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Consumer Affairs
Wednesday, July 1, 2009
TV trick

I see DSTV/Mutlichoice is promoting a ‘free deal’ that carries all the promise of yet another great scoop of the consumer. In reality it is another misleading campaign because it promises to save you money, when in fact the opposite is probably true.

Essentially, the great deal is that you receive a free month’s airtime if you pay 11 months subscription in advance.  Simple maths shows this can’t be ‘free’ because the subscriber will have to borrow the upfront fee for a whole year. At the same time, because he is committed to a full year, he cannot decide, say, a few months down the road to cancel his subscription or vary the package he is receiving. Being locked into to an arrangement like this is not in the consumer’s interests.
The current subscription fee for the ‘premium service’ is R499 per month, or R5 988 a year. So, by paying upfront you will save R499 as it will cost you just R5 489.
So how much would it cost to borrow R5 489! Well, if you could borrow at the Reserve Bank’s repo rate , the lowest possible rate (and very unlikely), it would amount to R411.68. More realistically, even a rate at prime would be a bargain, say 11% per annum. So that would cost R603.79.
Could you explain to me why saving R499 by paying R603.79 is a ‘free deal?’ And one other question, which I have put to the Financial Services Board. Is the suggestion you pay up front like this tantamount to ‘financial advice’ and therefore falls within the ambit of the Financial Advisory and Intermediary Services Act 2002? By Nigel Benetton

Copyright © Insurance Times and Investments® Vol:22.7 1st July, 2009
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