Telecom fined $500,000 for misleading over plan

Telecom fined $500,000 for misleading over Go Large plan

Telecom New Zealand Limited has pleaded guilty to 17 charges of breaching the Fair Trading Act over claims made in 2006 when promoting Xtra’s Go Large broadband plan. Telecom has been fined $500,000 in the Auckland District Court today.

From August to November 2006 Telecom and Xtra undertook an extensive nationwide advertising campaign to promote the Go Large broadband plan and made a number of representations, including ‘“Xtra Broadband is about to be unleashed!”, “unlimited data usage and all the internet you can handle” and “maximum speed internet”.

In December 2006 the Commission launched an investigation following complaints from Xtra customers who found that the internet speed was constrained, in some cases to dial-up speed. Some customers also found that they experienced slower speeds on their new Go Large plan than on their previous plans.

The overall impression of the campaign was that the Go Large plan was unique in that it would offer unconstrained faster speeds and no data caps. However further details available in the fine print of advertising and on Telecom’s website gave the disclaimer ‘as fast as a user’s line will allow’ and outlined the possibility of constraints which included a ‘traffic management policy’ for use during peak times and for those using peer-to-peer applications, such as downloading music and movies.

The Commission established that a change made in early December 2006 to how the Go Large plan was administered meant that the traffic management policy applied at all times and across all applications, not just to peer-to-peer traffic. This meant that in some cases customers were not experiencing unconstrained speeds.

“There is increasing choice in the broadband market and it is important that all relevant information is disclosed to consumers so that they can make informed decisions,” said Graham Gill, Commerce Commission Fair Trading Manager, Auckland.

“Businesses invest time and money in marketing campaigns to attract new customers. To avoid the risk of breaching the Fair Trading Act business should ensure that their goods and services can live up to any marketing hype – in this case Telecom clearly failed to do so,” said Mr Gill. “It can be costly for businesses in terms of potential fines, refunds and the loss of trust from customers if they do not take the time to check that marketing claims are accurate”

“Businesses also need to make sure that any terms and conditions, such as a traffic management policy, do not alter the overall impression given by an advertising campaign” said Mr Gill.

“Telecom has co-operated fully with the Commission’s investigation and has voluntarily paid around $8.4 million in compensation to approximately 97,000 affected customers. Telecom will pay a further $44,000 in reparation to 1,700 eligible Go Large customers. Telecom stopped offering the Go Large plan to new customers in February 2007,” said Mr Gill.

Background
Fair Trading Act
Breaches of the Fair Trading Act may result in prosecution in court. Companies found guilty of breaching provisions of the Fair Trading Act may be fined up to $200,000 and individuals up to $60,000. Only the courts can decide if a representation has breached the Fair Trading Act.

The Commission has developed a set of resources to assist businesses comply with the Fair Trading Act. The resources include a check sheet for marketing claims and can be download free of charge from the Commission’s website www.comcom.govt.nz under Fair Trading/Developing a Fair Trading Act compliance programme.

Previous Fair Trading Act convictions, settlements and warnings
In October 2003, Telecom Mobile Limited was fined $10,000 plus costs in the Wellington District Court after pleading guilty to two charges of breaching the Fair Trading Act. The charges related to nationwide advertising campaigns in late 2001 aimed at inducing both existing 025 and rival customers to switch to the 027 network.

In October 2005 Commerce Commission reached a settlement with Telecom Mobile Limited after a billing fault in 2001 and 2002 on the 027 network resulted in thousands of customers being charged peak rates for off-peak calls. Telecom Mobile admitted breaching the Fair Trading Act and agreed to credit approximately 11,000 affected customers a total of $54,000. This represents $27,000 for the costs of the affected calls, and a further credit of the same amount to compensate customers.
In October 2005, Telecom was convicted under the Fair Trading Act for failure to disclose costs associated with an 0832 telephone information service in 2001. Telecom was fined $4,000.

In July 2006 Telecom Mobile Limited was fined $45,000 and ordered to pay over $3,000 in costs in the Wellington District Court for breaching sections 11 and 13(g) of the Fair Trading Act, after misleading customers about a new mobile phone deal.
In October 2006, an out-of-court settlement reached by the Commerce Commission and Telecom saw Telecom returning around $3.3 million to customers after a billing fault saw them charged twice. A fault in Telecom’s system meant that when customers changed call plans on their landline or mobile, they were sometimes charged under both plans on the day they swapped over. As part of the settlement Telecom accepted that it breached the Fair Trading Act when it charged customers twice.
In March 2007, the Commission warned Xtra Ltd, a division of Telecom New Zealand Ltd, that representations made as part of their ‘faster cheaper’ broadband marketing campaign were at risk of breaching the Fair Trading Act.

In March 2009 Xtra Ltd, a division of Telecom New Zealand Ltd , was found guilty of breaching the Fair Trading Act and has been fined $45,000 in the Wellington District Court. Xtra also paid $10,000 in costs. Xtra was convicted on three charges of misrepresenting to complainants that its pricing, conditions attached to its services or its billing systems had been approved by the Commerce Commission. These were in situations where consumers were challenging the validity of Xtra’s charges or conditions. The complaints were laid with the Commission from September 2005 to November 2006.

ENDS

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