Archive for Contracts

Legal issues regarding Telstra position on contracts and the NBN

Michael Patterson (Telstra’s General Manager for Tasmania) and I have been exchanging emails regarding the position for customers who currently have a contract with Telstra and are faced with compulsory disconnection of copper phone and internet services due to the NBN rollout. In particular whether Telstra can use the threat of Early Termination Fees (ETFs) to force clients to transition to an NBN service provided by Telstra and indeed take out a new contract.

Here is my reply to his email:

Hi Michael,

Thanks for coming back to me. You have clarified the position regarding ETFs if services are disconnected on the Disconnection Date (i.e. you won’t charge them). As promised I will publish your letter on the website (http://nbnsurvival.info) along with this reply.

What concerns me is that while you have said you are committed to supporting your small businesses customers as they transition to the NBN, the unwritten proviso in this is that you are only willing to do this if your customers take on the NBN service with you and sign whatever new contract you require.

At the end of the day, you (Telstra) have announced to your customers that you are disconnecting their existing contracted service before the end of the contract, in other words you have given notice that you will be breaking the contract, not the customer. Don’t forget most customers would be only too happy to keep their existing copper services, you are just not allowing them to do this due to your agreement with NBNCo and the ACCC (which the customer is not a party to).

I note that you are making your customers a new offer to replace their services, but as we all know there are several deficiencies in this new product (alarms, EFTPOS, fax etc do not work properly over the phone service you provide), along with the very real risk of significant downtime during the transition. I do not believe you can force customers to take this replacement service. See the Unfair Terms in the TCP Code 4.5.3d

It is completely unreasonable to require a customer to take on a new contract for their NBN service to escape the ETF on the old one. This also contravenes the TCP code (see unfair terms – 4.5.3c). I do not believe you could even force a customer to take on a new contract that has the same end date as the old one (which would be a more reasonable position).

To require customers to keep their services with you right up until the Disconnection Date in order to escape the ETF is also not reasonable. Given that you have announced you are breaking the contract, businesses have to do whatever they deem fit to preserve their services (plan the transition, port numbers etc).

A much more reasonable position from Telstra, is that a client is required to continue to pay for their contracted service until the Disconnection Date, but allow them to actually disconnect before that time (so they can port numbers for example). I doubt even this would be enforceable in law given that you are creating significant costs (management, new equipment etc) for businesses by breaking the contract in the first place. Indeed your customers are required in law to take reasonable steps to limit their costs (which you could be liable for) due to your announced contract breach (for example by reducing their downtime costs by porting numbers before the Disconnection Date).

I am not a lawyer, but I do make it my business to understand the law around telecommunications. I believe the various consumer laws and the TCP code are very clear on this. However I am open to hearing from you that I have got something wrong.

I look forward to hearing from you,

Damian

Michael Patterson (Telstra) responds regarding contracts and the NBN

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Yesterday I received an email from Michael Patterson following my coffee with him two weeks ago. He had promised to give me a business briefing on Telstra’s position regarding contracts, however he pretty much just restated the original position without any legal explanation. He did however clarify the situation around Early Termination Fees should a service be compulsorily disconnected on the Disconnection Date (the date that all the copper services in an area are due to be disconnected) – they wouldn’t charge one.

Here is his email:

Hi Damian

I am writing to respond to your comments about transitioning our small business customers to the NBN.

We’re committed to ensuring that our small business customers are supported as they prepare to move to the NBN. We encourage our customers to contact us directly with any questions or concerns about how the NBN will impact the services they have with us, because every customer scenario is different.

There are a variety of Telstra on the NBN business plans and solutions available for small businesses moving off copper and we’re working with our customers to ensure they are well informed about their options. Customers who decide to cancel their contract within its term and before the Disconnection Date of their copper services are subject to early termination charges. In most cases, we will waive these early termination charges for customers transitioning to an NBN service with us. We are required to disconnect customers who have not migrated to the NBN by the Disconnection Date of their copper services if they don’t have a valid NBN order in progress with us. And, in this instance, on disconnection no early termination charges will be charged.

You can contact me with any questions.

Regards,

Michael Patterson  Area General Manager
Tasmania  |  Telstra Country Wide  |  Telstra

Here is my response.

Larger issues on the contract situation

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I have previously posted about the situation regarding existing contracts particularly around the Telstra contracts, who being the largest player hold the majority of the contracts. Telstra are in a unique position here, because they own and run the existing copper network. It is Telstra who has agreed to dismantle the copper network and is being paid compensation to do this.

It is important to quickly cover what a contract is. A contract is (in this case) an agreement between two parties for one to provide a service (the provider) and the other (the client) to pay for it for a fixed period of time. Under standard contract law, if either side wants to break the agreement it needs to compensate the other for any losses incurred due to this breach. In the telecommunications world given that usually it is the client who wants to break the agreement (by ending it early), this compensation is in the form of an Early Termination Fee (ETF). However the provider can also break the agreement by ceasing to provide the service detailed in the contract. This is the situation with the NBN transition.

The transition is being forced upon you (the client). You have not requested this change. You are most likely incurring significant business costs (in terms of new equipment, administration, probably downtime) due to this. Under contract law you are actually entitled to claim these costs against the provider since they (not you) are breaking the contract.

So for the provider to turn round and attempt to force you to take on their replacement service on the NBN by threatening you with an ETF is completely ridiculous (unconscionable would be the legal term). As an absolute minimum they need to release you from your contract without an ETF.

Many providers (including Telstra) have thrown their hands up in the air and said that this is all out of their control, almost like it was an Act of God. However this is patently untrue. It is not as if the transition timetable was not known well in advance (several years). If the providers had thought about this, they should have not allowed contracts to run past the disconnection date. However, most likely, it was just too hard to work out who was affected by which disconnection date and so they just ignored the dates and continued business as usual with multi year contracts.

However Telstra in particular has even less excuse. They chose to accept the shutdown of their copper network in their agreement with the NBNCo. They chose to accept the compensation offered to them for this. So they definitely cannot stand up and say this is out of their control, they (with NBNCo) set the timetable. It was totally in their control.

One important thing to remember is that these agreements are almost always what are called Standard Form Agreements – which are agreements where one side (the provider) offers the agreement for the client to agree to on a take-it-or-leave-it basis (there is no opportunity for the client to negotiate the terms). Under consumer laws (which cover small businesses too) these agreements cannot have any “unfair” terms – ones that disadvantage one side (well they can, it’s just that they are not enforceable).

So when you talk to your provider about your options regarding the transition and they say you have to do or not do something because it is written into the contract, if you believe this is unfair (remember they are forcing this on you) – talk to the TIO. The TIO have the power to effectively look past the words of the agreement and get a sensible result.

Telstra disagrees with me over contracts

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You may remember that I posted a copy of a letter that Michael Patterson, the General Manager of Telstra Countrywide Tasmania, sent out to many (all?) small businesses in Tasmania. Well today (Monday 20 Jan) I received a call from the Michael asking to meet me for a coffee. His main point of contention was that, while he was not across all the details, he disagreed with my posts about the contract situation when transitioning clients to the NBN.

My position (in a nutshell) is that the NBN service is so different from the ADSL and fixed line service that it is replacing that many existing contracts would become void. The main problem being that the provider cannot continue to provide the current service (which among other things allow Fax, EFTPOS & Alarm Systems to work reliably).

He promised me he would provide a business brief from his team – in other words the official Telstra position, which I promised I would post up here when I receive it. I assured him that my main goal on this website was to provide clear information to small businesses. There is enough mis-information out there about this transition, I certainly don’t want to add to it.

Telstra willing to waive existing contracts when moving to the NBN

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For those who have been following my investigation into whether suppliers can hold you to an existing contract when transitioning to the NBN – i.e. force you to take their NBN service. I had a significant result today.

In a nutshell a potential client had a Telstra BizEssentials package, which was an ADSL internet and fixed line bundle, on a 2 year contract, signed in April 2013, which extended way past the 23 May 2014 cut off date. Telstra had informed him that while they could supply an NBN package encompassing the phone and internet, the phone line could not be used for fax, EFTPOS and alarms systems. To allow these to work an additional ISDN line would have to be installed at extra cost.

This amounts to a significant change to the service supplied under a contract and by law, Telstra must allow the client to escape from the contract. I was expecting to have to argue with Telstra regarding this, but no, a call to their call centre, followed up with an email and a few hours later they came back saying they had removed the contract from the service. That was easy!

So now the client is free to choose whatever supplier they wish to transition them to the NBN (including of course staying with Telstra).

So it appears that Telstra are very aware of their contract obligations and have decided not to stand in the way.

Telstra’s misleading letter to business owners

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Some of you may have received a letter from Michael Patterson (reproduced below), Telstra’s Area General Manager for Tasmania, regarding the impending switchoff of the copper network and the need to switch over to the NBN.

I want to point out one place where he may be technically correct, but I believe he is being very misleading. He states that “… if you’re still within your contract, we can transfer your services to a similar plan on the new network, without triggering early termination charges under your current plan, if you move to a plan with an equal or higher monthly cost.

What he neglects to say is that changing over to the NBN is very likely to be a change in the terms of your contract. Under Australian Consumer Law (extended to small business under the new TCP code) you therefore have the right to decline the new “offer” and terminate any existing contract without penalty regardless of what plan you move to or even stay with Telstra at all. In order words you aren’t locked into continuing your existing contract and can terminate it and move to another provider.

This situation is particularly clear if you are required to take on (and pay for) an extra service (such as the new “data only line” Telstra are now offering to allow fax, eftpos, and alarms to continue to work) as part of the transition. In other words you end up paying more for the same service as you’re getting now.

I have been working with a client who took out a bundled internet and phone contract (BizEssentials) for 2 years in April 2013 – the contract will extend well past the disconnection date of May 2014. Because Telstra are not able to support fax, eftpos & alarms over the NBN they have recommended the client take on a “data only line” (actually a single channel ISDN line) at the extra cost of $49.95 per month (plus calls – he is currently getting local and STD calls for free as part of his bundle).

In discussions with the Telecommunications Industry Ombudsman (TIO), they have indeed confirmed that Telstra do need to release the client from the contract without penalty (early termination charges), since they are unilaterally changing the terms of the contract. They have recommended that I escalate this within Telstra and if that proves unsuccessful to get them involved.

I will let you know how I get on.

Update 14/01/14: Following a call to Telstra’s call centre on behalf of a client, they have released the client from the contract – he is now free to choose whoever he likes to transition him to the NBN.

Damian

 

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