In a settlement with the Commerce Commission, Telecom  New Zealand  Limited and Xtra Limited (Telecom) has admitted breaching the Fair Trading Act by misleading more than 130,000 broadband customers.

In 1999 Telecom introduced a broadband internet service. It offered its existing dial-up customers the opportunity to migrate to broadband, although these customers would continue to have a dial-up connection, but would not be charged.    Telecom intended that no monthly account charge would apply for the dial-up connection and customers would only be charged for usage.

Between 1999 and 2006, due to a number of administrative errors, Telecom customers who took up the advertised offer continued to be billed monthly account charges for dial-up, resulting in an over-charge to these customers in excess of $9.5 million. This was caused by Telecom staff not following the correct steps when changing a customer from dial-up to broadband.

Telecom admitted it had breached the Fair Trading Act by sending customers invoices which contained a false representation as to the price those customers had to pay for internet services, by including the monthly account charges for dial-up.

From March 2007 Telecom began refunding more than 130,000 affected customers and writing to all those customers to advise them of the error.

"The net effect of Telecom's error was substantial. A small oversight repeated many times has resulted in a huge level of refunds for customers. Customers trust that businesses will have the correct processes in place and that they will be charged the right price. Although we encourage consumers to check their monthly statement, businesses should get it right," said Commerce Commission Fair Trading Auckland Manager  Graham Gill.

"Telecom has cooperated with the Commission's investigation and undertaken a costly internal exercise to proactively refund all affected customers. They have also agreed as part of this settlement to introduce procedures to prevent a repeat of this sort of failure," said Mr Gill.

"Nonetheless the Commission is becoming increasingly concerned at the number of occasions on which Telecom has acted in breach of the Fair Trading Act. Since 2003 Telecom has been the subject of Fair Trading Act convictions, settlements or warnings on at least eight occasions. The Commission encourages Telecom to make compliance with the Act a top priority."

Around 1400 affected customers have not been able to be traced by Telecom to receive their refunds, although the credit has been applied to their inactive account. Any customer who believes they may be entitled to a refund should contact Telecom.

 

Background

Previous Fair Trading Act convictions, settlements and warnings  

In October 2003, Telecom Mobile Limited was fined $10,000 plus costs in the Wellington District Court after pleading guilty to two charges of breaching the Fair Trading Act. The charges related to nationwide advertising campaigns in late 2001 aimed at inducing both existing 025 and rival customers to switch to the 027 network.  

In October 2005 the Commerce Commission reached a settlement with Telecom Mobile Limited after a billing fault in 2001 and 2002 on the 027 network resulted in thousands of customers being charged peak rates for off-peak calls. Telecom Mobile admitted breaching the Fair Trading Act and agreed to credit approximately 11,000 affected customers a total of $54,000. This represents $27,000 for the costs of the affected calls, and a further credit of the same amount to compensate customers.  

In October 2005, Telecom was convicted under the Fair Trading Act for failure to disclose costs associated with an 0832 telephone information service in 2001. Telecom was fined $4,000.  

In July 2006 Telecom Mobile Limited was fined $45,000 and ordered to pay over $3,000 in costs in the Wellington District Court for breaching sections 11 and 13(g) of the Fair Trading Act after misleading customers about a new mobile phone deal. In October 2006, an out-of-court settlement reached by the Commerce Commission and Telecom saw Telecom returning around $3.3 million to customers after a billing fault saw them charged twice. A fault in Telecom's system meant that when customers changed call plans on their landline or mobile, they were sometimes charged under both plans on the day they swapped over. As part of the settlement Telecom accepted that it breached the Fair Trading Act when it charged customers twice.  

In March 2007, the Commission warned Xtra Ltd, a division of Telecom New Zealand Ltd, that representations made as part of their 'faster cheaper' broadband marketing campaign were at risk of breaching the Fair Trading Act. In March 2009 Xtra Ltd, a division of Telecom New Zealand Ltd , was found guilty of breaching the Fair Trading Act and has been fined $45,000 in the Wellington District Court. Xtra also paid $10,000 in costs. Xtra was convicted on three charges of misrepresenting to complainants that its pricing, conditions attached to its services or its billing systems had been approved by the Commerce Commission. These were in situations where consumers were challenging the validity of Xtra's charges or conditions. The complaints were laid with the Commission from September 2005 to November 2006.  

In December 2009 Telecom New Zealand Limited pleaded guilty to 17 charges of breaching the Fair Trading Act over claims made in 2006 when promoting Xtra's Go Large broadband plan. From August to November 2006 Telecom and Xtra undertook an extensive nationwide advertising campaign to promote the Go Large broadband plan and made a number of representations, including "Xtra Broadband is about to be unleashed!", "unlimited data usage and all the internet you can handle" and "maximum speed internet", however, Telecom was constraining speeds. Telecom was fined $500,000 in the Auckland District Court.