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

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

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

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

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

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

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

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

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

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

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

The Undertaking:  a summary

ACCC Chairman Graeme Samuel

Here’s what it says in a nutshell:

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

Is that all there is ?

No, it isn’t.

ACCC is well aware that:

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

So:

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

A purely voluntary offer by Telstra / Optus / Voda ?

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

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

ACCC itself has said about enforceable undertakings:

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

What does it mean ?

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

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

Sure.

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

And what’s an ‘enforceable undertaking’ ?

It’s similar to being under a court injunction.

Under section 87B of the Trade Practices Act 1974:

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

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

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

The next part of the play

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

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

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

And who are the ‘resellers’ ?

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

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

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

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

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

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

What next ?

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

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

And FunnyTel has the last laugh

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

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

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

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

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

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

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

You should ensure that:

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

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

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

 
The allegations

ACCC says that Prepaid and Boost falsely represented that:

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

What ACCC wants

In court, ACCC is seeking orders for:

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

What next

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

Our take on it

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

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

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

Victor says that the seminar will explain the law as it applies to ISPs, telcos and other industries.  ‘This law applies over almost all retailing in Australia,’ says Victor.  ‘So every business needs to be across it.’  Victor and Peter both specialise in plain english explanations, so this will be an ideal chance for business people to learn these important new rules.

Bookings are free but places are limited.  There are only so many people who can fit into the Logie-Smith Lanyon board room

Here’s the seminar flyer.

How is it so ?  Simple.  Within Australia, the exchange rate is fixed.  A dollar in Perth is a dollar in Sydney. 

Only the dubious end of the telco sector gets away with saying ‘A dollar is worth whatever we say it is, for the purposes of any given plan.’

Two phone companies say ‘$200 included value !!!’  But one of them might charge calls at 50 cents a minute, the other at $1.  So the reality is that the ‘included value’ is 400 minutes of talk in one case, but only 200 minutes in the other.

Why do they headline ‘$200′ ?  Because they know that the public justifiably assumes that $200 means $200 … that there’s something absolute about a reference to the national currency.  Imagine we advertised ‘legal advice @ $300 an hour’ but it turned out that the ‘dollars’ were ‘CSP Central bucks’ that equate to $400 Aussie in the small print.

Theft ?  It’s no worse than a telco that shouts out ‘$300 included value’ when the only reason the ‘value’ is so high is the company’s self-appointed high rates pull the real deal back to the market.  If they offered the same rates as the telco next door, the ‘included value’ might be quite a bit less.

It’s misleading and deceptive to advertise ‘value’ in terms of a fixed standard – the country’s currency – and use the fact that charge rates are at your discretion to claw back some of the apparent ‘value’.

Under the new component pricing law that kicked in on 25 May, the single buy price of a plan like that must be ‘specified in a prominent way’.  If 3′s catalogue goes anywhere near passing that test, the new law is dead. 

ACCC really needs to kick off some enforcement action against retailers it considers aren’t complying with section 53C of the Trade Practices Act.  It’s hard to expect CSPs to follow the spirit of the component pricing law when their competitors seem to be getting away with feint micro-print.

Back in November 2008 we reported that the ACCC were getting ‘very cranky’ about premium SMS. And in March this year, ACCC supremo, Graeme Samuel, gave a direct warning to the industry about premium SMS.

Well, the ACCC has stuck to its word and launched two separate actions in the Federal Court against AMV Holdings and Clarion Marketing Australia.

The ACCC alleges that AMV ran misleading ads that hid the true cost of premium services being offered and that Clarion signed customers up to a paid subscription service without their knowledge.

The ACCC is usually a very predictable regulator. They normally advertise which industries or which industry practice they will be targeting. Quite often, they make known what they consider acceptable and unacceptable practice. It’s part of their approach to enforcement.

And it pays to listen.

Compliance can be balancing act, especially for the small to medium-sized telco. But the cost of non-compliance can be significant – even terminal. It’s a no-brainer then to focus compliance efforts on areas that the chief regulator has said it’s focusing on.

So, what else is on the ACCC’s agenda at present?

Here’s a clue -

this is what the ACCC has said about the new component pricing law:

… the new component pricing provisions apply to all price representations made to consumers

… you should review your marketing across all media including television, radio, print, billboards, posters, websites et cetera

… there is no ‘grace period’ for compliance with the new provisions – they have been in effect since 25 May 2009.

Fair warning.

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.’