The Information Paper has been developed to assist ISPs and Telcos in ensuring that their advertising for mobile and wireless internet is compliant with the Trade Practices Act 1974, and in particular the consumer protection provisions such as s52.

In launching the Information Paper, ACCC Chairman, Graeme Samuel said that:

“The ACCC is concerned by companies over-promising and under-delivering the speeds available on mobile and wireless internet, particularly in the context of network upgrades and increasing wireless internet subscriptions,” “This Information Paper is intended to assist the whole industry – mobile and wireless internet retailers, resellers, and network owners – to comply with the law.”

The ACCC has warned ISPs/Telcos not to advertise terms such as ‘maximum’, ‘up to’ or ‘peak network’ speeds, “if those speeds are not generally achievable or likely to be achieved by consumers using the network.”. The ACCC warning indicates that it is taking a similar approach to that previously taken with ADSL2+ advertising.

The ACCC has expressed the view that ISPs/Telcos should:

1. only make speed claims based on ‘appropriate tests of network performance’ to show speeds that can generally be achieved; and
2. prominently state the factors affecting mobile and wireless internet speeds such as congestion, location, and other variables.

The Information Paper also contains an Industry Checklist to assist with compliance – ISPs/Telcos are reminded that they should also remember to ensure compliance with CommsAlliance Code C628:2007 TCP Code (Prices Terms and Conditions). Significant effort must be applied in light of the ACCC’s warnings and recent actions in securing enforceable undertakings against some of Australia’s largest ISP/Telcos.

When legal advisers warn second and third tier telcos and ISPs about advertising content, the single most common retort is ‘Telstra gets away with it’ and ‘We saw an Optus ad like that’ and ‘But Voda says the same thing’.

It’s a pretty good argument.  If the giants can do it, why can’t we ?

No mistake, this is the biggest telco-truth-in-advertising hit ever landed by the national regulator.  Like all good commando raids, it seemed to come from nowhere.  Only yesterday morning did rumours start to circulate that ‘something big’ was coming out of Canberra in the next 24 hours.

If Tiers 2, 3 & 4 don’t get their act together now, they can’t complain they’re being picked on.  And ACCC has made sure that Telstra, Optus & Voda are motivated to keep their networks honest.

The Undertaking:  a summary

ACCC Chairman Graeme Samuel

Here’s what it says in a nutshell:

• The Trade Practices Act prohibits misleading advertising.
• It also prohibits advertising part of the price of a product, but not the whole price.
• ACCC thinks the comms industry in general has an advertising problem.
• ACCC thinks the industry in general has engaged in advertising that:
  • uses misleading headline pricing
  • misuses the word ‘unlimited’
  • misuses phrases like ‘no exceptions’
  • falsely uses words like ‘free’
  • misrepresents price per minute
  • features pricing that only applies in bundles
  • misrepresents data allowances
  • exaggerates broadband speeds
  • exaggerates coverage areas.
• ACCC thinks that Telstra / Optus / Voda are each guilty of one or more of the above.
• Everyone acknowledges that Telstra / Optus / Voda might have their own opinion about a particular instance, and it would be up to the court to decide.
• Because they’re market leaders and want to set a new standard for telco-truth-in-advertising, Telstra / Optus / Voda give an enforceable undertaking to ACCC.
• Telstra / Optus / Voda undertake to desist from any new advertising of the kind described above.
• Within 30 days, they’ll review current ads to see if any offend.
• Within a further 60 days, they’ll cease any that does offend.
• Within 60 days, they’ll confirm to ACCC that they have complaints systems that give redress to customers who are misled.
• Within 60 days, they’ll give redress to all customers with an unresolved complaint about misleading advertising (no more than 12 months old) by a customer who can show a good faith case.
• Within 60 days, they’ll review their trade practices compliance programs to ensure that the targeted advertising issues are under control.
• They’ll report to ACCC on advertising that has been dropped and consumer redress granted.
• They’ll make sure that future ads about headline prices, terms or representations accurately reflect the deal that most of the target audience can expect.
• They’ll make sure all their subsidiaries follow the same rules.
• The undertaking lasts for two years.

Is that all there is ?

No, it isn’t.

ACCC is well aware that:

• hundreds (or thousands) of resellers resupply Telstra / Optus / Voda services, and
• Telstra / Optus / Voda have substantial practical control over how they behave.

So:

• Telstra / Optus / Voda must take reasonable steps to ensure that their resellers follow the telco-truth-in-advertising undertakings.
• Within 30 days, Telstra / Optus / Voda must write to them all to tell them all about it.

A purely voluntary offer by Telstra / Optus / Voda ?

Possibly, but we’d bet a lot more money on the Geelong Football Club winning Australian Idol singing ‘Nessun Dorma’ a capella in five part harmony.

In its media release, ACCC is very positive about the role of the Big Three, saying they are to be ‘applauded’.  We think that’s diplomacy.  Obtaining this undertaking from three massive telcos would have involved more than ACCC explaining the warm glow of good citizenship.  Plainly, the companies were convinced they were at risk of stronger action if they did not agree.

ACCC itself has said about enforceable undertakings:

The Commission stresses that it seeks to resolve matters under s. 87B only when it believes that a breach has occurred or is likely to occur and that an administrative resolution based on enforceable undertakings offers the best solution.

What does it mean ?

Lawyers for Telstra / Optus / Voda have been restricted to damage control.  There’s no two ways about it:  ACCC has convinced all three companies that it could ‘slot’ them for Trade Practices Act breaches, and the best way out was to roll over.

Watch out for Telstra / Optus / Voda spin that they reckon it’s all a good thing and were always deeply committed to the same principles.

Sure.

ACCC has a history of being gracious in victory in these situations, so we don’t expect them to taunt the losers.  But make no mistake, this is a complete capitulation by Telstra / Optus / Voda.

And what’s an ‘enforceable undertaking’ ?

It’s similar to being under a court injunction.

Under section 87B of the Trade Practices Act 1974:

• ACCC may accept a written undertaking given by a person in connection with a matter in relation to which ACCC has a power or function under the Act.
• If ACCC considers that the person who gave the undertaking has breached any of its terms, it may apply to the Federal Court for an order.
• If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders:
  • an order directing the person to comply with that term of the undertaking;
  • an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;
  • any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;
  • any other order that the Court considers appropriate.

This undertaking builds in a short ‘please explain’ procedure, to give the telcos some opportunity to resolve issues early.

By the way, the wording of the TPA explains why the Undertaking has been ‘offered’ by the telcos and ‘accepted’ by ACCC.  You’ll see from above that this is the only way the TPA allows an Undertaking to be created.

The next part of the play

Telstra / Optus / Voda have rarely been the worst offenders in CSP advertising.  Resellers often far outdo them.  While the undertaking doesn’t bind the resellers, it sets up a two pronged attack against them.

• Telstra / Optus / Voda have undertaken to ‘take reasonable steps to ensure that the obligations outlined in paragraphs 32 and 33 of [the] Undertaking are applied’.
• ACCC will have its usual weapons available.

Frankly, we’re not sure which resellers need be more alarmed about:  ACCC with its potent TPA weaponry or Telstra / Optus / Voda with their brutal, arbitrary reseller contracts.  If Telstra / Optus / Voda really want to clean up the reseller channels, they can do it in weeks.  They lord it over their channels.  They can rapidly assert their will over them.

And who are the ‘resellers’ ?

The undertaking doesn’t actually refer to ‘resellers’.  It refers to ‘any party with whom [Telstra / Optus / Voda] has a commercial agreement that allows it to control the advertising and promotion of goods and services by that party’.

Now, Telstra / Optus / Voda have been on a power trip for years.  Their contracts routinely give them every power known to woman, man or beast.  The lawyers have basically been instructed ‘Make them sell us their souls’.

So in many cases, parties that fall under the description ‘any party with whom [Telstra / Optus / Voda] has a commercial agreement that allows it to control the advertising and promotion of goods and services by that party’ will include large scale wholesale customers.  And for all such customers, Telstra / Optus / Voda are assuming responsibility to ‘take reasonable steps to ensure that the obligations outlined in paragraphs 32 and 33 of [the] Undertaking are applied’.

What an ACCC coup.  Telstra / Optus / Voda forced to use the powers they have forced on other companies, for ACCC purposes.

But for once, the regulator hasn’t shot the messenger

For too long, regulators have ignored the reality of the Australian communications industry:  that combo retailer / wholesalers effectively force downstream operators into dodgy practices.  How can TinyTel, as a Telstra / Optus / Voda reseller, conduct itself squeaky clean if Telstra / Optus / Voda doesn’t ?

What next ?

ACCC Chairman Graeme Samuel has already said that second tier operators can expect to be contacted soon, with a request to commit to the principles of the principles of the advertising undertaking.

“The ACCC recognises there is more to do. The ACCC will now contact the next tier of operators who will be encouraged to adhere to the principles set out in the undertaking. When taken together with the three major carriers, this would then account for almost 90 per cent of the market for telecommunications goods and services in Australia.”

And FunnyTel has the last laugh

As always, Australia’s rising telco star FunnyTel was miles ahead of the industry on the truth-in-advertising push.  The company’s new FAT plan announcement is sure to score a big elephant stamp from ACCC.

Chad Blake, Manager (Legal Affairs & Hospitality) at Funnytel, told CSP Central:

We’ve never really worried about Telstra, Optus or Vodafone.  ‘Don’t sweat the small stuff’, says our CEO Steve.  We confidently expect to acquire all three of them within the next 18 months, as FunnyTel’s stellar growth continues, and Steve works out a way to buy millions of instant scratchies using BarterCard.

Two separate groups of telco companies promoted the notorious telco equipment / finance / servces bundling scam that has cheated businesses of millions of dollars, saddling them with massive debt for goods and services never supplied.  One of these groups has been taken to court by ACCC, which is determined to smash its illegal conduct.

Watching on the sidelines are the financiers of the other group.  It doesn’t take much to figure out that they won’t be able to recover their dodgy debts after the Federal Court case against the first group is over.  So the finance companies are grabbing as much cash from innocent business operators as they can before the ACCC shuts the gate.

And Bank of Queensland’s equipment finance subsidiary is one of the players.  Yes, that’e the same Bank of Queensland that denies all responsibility for the outrageous lending practices of failed Storm Financial.

Elements of the scam

The scam typically depended on three elements.

First, a finance company stuffed to the gills with lending cash during a boom, needing to push out loans to keep profits high.

Second, a dodgy telco, willing to tell potential customers anything to get their signature on paper.  Even willing to forge signatures if the prospect was unhelpful and didn’t sign enough documents.

Third, a middleman to connect the two.  A finance broker with links to the finance company and the dodgy telco.

The broker has the credibility with the finance company to access a stream of funds.  Behind the curtain, it makes the funding source available to the dodgy telco.  The telco sends out sales staff out to do deals at any cost (to the customer).

We’ve explained previously what happened next.  It makes chilling reading.

Two players in the game

There were two major players in the game:  one group of companies featuring Axis Telecoms Pty Ltd, and a separate one starring Komtel Pty Ltd.

They had to be caught and they were

Frankly, ACCC could have picked either group of companies to sue in the Federal Court.  But they chose the Axis Telecoms companies and look as though they are slowly steamrolling them into defeat.

That leaves the Komtel group of companies watching on the sidelines.  Actually, Komtel was allowed to go into liquidation as one of the orchestrated steps in the scam.

Also on the sidelines are the finance companies.

The position of the financiers

You’d weep (with laughter, sometimes) if you hear the line the ultimate financiers are pushing.

“We aren’t guilty.  We totally trusted the middleman.  So how can we be guilty ?  It’s the customer’s fault for being ripped off.”

The argument is that because the finance companies were careless about everything their broker representatives did, and because their broker representatives appointed dishonest telco companies to do the face-to-face selling, they (the financiers) are the innocent parties.  PLEASE !!!

So the finance companies find themselves:

• ripped off by Komtel and companies like it (but no point chasing Komtel … it’s being liquidated, remember ?)
• facing the prospect of a Federal Court decision in a few months that will blow the lid off this type of scam - making any further recoveries from ripped off customers very difficult
• with a window of opportunity to collect as much as possible from the ripped off customers.

So what are they doing ?  Demanding, demanding, demanding.  Suing, suing, suing.

The position of the ripped off customers

They’re in small business.  They know they’ve been scammed, but they couldn’t explain the legalities.  They’re being chased for $30k or $50k or $60k and they can’t afford big legal fees to fight it.  So when they get a chance to settle for two thirds, they take it.

That’s two thirds of a false claim against them.  Not two thirds of anything they really owe.

And that suits the finance companies, too.  Two thirds of a false claim is a fantastic result.  Especially when it will all come to a screaming halt when the Federal Court deals with the ACCC case.

But we’re ‘innocent’ bleat the finance companies

Did they actually know what the telcos were doing ?  Probably not.

Did they take reasonable steps to prevent their money from financing dodgy telco schemes ?  No.

That’s not ‘innocent’.

An interesting parallel

There’s an interesting parallel with the allegations against the Bank of Queensland in relation to Storm Financial.

Commonwealth Bank has admitted that it allowed Storm to sign up borrowers without due care.  As The Australian reported on 18 June 2009:

CBA chief executive Ralph Norris, who initially played down the bank’s role in the collapse of Storm in January, said yesterday it had identified “shortcomings” concerning loans it made to Storm clients. The issue is understood to involve some customers being granted loans they were unable to repay.

“We are not proud of our involvement in some of these issues and we are working toward a fair and equitable outcome for our affected customers,” Mr Norris said yesterday. “Our customers can be assured that where we have done wrong, we will put it right.”

Contrast that with Bank of Queensland’s irresponsible position on the same issue:

Statement from Bank of Queensland regarding Storm Financial

Thursday, 25 June 2009

Given the significant misinformation in the media recently regarding Bank of Queensland’s dealings with Storm Financial and treatment of Storm Financial customer accounts, the Bank would like to take the opportunity to clarify key facts.

Based on the Bank’s knowledge and enquiries to date:

• There is no evidence of improper or dishonest practices or conduct by the Bank in connection with Storm clients; and
• There is no evidence that the Bank has engaged in any misleading and deceptive conduct or unconscionable conduct in relation to its lending to Storm clients.

Translation:  ‘We didn’t do it.  Those people that we allowed to represent us in the market place did it.  What has that to do with us ???’

More than a parallel

Actually, the gross lack of safeguards and responsibility that characterise the Bank of Queensland / Storm Financial case are not a mere parallel with the telco scam.  They are history repeating itself.

The Bank of Queensland’s equipment finance arm, Bank of Queensland Equipment Finance Ltd, was just as slack in managing its representative relationships during the economic boom.

Yes, it appointed a middleman finance broker but didn’t have processes in place to effectively monitor what the broker did,  And yes the broker engaged with the scammer Komtel, which took Bank of Queensland finance into the streets and misled small businesses into signing dodgy deals.

And yes Bank of Queensland Equipment Finance Ltd is using the window of opportunity to try and ‘recover debt’ from a small business that really doesn’t owe them a penny.

And yes, when we wrote (months ago) about a major lender that flatly denied that it had ever been involved with telco bundles, that was Bank of Queensland Equipment Finance Limited.

Time for ACCC to step up

Finance companies like Bank of Queensland Equipment Finance Ltd are no doubt working on the assumption that any ‘settlements’ they achieve are money in the bank.  If ACCC put them on notice that each and every past ‘settlement’ will be liable to be re-opened and repaid (with an allowance for legal costs) if ACCC is forced to take formal action, we bet the financiers would get of the backs of Australia’s small businesses in an instant.

Because they know that they allowed the wrong thing to happen.

CommBank has had the guts to admit it, re Storm Financial.  If BoQEF hasn’t got the decency to do the same thing, ACCC should help it see the error of its ways.  Otherwise ACCC’s Federal Court action will be a blessing for some victims but leave others at the mercy of powerful finance companies that want little guys to pay for the companies’ mistakes.

Five of the respondents to the Federal Court action have failed to take necessary procedural steps, and the Court has agreed to ACMA’s application for default judgments.  After hearing evidence about the defaults and the original conduct, the Court has ordered:

• that parties including Mobilegate Ltd, Winning Bid Pty Ltd, Simon Anthony Owen, Tarek Andreas Salcedo and Glenn Christopher Maughan have breached the Spam Act and / or Trade Practices Act in various ways;
• that they be restrained from certain conduct, of the kind involved in the scam, for seven years; and
• the matter be re-listed for directions in relation to any penalty hearing as the above respondents on 18 September 2009.

The case against other respondents, who have defended the case, continues.

ACMA announced its biggest scalp yet under the new law, following an investigation into calls made by an offshore call centre on behalf of Telstra.  Inexplicably, Telstra allowed illegal calls to continue after ACMA had raised concerns based on several complaints.

“The investigation found that inadequate compliance systems, procedures and supervision had contributed to calls being made to numbers on the Register where the consumers were not existing Telstra customers.”

Telstra may be the biggest Do Not Call catch so far for ACMA, but it’s not the record penalty payer.  That ‘honour’ belongs to Dodo at $147,400.

BRAND NEW phone!!  $199 – SAVE over 50%!!

Ads that show ‘two price’ or ‘was / now’ pricing are common, effective and legal … provided they’re not misleading. There are special rules about how to get ‘was / now” pricing ads right. While care needs to be taken, getting it right is relatively easy.

Getting it wrong can be costly, as the former owners of the Zamel’s jewellery chain have found – the ACCC took them to court over allegedly misleading ‘was / now’ price ads in one of their catalogues. In January 2009, the court handed down a fine of $380,000.

So, what are the rules? Well, the ACCC has actually published guides on issues to be addressed before running a ‘was / now” price promotion. Here’s a summary:

You should ensure that:

• products were actually sold at the ‘was’ price for a period of at least 14 days before the advertisement (note that this is the suggested minimum – a longer period may be reasonable in the circumstances)
• at least 75% of the actual sales of the product before the promotion were at the ‘was’ or higher price
• the ‘was’ price is not simply the RRP if the products were not actually sold at that price in sufficient quantities
• the promotion is intended to end or the intention is to remove the ‘was’ price by a specified date
• the products were sold at the ‘was’ price for a longer period of time than the period of the promotion
• there are reasonable grounds to believe that there will be stock at the end of the promotion (i.e. this is not a stock run out)
• if the promotion is a stock run out sale, that must be made clear to customers.

Prepaid Services Pty Ltd supplies phone cards that are resold by an independent company Boost Tel Pty Ltd. 

ACCC alleges that Prepaid and Boost were involved in false advertising.

 
The allegations

ACCC says that Prepaid and Boost falsely represented that:

• phone cards would provide consumers with a specified amount of call time (when they couldn’t really talk that long for the card price)
• only timed call charges would apply (when in fact other fees were charged)
• a rate per minute for calls would apply regardless of the number / length of calls made (when in fact that call rate is highly unlikely to be achieved in practice).

What ACCC wants

In court, ACCC is seeking orders for:

• declarations that Prepaid’s and Boost’s conduct breached the Trade Practices Act
• injunctive relief preventing repeat breaches
• corrective advertising
• community service orders
• costs of the proceeding.

What next

The case is filed in the Federal Court’s ‘fast track’ list.  The first court scheduling conference is due in Perth on 14 September 2009.

Our take on it

It’s a court case.  ACCC has allegations and the other parties are entitled to debate them.

But ACCC takes careful aim in these situations.  Don’t be surprised if this one comes to a head quickly.

Delivered in our trademark style … plain english guaranteed … the seminar offered practical and expert insights into living harmoniously with the new trade practices law.

We’ll offer a repeat session soon … keep watching.

No stranger to innovation – FunnyTel was Australia’s first ISP to introduce the random number billing that has since proved so popular with Telstra management – the FAT plans include Australia’s first internet unit pricing scheme.

‘We read about the Government’s idea for unit pricing with groceries,’ says FunnyTel spokesman Chad Blake.  ‘And we thought “This makes sense.”  Why should customers pay for an 80 gigs download allowance and not know exactly how many P2P movies they’ll get for their dough ?’

‘We’re actually thinking of applying to the ACCC for an award for this,’ said Blake.  ‘Our 2 New Hollywood Releases a Night’ plan is a revolution in truth-in-advertising.  ‘And that’s A-FACT !’ says Blake with a cheeky wink.

We asked Chad if he thought that other market leaders like iiNet would adopt the system. 
 
iiNet to be next ?

‘Not likely,’ he said.  ‘Pretty good operators at iiNet but they’ve been completely unsuccessful in attracting any customers interested in peer-to-peer movie downloads.  Haven’t you been following the court case ?

‘We can’t figure out where they’ve gone wrong, actually.  They seem to be offering all the right plans.  But somehow, they’ve only managed to sign up customers who need fifty gigs to spend between midnight and dawn for sharing home movies with the rellies in England. 

‘Must be very frustrating for them.  All the rest of us have to do is mention a big-gigs off-peak plan and we’re chockers with hungry pirates.  Poor bloody iiNet get stuck with a mob of Methodist parsons peer-to-peering their sermons around the world all night.  There’s no justice.’

FAT plans the NBT

‘Next Big Thing for sure.  Don’t want to give too much away, but you’re gonna love the Harry Potter Lovers’ Special and our new Parrot & Peg Leg package.’

We asked Blake whether marketing thought the ‘FAT’ tag would help customers get the message that the plans were ideal for super-sized downloading.  ‘Hadn’t thought of that,’ he said.  ‘Actually, it stands for Film And Television.’

From 1 January 2010, the Government intends that we’ll have a national unfair contract terms law.  ACCC will have power to demand that advertisers positively substantiate any claims they make.  And there’ll be new penalties, enforcement powers and options for compensating consumers.

Stay tuned to CSP Central for plenty of news and expert commentary about the new law.  We already have some detailed comments on one misconceived part of the drafting.

Links

• CSP Central backgrounders
• Parliament home page for the Bill
• Treasury’s information site