CDN0224

Investigation into Alleged Misleading or Deceptive Newspaper

Advertisements by SmarTone

Complaint against: SmarTone Mobile Communications Limited and / or SmarTone 3G Limited (“SmarTone”)

Issue: Certain newspaper advertisements by SmarTone promoting its mobile service packages were alleged to be misleading or deceptive

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

Case Opened: October 2008

Case Closed: January 2010

Decision: Breach of section 7M of the Ordinance

Outcome: Financial penalty imposed

Case Reference: T110/08

The Complaint

1. The Telecommunications Authority (the “Authority”) received an industry

complaint alleging that certain newspaper advertisements of SmarTone promoting its

mobile service packages were in contravention of section 7M of the Telecommunications

Ordinance1 (the “Ordinance”).

2. The mobile service packages in question were promoted as “IOM Value Pack” and

“Internet on Mobile combo deal” in the advertisements (the “Advertisements”). The

Chinese and English versions of the “IOM Value Pack” advertisement appearing

respectively in Apple Daily on 21 September 2008 and South China Morning Post on 25

September 2008 are re-produced in Annex 1. The Chinese and English versions of the

“Internet on Mobile combo deal” advertisement appearing respectively in Oriental Daily

on 18 October 2008 and South China Morning Post on 16 October 2008 are re-produced in

Annex 2.

3. In respect of the “IOM Value Pack” advertisement, its heading stated:

1 Section 7M of the Ordinance 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”.

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IOM Value Pack for $96

Talk, browse the web and watch TV

The following details of the package were set out in the “IOM Value Pack” advertisement:

Monthly Fee $96

Internet browsing 600MB

Thereafter & other data usage $15/15MB.

Capped at $298 for unlimited usage

Voice mins 1600

Video call mins 60

FoneTV mins 300

4. In respect of the “Internet on Mobile Combo Deal” advertisement, its heading

stated:

Internet on Mobile combo deal

600MB web browsing, voice and mobile TV

The following details of the packages were set out in the “Internet on Mobile Combo Deal”

advertisement:

Handset activation plan

Switch-in for only $136 per month

SIM activation plan

Switch-in for only $96 per month

1600 Voice mins + 600MB Internet browsing +

300 FoneTV mins

Thereafter & other data usage $15/15MB. Capped at

$298 with unlimited usage.

5. At the left hand bottom of both sets Advertisements, the small print “Terms &

conditions apply” appeared.

6. The complainant alleged that the Advertisements were misleading in the following

respects:

(a) Subscription to the “IOM Value Pack” or the “SIM activation plan” under the

“Internet on Mobile Combo Deal” was subject to a term contract of 15 months.

Subscription to the “Handset activation plan” under the “Internet on Mobile

Combo Deal” was subject to a term contract of 18 to 24 months. These were not

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disclosed in the Advertisements;

(b) The 1,600 voice call minutes included 600 restricted intra-network voice call

minutes. This was not stated in the Advertisements;

(c) A reasonable reader would assume that all of the services represented in the

application icons appearing in the Advertisements were included in the packages

with “no more to pay”. In fact, only certain of the services represented were

included in the package fees (ie, www, Internet videos, mobile call, emails, and

Fone TV). The remainder of the services represented (ie RSS, Podcast,

Messaging and Internet Radio) were available at an additional cost.

(d) In respect of the 600MB of Internet browsing, SmarTone imposed a 20MB daily

cap, which was not stated in the Advertisements. Any data usage over 20MB a

day would be subject to an excess data usage charge of $15/15MB (capped at

$298), even if the total consumption in a month by a customer was less than

600MB. Further, February [of 2008] had only 29 days. The customer would only

be entitled to 580MB in the maximum. The Advertisements also failed to state

that data usage for Internet radio, messaging, Podcast, RSS and mobile based

e-mailing were excluded from the 20MB daily usage and would be subject to

charges of $15/15MB;

The Authority’s Investigation

7. The Authority obtained from SmarTone’s website further information in relation to

the “IOM Value Pack” and “Internet on Mobile Combo Deal”. In particular, the Authority

noted that the following information was either not included, or not fully included, in the

Advertisements:

(a) Subscription to the “IOM Value Pack” and “Internet on Mobile Combo Deal”

was subject to term contract2;

(b) The voice call minute entitlement was divided into “basic” and “intra” voice call

minute entitlement3;

(c) The voice call minute entitlement included “400 basic voice minutes” based on

2 For details see paragraph 6(a). 3 1,000 basic voice minutes and 600 intra minutes for “IOM Value Pack for $96”, “SIM activation plan for $96” and “Handset activation plan for $136”.

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switching the customer’s existing number to SmarTone;

(d) In relation to the entitlement to 600MB of Internet browsing, it was stated that

“600 MB means 20MB/day, for browsing the Internet, watching Internet video

and accessing webmail via native browsing on mobile phone. Free MB is on a

per day basis, and any unused MB cannot be carried over to the next day. Cut-off

time is 00.00 each day”, and that “the usage applies to mobile phone use only.

Thereafter data and other non-browsing data usage: $15/15MB (up to $298),

which applies to other data usage, including browsing the Internet and watching

Internet video, file upload/download, or connection via pre-installed software on

mobile phone, but not include modem use and BlackBerry E-mail usage”.

8. Taking into account that the terms and conditions recited in paragraph 7(a)-(d) were

not included in the “IOM Value Pack” and “Internet on Mobile combo deal”

Advertisements, the Authority considered that there was a prima facie case that the

Advertisements were misleading or deceptive in breach of section 7M of the Ordinance. A

full investigation was commenced.

9. SmarTone was invited to make representations, and was requested to give a full

account of the dates and media channels in which the Advertisements appeared, and

explained the full terms of the offers. In respect of the 600MB Internet browsing,

SmarTone was asked to explain how data usage was calculated, and how a customer would

be able to check data usage.

SmarTone’s Response

10. In response, SmarTone advised that the Advertisements appeared in seven

newspapers and five magazines between 21 September 2008 and 26 October 2008. Details

are set out in Annex 3.

11. In respect of the requirement to enter into a term contract of 15 months for the “IOM

Pack”, SmarTone submitted that the advertisement contained a remark “Terms & conditions

apply”. This should draw sufficient notice to a reasonable reader that the offer was subject

to certain conditions, which might include the requirement of a term contract. This

assumption was not unreasonable as nowadays many telecommunications services offers

were subject to minimum term contract. SmarTone cited some advertisements of the other

operators showing that it was a common industry practice that the exact contract period was

not stated in advertisements.

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12. In respect of the voice call minutes being sub-divided into “inter” and “intra”

network minutes, SmarTone submitted that the advertisement contained a remark “Terms &

conditions apply”. As the arrangement of intra/inter-network voice minutes had been in

existence in the industry for many years, it was not unreasonable to assume that a

reasonable reader would expect that the voice call minutes included in the offer was divided

into intra and inter-network minutes. SmarTone cited some advertisements of the other

operators showing that it was a common industry practice not to specify intra and inter

network voice call minutes.

13. With regard to those “400 basic voice minutes” that were included in the 1,600

voice minutes and were based on switching the customer’s existing number to SmarTone,

SmarTone advised that non-churning customers would not be entitled to the offer. In both

the “IOM Pack” and “Internet on Mobile combo deal” advertisements, it was stated that the

offers were switch-in offers:

And, with 1,600 voice mins and 300 Fone TV mins included, there has never been

a better time to switch to us. (“IOM Pack” advertisement) [SmarTone’s

emphasis]

Switch-in for only $96 per month (“Internet on Mobile combo deal”

advertisement) [SmarTone’s emphasis]

14. In respect of the 600MB of Internet browsing, SmarTone explained that it meant

browsing the Internet, watching Internet video and accessing webmail via the native

browser on the mobile phone. In respect of the icons appearing in the Advertisements, so

long as the services could be accessed via Internet browsing, they were included in the basic

monthly fee package. The graphics were illustration of what customers could do through

the Internet (ie Internet video, world wide web, Internet radio, mobile MSN, Podcast and

RSS via Internet browsing). Where customers accessed the service features, such as RSS

and Podcast, not via Internet browsing, they would be subject to data usage charge at

$15/15MB, capped at $298 per month. This was clearly stated in the Advertisements.

15. The total monthly MBs that a customer was entitled to were calculated based on the

number of days in a given month. For a month with 29 days, the total MBs would be

580MB. For a month with 30 or 31 days, the total MBs would be 600MB / 620MB.

16. There were a number of ways for a customer to check whether he had reached the

daily limit of 20MB Internet browsing in a given day:

� From customer’s handset data usage meter – the handset data usage meter

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would capture the real-time consumption of the handset;

� From SmarTone’s hotline – information on daily data usage would be

updated daily, and it could be made available to a customer two days after

receiving the customer enquiry;

� From SmarTone’s online bill which shows the daily usage – the information

would be updated monthly.

The Authority’s Findings

Requirement of a term contract

17. Subscription to the “IOM Value Pack” or the “Internet on Mobile Combo Deal” was

subject to entering into a term contract. This was not stated in the Advertisements.

18. There is no question that a term contract requirement is an important term that a

customer will take into account in choosing a telecommunications service. The issue in this

case is whether omission of a reference to this term contract requirement in the

Advertisements would mislead or deceive the target audience into believing or assuming

that the offers would not be subject to any term contract requirement. The target group of

audience was readers of the newspapers or magazines in which the Advertisements were

placed.

19. The prevailing market behaviour of the telecommunications service providers is

that they generally offer special promotion deals that subject customers to term contracts of

between 12 and 24 months. This is irrespective of whether the service is fixed, mobile,

broadband, or a combination of any of these services. Indeed, when it comes to mobile

services, where the promotion package is a mobile and handset combo deal, it is almost

without exception that the customer is required to enter into a term contract, in order to

enjoy a full or partial rebate on the handset price. Even if the package does not include a

handset, the term contract requirement is generally the norm, rather than the exception.

This is not a phenomenon that has recently arisen, but one which has been in existence for

many years in the Hong Kong telecommunications market. A potential customer therefore

generally expects to be asked to sign a term contract in order to enjoy a special offer.

20. Given such market background, and customers’ general awareness of the contract

term requirement, the Authority considers that, in the present case, the absence of a

reference to the requirement in the Advertisements would unlikely mislead or deceive

customers into believing or assuming that the offers would not be subject to term contract.

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21. As for the remark “Terms & conditions apply” printed on the bottom left corner of

the Advertisements, the TA considers that the font size of the remark was rather miniscule

relative to the overall size of the advertisements, which was in full page. It was also short,

containing only four words in English and 13 words in Chinese. It could easily be

overlooked by readers. However, the TA recognises that readers of telecommunications

service product advertisements are generally accustomed to fine print disclaimers which

usually appear at the bottom of print advertisements. Hence, the TA is ready to accept that

readers would expect print advertisements to contain fine print and might even look for it

even if it has initially escaped attention.

22. In terms of the message that the remark purported to deliver, as a general comment,

the TA considers that the remark is too vague to be treated as a “save all” provision, which

cures omissions of whatever terms and conditions that should have been included but were

not included. However, in the particular context relating to the term contract requirement,

in the light of the customers’ general expectation of being required to sign a term contract,

the “Terms & conditions apply” remark would serve as a reminder that the terms set out in

the Advertisements were not the full terms and conditions. One important term that was not

mentioned but would likely be included would be the term contract requirement.

23. Taking all these into account, the TA considers that the omission of the term contract

requirement in the Advertisements was neither misleading nor deceptive.

24. That said, the TA considers that it is always a good practice for a service provider,

who chooses to detail the special deal on offer4 in its publicity materials, to specify the term

contract requirement in the materials to give the clearest indication to the customers. As

regards fine print, the TA does not intend to specify rigid rules regarding its size and content,

but service providers should ensure that the fine print is conspicuous to potential readers,

and the overall effect of the advertisement is not misleading or deceptive.

Intra-network and inter-network call minutes

25. The Advertisements said that the special offers included 1,600 voice minutes, but

did not say that the voice minutes were further categorised into intra-network calls of 600

minutes, and inter-network calls of 1,000 minutes.

26. Similar to the term contract requirement, customers in Hong Kong are used to

mobile service packages offering voice minutes that are sub-divided into intra-network

calls and inter-network calls. Therefore, even if this was not mentioned in the

4 Such as in the present case, in which the price, entitlement to voice / video call / Fone TV minutes, as well as entitlement to data usage limit were all set out in the Advertisements.

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Advertisements, the TA considers that readers or potential customers would generally

expect the voice minute volume to be divided into intra- and inter-network call volumes.

From the section 7M perspective, the TA considers that, on balance, the missing reference

to intra-network and inter-network call minutes was not misleading or deceptive. However,

operators should aim at setting standards for themselves above and beyond the

requirements of the law. In this case for example, it would have been simple for SmarTone

to specify the intra-network and inter-network call minute differentiation in the

Advertisements (which it did on the website version), to provide clear and comprehensive

information to the customers regarding the voice minute entitlement.

“400 basic voice minutes” available to churning customers

27. The 1,600 voice minute entitlement was not only sub-divided into intra-network

minutes (600 minutes) and inter-network minutes (1,000 minutes), it was also only

available to customers who would switch their existing numbers to SmarTone. The

following sentence appeared in the “Remarks” section of the SmarTone webpage that

promoted the IOM Value Pack:

The IOM Value Pack offer includes 400 basic voice call minutes based on

switching your existing number to SmarTone-Vodafone…

SmarTone explained to OFTA that a non-churning customer would only be entitled to 600

minutes of basic (ie inter-network) voice call minutes, and 600 minutes of intra-network

voice call minutes.

28. There was no similar remark in the Advertisement. Different from the “term

contract” requirement, and the “intra / inter-network voice call minute” distinction,

“churning customers only call minute entitlement” is not a term or condition which is so

commonplace or widespread that customers are expected to know, or assume, to be

generally applicable to mobile service contracts. If the promotional materials make no

reference to it, a customer will unlikely expect that the service package being offered will

contain such a term, which in essence is a restriction limiting the type of customers that is

able to enjoy the call minute volume on offer. In the present case, a non-churning customer

subscribing to the IOM Value Pack would get 25% less of the call minutes than a churning

customer. The TA considers this to be a material restriction which a potential customer

would take into account when deciding whether to subscribe to the service.

29. SmarTone argued that the Advertisements already made reference to the fact that

the offers were “switch-in” offers. The TA considers that determination of whether the

non-reference to “400 basic voice minutes based on switching your existing number” in the

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Advertisements would constitute a misleading or deceptive omission, depends on

consideration of whether the reference to the offers being “switch-in” offers in

Advertisements was sufficient to alert potential customers of such a restriction.

30. In the “Internet on Mobile combo deal” advertisement, “switch-in” were twice

referred to in the table which set out the charges of the service plans and the service features

offered under the service plans:

Handset activation plan

Switch-in for only $136 per month

SIM activation plan

Switch-in for only $96 per month

1600 Voice mins + 600MB Internet browsing +

300 FoneTV mins

Thereafter & other data usage $15/15MB. Capped at

$298 with unlimited usage.

[emphasis added]

31. The way the reference to “switch-in” was presented in the “Internet on Mobile

combo deal” advertisement suggested that “switching in” was a pre-condition to be fulfilled

before a customer would be able to enjoy the service plans at the stated prices with the

stated features. The TA considers that a potential customer, on reading the advertisement,

would likely come to a view that the service plans might not be available to a non-churning

customer at those prices or with those features. The TA therefore does not consider that the

“Internet on Mobile combo deal” advertisement was misleading or deceptive in this respect.

32. The circumstances of the “IOM Value Pack” advertisement were somehow different.

The reference to “switching” was not associated with the presentation of the details of the

service plan in the table format (see Annex 1). By nature it belonged more to advertising

puff than information provision:

Get more. Get it faster. Get it easier.

With 600MB of browsing included and seamless 3G/HSPA coverage,

why live with spotty Wi-Fi coverage and frequent disconnections?

What’s more, only SmarTone-Vodafone gives you the power to:

� access more videos from more websites than anyone else

� instantly view RSS and Podcast as you browse

� sync bookmarks between your PC and mobile

� share web pages with friends

… all, with just one click.

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And with 1,600 voice mins and 300 FoneTV mins included, there has

never been a better time to switch to us. [The Chinese version: 加上 1,600分鐘通話時間同 300分鐘手機睇電視，仲

唔即刻轉台！]

Another way we get you closer.

33. Considering the reference to “switch to us” in the English version in its overall

context, the TA takes the view that the reference did not have the effect of informing or

bringing attention to potential customers that the 1,600 voice minute entitlement was only

applicable to “switch-in” customers. A potential customer would consider the paragraphs

quoted above advertising puff which attempted to allure him to join SmarTone. The TA

doubts that a potential customer would pay special attention to the use of the term “switch to

us”, which was buried among all the puffery talk, and be alerted that the term in fact

conveyed a specific piece of information, that the offer being promoted was only available

to “switch-in” customers. In the TA’s view, the reference to “switch to us” in the overall

context of the English version of the advertisement was likely to be understood to mean no

more than “come and join SmarTone”. The TA can identify no representation in the “IOM

Value Pack” advertisement which unambiguously informed or alerted customers of the “switch-in” requirement. By comparison, the term “轉台” in the Chinese version was a

clearer reference to the “switch-in” requirement, but it might still not be sufficiently

emphasized in the overall context of the advertisement.

34. SmarTone argues that the TA’s analysis of the meaning conveyed by “switch to us” and “轉台” is far too restrictive. It considers that there should be no ambiguity of what the

words “switch to us” and “轉台” mean as they have a long standing meaning referring to

the “switch-in” requirement and a potential customer could not be mistaken or misled about them. It also regards the TA’s view that the words “switch-in” and “轉台” were buried

among the “puffery talk” of the Advertisements and a potential customer might not have

paid attention is subjective and will have an effect of significantly restricting creativity in

advertisements.

35. The TA has no argument with the ordinary meaning of “switch to us” and “轉台”

on a standalone basis. However, the analysis is never just about meaning of the words used

in the advertisement individually, but also what impression the words conveyed in the

overall context of the advertisement, and what message would be received by a target customer seeing the advertisement. As the references to “switch to us” and “轉台” were

buried among the puffery talk, the TA considers that a target customer would very likely not

have noticed that “switching” was a pre-condition before he would be entitled to the full

1,600 voice minutes. In coming to this view, the TA is not being subjective but is looking at

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the effect the advertisement would have from the perspective of a target customer.

36. Taking into consideration that:

� SmarTone chose to highlight the 1,600 voice call minute entitlement in the “IOM

Value Pack” advertisement;

� the “switch-in” requirement affected a potential customer’s entitlement to the

1,600 voice call minutes by 25% and was a material restriction which a potential

customer would take into account when deciding whether to subscribe to the

service; and

� no representation is identified in the advertisement (especially the English

version) which unambiguously informed or alerted customers of the “switch-in”

requirement,

the TA considers the “IOM Value Pack” advertisement misleading in this regard.

600MB of Internet browsing and 20MB daily cap

37. Both the “IOM Value Pack” and “Internet on Mobile combo deal” offered 600MB

of Internet browsing. SmarTone explained that via Internet browsing, customers would be

able to access Internet video, access world wide web, Internet radio, mobile MSN, Podcast

and RSS (ie those application icons appearing in the Advertisements). The data consumed

for access to these services or service applications via Internet browsing would be counted

against the 600MB under the service packages. The TA considers the complainant’s

allegation that certain services represented in the application icons in the Advertisements

could not be enjoyed by customers under the service packages is not established. The TA

accepts SmarTone’s explanation that all these service applications could be enjoyed by

customers under the service packages via Internet browsing.

38. The entitlement to 600MB of Internet browsing was subject to a 20MB daily cap.

This was not specified in either of the Advertisements. However, it was specified in

SmarTone’s webpage promoting the packages (see paragraph 7(d)). SmarTone further

explained to OFTA how the 20MB cap was to work (see paragraphs 14 – 15).

39. The TA considers that the 20MB daily cap was a term or condition more important

under the service package than the 600MB monthly cap. As the unused MB of a given day

could not be carried over to the next day, a customer’s liability for additional data charge

actually depended on whether he had exceeded the usage of 20MB in a given day, not

whether he had exceeded the usage of 600MB in a given month. The TA would even say

that the 600MB monthly cap was meaningless to potential customers in terms of what they

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were most concerned about, namely the liability for excess payment. It was the 20MB daily

cap that really counted. Such a condition would affect a customer’s purchasing decision.

40. The imposition of a daily cap on a data usage plan was not a marketing practice that

was commonly found among mobile operators. In fact, as far as the Authority is aware of,

SmarTone was the only mobile operator at the time which offered a data usage plan with a

daily cap on data usage. The TA has no doubt that it was a material term which had to be

made known to the customers when making representation regarding data usage offer in the

promotional materials. That SmarTone had failed to do so has rendered the Advertisements

misleading in this regard. The “Terms & conditions apply” disclaimer cannot save it

because it is too general to be capable of alerting customers of the existence of the daily cap

on data usage.

41. SmarTone says that the TA has tried to draw a line between those terms that

customers have a general expectation and those that are not; and the disclaimer “Terms and

conditions apply” would save the former but not the latter. SmarTone does not agree with

the TA’s approach and regards that the effect of the disclaimer “Terms and conditions

apply” was to draw customers’ attention to the existence of terms and conditions that were

not stated in the Advertisements, regardless of whether the customers would have a general

expectation of such terms.

42. The TA does not agree with SmarTone. In analysing whether an advertisement is

misleading or deceptive, it is crucial for the TA to consider who the target audience are and

the level of understanding that they generally possess over the products or services being

advertised, in order to assess what message the target audience will receive seeing the

advertisement. This is consistent with the approach set out in the Guidelines5. A mobile

user in Hong Kong is generally used to term contract arrangements and the distinction

drawn between intra- and inter network minutes in the service packages6. The same cannot

be said for the daily cap limit imposed for data usage. As they have no expectation of such

restriction being imposed on their enjoyment of mobile data services, which is an important

criterion in selecting a service package, it is imperative that such restriction be spelt out

clearly and be sufficiently drawn to the attention of the target audience.

43. The TA would also like to comment on the submissions from SmarTone regarding

how the customers would be able to monitor the volume of data usage, in order not to

exceed the cap limit. SmarTone’s response was that the customers could check the usage

5 Guidelines issued by the TA on 21 May 2003 on Misleading or Deceptive Conduct in Hong Kong Telecommunications Markets. See in particular paragraphs 2.10 – 2.12. 6 However, the TA would like to reinforce what is said in paragraphs 24 and 26 that operators should aim at setting standards for themselves above and beyond the requirements of the law, in providing clear and comprehensive information regarding the material terms and conditions of their services offers.

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volume via handsets, SmarTone’s hotline, and SmarTone’s online bill. The TA does not

consider that any of these ways would enable customers to closely monitor the data usage

on a daily basis. In the first place, it would be impossible for a customer to check from his

handset the volume of data that were consumed via Internet browsing. SmarTone’s

service plans distinguished data consumed via Internet browsing and via other means for

charging purposes. However, the TA understands that a mobile handset’s system generally

makes no such distinction. As for the other two means, both involving checking with

SmarTone, the TA notes that SmarTone would be unable to advise its customers of his data

consumption in a real time manner. Thus a customer subscribing to the IOM Value Pack or

the Internet on Mobile combo deal would in fact have no way of knowing whether he had

exceeded or was close to exceeding the daily usage cap and was subject to excess payment

at any given time of a day. This is highly unsatisfactory bearing in mind that excess charge

would be imposed when the daily limit was exceeded.

The Authority’s Decision

44. For the reasons given above, the TA is of the opinion the Advertisements were

misleading and in breach of section 7M of the Ordinance in the following respects:

i) Failure to mention in the “IOM Value Pack” advertisement that the 1,600

voice call minute entitlement was only available to customers

“switching-in” to SmarTone; and

ii) Failure to mention in both the “IOM Value Pack” and the “Internet on

Mobile combo deal” advertisements that the 600MB of Internet browsing

entitlement was subject to a daily cap of 20MB.

SmarTone should receive a financial penalty for the breach.

The Authority’s action – Financial Penalty

45. 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. Under the guidelines, the Authority is to consider the

gravity of the breach, which includes the nature and seriousness of the infringement,

whether there is any repetition of infringement, and whether there are any aggravating and

mitigating factors.

46. In this case, which is a third7 financial penalty occasion of SmarTone, the maximum 7 In December 2006, SmarTone was imposed with a financial penalty of $100,000 for breach of section 7M

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penalty stipulated by the Ordinance is $1,000,000.

47. In considering the gravity of the breach and therefore the starting point for the level

of penalty, the Authority notes first of all that the breach is a material one in the context of

the competition in the mobile market, where competition is not only intense on price, but

also on service features, and increasingly so in relation to data service features. SmarTone

has failed to disclose in the Advertisements material conditions concerning the

“switching-in” requirement for the 1,600 voice call minute entitlement, and the 20MB daily

cap for data usage. Operators often compete on the volume of call minutes and data usage

offered under a service plan. A misleading representation (including misleading

representation by omission) in relation to call minute and data usage entitlement does not

only harm consumer interest, but is also unfair to the other operators in the market.

48. The Authority also notes that the “IOM Value Pack” and “Internet on Mobile

Combo Deal” services were promoted through an advertising campaign that lasted over a

month, where the Advertisements appeared in seven local newspapers and five local

magazines all with wide circulation. It was a high profile advertising campaign. The

Authority is of the view that the Advertisements would likely have attracted wide attention

in the public.

49. The Authority’s conclusion is therefore that this was a substantive breach of section

7M, and having regard to the maximum applicable penalty of $1,000,000, the appropriate

starting point for determining the level of financial penalty is $220,000.

50. While the breach is serious, in mitigation it is noted that the Authority has not

received any section 7M related consumer complaints concerning the Advertisements.

Further, SmarTone has been cooperative with OFTA throughout the investigation.

51. 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.

52. Accordingly, the Authority is of the opinion that in this case of a third financial

penalty for SmarTone, the penalty which is proportionate and reasonable in relation to the

conduct concerned is $180,000.

Office of the Telecommunications Authority

January 2010

(Case No T66/06). In October 2009, SmarTone was imposed with a financial penalty of $110,000 for breach of section 7M (Case No T66/08).

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Annex 1

16

17

Annex 2

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Annex 3

Advertisement Date Publication

“IOM Value Pack”

21 September 2008

22 September 2008

23 September 2008

24 September 2008

25 September 2008

26 September 2008

27 September 2008

28 September 2008

29 September 2008

30 September 2008

1 October 2008

2 October 2008

3 October 2008

4 October 2008

5 October 2008

Apple Daily

Oriental Daily

Sing Tao

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