The jungle drums are sending negative messages about the new TCP Code proposed by Communications Alliance.  

What’s it all about?
In a nutshell, the Australian Communications and Media Authority has been calling for stronger telco consumer protections since it completed its ‘Reconnecting the Customer’ enquiry last year. In response, Communications Alliance developed an upgraded version of the current Telecommunications Consumer Protections Code, hoping it would be accepted and registered by ACMA. (That’s how industry codes become ‘legal’.)
But signs are appearing that ACMA might reject the new draft Code as being too soft … despite the fact that it is by far the most demanding code of its type that the industry has ever faced.

ACCC has its say
First, the Australian Competition and Consumer Commission lodged its own submission during the public exposure stage of the code process. In a blunt assessment, ACCC rated the new draft as too little, too late. The regulator was highly sceptical that any consumer protection system based on industry self-regulation would cure the ills that, as far as it and ACMA are concerned, plague the retail telco sector.

A knowing wink from The Age
On 8 January 2012, The Age newspaper ran a piece that reeked of a little inside information from ACMA. Nothing improper, we hasten to say, but the journo clearly has a strong feeling that the proposed new code is doomed.

So what would happen instead?
If the draft TCP Code is binned by ACMA, the authority will draft its own set of rules, called an Industry Standard. Obviously, it would make them even tougher than the proposed code, and the Standard would have the force of law under section 128 of the Telecommunications Act. Apart from other enforcement options, the Federal Court can impose penalties of $250,000 per contravention of an Industry Standard.

Good news and bad news
For telcos and ISPs that were dreading the burdens of the proposed new TCP Code, a delay in the introduction of new rules will be welcome. And an Industry Standard might omit some elements of the draft TCP Code. But overall, we have to assume that it would be significantly tougher on telco retailers than the draft code.

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.

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

Sure, its math doesn’t make sense.  $20 SIM plus $20 deposit does not equal $52.99.  But we know what they mean … it’s the $20 SIM plus the $20 deposit plus the $12.99 for a non-contracted month that adds up to $52.99. 

And the total price isn’t super-prominent, but it’s not in micro-print, and it is in a clear area of its own, and it is immediately below the headline pricing, and it’s not a big or cluttered ad, and it is in capitals.  ACCC might debate whether it passes the ‘prominence’ test but by TPG’s standards, it’s a good effort. 

And you know two crazy things ?

Suddenly TPG’s $12.99 headline price becomes $52.99.  And suddenly, we’d be a whole lot more likely to buy it.  Like a lot of potential customers, we are actually prepared to pay for truth in advertising.

Heck, we’re even prepared to go in to bat for this ad, and argue that the component pricing law might not require the $20 deposit to be included in the stated total price.  Possibly, it doesn’t count as ‘part of the consideration for the supply of the’ service within the meaning of section 53C of the Trade Practices Act, where the component pricing law is to be found.

TPG still has a way to go before it’s a compliance model, but as Granny said, ‘Well begun is half done.’

Just days after ACCC wrote to the industry demanding immediate compliance with its new component pricing law, mega-telco Optus has ignored it.

Today’s web carries a flash ad spruiking a ‘new monster value ‘yes’ $59 cap, ‘so good, it’s scary’.  So is the fact that it’s an illegal advertisement.

Well, $59 is the monthly base price for the plan, so unless it’s a month-to-month plan (so that $59 would be the total cost as well as the monthly cost), the advert needs to state prominently the total contract cost.

Well, the flash banner doesn’t, and neither does the web page it links to.  The web page includes total cost down the bottom and in small print.  But ‘prominent’ ?  No way.  Optus is plainly in breach of section 53C of the Trade Practices Act.

ACCC’s new guide to the component pricing law shows how easy it is to slip up in advertising. 

Click on the sample advert to enlarge it, and you’ll find that – despite ACCC encouragement – the advertiser shouldn’t advertise a total price of $2,240.  We’re all human, even the regulator.

But when it communicates with those same ordinary people, ACCC can forget all about the power of the main message and descend into baffling lawyer-speak.

ACCC should engage a marketing expert to offer input into its recall notices and consumer notifications.  If it wants to communicate important messages, it should use the skills of a communicator.

We’ll look at a couple of examples and analyse what goes wrong.

Example 1:  Enclosed court orders

In one recent case, complicated court orders running to many pages were made as a result of ACCC consumer protection action.  They were, as you’d expect, in highly formal language that only lawyers are comfortable with.

For reasons known only to ACCC, it wanted a full copy of the actual orders delivered (with other documents, providing some explanation) to a large number of potentially affected consumers from a generally educationally disadvantaged background.

It was a bizarre exercise.  Some of these recipients, receiving a wad of paper and pulling Federal court documents from an envelope would have been terrified.  (So would many highly educated people.  Court documents in your mailbox are scary things.)  Few, if any, of them would have gained any value from this alarming, confusing missive.  Only a lawyer could conceive otherwise.

A communications expert would have said:  ‘This is not a document to send to ordinary people.  If there’s something within it they need to know, let’s translate it into a simple, clear document with a main message.’

Example 2:  Product safety recall

In an important product safety recall, ACCC required a retailer to write to purchasers of the unsafe product.  The resulting ACCC-approved draft was highly officialese.  The need was to tell parents that their kiddies could die but this key message only dimly made it through the verbiage. 

When we saw the final ACCC-approved letter, we commented to a colleague that most readers would probably read three lines and throw it in the bin, saying, ‘I’ve already voted.’

Why ?  Documents like this are conceived and generated by lawyers.  Not the first people you’d go to for clear communication.

And when the PR team does the job, they show how

In an interesting contrast to the product recall letter above, that almost buried the critical message, here’s a powerful quote from an ACCC media release in another product safety matter:

‘Children have died from hanging and strangulation after their heads have become trapped in gaps in bunk beds that did not meet the requirements set out in the mandatory product safety standard,’ ACCC Deputy Chair, Mr Peter Kell, said today.

 ’Children have also suffered serious head injuries and fractures after falling from bunk beds that did not have the prescribed guard rails.’

We imagine that this powerful message was designed by media and communications staff at ACCC.  It is far more direct and striking than anything that was sent to a population of parents who were actually known to have children at risk. 

If Deputy Chair Kell’s words were crafted by the legal team, they should hold that thought when communicating with ordinary people.

Presumably there’s nobody to make this point inside ACCC

When a consumer case is running, it’s lawyers’ business, right ?  There are ACCC lawyers and external lawyers and judges (who are lawyers too).  So how would a communications specialist ever get a chance to have input ?  This is lawyers’ work … move aside !!

This is serious

If some of the ACCC-approved documents we have seen are the best that its present processes can do to inform ordinary people of important matters, the system must change. 

Documents aimed at the general public need to be very, very clear.  Clarity is a skill, and not one that lawyers or public servants specialise in.

If these messages really do matter, use an expert.

Canberra now says it will fast track the new law.  Expect a bill in Parliament by June 2009, and a new law in force from 1 January 2010.  As part of the process, an important discussion paper is now available.

Make no mistake.  The new law will force a re-think of most ISP and telco standard contracts in Australia.  Many everyday, standard terms will be at risk, or even completely banned.

It will also require Consumer Affairs Victoria to review its approach to unfair contracts.

About the proposed new law

The new consumer law arising from the Productivity Commission’s report will have three main elements:

• a national consumer law based on current consumer protection provisions in the Trade Practices Act 1974, adding a national unfair contract terms regime and more flexible enforcement powers
• a new national product safety regime
• better cooperation and information sharing between national and state regulators.

At this stage, we’re particularly interested in the new national unfair contracts law.

New national unfair contracts law

Key points:

• It will apply only to ‘take it or leave it’ standard contracts.
• Telco / ISP standard agreements are particularly identified as targets.
• If a telco / ISP says ‘It isn’t a take it or leave it standard contract, they must prove it.’
• A term is ‘unfair’ if it causes a significant imbalance in the parties’ rights and obligations under the contract and is not reasonably necessary to protect the legitimate interests of the telco / ISP.
• The person who attacks a term as ‘unfair’ must prove that some one has actually suffered financial or other detriment or is substantially likely to do so.
• There will be representative actions for damages by a class of consumers detrimentally affected by unfair contract terms i.e. customers can gang up on a telco / ISP’
• Regulators can lead representative actions, or consumers can do it themselves.
• Upfront price is excluded from unfairness test.  The law can’t be used to simply say that a price is unfair.
• Some kinds of terms can be banned completely.
• There will be a transition period allowed.

What kinds of terms are in the ‘unfairness’ gun ?

The discussion paper gives these examples of terms that could offend the new law:

• terms that permit the ISP / telco to unilaterally vary the terms of the contract
• terms that prevent the consumer from cancelling a contract
• terms that require the payment of fees when the service is not provided
• terms that exclude liability for harm resulting from the ISP / telco’s or its agents’ actions
• terms that let the ISP / telco supply goods or services that are not those contracted and paid for by the consumer
• terms that let only the ISP / telco decide whether to renew or not to renew the contract
• terms that penalise only the consumer for breaches of the terms of the contract
• terms that permit the ISP / telco to change the price of the goods or services contracted for without allowing the consumer to terminate the contract
• terms that permit the ISP / telco to unilaterally determine whether a breach of the contract has occurred or to interpret the contract’s meaning
• terms that allow the ISP / telco to assign the contract to the consumer’s detriment, without the consumer’s consent
• terms purporting to limit the consumer’s right to take legal action against the ISP / telco
• terms limiting the evidence that the consumer is permitted to use in legal proceedings based on the contract
• terms imposing the evidential burden on the consumer in legal proceedings
• terms that do not permit refunds to consumers when the goods or service are not provided, or which apply conditions to the way in which consumers are refunded
• terms that require consumers who breach a contract term or terminate early to pay penalties, in the form of specific additional payments, additional interest or indemnity legal costs, which do not reflect the ISP / telcos’ reasonable costs
• terms that deem something as a fact or that something will be a fact, such as an acknowledgment that certain information has been provided to the consumer prior to the agreement being made, regardless of whether or not it was.

And what kinds of terms might be banned completely ?

These are the kinds of terms that may be affected:

• terms retaining title for suppliers in goods that cannot be removed from consumers’ premises without damage
• terms allowing suppliers to repossess such goods
• terms denying the existence or validity of pre  or post contractual representations made to consumers
• ‘entire agreement’ terms
• terms deeming something a fact
• terms that deny the existence or effect of oral representations
• terms under which consumers acknowledge that they have read or understood the contract
• conclusive evidence terms
• terms that are void under laws that imply certain terms into contracts
• terms that otherwise limit suppliers’ liability for their negligence
• flat / fixed early termination fees
• terms requiring the paying out of the balance of a contract
• terms requiring consumers to pay more than suppliers’ reasonable enforcement costs reasonably incurred
• terms allowing suppliers to retain, debit or set off disputed amounts
• terms mandating arbitration of disputes or otherwise inhibiting access to courts or tribunals.

For most States, it’s a win for consumers

Victoria is the only State or Territory that currently has an unfair contracts law.  So consumers in all other States and Territories will be getting access to these rights for the first time.

But Victoria gets it wings clipped in one way

Under Victoria’s current unfair contracts law, there is no requirement that the regulator Consumer Affairs Victoria ‘be real’.  If it considers that a term is unfair, and it can persuade a tribunal to consider the same thing, the ISP / telco loses – even though not a single actual disadvantaged customer has been produced as ‘evidence’.

This highly academic approach to the problem invites the Victorian regulator and courts to approach the law in an intellectual, theoretical way.  You might have thought this runs a risk that they would go too far.  So did the Productivity Commission, whose report emphasised the risks of this approach:

• There could be inappropriate regulatory interference with apparently one-sided contracts.
• There is only limited information on the extent of consumer detriment resulting from the use by suppliers of notionally unfair contract terms.
• There is a risk of regulatory overreach.
• The regulator might not focus on more egregious unfair contract terms.

Canberra’s discussion paper basically agrees with this assessment and sets the bar higher than the current Victorian law:

Remedies will be available only where the claimant (an individual or a class) shows detriment to the consumer (individually or as a class), or a substantial likelihood of detriment, not limited to financial detriment.

This element of the model reflects the PC’s recommendation , although it makes it clear that action may also be undertaken on the basis of a ‘substantial likelihood of detriment’. This recognises concerns about the limitations that a requirement limiting enforcement action to actual detriment would place on the effectiveness of enforcing the provision in practice.

However, by requiring a proof of a ‘substantial likelihood of detriment’ in the particular case, the provision would require more than a theoretical case of potential detriment to be made out, but would require proof of either actual detriment or a substantial likelihood of detriment. This recognises concerns about the potential for regulatory overreach, should no such limitation be applied.

It isn’t quite as strict a solution as the Productivity Commission wanted, but it supports the general view that the regulator needs to ask ‘Is this real ?’ before waving the law at a company.

Our take on it

History shows that CSPs generally adopt a ‘wait and see’ approach to these kinds of new laws.  Then a few players get seriously punched up and many panic. 

Copyright infringement and the safe harbour are a great example.  Three years ago, you couldn’t give away advice on safe harbour.  Now, management are in a rush to sail in, since iiNet was sued.

We think a more measured approach to standard CSP contracts would be wise.  The law is coming, ready or not.  But better to be ready.  That doesn’t mean changing contracts prematurely, but it could involve some measured thinking about which protections you really need, and which are over the top.

Clue … there’s a Communications Alliance Code that’s relevant, and a TIO policy.

 Answer

• Your main obligation is to try and get all current charges onto the current bill – see clause 6.5.4(a) of the Comms Alliance Telecommunications Consumer Protection Code.
• But the TCP Code does allow a CSP to bill charges up to 190 days after they were incurred by the customer – see clause 6.5.4(d) of the Code.
• White Pages directory charges are a special case.  They can be billed up to 220 days after the directory’s public closing date – clause 6.5.4(e) of the Code.
• And the TIO won’t necessarily argue with late charges for mobile roaming calls and international reverse charge calls.  According to its policy:

These types of calls are not limited to any backbilling period because the Australian carrier is unable to force a foreign carrier to bill for charges within the 190-day period. … When handling complaints that involve these exceptions, the TIO will judge each case on its merits.

It’s a bit like a subpoena and even a search warrant and requires the CSP to provide detailed documents, records and other information that may show it is in breach.

Now the Federal Government has agreed to give the regulator an even more effective power that will change the way CSPs need to approach advertising.

Substantiation Notices

The new weapon is called a ‘Substantiation Notice’.

Basically, it lets the regulator issue a notice that says (for instance):  ‘In an ad on 12 March you claimed that your service offered the best P2P speeds in Australia.  Please prove it.’

States can already do it

Several State consumer affairs regulators have had power to issue them for some time, and the ACCC has been keen to get in on the action.

For instance, Victoria’s Fair Trading Act says:

Substantiation of claims

The Director may, by notice in writing, require a person who publishes or causes to be published a statement promoting, or apparently intending to promote, the supply of goods or services, to provide to the Director, within the period specified in the notice, proof of any claim or representation made in the statement.

A person on whom a notice under this section is served, who -

• fails to provide proof sufficient to support the claim or representation; or
• fails, without reasonable excuse, to provide that proof by the time specified in the notice; or
• provides information which is false or misleading -

is guilty of an offence and liable to a penalty not exceeding -

• 600 penalty units, in the case of a natural person; or
• 1200 penalty units, in the case of a body corporate.

Pretty powerful stuff.  Discussions so far have assumed that the ACCC’s new power will me modeled pretty closely on the existing State laws.  For the sake of this article, we’ll make the same assumption.  But bear in mind that Canberra could vary things if it wished.

The States haven’t used the power much

The States haven’t made much use of Substantiation Notices so far.  For instance, Consumer Affairs Victoria served nine Substantiation Notices in 2004-05 and six notices in 2005-06.

But the ACCC was keen to get the power

There are two key problems with section 155 notices, from the ACCC’s perspective.

Evidentiary threshold

First, it can only issue a notice if it is already satisfied that there is a matter that may constitute a contravention of the Trade Practices Act.

That’s not a very high test.  But it means that a section 155 notice certainly can’t be issued if the ACCC is simply wondering whether an advertising claim is fair and true.  There’s no such ‘evidentiary threshold’ for Substantiation Notices.  If the ACCC wants to be satisfied of a claim’s truth, it will be able to issue a notice.

Workload

A section 155 notice might elicit hundreds or thousands of pages of material from the target.  Fine, but the ACCC then needs to read and analyse it to understand whether it discloses and / or proves any legal breaches.  That can involve a lot of time and effort.

In many cases, what the ACCC really wants to know is the one thing it cannot do in a section 155 notice:  Ask the pointed question ‘You said ABC.   Prove it.’

This means that the target has to precisely make, or fail to make, the case for the truth of its claim.  The material the ACCC then needs to judge is far more focused.

What’s it mean for advertisers ?

It means that every claim in every advertisement will need to be written with the question in mind:  ‘Could we precisely and comprehensively substantiate this claim ?’

Of course, that’s how advertising should always have been written.  But once the ACCC has power to demand substantiation, there’s much greater danger in advertising ‘fast and loose’.

When ?

The recommendation that the ACCC be granted this new power arises from the Productivity Commission’s Consumer Framework Report we reported earlier.

The whole package from the Report is proposed to be implemented by 2011, but we gather that Substantiation Notices for the ACCC will be dealt with sooner rather than later.  Don’t be surprised if they’re part of the legal landscape in 2009.