Telecom's youth brand Skinny SIM-locking its phones "is unlikely to undermine competition" in the mobile market, says the Commerce Commission.
Skinny, a subsidiary of Telecom claiming to be a "stripped back" option for those with not much to spend, soft-launched earlier this year but created a stir last December when it was revealed it would SIM-lock some of its phones.
SIM-locking is a practice which prevents a customer from using their phone on certain mobile networks.
In Skinny's case, some of its handsets come SIM-locked for the first nine-months' of use unless a customer pays a $30 fee.
If a Skinny phone remains locked, a Vodafone or 2degrees customer is unable to put their SIM card in the phone and use it.
Skinny manager Paul O'Shannessey said the policy would allow the carrier to subsidise phones to allow young people to get better handsets.
But 2degrees, which also markets itself very strongly as a "value" mobile brand, complained to the Commerce Commission encouraging the regulator to say it "did not condone handset locking in New Zealand".
In its complaint, 2degrees said "Vodafone would move swiftly to adopt handset locking if Telecom Skinny was seen to be allowed to do so".
But in a reply letter to 2degrees last week, Telecommunications Commissioner Ross Patterson said a lock-in period to recover subsidised costs that is transparent to customers "is unlikely to undermine competition".
"It is our understanding that handset locking will apply only to Skinny prepay customers provided with subsided handsets, that the handsets may be unlocked at any time subject to a $30 fee during the first nine months," Patterson said.
While the commission was concerned by the "potential anti-competitive effects of handset-locking" it also recognised "in certain circumstances handset-locking can have consumer benefits", he said.
Patterson said the regulator would continue to monitor the effect of Skinny's SIM-locking on the market.
Telecommunications User Association (TUANZ) chief executive Paul Brislen said SIM-locking "was yet another barrier to customers switching between [mobile] providers" and was harmful to competition.
"Skinny, in and off itself doing it, isn't going to change the world. However, having opened that kettle of fish you're going to have a lot more. If Telecom can do it as they seem to allowed to in this instance, as Skinny is part of Telecom, then clearly Vodafone will want to do it as well...if Vodafone does it then 2degrees will have to look at doing it as well which generally leads us down the slippery slope to locked-handsets and a lack of ability to move between providers," Brislen said.
Vodafone corporate affairs manager Tom Chignell told the Herald this afternoon the company had "always reserved the right" to lock handsets.
"We never really agreed with commission's position [in 2008]," Chignell said.
"There's nothing wrong with SIM-locking, it happens all over the world...the commission's saying I think that as long as its transparent and clear to customers are getting and what the consequences are to unlock they enjoy the extra value they get in the phones," he said.
Asked whether 2degrees would follow suit in SIM-locking if Vodafone began the practice, director of corporate affairs Mathew Bolland said:
"It's the last thing we want to do...right now we don't even want to go there. We're hoping that consumer see it for what it is and the others in the industry won't take the commission's letter as carte-blanche to change this," Bolland said.
"We don't need [SIM-locking] in New Zealand. Our focus has been on making it simple to buy a mobile in New Zealand and we just don't need these fish-hooks," he said.