Ihug agrees that its advertising of Internet service and PC package was liable to mislead the public about prices
Published14 Apr 2000
In a settlement with the Commerce Commission, The Internet Group Limited, which trades as Ihug, has agreed that some of its advertising was contrary to the Fair Trading Act and other advertisements were liable to mislead the public and risked breaching the Act.
Commission Fair Trading Manager Rachel Leamy said that Ihug did not disclose an additional compulsory fee in its advertising of an Internet access offer. It also exaggerated the savings customers could make when they bought a computer and Internet package.
In August to November last year, Ihug ran television advertising offering Internet connection for "from $34.95 a month". The advertisements did not disclose an additional compulsory joining fee of $39.
"Advertising should disclose all additional costs and any significant conditions accurately and clearly," Ms Leamy said. "To do anything else risks breaching the Act. In cases involving other companies, courts have convicted and fined businesses for not disclosing costs and conditions clearly."
In November last year Ihug published advertisements in the New Zealand Herald offering a $700 rebate if customers bought a Value Plus PC and an Ihug Internet connection. However, Ihug had inflated the cost of its Internet connections to customers who took up this offer and all customers saved considerably less than $700.
If customers bought Ihug's 15 hours per month Internet access contract, they normally paid $10 a month. If they bought the Value Plus PC and this Internet contract, then the monthly charge was three times higher than usual $29.95. The saving to customers was $221.20, not $700.
Customers could also buy the Value Plus PC with a 100 hours per month Internet contract at $49.95 a month. Without the Value Plus PC, customers could pay $39.95 a month for unlimited hours. The saving to customers was $460, not $700. Ihug did not have a stand-alone 100 hours per month contract.
"The Commission did not accept Ihug's argument that because it used the words 'rebate' and 'subsidy' that it was not claiming that customers would make a saving," Ms Leamy said. "In our view the clear message from the advertising is that the customer is making a saving from a normal or standard retail price.
"In reality, a significant proportion of the rebate was illusory because of the inflated Internet service charge."
The Commission has also warned Ihug that it has received a complaint about Ihug's "endless Internet" at $34.95 a month promotion. The advertised price is not available for one month customers must join up for at least three months to qualify for this price.
"In our opinion, there is a risk that this advertising too could breach the Act," Ms Leamy said.
The Act prohibits false or misleading representations about the price of goods or services (section 13(g)).
Summary of settlement between Commerce Commission and Ihug
Ihug has given signed undertakings including that:
it agrees that its advertising of Internet access for "from $34.95 a month" without properly disclosing the $39 joining fee was contrary to the Fair Trading Act
it agrees that its advertising of the Value Plus PC as "normally $1599 (retail) without Ihug subsidy" and "get $700 off the standard retail price", when the price for Internet connections had been inflated, was liable to mislead the public and at risk of breaching the Act
it will ensure all future advertising will comply with the Act
it will implement a compliance programme and report back to the Commission on the programme
the Commission may publicise the settlement, and
the Commission could consider court action if the settlement is not honoured.
