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.

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.

According to ACCC, Telstra told other ISPs that it was all out of MDF capacity in seven key city exchanges.  So sorry, but you just can’t interconnect here.  Says ACCC: That was untrue, and you’ve breached section 52 of the Trade Practices Act by engaging in misleading and deceptive conduct.

ACCC also says Telstra has breached its licence terms and its ‘standard access obligations’.  The regulator wants financial penalties, declarations of wrongdoing and court injunctions.

Standard access obligations ?
ACCC explains SAO’s this way:

The standard access obligations under section 152AR of the TPA require Telstra to permit interconnection of facilities to enable the supply of the ULLS and the LSS to access seekers, so they can provide voice and/or ADSL2+ broadband services to retail customers. In addition, Telstra must ensure that access seekers receive equivalent technical and operational quality and timing of interconnection to that which Telstra provides itself. 

Rumours rife

While Telstra has been knocking ISPs back on exchange access over the last year or two, industry rumours of Telstra staff giving a ‘nudge nudge wink wink’ to competitors have been rife.  Certainly, ISPs we know have been convinced that that Telstra was playing games.

CSP Central will provide more details and analysis shortly.

The departure was announced on Telstra’s corporate website this morning and follows the repatriation of fellow amigo and former Telstra public relations chief Phil Burgess, for personal reasons, last August.

Widely respected for steering the business through important IT transformations, Winn is one of the few Telstra execs on mega-salaries who may prove worth it in the long run.

Interestingly, he won’t be replaced:

Mr Winn’s position as COO will not be filled.  Instead, most of his direct reports will report to Mr Trujillo.

While many are commenting that it’s odd for the post not to be re-filled, we think the reason is obvious.   It would probably take several months for Trujillo to locate and lock in his perfect replacement.  And if Trujillo himself wasn’t to remain at Telstra for many more months, would his successor be all that pleased to inherit the last amigo’s idea of the perfect COO ?

The Prohibition basically outlaws selling, using or possessing mobile phone jamming equipment.  Today’s amendment creates an exception for devices that will lock mobiles on aircraft out of the standard GSM range and force them to use a transmission relay service installed in the plane.

Telstra agrees that in-flight calls would be a good thing, but reckons the new law does little but create a service monopoly for the operators of Cellular RF Management Units (CRFMUs) that force handsets to roam onto mini-mobile phone cells in the skies, and risks waves of call drop outs on the ground as aircraft fly over terrestrial GSM towers.

The Jammer Prohibition

Fully titled ‘Notification that the Australian Communications and Media Authority prohibits the operation or supply, or possession for the purpose of operation or supply, of specified devices’, the Jammer Prohibition is made under section 190 of the Radiocommunications Act 1992.

Its main provision is not much longer than its title:

Notice is given that the Australian Communications Authority (the Authority) declares that the operation or supply, or possession for the purpose of operation or supply, of a device designed to operate within the frequency bands 870 960 MHz or 825 845 MHz and to interfere with radiocommunications or disrupt or disturb radiocommunications, is prohibited.

Today’s amendment

The Amendment Declaration amends the Mobile Phone Jammer Prohibition to create an exemption allowing for the operation of a device if:

1. the device is designed to facilitate a cellular mobile telephone service onboard an aircraft operating within another frequency; and
2. the device is operated for that purpose.

So we can call mobile from the air now ?

No, this is just one step in a legal framework that will make it possible.  A licensing regime for the new transmission relay service will next need to be developed, possibly with a public consultation phase.

Despite the variation, in-flight mobile phone services cannot be provided in Australia unless the ACMA also establishes appropriate radiocommunications licensing arrangements. However, the variation will allow airlines and their service providers to undertake further development work related to the provision of in-flight mobile phone services.

But Telstra reckons the amendment is an anti-competitive set up

According to Telstra’s submissions to ACMA:

• Mobile services on planes can work perfectly well by connecting to existing land-based GSM towers.
• CRFMUs won’t ‘facilitate’ calls in the sky. They’ll just block users from connecting to terrestrial cells on their home network and force them to roam onto the CRFMU-based service.
• So it’s an anti-competitive solution, with customers denied the choice of using their normal provider even if plenty of terrestrial signal is available.
• It might even breach the Trade Practices Act.
• Telstra can’t see how there’s a safety issue. If interference with aircraft systems by a relatively broad spectrum CRFMU is safe, so must the much narrower transmission footprint of a single GSM handset.
• CRFMUs should be switched off in Australian airspace below 6,000 metres, where there will be plenty of conventional terrestrial service available.
• Aircraft overhead may cause ‘a wave of dropped terrestrial calls’ as the on-board RFCMU does its work of signal jamming.
• There’s potential for ‘customer outrage with incurring higher international call rates due to routing via [an exclusive on-board provider] while still within Australia.’

Not everyone’s looking forward to new services

Several submissions to ACMA cheered the idea of in-flight telephony, at least in principle.  But the consultation phase drew sighs as well.  Spare a thought for this unhappy traveler:

Dear Sir/Madam,

I am firmly against the proposed amendments under section 191 of the Radiocommunications Act 1992.

Flying can already be a nightmarish experience in an enclosed space with babies crying, drunks talking loudly and falling on you, obese people squeezing up against you, numb legs, etc, etc. To add to this mix the ability for inconsiderate people to be talking loudly and rudely on their phones about their business deals, medical issues, overnight exploits, etc and not being able to get away from them would really make flying, especially long haul, even worse.

Please don’t approve this amendment.

Our take on it

Telstra may have a point.  The jury seems to be out on whether on-board use of mobiles is a safety risk.  If it isn’t, the case for a monopoly aircraft provider is hard to justify.

And after all, Telstra understands what monopolists can do to you.

After getting answers it didn’t like from the ACCC’s access dispute arbitration process, Telstra attacked the process itself.

ACCC Chairman Graeme Samuel said: ‘The ACCC has always taken a thorough, robust and transparent approach to disputes brought before it. These decisions have now been subjected to detailed scrutiny on multiple grounds of review, and the Federal Court has found that they have passed muster on all but one small point.’

It’s good news for CSPs that want access to the LSS.

In three years as Telstra’s main spokesperson, Burgess won respect for his fierce prosecution of Telstra’s positions.  He also drove us to distraction with his one-sided rhetoric.

Here’s a report from my ‘Hands On’ AFR column on one of Burgess’ classic efforts in March 2007.

If we hadn’t heard it with our own ears, we would never have believed that Telstra works the way it does.  Apparently, the sight of children playing games spurs it to spend a billion bucks.  Really.

We were privileged to hear Telstra subpremo – that’s a rung or so below a supremo – Dr Phil Burgess explain that Australia is suffering from a broadband drought, and how Coonan, the doctor’s shorthand for the Telecommunications Minister, and Samuel, aka the Chairman of the ACCC, are stalling Telstra’s drenching rains.  Really.

It seems that the decision to spend a billion on Telstra’s latest high speed network was taken on a flight back from an outback town where Sol, as the doctor is entitled to dub Telstra’s CEO, had toured the sparse facilities on offer, including the distance school.  Sol and the doctor had no idea what a distance school might be – this despite the fact that George Bush would probably figure out it was a school for people a long way away.

At the distance school, a Texan’s life was changed.  Little Aussie kiddies, realising that time for a downloaded lesson had arrived, started their PCs pulling down the files and left them going while they played with blocks or drew pictures.  It dawned on Sol that these poor mites actually knew that their online lessons would take a while to download, and actually had the wits to do other stuff until the downloads finished.  This was human tragedy in extremis.

Actually, we don’t mind the idea that everything isn’t instant.  No doubt these same poor mites suffer a slow home cooked dinner each evening, instead of instant city fast food.  Maybe they’ll grow up understanding that some of the best meals take hours to cook, and it’s rewarding to sit and chat while the billy boils.  But that’s just our take on it.

If you find yourself near Sol on a flight home, ask for a different seat.  It’s normally the worst part of the day, says the doc.  Do this, do that, do ten other things barks Sol as he hands out the job list arising from the day’s observations.  But not this night.  Sol was eerily quiet.

What’s on your mind, Sol ? solicited the doctor.  Brooding.  No, Sol, where’s your head at ?  I’m ashamed, Sol says.  Telstra should be ashamed.  Australia should be ashamed.  Those little kiddies draw pictures while they wait for downloads.  Shame, Australia, shame.

Within a few months of that apocalyptic flight, an army of Telstra staff completed a task that should have taken a year.  A new high speed network was planned, and delivered not long afterward.  When Sol’s heart goes out, it goes out at warp speed.  Crikey, we can’t talk our general manager into buying a new fax machine without making a business case.  If there was a business case for Telstra’s ten figure splurge, it seems to have been the CEO’s anguish.  Really.

Then we heard about The Enemy.  Not Sol’s enemy, but by implication Australia’s.  With a series of graphic maps, Dr Phil showed us the areas of Sydney, Melbourne and Brisbane that presently enjoy Telstra’s up-to-20 Mbps service, and the extra areas where it could be made available in 48 hours, if only Coonan and Samuel would give Telstra a letter saying they would not confiscate Telstra’s assets in these places.

This was a none too oblique reference to a thing called the access regime.  Basically, it’s a law that lets the ACCC force Telstra to share certain scarce telecoms resources with others in the industry if it considers that’s in the best interests of Australians.  Quoth the doctor, Mr Samuel recently gave a speech in which he seven times used the monopoly word about Telstra.  We stopped counting when the doc had eight times used the confiscation word about Coonan and Samuel.

It seems that the broadband drought facing Australia is largely artificial.  If Telstra either accepted the regulatory regime into which it was born, or simply took up Mr Samuel’s invitation to apply for a partial exemption from the access regime, millions of Australians would double, triple or better their access speeds.

In question time, the obvious was asked:  Would a change of government make a difference ?  Well, maybe.  But Dr Burgess had only recently learned that this was an election year.

Really.

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.