ACCC launches legal action against telecommunications scam aimed at SMEs

The Australian Competition and Consumer Commission has launched legal action against telecommunications and finance companies, alleging misleading and deceptive conduct and third-line forcing over the misuse of “bundled” contracts aimed at SME customers.

The Australian Competition and Consumer Commission has launched legal action against telecommunications and finance companies, alleging misleading and deceptive conduct and third-line forcing over the misuse of “bundled” contracts aimed at SME customers.

The legal action covers 28 parties, including telecommunications companies, finance companies and individuals. The ACCC estimates that the total value of the deals involved is in the tens of millions of dollars.

The ACCC action is focused on telecommunications companies Clear Communications, Axis Telecoms and WorldTel groups, and National Telecoms Group and related companies.

The use of bundled contacts is common in the telecommunications industry.

Under the deals, the telephone company would enter into a contract with a small business to provide it with telecommunications services and call credits to cover payments for what some customers thought was “free” equipment.

But the ACCC alleges the equipment was supplied to customers under rental agreements by finance companies that were not related to the telecommunications companies. The ACCC alleges that the bundled services arrangement is third line forcing (also known as exclusive dealing), in breach of section 47(6) of the Trade Practices Act.

The ACCC alleges the following parties were involved in exclusive dealing – three finance companies, Australian Integrated Finance, CIT Group (Australia), and Enterprise Finance Solutions; a number of directors and key employees of some of the telecommunications companies; and the director of National Telecoms Group, Tony Hakim.

The ACCC also alleges the phone companies used a number of misleading statements to convince small businesses to enter into the bundled services, including telling the SMEs the equipment provided under the deal was free, that total charges for telecommunications services will not exceed a stated amount and that the only contractual commitment being made by the customer was with the telecommunications company.

The ACCC is seeking a long list of remedies, including:

• Pecuniary penalties against certain respondents.
• Declarations that certain respondents engaged in exclusive dealing or were knowingly concerned in the exclusive dealing.
• Injunctions restraining certain respondents from engaging in the same conduct in the future.
• Orders requiring corporate respondents to publish corrective advertisements in newspapers and on their websites.
• Costs.

This is not the first time National Telecoms Group has been in trouble over misleading and deceptive conduct involving bundled services. The company was a respondent to proceedings brought by the ACCC in 2003 over similar deals.

Hakim did not return calls this morning.

The case has been listed for a directions hearing in the Federal Court in Sydney on 17 October.

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