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.

Last December Optus incurred customer wrath, effectively torpedoing mobile access to cheap international VoIP services by charging them at international rates. 

At the time, Optus insisted that:

International calls within the meaning of your Optus Mobile Standard Form of Agreement for all Timeless and Cap plans includes calls that re-route or divert to international numbers.

CSP Central asked Optus to tell us where the SFoA said that.  We couldn’t be sure – because the document is a confused mish-mash – but as far as we could tell it said no such thing.

Apparently Optus didn’t feel too sure of its grounds, either.  So it has bolted on a powerful, unbalanced  new contract term that is sure to attract the interest of consumer regulators who have unfair contract terms legislation in their armory.  Today, that’s only Victoria.  On 1 January 2010, it will be every Australian State and Territory, and the ACCC.

The new Optus contract term

The following little gem has been added to Optus’ standard terms:

5.2A  Blocking Calls
Effective 12 August 2009, we may block access to a number (other than an emergency service number) if we reasonably require this to be done for technical, operational or commercial reasons.

Seems pretty rude, to us

It’s the ‘commercial reasons’ that trouble us most. 

It’s a ‘commercial reason’ to block a particular number that it relates to a service that competes with Optus. 

It’s a ‘commercial reason’ to block access because the number represents a call type that is unprofitable for Optus.

For many purposes, the word ‘commercial’ can reasonably be translated as ‘money making’.  That’s not a cheap shot.  ‘Commercial real estate’ is real estate used for money making purposes.  ‘Commercial loans’ are financial arrangements made to facilitate money making activities.

So substitute that for ‘commercial’ in Optus’ new term and you get:

5.2A  Blocking Calls
Effective 12 August 2009, we may block access to a number … if we reasonably require this to be done for … money making reasons.

It’s a pretty unbalanced and unreasonable power to have, unless Optus can explain what legitimate interest it is necessary to protect.

Unbalanced and unreasonable equals illegal

Under the new national unfair contracts law, due to take effect on 1 January 2010, a term in a standard form contract that is (a) seriously unbalanced and (b) not reasonably necessary to protect a legitimate interest is void.  And the onus of showing the legitimate interest will lie on the party that benefits from it.

Back in January, we were asking Dear Optus, please show us where the supposed definition of international calls could be found.  Now, we’re asking What legitimate interest of Optus justifies a power to block access to numbers for unspecified ‘commercial’ reasons ?

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.

It seems that Optus pumped out 20,000 messages promoting its OptusZoo entertainment service, but didn’t identify itself as the responsible sender.  Instead, it just quoted sender identification ‘966’.  Recipients were apparently expected to work out that this meant ‘Zoo’ in keypad speak.  Of course, it could also mean ‘Yom’, ‘Zom’ or ‘Xon’.

According to ACMA, Optus has paid the penalty and advised that new compliance measures have been implemented that will ensure accurate sender identification is included in all future commercial electronic messages.

More comment soon.

In this case, the clarity (or otherwise) of the contract documents matters more than most.  Optus is basing a controversial decision to deny Timeless or Cap plan customers access to cheap VoIP calls on a claim that its standard contract is quite clear about it.

 
No cheapie calls via our network, says Optus

Until Christmas, Optus Timeless or Cap plan customers could use their mobile or landline accounts to dial the Australian number of a VoIP service provider.  Optus carried the call as far as the VoIP service, and the VoIP service provided an IP link to an international number at low cost.

Then came the SMS from hell:

IMPORTANT:  All calls that re-route or divert to international numbers are charged at 29c per min + 27c flagfall.  See optus.com.au/international for details.

So we checked out optus.com.au/international for details

Here’s how Optus explains its purported right to block access to third party VoIP services that allow customers to use a local or national Optus call as the first stage of a cheap international connection:

Optus is concerned that some customers may be being misinformed or misled by non-Optus related entities that are making claims that Optus customers can make free, or included cap value, international calls on their Optus Plan. This is not correct. International calls within the meaning of your Optus Mobile Standard Form of Agreement for all Timeless and Cap plans includes calls that re-route or divert to international numbers.

If you are on a Timeless or Cap plan, all calls made to any number that re-routes, diverts or switches to an international number is an international call and is charged from 29c per minute with a 27c flagfall. International calls are not included as part of your Timeless unlimited offer, and are excluded from some Cap plans included value. A complete copy of the Standard Form of Agreement can be viewed at www.optus.com.au/sfoa

Now, that may be true.  But if that’s what the standard agreement says, we can’t locate it.  No surprise since the contract documents comprise a bevy of separate components.

We even googled the entire Optus site for the word ‘re-route’ but could turn up just four results, none of them relevant.

Optus had better hope its assertion is correct

Even if Optus is right about ‘international calls within the meaning of your Optus Mobile Standard Form of Agreement for all Timeless and Cap plans’, there are questions about the conscionability of its exercise of power.

And if Optus is wrong  it has made a nasty mistake indeed. 

So give us a hand, Optus

We’re not saying you’re wrong, but in the jumble you describe as ‘a complete copy of the Standard Form of Agreement’, the term that ‘If you are on a Timeless or Cap plan, all calls made to any number that re-routes, diverts or switches to an international number is an international call’ isn’t easily found.

Where is it, please ?

Here’s an article I wrote about it recently in my weekly Hands On column in the Australian Financial Review.

“We seldom use this column to advertise legal services, but duty demands that we don’t hide this offer under a bushel.  We’ll service any telco’s legal needs for an amazing $100 a month on our amazing Hands On $100 Legal Fees Cap Plan.  We’ll do it for Telstra.  We’ll do it for Optus. We’ll do it for Vodafone. We’ll do it for anyone.  Your monthly $100 spend gets you an amazing $50,000 in included services.  Just amazing.”

The secret

The secret behind this miracle offer is that we’ve adopted telco advertising jargon.  On any planet we’ve ever visited a ‘cap’ represents an upper limit, the ceiling, the tops.  According to Dictionary.com, it’s a maximum limit on prices, wages or spending during a certain period of time, for instance a 9 percent cap on pay increases for this year.

Only in telco land does the word morph to an amazing new meaning:  the least you’ll have to pay.  On a mobile phone $49 cap plan, $49 is a floor under your monthly bill.  Never make a call and you’ll still pay $49.  Make too many calls or use the service for something that’s not included in the ‘cap’, and you’ll score a bill way over $49.  So we agree with outfits that describe their cap plans as amazing.  It’s a truly amazing use of language.

Setting your own exchange rate

The next amazing trick is that many of these companies have devised a way to privately fix the value of the Australian dollar.  Check out Optus $19 cap plan with $50 of included value.  It’s advertised in the same table as a $79 plan with $550 included value.  But a wildly different exchange rate applies in each case.  Folks on the lower priced cap plan are charged a national call rate of 47 cents per 30 seconds, while the bigger spenders pay just 35 cents a half minute.

Spend discounts aren’t the problem

We’re not arguing against discounted rates for higher spenders.  We’re only pointing out that quoting included value as a dollar amount is meaningless when the service provider can arbitrarily determine how fast that dollar amount will be chewed up.  Did we mention that the hourly rate under our $100 Legal Fees Cap Plan is $25,000 ?  Yes, your $50,000 included value will get you just a couple of hours of time each month.  Amazing.

Neither are we debating that some plans advertised as capped represent good choices for many customers.  Our point is that fair advertising is never promoted by confusing language, and calling a floor a cap is about as confusing as it gets.

And ‘cap’ means different things to different telcos

Apart from widely adopting the term, the industry has made little effort to standardise its use.  For Optus, caps are a kind of plan they offer; in Optus-land, they are cap plans.  To Vodafone, a plan is a different product from a cap, with its web site inviting us to ‘choose one of our plans or caps on contract’.

Telstra thinks caps are kinds of plans, like Optus.  But it explains how the charges work by reference to its own unique jargon standard cap start and standard cap end.  How a ceiling on charges, or a floor for that matter, has a start and an end isn’t clear to us.  No doubt it all makes sense, as long as we let the telcos redefine the english language at will.

Several experienced cap customers we spoke to were clear that the word translates as minimum spend in the telco context.  But the same people also understood that you pay for a so-called free handset through the long term payments under a contract.  The fact that many consumers are in the know doesn’t help any who are suckered into believing that their spend is capped, sorry, limited.

Regulators don’t seem worried, so far

Regulators like the Australian Competition and Consumer Commission have brooked no nonsense when it comes to claims of free phones or other bonus benefits.  Retailer Crazy John has just been disciplined for a free phone campaign that recouped the charges with inflated call costs.  But the widespread abuse of the word cap, and the complicated pricing tables and small print conditions that are supposed to justify the practice, seem to escape notice.

Why wouldn’t a company adopt this misleading term, when so many others are getting away with it ?

Footnote

The TIO has a similar view to ours:

Capped

Recent years have seen many telecommunications providers market products they describe as capped plans. Such products generally involve an arrangement where a consumer pays a fixed—usually monthly—amount to obtain service value for what is stated to be a higher amount, e.g. a customer agrees to pay $50 per month so they can make calls up to the value of $300.

Contractual terms and conditions for such plans vary considerably, even when they are plans offered by the same company.

Some of the claims made by complainants about capped plans include:

• that they were not aware that they would have to pay more than the fixed monthly payment if their usage exceeded the value associated with the cap, e.g. that they would have to pay more than $50 if they made calls beyond $300
• that they were not aware that the arrangement did not include all types of usage, e.g. that if they made data calls to access the internet they could not count these as part of their $300 in value and instead would have to pay for them separately at the rate of $2.50 per minute, and/or
• that they were not aware that the arrangement set limits on the duration of individual calls, and that they would have to pay separately for any calls that were longer than a defined period.

These and other complaints indicate that consumers may not clearly understand what capping means in the specific context of a plan for telecommunications services. Rather, they appear to understand the term capped in the generally protective sense of the term, i.e. that there is a maximum limit or “ceiling” on the amount of money that they can spend or that they will be charged.