Cellphone retailers fined $11,400 for Fair Trading Act breaches
Published24 May 1996
Two cellphone companies, Cellular Systems Ltd and Cellphone Warehouse Ltd, have been fined a total of $11,400 in the Auckland District Court today after being found guilty on three charges each of making misleading claims about cellphone prices.
Commerce Commission Chairman Dr Alan Bollard said Cellular Systems and Cellphone Warehouse were prosecuted by the Commission under the Fair Trading Act.
The companies advertised cellphones for $29 plus GST, $39 including GST and $69 plus GST each.
The advertisements did not state that the cellphones were only available if customers paid an additional $102 connection fee and signed a contract with Motorola Cellular Services for at least one year.
People could not purchase one of the advertised cellphones and use an existing number nor could they arrange a contract with a different cellular network.
When interviewed by Commission investigators, the Managing Director of both companies said special conditions had been included in previous advertising, but the companies stopped including them because they were "negative" and put people off.
He said no connection fee was mentioned in the advertisements because most people should know about the extra cost. He estimated that 40 to 50 percent of customers were first time buyers.
In fining each company $5,700, Judge Barry Morris said that their misleading advertising was: "quite clearly a come on, and used by the defendants to entice customers into their shops".
Dr Bollard said these prosecutions highlight difficulties that can arise when what was a specialist product becomes increasingly available to a much wider market.
All important conditions and costs must be clearly disclosed.
"In this case it was connection fees. But for cellphones there could also be monthly rentals, activity fees, disconnection fees and other contract details that must be made clear," Dr Bollard said.
"There is usually a lot more cost involved than just buying the phone. You cannot operate a cellphone without paying these fees. It is misleading to use advertising that does not accurately state the true costs and conditions."
The Commission has published a free checklist for cellphone retailers. (A copy follows.)
"If these guidelines are followed, then customers will get more accurate information about the deals on offer.
"This is important so they can make informed buying decisions. In turn, their decisions help healthy competition develop in this increasingly important market."
Media contact: Communications Officer Vincent Cholewa