12 August 2011

Vodafone guilty of misleading Vodafone Live! customers: fined $400K

Vodafone New Zealand Limited was fined over $400,000 in the Auckland District Court today after pleading guilty to breaching the Fair Trading Act in relation to its Vodafone Live! mobile phone internet service.

In sentencing, Judge Roderick Joyce said “Vodafone’s shortcomings must, in my view, have had a very real impact on many consumers or customers. The money sums in question might have meant nothing to someone of considerable means but pay-as-you-go customers are surely not in that category ... in any event, no-one – rich or poor – should ever have to pay what, properly pre-warned, they could avoid paying.”

Judge Joyce added, “I was not persuaded that to describe the problem as being one of “technical oversight” was duly to recognise the level of mismanagement ... it is extraordinary that a concern like Vodafone fell down in such an elementary way.”

This was the first of six cases to reach Court that involves the Commerce Commission and Vodafone. Each of those cases relates to alleged misleading broadband or mobile phone promotions by Vodafone between 2006 and 2009. Vodafone is defending the remaining charges.

Between May 2007 and July 2008, Vodafone made a number of claims on its website about Vodafone Live!, a service that gives mobile phone users access to a range of internet-based functions via their mobile phone. Vodafone claimed that Vodafone Live! was “free to browse” and that customers would be notified before incurring any charges for downloading or purchasing products or services.

Vodafone Live! was described by Vodafone as a ‘walled garden’, in which its customers could access products and services offered for free by Vodafone without incurring the usual costs related to accessing the wider internet.

Although customers were not charged for accessing and browsing within the confines of the Vodafone Live! service, they were not adequately notified when they left Vodafone Live! and that thereafter they would be incurring charges for downloading and purchasing products or services.

In addition, the ‘Vodafone Live!’ heading was displayed as a banner across the top of the screen on many Vodafone mobile phones, even when the user had left Vodafone Live! As a result, customers who thought they were using a free service were instead being charged at the casual data rate of $11.25 per megabyte (MB). At the time, an average song download of 4MB (using the standard MP3 compressed format) would have cost approximately $45 to download.

Commission Competition Manager Stuart Wallace said the fact that customers assumed they were using the Vodafone Live! service when they weren’t, so didn’t know they were being charged, and the high cost for data, resulted in significant “bill shock” for some customers. One complainant to the Commission was charged over $1,300.

“It is unclear just how many customers were affected, as Vodafone did not keep detailed records of complaints. But Vodafone has agreed that it was likely to have involved significant numbers of its customers and large amounts of money. This was a serious design flaw which resulted in many customers incurring unwanted costs. ”

Mr Wallace said that while Vodafone has subsequently refunded some affected customers and changed the way it promoted Vodafone Live!, as well as how it charges for data services, it was slow to respond to the problem. The offending continued over a period of 14 months. Refunds were given reluctantly and on an inconsistent basis. One of the complainants to the Commission was only refunded in July this year as a result of a reminder from the Commission. In addition, some prepay customers may not have been aware that they had lost credit in this way.

“In this case, the Vodafone Live! service was new to the market. Vodafone paid insufficient attention to how customers would be likely to use the service and the language used to promote the service blurred the line as to what was actually free,” said Mr Wallace.

“At the time mobile internet was a premium service within the telecommunications arena and as such Vodafone was able to charge its customers high data rates to use the service. Providers need to be certain that their marketing and promotions do not mislead consumers, who often have no way of easily verifying the claims being made. This is especially necessary when a new or innovative product is being launched, as customers will not have built up any understanding of its use or cost.”

Background

The Commission laid charges against Vodafone in September 2009 for alleged breaches of the Fair Trading Act in relation to various broadband and mobile phone promotions.

In addition to the Vodafone Live! issue, the charges relate to various representations made by Vodafone regarding:

• the extent of the coverage of Vodafone’s 3G mobile broadband service, made in Vodafone’s ‘broadband everywhere’ marketing campaign between October 2006 and April 2008;
• the availability of a $10 free airtime credit for those customers who registered their details on Vodafone’s website between May 2007 and September 2008;
• the cost of using Vodafone’s $1 per day casual data charge for Vodafone’s mobile internet service between July 2008 and November 2008;
• the size of Vodafone’s mobile phone network between September 2008 and February 2009; and
• the price of a Sony Ericsson W200i mobile phone between July and August 2007.

The remainder of these charges are before the Court.

Fair Trading Act
Businesses found guilty of breaching the Fair Trading Act may be fined up to $200,000 for each charge. Where more than one charge is laid, the court may impose a fine greater than $200,000. Only the courts can decide if a representation has breached the Fair Trading Act.

ENDS

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