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 [2012] 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) (TPA):1

  • 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 similar conduct'.3

The Court indicated that EDirect's conduct was 'particularly serious' and 'unscrupulous', given that:

  • 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 that:

  • 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 contract; and
  • 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.
3 Australian Competition and Consumer Commission v EDirect Pty Ltd [2012] FCA 976 at [74].

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