Take a look at the Naked DSL advert in the top left hand corner of Dodo’s home page as at 4 June 2009.  In a few square inches, there are three TPA breaches. 

We’ll explain what they are.

The home page

The main message

Always start a TPA advertising analysis with the question:  ‘What’s the main message of the advert ?’

Here, the eye-catching points are:

• Naked DSL from $29.99 a month
• No phone line needed

What a bargain !  Where do we sign ?

The full facts

Look just to the right of the highlighted $29.99 per month text … that’s not a dead pixel on your monitor.  It’s a footnote number.  A tiny little feint number ’1′.

It references some small, dull text at the bottom of the page that grudgingly reveals that to get the $29.99 price, you must bundle the DSL service with a Dodo mobile service.

What’s wrong with that ?

Nothing, if it was prominently explained in a way that formed part of the main message.

But in this case:

• It isn’t prominent, and doesn’t form part of the main message.  In fact, it significantly changes the main message.  The main message gives no clue that the buyer has to buy a second service to get the low price.

Breach of section 52 of the Trade Practices Act

• There’s a real problem in claiming that a customer won’t need a phone line, but requiring them to take a mobile service.  The value proposition of naked is that you can factor out the cost of a phone service if all you want is DSL.  To tie in an alternative phone service in the small print makes a lie, for practical purposes, of the ‘no phone line’ claim.  It’s literally true but it’s still misleading.

Breach of section 52 of the Trade Practices Act

• The total price of the plan isn’t stated prominently, and the total price of the bundle isn’t stated at all. 

Breach of section 53C of the Trade Practices Act

Yet time and again, CSPs pretend (the polite legal word is ‘purport’) to limit liability when they can’t.

Take Dodo’s current standard contract, for instance …

Dodo’s ‘doh! doh!’ clause

Here’s a copy & paste from Dodo’s consumer contract:

6. Liability

… 6.2  Where it is fair and reasonable to do so, We limit Our liability to re-supplying, repairing or replacing relevant goods or services, or the payment of the cost of re-supplying, repairing or replacing the goods or services.

The legal problem

It’s illegal.

Why it’s illegal

The lawyer who wrote this seems to imagine that section 68A of the Trade Practices Act 1974 is relevant.  Here’s section 68A and we’ll highlight the words that give the lawyer’s idea away:

Limitation of liability for breach of certain conditions or warranties

(1)  Subject to this section, a term of a contract for the supply by a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that the term limits the liability of the corporation for a breach of a condition or warranty … to:

(a)  in the case of goods, any one or more of the following:

(i)  the replacement of the goods or the supply of equivalent goods;

(ii)  the repair of the goods;

(iii)  the payment of the cost of replacing the goods or of acquiring equivalent goods;

(iv)  the payment of the cost of having the goods repaired; or

(b)  in the case of services:

(i)  the supplying of the services again; or

(ii)  the payment of the cost of having the services supplied again.

(2)  Subsection (1) does not apply in relation to a term of a contract if the person to whom the goods or services were supplied establishes that it is not fair or reasonable for the corporation to rely on that term of the contract.

The ‘magic words’ are that a liability limitation ‘a term of a contract for the supply by a corporation of goods or services other than goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption is not void under section 68 by reason only that …’. 

So section 68A has no relevance to ‘goods or services of a kind that are ordinarily acquired for personal, domestic or household use or consumption’.  The limitation of liability it countenances can never apply to such goods or services.  And the exclusion in subsection (2) is by definition irrelevant since the condition to which it serves as an exception cannot occur.

Why can’t it occur ?

Because Dodo’s contract itself proclaims that it only applies to services acquired for ‘personal,  domestic or household use’,  section 68A can never apply. 

The bottom line

Clause 6.2 of Dodo’s standard contract (a) can never apply and (b) is misleading to include in such a contract (because it can never apply) and (c) breaches section 53(g) of the Trade Practices Act if it makes a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.

When you wish upon a star …

Wishful legal thinking about section 68 abounds.  Dozens of CSPs – including many with lawyers on staff – get it wrong.  So here’s how it works:

If you supply goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption, you cannot limit your liability for a breach of a condition implied by Division 2 of Part V of the Trade Practices Act 1974.  Don’t bother trying.  Can’t be done.  Offence against the Act to tell folks otherwise.

‘ACMA has embarked on a campaign to improve telecommunications compliance that includes formal investigations, warnings, detailed letters putting individual providers ‘on notice,’ and an industry newsletter specific to the telco industry which provides practical advice about adhering to compliance requirements.’

A growing list of Aussie telcos has already been on the receiving end of ACMA’s attention.

Who’s on report so far ?

Since the Do Not Call Register Act took effect on 31 May 2007:

• Dodo was hit by a $147,400 penalty in October 2008.
• Dodo has submitted to an Enforceable Undertaking about its future behaviour.
• Astron Communications has submitted to an Enforceable Undertaking.
• People Telecom has submitted to an Enforceable Undertaking.
• Global Telelinks has received a formal warning.
• Ezycall has received a formal warning.
• m8 Telecom has received a formal warning.

What goes wrong ?

The main problem seems to be commission sales arrangements.  A telco engages a telemarketer / agent / ‘reseller’ to push the brand, and before you know it an incentive-crazy sales force is dialling anyone anywhere and saying anything.

Problem is that the Act often sheets home responsibility for third party behaviour to the telco that’s behind the deals.

Hence ACMA Chairman Chris Chapman’s comments today:

‘I strongly urge businesses at every level of the telecommunications marketing chain to take responsibility for their Do Not Call compliance.’ 

‘ACMA will continue to seek an environment of accountability in the telecommunications industry when it comes to Do Not Call compliance. Where reselling arrangements exist, we are looking for companies at the top end of the marketing chain to take a lead role in insisting on high standards of compliance amongst the businesses that depend on them.’

In February, the company received the rare ‘distinction’ of an ACMA direction to comply with the complaints handling and billing codes after the TIO noted a rising number of complaints.

In October it broke the record for a Do Not Call Register Act fine.

It ends the year tempting fate with an online advertisement that makes an unqualified and untrue ‘free’ offer.

The advert in question

The promotion is front and centre on the company’s web site.  It spruiks free ADSL2+ and mentions no qualifications at all.

It’s true that web advertising is different from print.  You can’t click on a billboard or newspaper advertisement and get extra information.  But that doesn’t justify a big, bold ‘free’ offer with no upfront indication that you need to buy a home phone service to qualify.

What’s the real deal ?

Clicking on the ad doesn’t whisk you to a clear explanation of what the ‘free ADSL2+’ offer is.  You are taken to a table of plans that includes a $0 monthly option.  (Let’s leave aside the fact that it includes only a farcical 150 MB data allowance before a hefty 18 cents a MB applies.)

From this table and its small print, you can figure out the catch with the ‘free’ ADSL2+ offer.  It’s only available bundled with a home phone, starting at $29.90 with no included calls.  But you need to click to a third page to find those rates.

So there are the facts

To get the free offer, it’s compulsory to buy something else, and the front page ad gives no clue of that.  Even when you work out what you need to buy, there’s more work to be done figuring out how much you’ll pay for it.

Any advertisement that uses the powerful word ‘free’ must be as simple and clear as possible in explaining what is free and what isn’t.  Dodo’s ad fails the test.

Footnote

Journalist Dan Warne has analysed the offer in scathing terms on APC online.

Worse, you may commit a criminal offence under the Trade Practices Act – of misrepresenting peoples’ legal rights.

Dodo’s most recent brush with the law caused us to take a look at its ‘liability limitation’ clause.  All we can say is ‘Wow !’  What planet’s legal system generated this weird stuff ?

First, a refresher

Before we go any further, let’s re-read an earlier article about liability limitation.

Next, take a look at Dodo’s clause

As Your service is provided to You for the primary purpose of personal use, We do not accept liability for losses that result from the use of Your service in connection with the conduct of a business.

We are liable to you for breach of contract or negligence.

However, We will accept that liability if it cannot be excluded under any legislation.

If that liability cannot be excluded but can be limited under any legislation, We limit Our liability to resupplying, repairing or replacing the relevant goods or services, or payment of the cost of resupply, repair or replacement, where it is fair and reasonable to do so.

What did they get wrong ?

Umm, this is a hard call.  Which do you rank first … the potential criminal offence or the apparent omission of the word ‘not’ ?

Let’s start with the potential offence

The statement that ‘As Your service is provided to You for the primary purpose of personal use, We do not accept liability for losses …’ is bizarre.  From our earlier article, you’ll understand that the ‘primary purpose’ of supply is as relevant as Dodo’s left foot.  Dodo can’t deny liability for a service it provides on that basis.

It just isn’t lawful to (try and) do that in Australia.

And trying to do it may breach section 53(g) of the Trade Practices Act:  ‘A corporation shall not, in trade or  commerce, in connexion with the supply or possible supply of goods … make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.’

Section 75AZC of the TPA goes on to make that an offence … with a maximum penalty of over $1 million.

Now let’s look at the ‘not’ problem

It’s pretty obvious that Dodo did not mean to say ‘We are liable to you for breach of contract or negligence.’  The next sentence reads:  ‘However, We will accept that liability if it cannot be excluded under any legislation.’  You don’t begin a sentence with ‘However, we will accept that liability’ when the previous sentence already says ‘We are liable to you for breach of contract or negligence.’

It looks like some careless dork has left out ‘not’.  Maybe it was intended to say ‘We are not liable to you for breach of contract or negligence.’  Then it would make sense for the next sentence to begin with ‘However, We will accept that liability …’.

And there’s a second, different liability clause in the same document

We won’t dwell on it, but there’s a second clause about liability that works differently.  It also mis-states the law, though.

Our take on it

If anyone takes Dodo on in court, claiming heavy losses, the company will have to rely on a court reading this mish-mash with sympathy.  Good luck, Dodo.

It ends an information drought for Australian businesses that use contract call centres for telemarketing.

As a regular contributor to the coffers of the Telecommunications Industry Ombudsman, Dodo is no stranger to regulatory imposts.  But the speed at which big Do Not Call fines can accumulate should alarm even the most blasé operator.

Just 67 non-compliant telesales calls translated into a $147,400 penalty.

You read it right:  67 calls = $147,400

According to a written undertaking the company has provided to regulator Australian Communications and Media Authority (ACMA), ACMA’s investigation turned up 67 calls in a three month period to homes that should have been immune thanks to their registration on the national Do Not Call list.  Those calls have translated into a penalty of $147,400.

Call it a cost of $2,200 per call or annualise it at around $600,000 a year.  Any way you look at it, it’s a scary number especially for a first offence.  Just imagine the hole that 670 or 6,700 unlawful calls would punch in a bottom line.

ACMA comes out of the closet

Even more interesting than ACMA’s hard line with Dodo is that the regulator has finally come out of the closet on some of its opinions about how to comply with the Do Not Call Register Act.  For some time now, the authority has been developing private views about what a business needs to do when it engages a contract call centre for a sales campaign.  Until now, it hasn’t gotten around to letting business into the secret.

CSPs responsible for the sins of their outsourced telemarketers

Basically, the Do Not Call Register Act says that if a contract call centre breaches the Act, the customer who engaged it is also liable unless it used reasonable efforts to prevent the breach.  The Act is worse than silent as to what might constitute due diligence.  It mandates a puny clause that must appear in any outsourced telesales contract.  Many enterprises have understood the inclusion of the clause to be all that’s required.

ACMA sets the bar high

Even if the standard clause is only a starting point, it gives no hint of the lengths that ACMA privately considers are required.  Neither does the authority’s web site, or the Do Not Call Register site it auspices.  Nor, as far as we know, has any public utterance of the regulator until Dodo’s written undertaking appeared online with a media release.

Undertakings are extracted by regulators like the Australian Competition and Consumer Commission and ACMA as substitutes for court orders. Although they often set higher standards than a business might adopt if it hadn’t already been caught out legally, they still shed valuable light on what the regulator reckons proper practice to be.

How does your telemarketing contract measure up ?

So if you have a contract telemarketing arrangement in place, see how you stack up against the following benchmarks gleaned from the Dodo document.

Does your contractor provide regular reports of all numbers called and which of their staff made each call ?  Do the records include whether each call was answered and its duration ?  Are these records retained for at least a year ?

Do you know which phone companies carry your contractor’s calls ?  Is there a system for recording that information for at least a year afterwards ?

Are all call centre staff trained in compliance with the Act ?  Are there systems to ensure caller identification is turned on at all times ?  If someone calls back the displayed number, will they easily reach a representative of your organisation ? Absent these kinds or processes, ACMA is likely to sheet home blame for any call centre misconduct to you.

But wait, there may be more …

Unfortunately, it’s not at all clear that ACMA’s expectations are exhausted by the Dodo documents.  We have heard suggestions that clients of call centres should audit called number records against the official register, a tricky assignment since the register will have changed since the calls were made.

Come on ACMA, share the secret

In time court rulings will clarify what’s required but like the Australian Taxation Office, ACMA is well placed to discourage court challenges.  With maximum penalties that read like telephone numbers and the risk of a quadruple or nothing outcome from a court, most businesses will compromise rather than test ACMA’s positions in court, which is why we’d like to see those positions articulated more transparently.  If the authority has some good ideas about how to comply with the law, let’s hear them as positive advice rather than deduce them piecemeal from undertakings like Dodo’s and one liners in media releases.