Trustpower fined $390k over misleading broadband offer

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#204232 22-Sep-2016 16:18

Just received:

Trustpower fined $390k over misleading broadband offer

Trustpower Limited has been fined $390,000 in the Auckland District Court after pleading guilty to misleading consumers over the price and terms of its bundled electricity and unlimited data broadband offer.

The Commerce Commission filed 7 charges under the Fair Trading Act (FTA) last month relating to Trustpower’s television, online and billboard advertising between March and July 2015 promoting a $49 a month for 12 months unlimited data broadband plan, under the campaign theme: Good things happen when power and broadband get together.

The $49 price was available only to customers who signed up for power and broadband at the same address on a 24 month contract term. For the second 12 months the cost of broadband would be up to $79 a month and if customers wished to cancel the contract at any time during the 24 month period they would incur an exit fee of $195.

Competition General Manager Antonia Horrocks said Trustpower’s marketing misled consumers by promoting the $49 broadband price while keeping important terms hidden in small print.

“It’s vital businesses clearly disclose the price and any key conditions when marketing their products so consumers can properly assess the total cost of the service. An artificially low headline price that is subject to significant limits in the small print, including substantial term and exit fee requirements, is likely to be misleading and in breach of the Fair Trading Act,” Ms Horrocks said.

“This type of advertising is of particular concern to the Commission as the misleading headline price can attract customers away from traders who advertise their prices clearly and fairly.”

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#1638866 22-Sep-2016 16:45

Good job.

sbiddle

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#1638871 22-Sep-2016 16:52

Trustpower only made $89.8 million after profit this year. I'm sure this will really hurt them..

thinus

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#1638872 22-Sep-2016 16:54

sbiddle:

Trustpower only made $89.8 million after profit this year. I'm sure this will really hurt them..

But how much profit will they make in the next year when the 24 month contracts are now at $79 for broadband?

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#1638885 22-Sep-2016 17:09

The test of whether this is good punishment or not isn't really down to how much profit they made last year overall - it should be about how much profit they made off the customers they acquired as a result of this specific promotion being misleading and therefore how much of a deterrant is it for them to not do it again. i.e. if it wipes out the extra profit from those customers then it is a good deterrant, but if not, then it's nothing.

If, for example, they managed to acquire 1,000 customers through this promo then that's $390 fine per customer. Considering the margin on those customers is very low, that's probably a pretty decent punishment - they would need to keep the customer for many years to make that money back - and in the current market that;s pretty unlikely. so a good deterrent to stop the same thing happening again.

If, though, they acquired an extra 100,000 customers because of this promo then that's only $3.9 per customer - not even a slap on the wrist.

(It's hard to figure out how many customers were misled though. Even if you fully understood the deal, it was still really really cheap for the 24 months on average and so worth signing up. if they acquired 100,000 customers how many of those were actually misled by the promo? half? I don't know. could do a survey to find out though maybe)

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#1638894 22-Sep-2016 17:24

Some of the other providers have had similar offers, MyRepublic and Megatel use slightly different wording, but not by much so I imagine they too could be in the spotlight.

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#1638895 22-Sep-2016 17:25

I am sure I have seen other companies advertise this way. eg you get a special advertised deal for 12 month, but in the fine print you are locked into a 24 month contract, where they then put the price up after 12 months.

NonprayingMantis

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#1638912 22-Sep-2016 17:47

mattwnz:

I am sure I have seen other companies advertise this way. eg you get a special advertised deal for 12 month, but in the fine print you are locked into a 24 month contract, where they then put the price up after 12 months.

it's incredibly common overseas. so much so that other countries have changed their regulations about how contract pricing must be displayed.

for example, in Australia you must display the total minimum cost over the life of the contract so be very easy to compare with other providers on the same length contracts where they front-load big discounts but then ramp up the price later on (but harder when contract lengths are different)

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#1638915 22-Sep-2016 17:56

mattwnz:

I am sure I have seen other companies advertise this way. eg you get a special advertised deal for 12 month, but in the fine print you are locked into a 24 month contract, where they then put the price up after 12 months.

Yes and honestly I think it should be banned

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#1638925 22-Sep-2016 18:31

NonprayingMantis:

The test of whether this is good punishment or not isn't really down to how much profit they made last year overall - it should be about how much profit they made off the customers they acquired as a result of this specific promotion being misleading and therefore how much of a deterrant is it for them to not do it again. i.e. if it wipes out the extra profit from those customers then it is a good deterrant, but if not, then it's nothing.

If, for example, they managed to acquire 1,000 customers through this promo then that's $390 fine per customer. Considering the margin on those customers is very low, that's probably a pretty decent punishment - they would need to keep the customer for many years to make that money back - and in the current market that;s pretty unlikely. so a good deterrent to stop the same thing happening again.

If, though, they acquired an extra 100,000 customers because of this promo then that's only $3.9 per customer - not even a slap on the wrist.

Remember the plans were bundled with power also - so you had a 24 month contract for both. Even if they did only acquire 1000 new customers then I'm sure they'd make more than $390 over 24 months off the power alone.

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#1638926 22-Sep-2016 18:31

Linux:
mattwnz:

I am sure I have seen other companies advertise this way. eg you get a special advertised deal for 12 month, but in the fine print you are locked into a 24 month contract, where they then put the price up after 12 months.

Yes and honestly I think it should be banned

Aren't the commerce commission saying this already with the fine that was handed out, so effectively it is banned already in NZ. But others still appear to be advertising in this way and you don't need to search too far to find similar examples. Although possibly they do differ slightly and are fine? Guessing other ISPs will be double checking their advertising now.

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#1638928 22-Sep-2016 18:33

NonprayingMantis:

for example, in Australia you must display the total minimum cost over the life of the contract so be very easy to compare with other providers on the same length contracts where they front-load big discounts but then ramp up the price later on (but harder when contract lengths are different)

This is IMHO exactly how broadband deals in NZ should be required to be advertised if they are a term contract.

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#1638930 22-Sep-2016 18:41

sbiddle:
NonprayingMantis:

The test of whether this is good punishment or not isn't really down to how much profit they made last year overall - it should be about how much profit they made off the customers they acquired as a result of this specific promotion being misleading and therefore how much of a deterrant is it for them to not do it again. i.e. if it wipes out the extra profit from those customers then it is a good deterrant, but if not, then it's nothing.

If, for example, they managed to acquire 1,000 customers through this promo then that's $390 fine per customer. Considering the margin on those customers is very low, that's probably a pretty decent punishment - they would need to keep the customer for many years to make that money back - and in the current market that;s pretty unlikely. so a good deterrent to stop the same thing happening again.

If, though, they acquired an extra 100,000 customers because of this promo then that's only $3.9 per customer - not even a slap on the wrist.

Remember the plans were bundled with power also - so you had a 24 month contract for both. Even if they did only acquire 1000 new customers then I'm sure they'd make more than $390 over 24 months off the power alone.

And THAT is why the company should be forced to complete the contract in the 'simple understanding' they implied in the advert! Then the actual people they confused/abused would actually benefit and the companies would see no reason to risk the fine in the first place!

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#1638949 22-Sep-2016 19:19

sbiddle:

NonprayingMantis:

for example, in Australia you must display the total minimum cost over the life of the contract so be very easy to compare with other providers on the same length contracts where they front-load big discounts but then ramp up the price later on (but harder when contract lengths are different)

This is IMHO exactly how broadband deals in NZ should be required to be advertised if they are a term contract.

I agree. I would also like to see it on all subscription contacts like that where there is a minimum term, including mobile phones. That way people can see what the actual costs are without going through the fine print with their calculator to see the full costs. I don't have any issue if there aren't any fixed minimum contracts involved, or there are no break fees.

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#1638957 22-Sep-2016 19:40

mattwnz:

sbiddle:

NonprayingMantis:

for example, in Australia you must display the total minimum cost over the life of the contract so be very easy to compare with other providers on the same length contracts where they front-load big discounts but then ramp up the price later on (but harder when contract lengths are different)

This is IMHO exactly how broadband deals in NZ should be required to be advertised if they are a term contract.

I agree. I would also like to see it on all subscription contacts like that where there is a minimum term, including mobile phones. That way people can see what the actual costs are without going through the fine print with their calculator to see the full costs. I don't have any issue if there aren't any fixed minimum contracts involved, or there are no break fees.

I was actually chatting to somebody about this when the court action was first announced. His understanding was the requirement in Australia to provide full details was a result of companies in Australia going down the path of misleading customers. The ACCC are a lot harder on companies in Australia compared to the Commerce Commission here - just look at petrol prices here as a classic example.

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#1639254 23-Sep-2016 10:19

I'm not surprised. I had a really persistent door-knocking salesman who insisted that I would be saving money but he was only giving me the ADSL price. He didn't even check what service I was receiving (I'm on VDSL). He also said Trustpower don't do speed throttling to manage heavy traffic, when their T&C's suggest that they do (although the wording is so ambiguous as to be potentially misleading): "When congestion occurs, we will do our best to alleviate it as quickly as possible for the benefit of all our customers, regardless of what broadband plan they are on. This means we will always provide you with the best speed we can deliver in the circumstances."

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