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Telecom New Zealand settles in 2008 misleading broadband advertising cases
Posted on 18-Jun-2010 09:32 | Tags Filed under: News

The Commerce Commission has reached a settlement with Telecom New Zealand Ltd under which Telecom will notify and refund approximately 1300 customers who may have been misled by a broadband promotion it conducted in 2008. Telecom will also contribute to the cost of establishing an internet-based tool which will enable consumers to compare the cost of various telecommunications products.

Between April and June of 2008 Telecom marketed its Basic Broadband Plan using the phrase “Get Telecom Broadband at Dial Up Prices”. Under the Basic Broadband Plan consumers could obtain 200MB of data per month at a cost $16.95 for each of the first six months of a minimum 12 month fixed term contract and then at $29.95 for each of the remaining months.

The Commission received complaints that some of the advertising for the promotion failed to accurately disclose the true cost and data restrictions of the plan. It was alleged that the phrase “Get Telecom Broadband at Dial Up Prices” could lead consumers to believe that the Basic Broadband Plan would cost no more than a comparable dial up plan when, for the second six months of the minimum 12 month contractual term, the price of $29.95 per month was higher than for any of Telecom’s dial up plans. Some consumers also complained that the 200MB data cap meant that they would effectively get much less internet usage than they had previously on a comparably priced dial up plan.

Telecom has admitted that its promotion breached the Fair Trading Act in that its initial television advertising failed to adequately disclose that there was a minimum 12 month contract period and that the Basic Broadband Plan was only available at $16.95 for each of the first six months of the contract and $29.95 per month after that. It also admitted that its print and television advertising did not adequately disclose that the Basic Broadband Plan had a data cap of 200MB per month, with an overcharge rate of 2 cents per MB.

As part of the settlement with the Commission, Telecom will refund affected customers who have not already been credited:

- the first month’s rental of the Broadband Basic Plan at the promotional price;
- any data overcharges that were charged to the customer’s account in the first month;
- any additional amount paid by the customer for a Telecom wireless modem required to obtain the broadband service;
- any amount paid by the customer for wiring charges required to obtain the broadband service;
- any early termination fees charged by Telecom when the customer disconnected their broadband service; and
- an adjustment for inflation.

These additional refunds will total around $120,000 for around 1300 affected consumers.

Telecom has also agreed to pay $75,000 to Consumer New Zealand Inc to assist in the funding of a telecommunications Price Comparison Project which is intended to provide an internet-based tool for consumers to compare the prices of different telecommunications products.

“Advertising is intended to persuade consumers to purchase one product instead of another. But if key information that affects the price or quality of the product is not clearly communicated in the advertising consumers may be misled,” said Commerce Commission Enforcement Manager, Christchurch, Stuart Wallace.

“In particular, in the area of new telecommunications offerings, it is easy for consumers to be confused or misled if advertising is not clear as there are many other important details in addition to price, which may influence a consumer’s decision,” said Mr Wallace.

“The Commission is pleased that Telecom has acknowledged that its promotion breached the Fair Trading Act and has acted constructively to provide appropriate redress to affected consumers. It is also appropriate that funds from the settlement will help to provide a new tool for consumers wanting to shop around and compare product offerings in the complex telecommunications area,” said Mr Wallace.

The Commission has now closed the investigation and will be taking no further enforcement action. This settlement closes the last of a number of significant Fair Trading investigations involving Telecom.

Previous Fair Trading Act convictions, settlements and warnings In January 2010 the Commission reached a settlement with Telecom New Zealand Ltd and Xtra Limited, in which Telecom admitted breaching the Fair Trading Act by making misleading representations about the price customers had to pay for internet services (both dial up and broadband).. The settlement resulted in the refund of $9.5million to affected customers.

In December 2009 Telecom New Zealand Limited 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 was fined $500,000 in the Auckland District Court.

In March 2009 Xtra Ltd, a division of Telecom New Zealand Ltd, was found guilty of breaching the Fair Trading Act and 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.

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. As part of the settlement Telecom accepted that it breached the Fair Trading Act when it charged customers twice.

In October 2005 the 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.

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 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.

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