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FINAL DECISION OF THE COMMUNICATIONS AUTHORITY

ALLEGED MISLEADING OR DECEPTIVE REPRESENTATIONS

BY HUTCHISON GLOBAL COMMUNICATIONS LIMITED IN RELATION TO THE PROMOTION OF ITS

RESIDENTIAL FIXED TELEPHONE LINE AND BROADBAND INTERNET ACCESS SERVICES

Licensee Concerned: Hutchison Global Communications Limited

(“HGC”)

Issue: The representations made by HGC’s salesperson in the course of promoting its residential fixed telephone line and broadband internet access services were alleged to be misleading or deceptive

Relevant Instruments: Section 7M of the Telecommunications Ordinance (Cap. 106) (“TO”)

Decision: Breach of section 7M of the TO

Sanction: Financial penalty

Case Reference: 7M/2/35-12

THE COMPLAINT

On 9 July 2012, the Office of the Communications Authority (“OFCA”) received a consumer complaint alleging that the representations made by HGC’s salesperson (the “Salesperson”) in promoting the residential fixed telephone line and broadband internet access services of HGC (the “Telecom Service”) were misleading or deceptive.

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2. The complainant was at the material time a resident of Central Park Towers, a residential development managed by Citybase Property Management Ltd. (“Citybase”). According to the complainant, Citybase had bundled into the property management fee the charge for the Telecom Service. 3. The complainant alleged that the Salesperson called him twice on 4 July 2012, urging him to sign a separate Telecom Service contract with HGC for in so doing, the complainant would be able to unbundle the Telecom Service charge and get a corresponding reduction in the management fee. According to the complainant, the Salesperson told him that if he chose not to sign a separate contract with HGC, he would not be able to terminate the Telecom Service and unbundle the Telecom Service charge from the management fee. However, upon subsequent enquiry with Citybase, the complainant learned that the unit owners of Central Park Towers could in fact at any time apply to Citybase to terminate the Telecom Service and be entitled to a corresponding reduction of the management fee as a result of the termination, without separately entering into a contract with HGC for the Telecom Service. As such, the complainant considered the representations made by the Salesperson in promoting the Telecom Service to him were misleading or deceptive. THE INITIAL ENQUIRY The Telephone Conversations 4. The complainant provided to OFCA the voice recordings of the two telephone conversations that he had with the Salesperson on 4 July 2012 (the “Telephone Conversations”). In the Telephone Conversations, the Salesperson urged the complainant to sign a separate 30-month contract with HGC at a monthly fee of $139 for the provision of the Telecom Service, through which the broadband internet access service that he was currently enjoying would be upgraded from 10M to 30M. The Salesperson represented to the complainant that this was the only way he could unbundle the Telecom Service charge from the management fee and split the bills, one for the Telecom Service charge and the other for the management fee.

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5. On the complainant’s question as to unbundling the Telecom Service charge from the management fee, the Salesperson represented to the complainant that he had to split the bills by signing a contract separately with HGC. Otherwise, status quo would remain and the complainant would have to pay the full amount of management fee continually that included the Telecom Service charge, irrespective of whether or not he used the Telecom Service. The Salesperson further represented to the complainant that even if he were to apply direct to Citybase to terminate the Telecom Service (the charge of which was included in the management fee), or to subscribe to the telecommunications service of any other operator, he would still have to pay the full management fee inclusive of the Telecom Service charge. Notices on the Arrangement for Management Fee Reduction 6. The complainant also provided to OFCA copies of three notices issued by Citybase to the unit owners of Central Park Towers on 7 June 2012 (the “First Notice) and 18 June 2012 (the “Second Notice” and the “Third Notice”). 7. The First Notice set out the provisional arrangements for application by unit owners to terminate the Telecom Service and to unbundle the Telecom Service charge from the management fee. In addition, it stated that unit owners might subscribe to the telecommunications service of other telecommunications service providers (“Other Operators”) which had completed their network rollouts to Central Park Towers. That subscription to a separate contract with HGC was a pre-condition for unbundling the Telecom Service charge from the management fee (as per the representations of the Salesperson) was not mentioned in the notice.

8. The Second and the Third Notices updated the unit owners of different towers on the progress of the telecommunications installation works carried out by Other Operators. It was again stated in these notices that unit owners who intended to terminate the Telecoms Service might apply to

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Citybase for unbundling the Telecom Service charge from the management fee. Again, that subscription to a separate contract with HGC was a pre-condition for unbundling the Telecom Service charge from the management fee (as per the representations of the Salesperson) was not mentioned in these notices. 9. Copies of the First, Second and the Third Notices are reproduced at Annex A. HGC’s Comments on the Complainant’s Allegations 10. On 18 September 2012, OFCA wrote to HGC inviting it to comment on the complainant’s allegations and requesting it to provide the relevant voice recordings in its possession. Copies of the First, Second and Third Notices, as well as the voice recordings of the Telephone Conversations provided by the complainant were given to HGC for its reference. HGC provided its comments to OFCA on 24 October 2012. The Telephone Conversations 11. HGC said that upon receipt of the complaint from OFCA on 18 September 2012, it had immediately carried out an investigation into the matter yet it was not able to obtain a statement from the Salesperson, who had left the company’s employ on 6 September 2012. HGC said it could not locate the voice recordings of the Telephone Conversations. 12. Without the confirmation from the Salesperson of what had actually been discussed between her and the complainant, HGC said it was not able to verify the allegations made by the complainant. Moreover, HGC considered that the complainant’s allegations were based solely on his voice recordings, the credibility and reliability of which were not without doubt. The Management Fee Arrangement 13. HGC said, prior to 7 June 2012, the property management fee paid by the residents of Central Park Towers had included the Telecom Service

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charge. It understood that, on 7 June 2012, Citybase issued a written notice (i.e. the First Notice) to all the residents of Central Park Towers stating that:

(a) Other Operators were either providing services or in the progress of effecting their installation for service provision in Central Park Towers;

(b) the residents of Central Park Towers were free to choose their

service providers; and

(c) the residents who chose not to continue using the Telecom Service could apply to deduct the Telecom Service charge from the management fee (if applicable).

14. HGC said Citybase had also issued another written notice (i.e. the Third Notice) to the residents of Central Park Towers on 18 June 2012, which:

(a) provided another update on the installation status of Other Operators;

(b) clearly set out which operators were providing

telecommunications services at the concerned premises; and

(c) reiterated that the residents were free to choose the service providers of their choice and to apply for a reduction of the management fee (if applicable).

Complainant’s Prior Knowledge 15. HGC referred to the “Guidelines on Misleading or Deceptive Conduct in Hong Kong Telecommunications Markets” 1 (the “Section 7M Guidelines”) and submitted that, in light of the fact that at least three prior

1 See http://tel_archives.ofca.gov.hk/en/report-paper-guide/guidance-notes/gn_20030521.pdf.

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notices2 had been issued to residents at Central Park Towers stating clearly that the residents could get a reduction in management fee if they chose another service provider, no reasonable person could possibly have been misled or deceived by the alleged representations made by the Salesperson. 16. In the complainant’s case, HGC said the complainant had been sent at least three notices and therefore, before his discussion with the Salesperson on 4 July 2012, the complainant already had knowledge of the following facts:

(a) there were more than one fixed line service provider at Central Park Towers;

(b) the complainant was completely free to choose his service provider;

and

(c) the complainant could apply for a reduction of the management fee.

As such, HGC submitted that there was no basis for the complainant to claim that the Salesperson had either misled or deceived him. No Effect on the Complainant’s Purchasing Decision 17. HGC said, despite the fact that the complainant was fully aware of his right to choose different service providers at Central Park Towers and the right to unbundle the Telecom Service charge from the management fee, he had nonetheless chosen to continue the Telecom Service. HGC said this proved that the alleged misrepresentations would not have changed the complainant’s purchasing decision in any event.

2 HGC pointed out in its letter of 24 October 2012 that the Third Notice mentioned that Citybase had previously updated the residents of the status of different operators’ installation work at Central Park Towers.

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HGC’s Policy on Questions about the Management Fee Reduction

18. HGC said according to its policy, all salespersons should refer residents to consult the building management office regarding the specific question on whether a resident can apply for a management fee reduction if he or she chose not to use the Telecom Service. This was because the subject matter of management fee should best be answered by the building management office, not the telecommunications service provider. HGC submitted that in this particular case, the Salesperson was acting outside the authority and against the policy of HGC in making the alleged misrepresentations.

THE INVESTIGATION 19. Having considered HGC’s comments on the complainant’s allegations, and the information it provided, OFCA considered that there were reasonable grounds for the Communications Authority (“CA”) to suspect that there may be an infringement of section 7M of the TO by HGC. Section 7M 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 or services including (but not limited to) promoting, marketing or advertising the network, system, installation, customer equipment or service.”

20. OFCA commenced an investigation into the complaint on 17 January 2013. HGC was requested to provide further information relating to the complaint and to make representations that it wished the CA to take into account in deciding on the matter.

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HGC’s Representations 21. HGC submitted its representations on 8 April 2013 and further representations on 18 September 2013, which are summarised in paragraphs 22 to 28 below. Guidance Given by HGC to its Salespersons 22. HGC said it conducted a promotional campaign for the Telecom Service at Central Park Towers between 2 December 2011 and 31 December 2011. Since June 2012, HGC’s telemarketing salespersons, including the Salesperson, were instructed to conduct promotional calls to residents at Central Park Towers in accordance with a set of sales script (the “Sales Script”) and Questions and Answers (the “Q&A”) prepared by HGC, copies of which were provided to OFCA for reference. 23. Both the Sales Script and the Q&A contained standard dialogues which provided that, in face of question from target customers on whether a resident of Central Park Towers could apply for a reduction of the management fee if he or she chose to subscribe to a service contract with HGC, the telemarketing salespersons should refer the target customers to the building management office for clarification. HGC said its telemarketing salespersons should follow the Sales Script and the Q&A in handling such question. 24. In addition, HGC said all its salespersons should follow its “Policy for Telemarketing Salespersons” (the “Policy”), a copy of which was provided to OFCA for reference, under which HGC’s telemarketing salespersons were required to disclose all information relating to the products/services being promoted to customer and no inaccurate or misleading statement should be made. Any sales misleading practice would subject the salespersons to disciplinary action or dismissal by HGC. 25. To ensure customers were provided with accurate details of contract terms by its telemarketing salespersons and that customers fully understand them, HGC said its Quality Assurance Team would perform calls to

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the relevant customer for verification purpose once a contract was verbally concluded between HGC and the customer. 26. To avoid similar incident from further happening, HGC intended to put in place strengthened measure to ensure that the sales practice of the telemarketing salespersons would comply strictly with the Policy, namely, each team supervisor would perform random checking on at least one telephone record between each of the telemarketing salespersons under his team and the customers on a daily basis, and a checking log would be maintained in this regard. Reasons for Failure to Locate the Voice Recordings 27. As regards the reasons for its failure to locate the relevant voice recordings of the Telephone Conversations between the complainant and the Salesperson, HGC said that under its policy, all its telemarketing salespersons were required to perform promotional calls via the allocated telephone recorded lines which were linked with a computer system and only opt-in customers were reachable. However, some non-telephone recorded lines had also been installed to facilitate contacts with opt-out customers and only team supervisors were allowed to use these non-telephone recorded lines where no selling activities were involved. In the complainant’s case, HGC said unfortunately the Salesperson was found to have contacted the complainant via the non-telephone recorded line while her supervisor was away from office and thus HGC failed to locate the relevant voice records. Other Complaint against the Salesperson 28. HGC advised that it had received another complaint against the Salesperson in relation to the promotion of the Telecom Service at Central Park Towers in September 2012, which was of a slightly different nature from the present complaint. In that case, the complainant alleged that the Salesperson provided incorrect information on the amount of management fee reduction. HGC said on that occasion, the Salesperson was reminded of the importance to comply with the Policy and to provide accurate information relating to the

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services promoted to customers. HGC further advised that the Salesperson resigned on her own accord and left the company on 6 September 2012 before HGC was aware of the present complaint. Information provided by Citybase 29. Separately, OFCA wrote to Citybase on 28 February 2013 seeking information in relation to (a) the distribution of the First, Second and the Third Notices and (b) other occasions when residents of Central Park Towers were advised of the arrangement for management fee reduction before 4 July 2012. 30. According to Citybase’s reply on 12 March 2013, the First Notice was distributed by insertion into the residents’ mailboxes whereas both the Second and the Third Notices were posted on the notice boards of the tower lobbies. 31. Apart from the First, Second and the Third Notices, Citybase advised that the building management office of Central Park Towers had also issued two other notices on 25 December 2011 and 12 January 2012 (the contents of which were virtually identical) regarding the management fee reduction (the “Earlier Notices”) and they were displayed on the notice boards of the tower lobbies. Copies of these Earlier Notices were provided to OFCA for reference and are reproduced at Annex B. 32. It was stated in the Earlier Notices that the building management office had received report from a resident who had received calls from salesperson(s) of HGC claiming that the provision of the Telecom Service would be terminated from 1 January 2012 if he did not subscribe to HGC’s new service plan. In response, the building management office clarified that the Telecom Service would continue to be provided until further notice. As regards the provision of broadband internet access service by Other Operators, it was stated in the Earlier Notices that one named operator had completed its network installation works while those of the other two named operators were scheduled to commence at the beginning of 2012. Upon completion of the installation works, unit owners would then be free to choose their own broadband internet

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access service providers. It was further stated in the Earlier Notices that unit owners might apply to the building management office for a reduction of management fee should they decide to terminate the Telecom Service. OFCA’S ASSESSMENT 33. Having considered the information provided by the complainant and taking into account HGC’s comments and representations and the information provided by Citybase, OFCA’s assessment is set out in paragraphs 34 to 43 below. The Alleged Misrepresentations 34. OFCA notes HGC’s admission that the Salesperson was one of HGC’s telemarketing salespersons who were instructed to conduct promotional calls to residents at Central Park Towers during the relevant period (paragraph 22 above). HGC also admitted that the Salesperson had been found to have contacted the complainant via a non-telephone recorded line and the Telephone Conversations between her and the complainant were therefore not recorded (paragraph 27 above). 35. Whilst unable to produce any voice recordings of its own, HGC took issue on the reliability of the voice recordings provided by the complainant as evidence for what had been said by the Salesperson in the Telephone Conversations. In particular, HGC submitted that there was no reliable evidence to prove that the Salesperson had indeed made the alleged misrepresentations to the complainant during the Telephone Conversations (paragraph 12 above). HGC had not provided any concrete evidence though to substantiate its claim over the doubtful reliability of the voice recordings provided by the complainant. 36. OFCA has carefully listened, over and again to the Telephone Conversations contained in the voice recordings supplied by the complainant and notes that the contents of the conversations are generally consistent with the

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complainant's allegations as well as HGC’s admission that the Salesperson was instructed to conduct promotional calls to residents at Central Park Towers for promoting the Telecom Service at the relevant time. OFCA has not found anything suspicious, which would raise issue on the genuineness or credibility of the voice recordings. There was no indication of any foul play. On this basis and in the absence of any contradictory evidence from HGC, OFCA accepts that the voice recordings provided by the complainant represent accurate records of the Telephone Conversations for the purpose of its investigation into this section 7M complaint. 37. OFCA notes that, in the Telephone Conversations, the Salesperson had represented to the complainant that he could unbundle the Telecom Service charge from the management fee only if he subscribed to a separate contract with HGC. Such representations of the Salesperson were clearly false as the actual arrangement according to Citybase was that unit owners could in fact apply direct to the building management office to terminate the Telecom Service and be entitled to a corresponding reduction of the management fee as a result of the termination. There was no pre-condition that they must subscribe to a separate contract with any operators, let alone with HGC. Reasonable Person Test 38. It was submitted by HGC that, given that the building management office had already issued the First, Second and Third Notices on the arrangement for unbundling the Telecom Service charge from the management fee, the complainant should have prior knowledge that he could apply direct to the building management office for the management fee reduction. In such circumstances, by applying the “reasonable person” test, HGC submitted that no reasonable person could possibly have been misled or deceived by the representations made by the Salesperson during the Telephone Conversations. 39. The relevant test for establishing a breach of section 7M is whether a “reasonable person” would be misled or deceived by the licensee’s conduct. A “reasonable person” is an ordinary member of the target audience at whom

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the conduct is directed.3 In this case, it would be the residents of Central Park Towers at whom HGC’s promotional calls were directed and such group comprises a broad stratum of people with varying degrees of knowledge of the management fee reduction arrangement. On the one end there were residents who were fairly well informed and consciously aware of their rights to a management fee reduction not premised upon their choice of service providers, or whether they used fixed telecommunications services at all. At the other end, there were residents who did not have prior knowledge or proper understanding of their rights. All these people were nonetheless the target customers of the promotional calls. OFCA has to be satisfied that even the target customers at the lower end of the stratum would not be misled or deceived by the misrepresentations made by the Salesperson.4 OFCA is satisfied that a resident of Central Park Towers who was not aware of or who did not fully understand his right to a management fee reduction would be misled or deceived into believing that he would only be entitled to the fee reduction if he subscribed to a separate contract with HGC. Effect on the Complainant’s Purchasing Decision 40. HGC submitted that the fact that the complainant was aware of his right (a) to choose his service providers; and (b) to obtain a management fee reduction from the building management office, and that he had nonetheless chosen to continue to use the Telecom Service would serve to prove that the misrepresentations made by Salesperson would not have changed his purchasing decision in any event. 41. As stated in paragraph 39 above, the relevant test for section 7M is whether a “reasonable person” would be misled or deceived by the licensee’s

3 See paragraphs 2.10 of the Section 7M Guidelines. 4 In Case No. T47/07 which concerned broadband speed representations in printed advertisements, the former

Telecommunications Authority (“TA”) decided that the “reasonable person test” should be applied by considering whether a broad stratum of people possessing varying degrees of understanding of broadband services would be misled by the representations in question. In that case, the former TA had to be satisfied that even the target audience at the lower end of the stratum would not be misled or deceived by the advertisements over the speeds of the particular broadband services. The case summary can be found in http://tel_archives.ofca.gov.hk/en/ca_bd/case_closed/t47_07.pdf.

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conduct. Whether the complainant has actually been misled or deceived by the representations is irrelevant to the assessment as to whether a breach of section 7M could be established.5 The actual purchasing decision of the complainant is also irrelevant to the consideration of whether a breach had been committed by the Salesperson, and hence HGC, under section 7M of the TO. Acting Outside the Authority and Against the Policy of HGC 42. In HGC’s submissions, a point was also raised that the Salesperson was acting outside authority and against HGC’s Policy which requires all its salespersons to stick to the Sales Script and refer customers to consult the management office regarding any questions on the unbundling of the Telecom Service charge from the management fee. OFCA notes that the Court of Appeal has held that “the licensee must be responsible for what that employee does in the course of his employment and in carrying out the duties which the employee does as part of his employment”.6 In the present case, the Salesperson had made the misrepresentations to the complainant in the course of promoting and selling Telecom Service as part of her duties as HGC’s telemarketing salespersons. HGC is therefore liable for such misconduct of the Salesperson. 43. Having considered the information provided by the complainant, HGC and Citybase, and against the analysis set out in paragraphs 34 to 42 above, OFCA considers that, on the balance of probabilities, the Salesperson had made representations to the complainant that the complainant would be entitled to unbundling the Telecom Service charge from the management fee only if he subscribed to a separate contract with HGC. The actual arrangement as confirmed by Citybase was however that unit owners of Central Park Towers could in fact apply direct to the building management office to terminate the Telecom Service and obtain a corresponding management fee reduction, irrespective of whether the unit owners subscribed to the telecommunications services provided by any operators, let alone those provided by HGC. By applying the “reasonable person” test, OFCA

5 See paragraphs 2.15 of the Section 7M Guidelines. 6 I-Cable Webserve Limited v The Telecommunications Authority, CACV 329/2008, at paragraph 13.

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considers that a reasonable person in the circumstances of the complainant would have been misled or deceived by the representations made by the Salesperson in the promotion of the Telecom Service. The representations made by the Salesperson in the Telephone Conversations were therefore misleading or deceptive in breach of section 7M of the TO. THE CA’S ASSESSMENT AND DECISION 44. After examining the facts of the case, the information/ representations provided by the complainant, HGC and Citybase, the CA affirms OFCA’s assessment that HGC had engaged in misleading or deceptive conduct in breach of section 7M of the TO. A financial penalty should be imposed. 45. This is the second occasion on which a financial penalty is imposed on HGC under section 7M of the TO, and the maximum penalty stipulated by the TO is $500,000. In considering the appropriate level of financial penalty in this case, the CA has had regard to the Guidelines on the Imposition of Financial Penalty issued under Section 36C of the TO (the “Guidelines”). Under the Guidelines, the CA is to consider the gravity of the breach (such as the nature and seriousness of the infringement, damage caused to third parties by the infringement, and duration of the infringement), whether the licensee under concern has previous records of similar infringements, and whether there are any aggravating and mitigating factors. 46. In considering the gravity of the breach and therefore the starting point for the level of penalty, the CA notes that the Salesperson had repeatedly stated to the complainant that the only way he would be entitled to a management fee reduction was through a separate subscription to HGC’s service, which was in fact not the case and such representations were therefore misleading or deceptive. The CA considers the breach a substantive one in the context of competition in the fixed telecommunications services market, as the other fixed network operators with networks rolled out to the property development would be distinctly disadvantaged by the misrepresentations.

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47. While considering that this was a substantive breach of section 7M, the CA also notes that HGC has given clear guidance to its salespersons in the Sales Script and the Q&A, that questions from target customers on management fee reduction arrangement should be referred to the building management office to handle. Further, OFCA had only received the present complaint against HGC concerning misrepresentations of this nature. There is no evidence that the misrepresentations made by the Salesperson on this particular occasion had a wide ranging impact on the market in terms of a considerable number of residents of Central Park Towers having been misled or deceived. 48. In consideration of the above, the CA is of the view that the appropriate starting point for determining the level of financial penalty is $130,000. 49. On mitigating factors, the CA notes that HGC has been cooperative throughout the investigation. The CA further notes that, in its representations on 8 April 2013, HGC advised that, with a view to avoiding the occurrence of similar incident in the future, it intended to put in place strengthened measures to ensure that the sales practice of its telemarketing salespersons would strictly comply with its relevant internal policy (paragraph 26 above). The CA has not identified any aggravating factors. 50. Having carefully considered the circumstances of the case and taking all factors into account, the CA concludes that in this case of the second occasion on which a financial penalty is imposed under section 7M of the TO on HGC, the penalty which is proportionate and reasonable in relation to the breach concerned is $90,000. The Communications Authority November 2013

Annex A

Annex B