Second misleading phone card promotion victory for Comcom

Compass Communications fined $140,000 in Auckland District Court

A second company in the lucrative prepaid phone-card market has been fined, after pleading guilty in Auckland’s District Court, to breaching the Fair Trading Act.

Compass Communications was fined $140,000. It admitted to “conduct liable to mislead the public”, contravening Section 11 of the Act, in respect of promotions for five phone cards. The prosecution was brought by the Commerce Commission, which last year succeeded in a similar action against prepaid-card issuer Tel Pacific New Zealand.

Comcom spokesperson Mary Macpherson says the Commission has no further phonecard prosecutions in train.

Compass, based in Auckland, but with offices also in Wellington and Christchurch, has been in the prepaid phone card market since 1999. The prosecution related to five of its cards: WorldPhone, Talk ’N’ Save, Go Call, V8 and Meihua.

“Marketing material for the Compass phone cards included posters in retailers’ windows, sale rate cards, rate comparison cards and store flags, among other items,” says the Commission. “The promotions emphasised a particular per-minute rate to selected destinations, or in the case of the WorldPhone card a bulk minute rate. The fees, surcharges or conditions were in smaller fonts, or run together at the bottom of posters.”

“In practice a consumer could only get the advertised number of minutes by making one continuous phone call until all credit was used; for example, a single 576 minute call to the UK using a WorldPhone calling card,” says Commerce Commission Competition branch manager, Stuart Wallace.

Using the card for a number of phone calls resulted in a higher payment per minute overall than that advertised, owing to a connection fee of up to 25 cents plus GST which applied to each call. Some of the cards had a daily service fee of 20 cents plus GST which applied once the card was first used.

“The phone cards are frequently bought by migrants and international students who need to make international phone calls. These groups, in many cases, are unlikely to speak English as a first language,” Wallace says. “We consider that this increased the likelihood of consumers being misled, as these users were less likely to closely review and appreciate the fine print.”

Between 1 November 2008 to 30 June 2009, Compass earned over $5 million from the five phone cards that were the subject of the court case, Comcom says in a statement on the court action.

Industry sources have told the Commission the prepaid phone-card market in New Zealand has an annual turnover of $70 million to $90 million. The success of prepaid phone cards in New Zealand is partly due to the inbound travel market and the relatively high cost of mobile phone calls, the Commission says.

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