CDN0207
Investigation into Alleged Misleading or Deceptive Advertising by
SmarTone-Vodafone
Telecommunications
licensees investigated:
Subject:
SmarTone Mobile Communications Limited
(“SmarTone-Vodafone” or the “company”)
A billboard advertisement by SmarTone-Vodafone, about
roaming services, was alleged to be misleading or
deceptive.
Relevant legislative
provisions:
Section 7M of the Telecommunications Ordinance (Cap.
106) (“the Ordinance”)
Case Opened:
September 2006
Case Closed:
December 2006
Decision:
Breach of section 7M of the Ordinance
Outcome:
Financial penalty imposed
Case Reference:
T66/06
The Allegation
1.
In August 2006 the Office of the Telecommunications Authority (“OFTA”, and
“the Authority” denotes the Telecommunications Authority) received a complaint in
relation to a billboard advertisement posted by SmarTone-Vodafone, a mobile phone
operator, at some fourteen separate locations in Hong Kong. The locations included the
departure hall at Hong Kong International Airport, various Kowloon-Canton Railway
(“KCRC”) stations and the pedestrian subway in Chater Road. The advertisement carried
SmarTone-Vodafone branding and depicted a simulation of an airport flight information
board with the same rate of “$3.8” alongside five overseas destinations, named in English.
In some locations the accompanying written messages were in English, and in others, in
Chinese (the “billboard advertisement”).
2.
The complainant also referred to a SmarTone-Vodafone advertisement published
in the Oriental Daily News on 4 August 2006. This advertisement was basically the same
as the billboard advertisement in appearance and layout. However, the one in the
newspaper contained a reference, in Chinese, to a “Traveller” service with a roaming rate
of $3.8 per minute from the five destinations, available for a monthly subscription fee of
$38 (the “newspaper advertisement”).
3.
The complainant alleged that the billboard advertisement was misleading or
deceptive by virtue of the omission of any reference to the requirement of a $38 monthly
subscription fee.
4.
An image of the billboard advertisement and a copy of the newspaper
advertisement are reproduced respectively as Annexes A and B.
The Authority’s Investigation
5.
The information provided in the complaint was sufficient for OFTA to commence
an investigation into whether the billboard advertisement constituted misleading or
deceptive conduct in breach of section 7M of the Ordinance, which provides as follows:
“A licensee shall not engage in conduct which, in the opinion of the Authority,
is misleading or deceptive in providing or acquiring telecommunications
networks, systems, installations, customer equipment or services including
(but not limited to) promoting, marketing or advertising the network, system,
installation, customer equipment or service.”
6.
At OFTA’s request, SmarTone-Vodafone provided details about the billboard
advertising campaign and about its roaming services and prices. The company was asked
to explain the omission of any material terms and conditions of service in the billboard
advertisement. SmarTone-Vodafone was also invited to make full representations in
response to the allegation against it.
SmarTone-Vodafone’s Response
7.
SmarTone-Vodafone confirmed the locations at which the billboard advertisement
appeared from early August 2006, and confirmed that all billboards were removed or
were scheduled to be removed by the end of September 2006.
8.
SmarTone-Vodafone explained that against the background of the visual
simulation of the airport flight information board, the headline sentence in the
advertisement, “Simple Tariffs. Outstanding Savings. No Compromise.” was the main
message conveyed. It contended that no particular service was being advertised so no
name for any kind of service was mentioned nor was information on how to subscribe the
service included. SmarTone-Vodafone explained that once a reader’s attention was
caught by the proposition “Simple Tariffs” “Outstanding Savings” “No Compromise”,
they could go to the company’s retail outlets or to the SmarTone-Vodafone website for
more details about uniform price for roaming and how to subscribe.
9.
The company further explained that although the visuals in the newspaper
advertisement and in the billboard advertisement are largely the same, the two
advertisements had different purposes. Whereas the billboard advertisement aimed to
draw attention to a uniform price proposition, the newspaper advertisement was explicitly
promoting the particular SmarTone-Vodafone service, “Traveller”, which is available to
both 2G and 3G customers. The “Traveller” service has a number of elements including
call screening, auto phonebook backup, car pickup booking, medical evacuation and free
hotline connection, at a total monthly service charge of $38.
10.
Furthermore, SmarTone-Vodafone claimed that the nature of any billboard
advertisement is for eye-catching purpose only because the potential audience is expected
to be on the move. Accordingly, messages on billboards cannot be complicated or include
great detail.
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11.
SmarTone-Vodafone also advised that it had not received any complaints about
the billboard advertisement or its “Traveller” service.
The Authority’s Findings
12.
SmarTone-Vodafone is a well known and reputable mobile operator in Hong
Kong, associated with the international “Vodafone” mobile phone service brand. There
are four other mobile network operators, and competition amongst them all is strong. The
Authority notes that Hong Kong has one of the highest mobile phone penetration rates in
the world, and local mobile traffic volumes now exceed that of fixed voice telephony.
Mobile phone usage, when in Hong Kong or overseas, is increasingly seen as an essential
element of day to day business and family life, and an important cost of living factor for
most Hong Kong residents.
13.
All five operators offer services which allow Hong Kong consumers to use their
existing mobile phones when they are overseas. Most subscription agreements for mobile
phone services include a “roaming” service element, but all of the mobile operators also
offer stored-value SIM cards, which can be purchased and used by anyone, whether or not
they have a subscription agreement with the particular operator.
14.
Under most local mobile phone subscription packages, the roaming service is
available with no additional subscription fee and roaming charges are normally charged
on a pay-as-you-use basis, that is, charges are only incurred if and when the consumer
actually makes or receives a call while overseas. Roaming charges are generally
calculated on a per minute basis.
15.
The Authority is satisfied that with SmarTone-Vodafone’s authorization, the
billboard advertisement was posted in August 2006 as alleged, at the Hong Kong
International Airport, some twelve KCRC stations, the Chater Road subway, and at
Huanggang on the Mainland, where the Mainland authorities maintain an immigration
control point. The Authority is also satisfied that the billboard advertisements at all fifteen
sites have now been removed.
16.
The significant features of the advertisement are the use of SmarTone-Vodafone’s
name and branding; the use of five named destinations which are in fact the most frequent
travel destinations for people from Hong Kong (namely Mainland China, Taiwan, Macau,
Singapore and Malaysia); and the use of the price of $3.8 next to each of the named
destinations. The other noteworthy features are the slogans “Simple Tariffs. Outstanding
Savings. No Compromise.” and “Wherever you roam, we go further”, the latter being in
smaller font in the left-hand bottom corner of the advertisement.
17.
The Authority is also satisfied that at all relevant times SmarTone-Vodafone has
in fact been offering roaming calls from the five named destinations to Hong Kong at
HK$3.8 per minute for customers who sign up for its “Traveller” service, for which there
is an additional subscription fee of HK$38 per month. This service has other benefits as
well as the uniform low roaming call rate. The $3.8 rate is not available for stand alone
SIM card use, or from any other destinations.
18.
In the Authority’s opinion, a reasonable person, contemplating the billboard
advertisement at any of the sites at which it was posted, would have assumed that a $3.8
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per minute charge was the only charge they were going to incur if they were in any of the
five named destinations (if not others as well), and they were to use SmarTone-Vodafone
to make a roaming call to Hong Kong (or elsewhere). In other words, the Authority
considers that the extra monthly subscription fee of $38 for the “Traveller” service is a
material feature of SmarTone-Vodafone’s uniform call rate roaming arrangements, and
without a reference to it, the billboard advertisement was misleading or deceptive.
19.
For SmarTone-Vodafone’s existing 2G or 3G customers (who already get roaming
as part of their monthly service subscription), the overall effect of the billboard
advertisement was to tell them that here was a special offer from SmarTone-Vodafone for
roaming calls, with no extra charge, for (at least) the five named destinations. Those
customers might then have managed their making and acceptance of roaming calls,
assuming that the calls would be charged at $3.8 per minute, when in fact, without newly
registering for the “Traveller” service, they would be incurring roaming expenses at the
higher standard rate. (The Chinese version of the billboard advertisement refers to an
average saving of 40% if the $3.8 rate is adopted).
20.
On the other hand, for customers of SmarTone-Vodafone’s competitors happening
to pass by, the overall effect of the billboard advertisement was to tell them they could
benefit from a uniform low roaming rate either by switching to SmarTone-Vodafone’s
subscription service, or just by purchasing one of the company’s stored-valued SIM cards.
.
21.
The fact that passersby could subsequently obtain information about the extra
subscription charge, by visiting the company’s retail shops or searching its website, does
not change the misleading or deceptive character of the advertisement itself. As the
Authority has made it clear in previous cases, an event of misleading or deceptive conduct
is not cured by the things which occur subsequently. Further, in the context of this case,
customers who decided to purchase the company’s stored-valued SIM cards after reading
the billboard could not reasonably have been expected to refer to other information
sources when the billboard was also silent about the need to do that.
22.
The Authority has considered SmarTone-Vodafone’s argument that by their nature,
billboards are not suitable for conveying complicated messages. The Authority accepts
that many billboards are placed where a close and sustained reading is impracticable, and
that their format and large scale are anyway only intended to establish high level
consumer awareness. However that just makes it even more important that thorough
attention is given to the overall effect of a billboard advertisement when, as in this case,
the advertiser chooses to make use of a very explicit pricing message.
23.
Moreover, in this particular case the billboard advertisement was posted at travel
embarkation locations where consumers were in fact reasonably free to ponder the
content of the advertisement, and its strong association of SmarTone-Vodafone’s roaming
prices with important international travel destinations from Hong Kong. The Authority
considers that without compromising what was otherwise a clever and innovative
advertisement, SmarTone-Vodafone could very easily have avoided misrepresentation by
a short notation in the advertisement saying that an extra monthly subscription fee of $38
applies, and referring people to its website address. Indeed, it did as much in the
newspaper advertisement.
24.
SmarTone-Vodafone has reported that so far it has not received any complaint
regarding the billboard advertisement or the application of the extra subscription fee, but
as noted in the Authority’s Section 7M guidelines, a licensee’s conduct does not have to
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actually mislead or deceive anyone to be in breach of the Ordinance.
The Authority’s Decision
25.
Having considered all the circumstances of the billboard advertisement which
have come to light through the original complaint, SmarTone-Vodafone’s response, and
the Authority’s own enquiries, the Authority is of the opinion that the posting of the
billboard advertisement without reference in it to the material terms and conditions which
actually attach to the roaming rate of $3.8 per minute, constitutes misleading or deceptive
conduct in breach of section 7M of the Ordinance and that accordingly
SmarTone-Vodafone should receive a financial penalty.
The Authority’s Action – Financial Penalty
26.
In considering the appropriate financial penalty in this case, the Authority has had
regard to the “Guidelines on the Imposition of Financial Penalty under Section 36C of the
Telecommunications Ordinance” which are available on OFTA’s website at
www.ofta.gov.hk. Under the Guidelines, the Authority is to consider the gravity of the
breach, which includes the nature and seriousness of the infringement, whether any
repetition of conduct is involved and any aggravating or mitigating factors. In this case,
which is a first financial penalty situation for SmarTone-Vodafone, the maximum penalty
stipulated by the Ordinance is $200,000.
27.
In considering the gravity of this breach, and therefore the starting point for the
level of penalty, the Authority notes first of all that the misrepresentation which is at the
heart of the breach is a material one in the context of competition between mobile phone
operators for the custom of local subscribers. Moreover, this was a misrepresentation as to
price, and price competition is the most important element of the competitive climate
which the Authority aims to foster in Hong Kong.
28.
The Authority also notes that the billboard advertisement was part of a dual-media
advertising campaign which took place over a number of weeks. The billboard appeared
in a significant number of high people traffic locations, all of which draw large numbers
of potential users of international mobile roaming services.
29.
The advertisement itself was distinctive, in terms of its clever association of
SmarTone-Vodafone’s services and pricing, with the routine of international travel, as
well as those actual destinations which are the most frequent ones for many Hong Kong
people. The advertisement therefore may well have created a lasting impression about the
relative value of SmarTone-Vodafone roaming offerings, and even the use of Vodafone
branded services in other countries. The Authority does not however have evidence that
SmarTone-Vodafone has received substantial financial benefit as a direct result of its
misleading or deceptive conduct.
30.
The Authority’s conclusion is therefore that this was a substantive breach of
section 7M, and having regard to the maximum applicable penalty of $200,000, the
appropriate starting point for determining the level of financial penalty is $130,000.
31.
While the breach is serious, in mitigation it is noted that the Authority did not
receive multiple complaints about the billboard advertisement, and there is no evidence
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that large numbers of consumers were actually induced to take up the “Traveller” service,
or to place roaming calls or to use a SIM card, in the expectation that the $3.8 rate would
apply without further cost. At the same time, the Authority also notes that
SmarTone-Vodafone reacted promptly and has cooperated fully in the investigation.
32.
The Authority has not been able to establish that there are any aggravating factors
which offset the mitigating factors which have been taken into account.
33.
Accordingly, the Authority is of the opinion that in this case of a first penalty for
SmarTone-Vodafone, the penalty which is proportionate and reasonable in relation to the
conduct concerned is $100,000.
Office of the Telecommunications Authority
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Annex A
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Annex B
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