One of Australia's major resellers of telephone services, First Netcom Pty Ltd, will make refunds to some customers following Australian Competition and Consumer Commission* action.

First Netcom is a telecommunications reseller which purchases phone call capacity in bulk from Telstra. It encourages consumers to switch from Telstra and Optus, by offering them savings on their calls. First Netcom is also a multi-level marketer, marketing its phone service and other products through network of distributors who work on commission.

"Many telecommunications resellers have displayed an unacceptable lack of respect for consumers, " ACCC Chairman, Professor Allan Fels, said today. "Often consumers aren't told that the reseller takes over the lease on their phone. This means that if you aren't happy with the deal, you can experience problems switching back to Telstra.

"Resellers often promise big savings, but don't deliver. And in this case, distributors in the First Netcom marketing network have earned nothing near the amounts that were touted."

After investigation, the ACCC came to the view that First Netcom had engaged in the following conduct that either breached, or risked breaching, the Trade Practices Act:

  • by giving misleading advice about the savings customers would receive if they transferred their telephone service to First Netcom;
  • by misleading customers by not telling them that their existing discounts such as Telstra Flexiplans and Optus Instant Saver were cancelled when they transferred to First Netcom. Optus customers were not told that their Optus Instant Saver discount of at least 6% was cancelled when they transferred to First Netcom, even though First Netcom only offers a maximum discount of 5% for home users;
  • by making misleading claims about the amount of income distributors could earn through First Netcom. Promotional material published by First Netcom agents said that distributors could earn over $20,000 per month. In fact, at the end of October 1995, the most that had been made by any First Netcom distributor in one month was $411;
  • by making misleading statements that gas, electricity, water and pay TV would be available for billing through First Netcom, and that distributors could earn money from the billing of these utilities and services, when none of this was the case; and
  • by making misleading statements that First Netcom customers would be able to cancel their First Netcom service within five working days if they were dissatisfied. In fact, some customers who wanted to leave First Netcom have had to wait months to be transferred back to their old carrier.

"As a result of the ACCC's action, First Netcom has signed legally enforceable undertakings that it will make credits or refunds wherever it has failed to provide the discounts it promised.

"In future, First Netcom will not make any of the previously mentioned misleading statements and will send corrective notices to all its customers and distributors.

"First Netcom will not state that the company is approved or sponsored by Telstra.

"It will introduce an ACCC approved internal compliance program, and a complaints handling system which meets the official Australian Standard.

"These undertakings from First Netcom should help the ACCC to set the foundations for all resellers to promote and sell their services responsibly," Professor Fels said. "We've had reports of some reseller agents going so far as lying to consumers that they represent Telstra.

"Telecommunications resale is a priority area for the ACCC, and this case should send a clear message to resellers everywhere that raising false hopes, and omitting inconvenient facts, is just not good enough. We are investigating other resellers. If problems persist, the ACCC will consider asking the courts to penalise this sort of conduct to ensure that consumers are treated properly."