The Australian Competition and Consumer Commission
(ACCC) has again shown its willingness to crack
down on telcos and their telemarketing practices in the recent
Federal Court of Australia case of Australian Competition and
Consumer Commission v EDirect Pty Ltd  FCA 976.
Responding to a claim by the ACCC, Justice Reeves of the Federal
Court found that mobile telecommunications company EDirect Pty Ltd
(EDirect) had represented to certain customers
located in rural and regional areas of northern Australia that it
could supply mobile services to them, when in reality there was no
network coverage in those areas.
The Court found that EDirect's conduct breached three
provisions of the Trade Practices Act 1974 (Cth)
the prohibition on misleading or deceptive conduct (section 52
of the TPA);
the prohibition on making false or misleading representations
about the performance characteristics, uses or benefits of
one's services (section 53(c) of the TPA); and
the prohibition on accepting payment for services that are
materially different from those one intends to supply (section 58
of the TPA).2
Justice Reeves ordered EDirect to pay a $2.5m penalty.
EDirect's business involved supplying mobile phone services
to Australian customers using the Optus telecommunications network.
To promote and sell its services, EDirect engaged in direct
telemarketing, contacting potential customers by phone. Those
expressing an interest in entering a mobile contract were told that
the contracts were conditional on EDirect verifying that the
customer's location was covered by the Optus network.
Unfortunately the verification never happened. The ACCC
identified 350 EDirect customers who had entered into mobile
contracts without being provided with network coverage. What was
worse, the Federal Court in February 2008 had already found EDirect
liable for similar breaches.
Determining the Penalty
The Federal Court came down hard on EDirect. Justice Reeves
determined that the penalty the Court should impose on EDirect
should be 'at such a level as to make it ... commercial
suicide, for any other operators in the mobile telephone industry,
or elsewhere, to even contemplate taking the risk of engaging in
The Court indicated that EDirect's conduct was
'particularly serious' and 'unscrupulous', given
there was a simple method available to EDirect to check whether
a particular customer was in an Optus coverage area;
EDirect's telemarketers assured the customers that they
would verify that the customers were in a coverage area; and
EDirect didn't have a system in place to ensure the
telemarketers carried out the promised coverage check.
The Court also considered the nature of the telco industry and
telemarketing in general when assessing the penalty, commenting
telemarketing, by its nature, can make consumers vulnerable,
since interactions with customers are wholly oral and without any
written record of the promises made to induce customers to enter a
the size of Australia's mobile telephone industry and the
complexity of the market reinforces the need for imposing severe
penalties to deter others.
The Lesson for Telcos
The case demonstrates that:
The ACCC and the Courts will be especially vigilant when it
comes to enforcing consumer protection legislation against Telcos
and their marketing teams; and
telcos should make sure they have effective systems in place to
ensure supervision of marketing personnel generally, and
telemarketers in particular.
Failure to heed these points could lead to heavy penalties.
1 While the Competition and Consumer Act
2010 (Cth), which contains the Australian Consumer Law
(ACL), has now replaced the TPA, the TPA still
applies to acts or omissions occurring before 1 January 2011. 2 Sections 52, 53 and 58 of the TPA have now become
sections 18, 29 and 36 (respectively) of the ACL. 3Australian Competition and Consumer Commission v
EDirect Pty Ltd  FCA 976 at .
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