In proceedings brought by the Australian Competition and Consumer Commission (ACCC), the Australian Federal Court has ruled that telecommunications service providers Dodo and iPrimus ("the Telcos") misled consumers by providing inaccurate information about the typical evening speeds provided by their residential NBN broadband services in breach of the Australian Consumer Law (ACL) and has ordered the Telcos to pay a total of A$2.5 million in penalties.
This decision highlights:
- the importance of being able to properly substantiate any claims made to consumers, and in particular any quantitative claims that relate to the quality, performance characteristics or benefits of goods or services;
- the need to scrutinize any methodology used to substantiate claims to ensure it is sound and produces accurate and representative results;
- the risks involved in relying on a methodology that has not been endorsed by the ACCC in circumstances where the ACCC has provided specific industry guidance in relation to best practice methodologies to be used in substantiating particular types of claims;
- the primacy of deterrence in relation to contraventions of the ACL in the telecommunications industry, and in particular the ACCC's willingness to seek, and the Federal Court's willingness to uphold, substantial penalties for breach of fundamental consumer protection provisions of the ACL such as the prohibition on misleading or deceptive conduct in trade or commerce; and
- the scope for misleading conduct to constitute multiple contraventions of the ACL.
Conduct in breach of the ACL
The Telcos published statements on their respective websites relating to their NBN plans referring to "typical evening speeds” which were found to be substantially higher than the actual download speeds that customers could reasonably expect to experience. The complex methodology for supporting speed claims adopted by the Telcos did not stand up to scrutiny from the ACCC and did not provide reasonable grounds for their typical evening speed statements. ACCC chair Rod Sims explained that the methodology "cherry-picked only the fastest speeds its network could deliver, and ignored the slower speeds many of its customers experienced". In upholding a substantial penalty, the Federal Court further observed that the Telcos "chose not to adopt the methodology proposed as industry best practice by the ACCC [as set out in the ACCC's guidelines on broadband speed claims] and instead developed and applied [a different methodology which] had a number of deficiencies."
The Federal Court also took into account that the slower download speeds experienced by customers were influenced by cost-driven provisioning decisions made by the service providers. Without going into too much technical detail, download speeds are influenced by a number of factors including the number of connectivity virtual circuits (CVCs) which provide services to multiple customers in a connectivity service area. The bandwidth of a CVC is shared between many customers, so the more customers per CVC (or the fewer CVCs per customer), the lower the quality of service particularly in a "busy period". In making provisioning decisions, a service provider will balance the cost of acquiring a CVC from NBN Co with the quality of internet service provided to the customer. If a CVC becomes congested – which is most likely to happen during the "busy evening periods" to which the speed claims related in this case - quality of service may be compromised. There were times during the busy evening periods in which some CVCs and backhaul links were congested, resulting in broadband speeds substantially lower than the "typical evening speeds" the Telcos had represented to consumers.
Multiple contraventions of the ACL
The Federal Court found that the Telcos had engaged in conduct in trade or commerce, in connection with the supply or possible supply or the promotion by any means of the supply of their residential NBN broadband services, which:
(a) was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) of the ACL;
(b) included misleading representations with respect to the performance characteristics and benefits associated with those services in contravention of ss 29(1)(b) and (g) of the ACL; and
(c) was liable to mislead the public as to the characteristics of those services in contravention of s 34 of the ACL.
"The communications industry is very large and the consumer base is extremely broad. The potential impact of misrepresentations by service providers in the industry, and the potential gains from them are large. Any perception that penalties attaching to such gains could be absorbed as a mere cost of doing business would give rise to the potential for widespread harm to consumers, which requires a strong deterrent message" - Justice Murphy, Australian Competition and Consumer Commission v Dodo Services Pty Ltd  FCA 589