Prepaid Cell Phone Valid without Charging

Die Verbraucherzentrale e.V., an association for consumer protection, initiated a case against O2 for violating unfair competition law that experienced much attention. Prepaid contracts for mobile phones must allow the customer to phone off his credit.


O2’s stipulation in its standard terms determined that your account had to be filled up at the latest every thirteen months. Any remaining credit would be forfeited to the benefit of O2. This stipulation was cashed by OLG Munich on June 22, 2006 (re 29 U 2294/06), because this act of advertisement violated §5 I, II UWG. Disregarding the several other issues ruled upon in that verdict, this article will only cover the question of validity of prepaid credits which are not charged within one year after buying the phone and what happens to any remaining credit.

O2 argues that this price structure is common with prepaid accounts. Without forfeiting the credit, providers would face the danger that customers would only use their mobile phones to be reachable and not actively want to place any calls. In contrast to postpaid contracts, consumers do not pay a monthly fee. This payment scheme brings the provider the non negligible risk of providing a phone line with permanent accessibility of the number and the possibility to call without the customer acquiring any turnover. For reasons of equivalence, it has to be that the customer pays a minimum turnover. The product has been installed with the anticipation that the customer will place calls. This explains the higher price for call from prepaid and postpaid concepts. The defendant chose for the benefit of the consumer gives a sign of life every year plus one month by loading his account with a minimal fee. The customer stands to benefit if he were to pay a monthly fee.

The customer is not required to charge with a certain amount, only to charge within 13 months. The customer himself can determine the charge amount. Charging can so be done following one’s own phoning customs. Monitoring the credit, costs for calling, costs for SMs raises a lot of costs for the defendant. The word “credit (= Guthaben)” does not have the meaning of a timeless entitlement. It cannot be expected that the defendant cashes out the remainder of a credit after the contract has ended. The defendant is not a bank, which manages the assets of its customers.

The plaintiff argues that it is not of concern what the defendant wants to achieve and how she calculates her business. The plaintiff must stick to the law. It is unfair competition if the services are not shown clearly and transparently from the beginning. Cases exist where consumers phoned off all their credit in the first week after buying the phone. In these cases, O2 must also maintain full reachability even though no credit is left. The plaintiff is trying to camouflage a monthly fee for a scheme designed to work without running monthly costs.

The Higher District Court in Munich held that the previous instances judged correctly that the discussed stipulation violates §§307 BGB. It violates a fundamental rule in civil law, that service and return service are generally equivalent. It cannot be that one obtains a professional service with no return. It is generally a matter of the provider in his own responsibility to determine the rules of the contractual relationship. This, however, will not automatically mean that this determination is without control. Court can control the contents of determinations on the service if they are equivalent to the return service. The above stipulation is therefore invalid.

Prepaid products have been introduced that customers can have a better cost control. On the other hand, the provider has a non negligible risk to maintain permanence even though the customer does not generate any turnover, i.e. places calls. This understandable argument does not justify the legality of the tested stipulation. The customer receives a credit and he has to have the possibility to use this credit at his disposal. The contested stipulation has the contents of a minimum turnover but the advertisement speaks only of “credit”. This blunt disadvantage is in comparison to those customers who really use their credit and cannot be justified by the principle of “freedom of closing contracts”. The fact that this stipulation might be typical for prepaid phones does not change the illegality.

In the meantime, it was Vodafone’s turn. The LG Düsseldorf ruled against Vodafone that this company may not just cash in the credit and not cash out remaining credit after terminating the contract. The court also determined that it is illegal to totally cancel prepaid contracts after the set period to use the credit.

And what are the results of this jurisdiction? All three main companies Vodafone, O2, T-Mobile are planning to refund customers.

Published on the old CMS: 2007/2/25
Read on the old CMS till November 2008: 1,347 reads

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