pre-existing agreement even though such extension occurs after the promulgation of the Bill but under substantially similar terms and conditions.

However, the wording of item 4(5) of Schedule 3 to the Bill does not clearly set out or alienate this distinction. Vodacom thus submits that the provisions of section 95 be amended by the addition of the words "an extension on substantially similar terms and conditions of" between the words "change to" and "an existing credit agreement" and that item 4(5) to Schedule 3 be amended by the substitution of word "despite" with "subject to" and the addition of subsection (b) to clarify the distinction:

Section 95
"95 The provision of credit as a result of a change to or extension on substantially similar terms and conditions of an existing credit agreement, or a deferral or waiver of an amount under an existing credit agreement, is not to be treated as creating a new credit agreement for the purposes of this Act if the change, deferral or waiver is made in accordance with this Act or the agreement.

Schedule 3 to the Bill
"4(5) (a) Despite Subject to section 95, for the purposes of this item, a change after the effective date to any credit agreement that was made before the effective date constitutes the making of a new credit agreement, unless it is a change
(aa) to the interest rate under a variable rate agreement; or
(bb) the interest rate or credit limit under a credit facility."

(b)The extension of a pre-existing credit agreement under substantially similar terms and conditions as contemplated in section 95 shall not constitute the making of a new credit agreement.

3.4 There is no adequate recognition of electronic transactions under the Bill
Vodacom is concerned that the provisions of the Bill do not afford adequate recognition for electronic transactions as contemplated in terms of the Electronic Communications and Transactions Act No.25 of 2005 ("the ECT Act"). In particular, Vodacom draws the attention of the PPC to the following two provisions of the Bill that refer to the ECT Act:

Section 2(3) deals with interpretation of the Bill and provides that:
"if a provision of this Act requires a document to be signed or initialled by a party to a credit agreement, that signing or initialling may be effected by use of an electronic signature, other than an advanced electronic signature, as defined respectively in the ECT Act, provided that-
(a) the electronic signature must be applied by each party in the physical presence of the other party or an agent of the other party; and
(b) the credit provider must take reasonable measures to prevent the use of the consumer's electronic signature for any purpose other than the signing or initialling of the particular document that the consumer intended to sign or initial".

Section 4(7) which deals with application of the Bill provides that
"in respect of an advertisement concerning credit, or in respect of a credit agreement or a proposed credit agreement to which this Act applies, if there is an inconsistency between a provision of this Act read with any relevant definition in section (1), and a provision of sections 42 through 51 of the ECT Act-
(a) the provisions of both Acts apply concurrently, to the extent that it is possible to apply and comply with one of the inconsistent provisions without contravening the other: and
(b) the provisions of this Act prevail to the extent that it is impossible to apply or comply with one of the inconsistent provisions without contravening the second".

The only two provisions contained in the Bill in respect of reference or recognition of the ECT Act are very specific in their reference and limited in its application e.g. the requirement that an electronic signature must be applied in the physical presence of the other party. It therefore appears that the Bill fails to sufficiently recognise the important role that electronic commerce plays in the modern day society. For the purpose of illustrating the difficulty that is likely to arise as a result of this specific and limited reference to the ECT Act, Vodacom draws the PPC's attention to the following provisions of section 4(5) of the ECT Act which deals with the sphere of application of the ECT Act:

"This Act (i.e. the ECT Act) does not limit the operation of any law that expressly authorises, prohibits or regulates the use of data messages, including any requirement by or under a law for information to be posted or displayed in a specific manner, or for any information or document to be transmitted by a specified period."

The importance of highlighting sections 2(3) and 4(7) against the provisions of section 4(5) of the ECT Act lies in the fact that the Bill requires documentation to be delivered to customers in a certain form. For example the Bill requires that a consumer be provided with a pre-agreement statement and quotation in the prescribed form, that the credit provider deliver a copy of a document that records the credit agreement in a paper form or in a printable electronic form, that a document that records a credit agreement be in the prescribed form, that a statement of account be in the prescribed form and that a credit provider retain records of all applications for credit, credit agreements and credit accounts in the prescribed manner and form. Of all the sections that require forms and or documentation under the Bill, only section 93(1) refers to the document being in a paper or printable electronic form.

Though the Bill authorises the Minister to make any regulations expressly and regarding any forms required to be used for the purposes of this Act Vodacom respectfully submits that it is appropriate for a general recognition of electronic transactions as contemplated in terms of the ECT Act to be included in section 2 of the Bill (i.e. interpretation section). This is particularly so in light of the fact that in this digital age electronic communication and or transactions form the essential core of certain businesses i.e. every activity is conducted via electronic commerce. An example of such a business is Vodacom's Vodacom Direct which was established in the "Direct Market" to provide the consumer with a convenient purchasing experience especially for those potential customers that do not have easy access to the "traditional" distribution channels. For illustrative purposes the operation of Vodacom Direct could briefly be summarised as follows:

• The transaction is done via phone from the comfort of the consumer’s home/office etc, as opposed to coming to a store.
• The deal is verbally explained in detail to the customer at points of sale and confirmation. No written quote is provided as all interaction is telephonic.
• Personal details are captured on-line over the phone, as opposed to a documented contract filled in by the client. The assessment of the customer for credit worthiness is done on-line.
• The contract is concluded verbally and voice recorded.
• No documentation (such as pay slip, bank statement, etc.) is generally required.
• On approval of the contract, the handset, sim and terms and conditions are shipped to the client at the agreed delivery address.
• The proof of delivery is signed at point of delivery at the display of the clients ID.

The whole business model is thus facilitated through electronic commerce. Vodacom submits that there are many other business models which are facilitated through electronic commerce. Based on the current provisions of the Act, in particular sections 2(3), 4(7) and the general sections dealing with the form of documentation required under the Bill, a business operation such as Vodacom Direct would only be able to fully comply with the requirements of the Bill to the extent that the regulations promulgated by the Minister takes cognisance of electronic documentation and communications. Should such regulation or regulations fail to do so, the business operation may find itself in breach of the Bill. In order to ensure that electronic communications and documentation are recognised in all instances Vodacom humbly suggests that section 2 of the Bill be amended by the deletion of section 2(3)(a) and by the insertion of a new subsection (3A) as follows:

Section 2(3) to be amended as follows:

"if a provision of this Act requires a document to be signed or initialled by a party to a credit agreement, that signing or initialling may be effected by use of an electronic signature, other than an advanced electronic signature, as defined respectively in the ECT Act, provided that-
(a) the electronic signature must be applied by each party in the physical presence of the other party or an agent of the other party; and
(b) the credit provider must take reasonable measures to prevent the use of the consumer's electronic signature for any purpose other than the signing or initialling of the particular document that the consumer intended to sign or initial".

Insertion of subsection (3A) to section 2 as follows:
"(3A) (a) For the purpose of this Act any reference to a document, agreement or form includes such document, agreement or form in the form of a data message or automated transaction as contemplated in terms of the Electronic Communications and Transactions Act (No.25 of 2002).

(b) Subject to subparagraph (a) above, the prescription by regulation of forms, information or other documentation required for purposes of compliance with this Act must provide for recognition of any such forms, information or other documentation in the form of a data message as contemplated in terms of the Electronic Communications and Transactions Act (No.25 of 2002).

3.5 The sanctity of contracts

Although Vodacom supports the intervention into contracts that are obviously the product of reckless credit granting and or is subject to unfair credit terms, Vodacom is gravely concerned about the provisions of chapter 4 part D of the Bill to the extent that they interfere in private contractual relationships in a manner that is biased and prejudiced against the credit provider. In particular, Vodacom's concerns relate to the following provisions:

• Section 83(2)(a) which provides that "if a court declares that a credit agreement is reckless in terms of section 80(1)(a) or 80(1)(b)(i), the court may make an order setting aside all or part of the consumer's obligations under that agreement, as the court determines just and reasonable in the circumstances"; and
• Section 84(1) which provide that "during the period of that the force and effect of a credit agreement is suspended in terms of this Act-
  (a) the consumer is not required to make any payment required under the agreement;
  (b) no interest. fee or other charge under the agreement may be charged to the consumer: and
  (c) the credit provider's rights under the agreement or under any law in respect of that agreement, are unenforceable despite any law to the contrary."

It should be emphasised that in both instances the consumer's obligations are suspended together with the credit provider's rights. No reference is made to either the consumer's rights under the suspended agreement or the credit provider's obligations. This presupposes, particularly in respect of the services industry, that a consumer can continue to enjoy the benefit of the service without paying for it whilst all the while increasing the credit provider's exposure. This is more so in light of the fact that only the credit provider's rights, but not the obligations, are unenforceable. This then raises the question as what measures the provider of the service can employ to limit his risk in respect of such a consumer.

Vodacom respectfully submits that for the purposes of mitigating the exposure and risk of the credit provider under credit agreements for the continuous provision of services, the right of the consumer to enjoy the service must be limited during the time of the suspension of the contract. Furthermore, since the rights of the credit provider are unenforceable, his obligations must also be unenforceable. In this regard, Vodacom respectfully suggests the following amendments:

Section 83(2)(a)
"(2)If a court declares that a credit agreement is reckless in terms of section 8O(1)(a) or 80(1)(b)(ii), the court may make an order- (a) setting aside all or part of the consumer's obligations under that agreement, as the court determines just and reasonable in the circumstances, and in respect of a credit agreement for the provision of services on a continuous basis, the court must make an ancillary order suspending the consumer's right to access the service.

Section 84(1)
"(1) During the period of that the force and effect of a credit agreement is suspended in terms of this Act-
(a) the consumer is not required to make any payment required under the agreement and in respect of a credit agreement for the provision of services on a continuous basis shall not be entitled to access the service;
(b) no interest, fee or other charge under the agreement may be charged to the consumer; and
(c) the credit provider's rights and obligations under the agreement, or under any law in respect of that agreement, are unenforceable, despite any law to the contrary".

4. INCREASED COST OF CONDUCTING BUSINESS
In the President's Address to the nation in 2004, he highlighted the need to develop an economic model for South Africa that will accelerate economic growth and facilitate the development of a better life for all in the country. In this context President Thabo Mbeki, emphasized the need to put into practice interventions that would strengthen the first economy while, at the same time, developing and growing the second economy. An absolutely central element in this strategy for intervention has to do with the need "to lower the cost of doing business" in South Africa so as to make South Africa more competitive and attractive to greater investment.

It is generally agreed that the cost of regulation is an important factor that influences investor confidence. In the report, "Counting the Cost of Red Tape for Business in South Africa (June 2005)," by the Strategic Partnerships for Business Growth in Africa, it is cited that the regulatory compliance cost (excluding administrative and efficiency costs) in South Africa for 2004 was equal to 6.520/0 of GDP. This is excessively high especially considering that it is also generally accepted that the cost of regulation is ultimately borne by the consumer and that poorer consumers tend to bear a heavier burden that the so-called rich.


It is for this reason important that the costs associated with achieving the laudable objectives of the Bill is understood and can be justified. A lack of understanding the regulatory cost can create serious unintended consequences with potential negative impacts on particular social groups i.e. poorer consumers, or economic sectors.

Vodacom submits that compliance with the requirements and administrative procedures of the Bill will substantially increase the cost of conducting business across most of the sectors of South Africa's economy. This will be aggravated if credit providers are unreasonably restricted from exercising their contractual rights in order to limit their bad debt exposure.

The result of such increase is increased costs in terms of prices charged by service providers for such goods or services to the detriment of the consumer.

The types of costs that are likely to be added to the business operations by the Bill include inter alia, the following:

1. The requirement that customers be provided with a quotation in the prescribed form prior to the conclusion of a small agreement as well as the requirement that such small agreements be in the prescribed form will result extensive amendments to existing business practices (i.e. credit application forms and other agreements) and in increased printing costs;
2. The assessment requirements in terms of the Bill will require the revision and or development of new vetting systems to ensure objectivity whilst limiting the company's credit risk;
3. Requirements regarding communication to customers, including the requirement that statements of account be provided to customers on a periodic basis, will require a revision of most companies' language and communication policies and an increase in costs;
4. The requirements stated in (b) and (c) above may require employment of new staff and will require additional training of existing staff;
5. The requirement for registration of all credit agreements will add an additional administrative burden and may in most instances require the employment of dedicated contracts personnel; and
6. General compliance with the overall framework of the Bill will result in alignment of existing and development and or employment of new documentation management systems at a cost.

Vodacom submits that is has conducted a high-level analysis of the potential cost of compliance with the Bill which will be associated with inter alia, re-designing of credit vetting systems, review of document management systems, design of contract, staff and trade partners training, software acquisition costs, registration costs, as amounting to approximately R50 million. It is important to note that some of these costs are recurring in nature and also that it is difficult to estimate to potential increased exposure to bad debts.

Although Vodacom supports regulatory intervention to the extent that it is proportionate, justifiable and targeted at the problem, Vodacom wishes to caution that the additional financial and administrative burden imposed in terms of the Bill will hamper continued investment into the economy as it will adversely impact the investor's rate of returns in respect of their investments, particularly in the cellular telecommunications sector which, at this stage, is subject to continuously increasing and uncertain costs and obligations.

However, unlike other sectors of the economy, the cellular telecommunications services sector cannot recoup such costs from consumers by, for example, increasing the prices charged to consumers for the provision of such services i.e. though the cost of providing the service will be increased by the additional requirements prescribed by the Bill as stated in paragraph 5 below, the price of the service, which should theoretically allow the service provider to recover the cost of providing the service and a reasonable return remains the same. This is due to the fact that the pricing of telecommunications services provided by participants in the sector is regulated in terms of the Telecommunications Act, 103 of 1996, regulations promulgated there-under as well as the licenses issued by the industry regulator, ICASA. In terms this framework, the cellular operators can only increase their prices I tariffs for the telecommunications services subject to a price cap set at CPI.

In considering Vodacom's concerns and suggested amendments, Vodacom requests the PPC to consider the overall or global picture of the circumstances under which the cellular telecommunication service industry operates. To the extent that it is possible to limit the industry's exposure to additional financial and administrative burden under the Bill, by for example making the amendments suggested in paragraph 3 above to ensure clarity of scope of application of the key provisions, Vodacom humbly requests the PPC to effect such amendments. This will not only be to the benefit of the cellular telecommunications service industry but will benefit all economic sectors as the telecommunications is an essential catalyst for the overall growth and development of the economy.

5. CONCLUSION
Vodacom wishes to express its appreciation of the background against which the Bill is being proposed and acknowledges that the promulgation of uniform national credit legislation is long overdue to bring the credit industry's regulatory framework on par with international best practice and keep track with increasing sophistication and complexity of the modern consumer credit market. Furthermore, Vodacom appreciates the fact that the Bill will result in the creation of a regulatory framework that is consistent in its treatment of different credit products and credit providers and that could be effectively enforced.

Vodacom, however, trusts that its concerns and suggested amendments as set out in this submission, will receive the PPC's favourable consideration. Vodacom also humbly requests the PPC to take account of the policy objectives which the Bill serves to meet whilst recognising the particular nature of the mobile cellular industry, in their deliberations.

In order to avoid increasing the cost of doing business in South Africa unnecessarily, the PPC is urged to identify the measures that will meet the objectives of the Bill in the least intrusive, proportionate, appropriate and targeted manner.