Friday, August 07, 2009

Misleading and deceptive conduct - a case study

The poster child of "good" regulation is often considered to be the prohibition on misleading and deceptive conduct as legislated in section 52 of the Trade Practices Act 1974. There are some who would even argue s52 is not needed because providers wjo lied would get bad reputations and go out of business, but they are in the minority.

Phil Dobbie on his Twisted Wire podcast has this week discussed the conduct of phone card operators and the ACCC's battle with them.

I should declare upfront that about 4 years ago I started to have my own concern about phone card operators. At telcos like AAPT that I then worked for consumer international voice minutes halved over a number of years - due to diversion to e-mail and phone cards (this is largely pre Skype and pre VoIP). I tried to undertake my own invstigation with my team of the price offers of phone cards but there were simply too many of them, time consuming to determine who owned each card and finally very hard to convert their complex terms and conditions into comparable prices.

Ultimately we gave up, in part because our own wholesale group made good money out of selling the voice minutes and other services to the operators. That revenue was deemed at risk if we took on the card operators. So we left it alone, confidant in the fact that the card operators themselves would find life tougher as they competed with VoIP etc.

In the podcast Phil Dobbie describes how misleading the priving offers are. He also interviews a provider to the industry who identiies other ploys of how the industry creates new brands - runs them as high quality for a while then degrades service (reduce cost). He didn't think it was a problem because the customers understood tis was how it worked.

He interviews Graeme Samuel who variously says that s52 is very powerful, that he doesn't have the resources to do anything other than react to complaints, that the industry should sort the dodgy players out and that there would be no benefit from tighter regulation because some of these online offers are based overseas.

The parallels between the phone cards and the mobile premium services are great - especially the Samuel call for inustry to act against thinjgs that are clearly in breach of the law. The industry at the same time wonders why they are being blamed for the regulators failure to prosecute breaches of the law.

There are some interesting lessons here. The first is that the ability of a single large provider to take action is limited. As described above an AAPT decision to act against card operators would just see the operators move their business elsewhere.

The second is the potential for conflict of competition laws. Co-operative action by the large providers would probably be interpretted as colluding to restrict competition in the market.

The third is that the idea that ease of entry to mrkets is necessarily good for competition is probably fallacious. Easy entry facilitates the easy creation and rebirthing of phone card operators and brands. In fact, one of their other ploys for earning is frequent rebirthing rendering existing issued cards worthless.

Finally there can be benefit in using technical regulation for competition purposes not just regulation of conduct. The law in Australia defines service providers by the act of providing services to the public. This does make it hard to regulate the actions of the provider. An alternative is to tie regulation to technical features such as use of numbers. It is relatively easier to regulate the operation of card operators if it is related to the use of a phone number for using the card.

An interestingly related issue is the reverse issue of Optus refusing to allow card operators to use a mobile number as the number for a calling card service - hence taking international calls out of free mobile to mobile price plans.

The case of calling card operators is a good case study on what is wrong in the regulatory framework of the industry. Three key issues are the excessive ease of entry, the divided roles of regulators and the limitation on the ability of large companies to provide industry stewadship.

No comments: