On 17 January 2003, the Telecommunications Authority (TA) issued draft guidelines on how it will apply and enforce the provisions of section 7M. Section 7M prohibits a licensee (under the Telecommunications Ordinance) from engaging in conduct which, in the TA's opinion, is misleading or deceptive in providing or acquiring telecommunications networks, systems, installations, customer equipment or services.
One of the ways of reducing potential liability under section 7M is to put in place an internal compliance programme. Even if a breach of section 7M occurs, the presence of a compliance programme will reduce the penalty imposed by the TA.
The TA's guidelines focus on several key components of section 7M:
Who is a "licensee"?
The TA intend to adopt a broad interpretation of the word "licensee", to include managers, employees, servants, agents and subcontractors working for the licensee.
What is misleading and deceptive conduct?
The TA intend to adopt a broad interpretation of the word "conduct" to include any acts or omissions intended at promoting, marketing or advertising the licensee's products and services to the public.
In forming its opinion on whether the licensee's conduct is misleading or deceptive, the TA will approach each case separately and ask whether a "reasonable person" would be misled or deceived. A "reasonable person" is an ordinary member of the target audience of the conduct. In general, licensees should ensure that:
- they act honestly;
- they are able to substantiate any claims made;
- product descriptions are clear, complete and accurate;
- the full cost of the product or service is clearly stated at the time of purchase; and
- fine print is not used to hide terms that significantly alter the principal message
The conduct was performed "in providing or acquiring telecommunications networks, systems, installations, customer equipment or services"
The TA has made it clear that section 7M applies to any activity directly involving telecommunications services or equipment. However, it appears that it does not apply to all activities of a licensee. For example, it would not apply to the activity of borrowing money or raising equity finance.
Factors considered by the TA in deciding the penalty for a breach of Section 7M include, but are not limited to, the licensee's intentions, any decisions to remedy the breach and availability of in-house compliance programmes. The TA will also take into account of the factors set out in the TA's Guidelines on Penalties, these include factors such as
- the level of cooperation from the licensee;
- the effect of the infringement on consumers and the market generally;
- the duration of the infringement; and
- whether the infringement has been repeated.
Accordingly, for licensees to reduce their possible exposure to penalties under section 7M, we suggest that an internal compliance programme implemented as soon as possible to both minimise the risk of being involved in misleading conduct in breach of section 7M and also to reduce the extent of any fine should such a breach occur.
The TA welcomes any interested parties to comment on its proposal. The draft paper can be downloaded at http://www.ofta.gov.hk/report-paper-guide/paper/consultation/cp20030117-w.pdf.
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