Commerce Commission finds widespread non-compliance in pre-paid phone card market

Issued 12 October 2004-05/046

The Commerce Commission has written to 22 pre-paid phone card companies and distributors advising them of its opinion that their behaviour in relation to the supply of pre-paid phone cards is misleading or deceptive and at risk of contravening the Fair Trading Act.

The action comes after an industry-wide inquiry by the Commission into the advertising practices of pre-paid phone card dealers.

Director of Fair Trading Deborah Battell said the Commission's inquiry revealed a number of issues of concern relating to over 35 different phone cards being distributed and sold nationwide and largely uncovered misrepresentations about price. These issues included:

• lack of clarity that the prices advertised are GST-exclusive;
• failure to disclose the minimum charge per call when advertising per-minute rates;
• misrepresentations regarding the 0800 or 0508 'toll-free' numbers to connect to the phone card supplier's network;
• charges quoted in parts of cents, which are in some cases rounded up when debited;
• failure to disclose additional one-off connection or disconnection fees;
• failure to disclose that prices are obtainable only to a limited number of main centres in the advertised countries (other centres attract much higher prices than those advertised);
• failure to disclose or clearly disclose that cards have an expiry period;
• phone card companies not being contactable on the advertised help lines, or charging for calls made (in some cases at international rates) without clearly disclosing this condition; and
• special conditions disclosed only in small print, if at all, and in languages other than English.

"In essence, calls are not available for the headline prices advertised by these phone card companies because of all the additional costs and conditions. In the Commission's view, these representations could mislead consumers about the deals they think they're getting," said Ms Battell.

Ms Battell said the Commission had notified the companies that it expected them to immediately stop engaging in conduct that, in the Commission's view, breaches the Fair Trading Act."

The Commission has now formally put the industry on notice that it expects to see compliance. This means it expects companies to withdraw advertising or cards that, in the Commission's view, are liable to mislead," said Ms Battell."

The pre-pay phone card market is relatively new to New Zealand, which means consumers are not necessarily aware of what they are actually paying. For that reason, and due to the fact that a number of these dealers are new to the New Zealand market, it is critical that dealers are fully aware of their obligations to comply with Fair Trading law to provide accurate information about their products."

"The Commission will continue to closely monitor the industry, and will not hesitate to take stronger enforcement action against those businesses that do not make changes," Ms Battell said.

Media contact:
Deborah Battell, Director, Fair Trading Branch
Phone work (04) 924 3760, mobile 027 524 3760

Jackie Maitland, Communications Manager
Phone work (04) 924 3708, mobile 027 524 3708