Tying a Discounted Product with a Telecom Service Contract


In the United States, a purchaser of a mobile phone is typically required to enter into a service contract with a particular mobile phone operator.  Under such an arrangement, consumers are able to acquire a new phone often at a significant discount in exchange for agreeing to being bound to a particular service provider under a long-term service contract.  While it is possible to break the service contract before expiration in some cases, it is by no means a straightforward and convenient process. 


This process of tying a discounted product to a long term service contract is also used in the Thai telecommunications market. For example, several broadband internet service providers have typically offered “free” ADSL modems to their customers with one or two-year service contracts.  The fine print, however, reveals that in order to receive a “free” modem, the customer may be required to enter into a two-year service contract with a particular service provider.


One of the first questions a customer considers when offered a discounted product tied to a service contract is: “How can I get out of my service contract before it expires?”  Service providers are well aware of this risk, and thus typically include an early-termination penalty clause in their service contracts. 


While such provisions may be commonplace and enforceable in other jurisdictions, they are not necessarily enforceable in Thailand.  Like other jurisdictions in Asia, Thailand has passed legislation in the form of the Unfair Contract Terms Act of 1997 which broadly speaking is intended to address differences in bargaining power between parties by either voiding certain contractual provisions or effectively rewriting any terms deemed to be “unfair”.  Various parts of this legislation have been criticized for being ambiguous, however, and it is not necessarily clear how the Unfair Contract Terms Act would apply in the context of early termination of a service contract that is tied to a discounted product.  


The Notification of the National Telecommunications Commission Re Standards of Telecommunication Service Contract (“Standard Contract Notification”) has been effective since 25 September 2006 and, unlike the Unfair Contract Terms Act, directly addresses the question of early termination of a service contract tied to a discounted product.  Under Clause 15 of the Standard Contract Notification, a consumer who enters a service contract tied to a discounted product may terminate the service contract prior to expiration without any form of penalty, however, the customer may be required to return the discounted product to the service provider.  In the event of any early termination by the customer, the service provider may also be required to reimburse the customer for all or any part of the customer’s original purchase price of the discounted product (subject to a charge for the customer’s use of the product at rates prescribed by the NTC), however, such an obligation is not expressly provided in the Standard Contract Notification.


Although the provisions of the Standard Contract Notification have yet to be tested by the NTC or Thai courts, terms and conditions contained in such service contracts that are contrary to the Standard Contract Notification will likely be considered void, meaning that customer would be entitled to terminate the contract at any time and simply return the equipment back to the service provider without any early termination penalties payable.  An “unofficial” English translation of the Standard Contract Notification is available on the National Telecommunications Commission’s website here, however, as is common with such government translations, this unofficial translation suffers from a number of inaccuracies.