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Investigation concerning Shinetown's SuperHero Card Service and Chat

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					                  Investigation concerning Shinetown’s
         SuperHero Card Service and Chat Chat Phonecard Service

Subject of investigation:    Shinetown Telecommunication Limited (“Shinetown”)

Issue:                       Disclosure of the charges of SuperHero Card Service
                             and Chat Chat Phonecard Service in promotional
                             leaflets

Relevant Instruments:        Section 7M of the Telecommunications Ordinance
                             (“Ordinance”)

Case Opened:                 January 2004

Case Closed:                 June 2004

Decision                     Breach of section 7M of the Ordinance

Outcome                      Financial penalty imposed

Case Reference:              T9/04



Background

           A staff of the Office of the Telecommunications Authority (“OFTA”)
visited the World-wide Plaza at Central on 15 December 2003 and collected
promotional materials of calling card services. The Telecommunications Authority
(“TA”) noted that the promotional leaflets of the SuperHero Card Service and Chat
Chat Phonecard Service issued by Shinetown had some features which appeared to be
misleading to consumers.



Investigation

2.        The TA initiated an investigation into the matter. The investigation of the
TA was focused on assessing whether Shinetown’s conduct constituted a breach of
section 7M of the Ordinance, which provides that:


     “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
     of services including (but not limited to) promoting, marketing or

                                         -1-
       advertising the network, system, installations, customer equipment or
       service.”


3.          In the process of the investigation, the TA invited Shinetown to make
representations as to why the promotional leaflets in question are not misleading.
OFTA also collected relevant information from the market to facilitate the
investigation.


The TA’s Consideration

4.          According to OFTA’s records, the TA handled a complaint concerning the
promotional materials of the SuperHero Calling Card Service in August 2003. After
investigation, the TA discovered that Shinetown had not stated the tariffs of the
SuperHero Calling Card in the promotional materials nor presented them in printed
form for distribution to customers. The TA concluded in October 2003 that
Shinetown had breached section 7M of the Ordinance and issued a warning to
Shinetown1. However, according to the information collected from the World-wide
Plaza on 15 December 2003, the TA notices that the promotional materials of the
SuperHero Calling Card Service remain unchanged despite the above warning being
issued by the TA.


5.          Shinetown submitted that, after receiving the TA’s warning, it had carried
out a series of corrective measures to improve the situation. Firstly, it had sought the
agreement of its sole sales agent to comply with the requirement of section 7M of the
Ordinance. Secondly, it had delivered sufficient copies of the amended promotional
leaflets and rate tables to the sales agent for distribution. Thirdly, it arranged its
sales manager to visit the shop of the sales agent to ensure all old promotional leaflets
were destroyed. In addition, Shinetown claimed that the SuperHero Calling Card
was no longer supplied to the market since the last order dated 18 October 2003, and
its sales manager had also reported that the old promotional leaflets had been
destroyed and even the new promotional leaflets were already out of stock in
December 2003.


6.         Although Shinetown has claimed that it had implemented the above
corrective measures, the TA notes that, when OFTA visited the World-wide Plaza on
15 December 2003, the promotional leaflets in question were still being distributed to


1
    The case summary of the case (referenced T139/03) can be downloaded from OFTA’s website
    www.ofta.gov.hk.

                                            -2-
consumers. This indicates that the corrective measures that had been implemented
by Shinetown were not effective. Shinetown, however, has not provided any
explanation in this respect in its submission to the TA.


7.        As the promotional leaflets in question were still being distributed to
consumers when OFTA visited the World Wide Plaza on 15 December 2003, the TA
considers that Shinetown engaged in misleading or deceptive conduct in the
promotion of the SuperHero Calling Card Service.


8.         With regard to the Chat Chat Phonecard Service, the TA observes that the
headlines of the promotional leaflet indicate that a card with HK$50 value can be used
for 46 minutes telephone conversation with the Philippines. However, the TA notes
that such volume of “usable minutes” can only be achieved when the card is
consumed entirely in one call to a landline in the Philippines during two time periods
(i.e. 10am - 12pm and 5pm - 7pm). Shinetown has not qualified the highlighted
“usable minutes” and supplemented it with an appropriate footnote to notify the
customers of such restriction.


9.         In replying to the TA’s enquiries, Shinetown has made the following
representations:


    (a) the application of a special rate for a particular time period is a common
        strategy in the calling card service market. Shinetown so far has not
        received any complaints from customers about the alleged misleading
        conduct.


    (b) When customers make calls, Shinetown’s Interactive Voice Response
        (“IVR”) system will inform the customers of the remaining card value and
        usable minutes. The customers should be well aware of the charges.


    (c) All relevant information has been included in the promotional leaflets,
        including:


         •      the highlighted “usable minutes” have been qualified by a “triangle”
                to draw the customers’ attention to the applicable charge of the
                service (i.e. $1.08 per minute) for calls to a landline in the
                Philippines;
         •      All rates to the Philippines (both landline and mobile in different


                                         -3-
                 time periods) have been listed; and
          •      The charging basis and customer service hotline are shown at the
                 bottom of the promotional leaflets.


     (d) There is no hidden charge.


10.         After considering Shinetown’s representations, the TA notes that, firstly,
Shinetown’s arrangement of using its IVR system to inform customers of the
remaining card value and usable minutes cannot prevent customers from being misled
by the promotional leaflets. Because consumers can only access the IVR system
after they have purchased the Chat Chat Phonecards, when they discover from the
IVR system that the actual charges of the Chat Chat Phonecard Service are higher
than those shown in the promotional leaflets, they have been misled by the
promotional leaflets to purchase the Chat Chat Phonecards. Secondly, although
Shinetown has qualified the “usable minutes” by a “triangle” to draw the customers’
attention to the applicable charge of the service, the TA notes that no qualification has
been provided to alert the customers that the card must be consumed entirely in one
call in order to achieve the “usable minutes” highlighted in the promotional leaflets.
Without specifying the condition under which the specified “usable minutes” is
achievable, the TA considers that customers would be misled to perceive that the
specified “usable minutes” are achievable in all circumstances.


11.        The TA would like to emphasise that, in paragraph 3.3 of the Guidelines,
the TA has stated that the full cost of the calling card service should be clearly
disclosed to the customers at the time of purchase and at the time the card is marketed
or promoted. In the circular letter to all operators for ETS on 29 July 2003, the TA
has also specifically said that:


     “ It is observed that the “usable minutes” claimed by operators usually
       are only achievable under certain circumstances or subject to certain
       terms and conditions (e.g. call duration, single/multiple consumption,
       call to landline/mobile, etc.). In these circumstances, operators should
       qualify the “usable minutes” (e.g. by an asterisk) in the promotional
       materials and arrange a footnote to indicate under what situation or
       terms and conditions the “usable minutes” are achieved. This can
       prevent customers from having a misunderstanding that the “usable
       minutes” are achievable in all circumstances.”



                                          -4-
The TA’s Conclusion

12.        On the basis of the above observations, the TA is of the view that
Shinetown has engaged in misleading or deceptive conduct in the promotion of the
SuperHero Calling Card Service and the Chat Chat Phonecard Service. The TA
concludes that Shinetown has breached section 7M of the Ordinance.


13.          This is the second time that Shinetown is found to have committed a
breach of section 7M of the Ordinance, by not disclosing its charges sufficiently
clearly in its promotional leaflets.


Penalty

14.       As Shinetown has committed a further breach of section 7M of the
Ordinance, the TA considers it necessary to impose, pursuant to section 36C of the
Ordinance, financial penalty on Shinetown. In imposing the financial penalty, the TA
has noted that, subject to section 36C(3B), the maximum penalty that he is
empowered under section 36C of the Ordinance to impose on the first occasion of
imposing such penalty is HK$200,000.00 and has also considered the following
relevant factors:


      (a) the nature and seriousness of the breach;
      (b) the duration of the breach;
      (c) this is a repeated breach after a warning was issued to Shinetown in
          October 2003; and
      (d) the co-operation which Shinetown has shown to the TA.


15.        The TA is satisfied that a financial penalty of HK$50,000.00 is, in all
circumstances of the case, proportionate and reasonable in relation to the
contravention concerned.




Office of the Telecommunications Authority
June 2004




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