Complaint concerning PCCW-HKTC s Advertisement on Business Telephone Services

Complaint concerning PCCW-HKTC s Advertisement on Business Telephone Services Complaint against: Issue: Relevant Instruments: PCCW-HKT Telephone Limited ( PCCW-HKTC ) The complainant, Wharf New T&T Limited, alleged that PCCW-HKTC s advertisement misled the public to believe that the other operators have failed to deliver quality products or services to their business-line customers and that PCCW-HKTC is the only operator in the industry that enjoys network ownership and achieves 100% coverage. Section 7M of the Telecommunications Ordinance (Cap. 106 of the Laws of Hong Kong) ( Ordinance ) ; and/or Case Opened: June 2002 Case Closed September 2002 The Advertising Code of Practice issued by the Telecommunications Authority in January 1996 (the Advertising Code ). Decision: Outcome: PCCW-HKTC breached the Advertising Code. Written Warning Case Reference: T 123/02 Introduction 1. The Telecommunications Authority ( TA ) received a complaint from Wharf New T&T Limited against PCCW-HKTC s advertisement which was posted on Apple Daily, Oriental Daily, East Week Magazine, South China Morning Post and MTR commercial boards. The Chinese version of the advertisement stated that: 電 訊 盈 科 商 業 電 話 服 務 連 繫 不 斷 不 作 他 選 即 刻 剪 低 即 享 高 達 20%XX 公 司 商 業 電 話 月 費 1

超 大 優 惠 剪 低 優 惠 分 分 鍾 剪 斷 你 同 客 關 係 貪 小 小 著 數 而 要 遭 受 斷 線 唔 到 線 苦 惱, 生 意 點 會 有 發 展! 電 訊 盈 科 商 業 電 話 服 務, 擁 有 自 己 網 絡, 可 靠 度 高 達 99.99%, 確 保 通 訊 穩 定 清 晰 ; 更 設 有 線 路 分 流 糸 統 路 路 暢 通, 連 繫 不 斷, 再 加 100% 網 絡 覆 蓋, 生 意 傾 得 好, 公 司 大 有 前 途 電 訊 盈 科 商 業 電 話 服 務 過 之 處 網 絡 全 擁 有 線 路 分 流 100% 網 絡 覆 蓋 (in English translation: PCCW Business Telephone Services Continuous Connection Next to None Cut This Off Now and Enjoy Ultra Deduction of 20% Off XX Company s Commercial Line Monthly Fees* * Cutting off this coupon may well cut you off from your customers. How can your business prosper with hassles like dropped calls and the lines being unavailable merely for some tiny gains? PCCW s Business Telephone Services, with its own network, offer a reliability of up to 99.99%, which ensures stable and clear communication. Besides, its line diversion system allows smooth and continuous connection, together with 100% network coverage. Your company will show great promise with well-conversed business. What s outstanding about PCCW s Business Telephone Services: - Whole Ownership of Network - Line Diversion - 100% Network Coverage) 2. The English version of the advertisement appearing in the South China Morning Post stated that: Connect with the Best. Connect with Success An instant 20% off your business phone bill with XX company Clip the coupon for this unbeatable offer! Clipping this coupon may also sever ties with your customers! Cutting your costs is good for business. Or is it? What you might get is poor line quality and disconnected calls! Or, you can choose to enhance your business with PCCW Business Telephone Services. Our wholly owned network ensures clarity and stability with 99.99% network reliability and our Line Diversity system makes certain your calls are relayed quickly 2

and efficiently, even during high traffic. Together with 100% network coverage, we give you a reliable and successful connection with your customers. Unparalleled capabilities of PCCW Business Telephone Services * Wholly owned Network * Line Diversity * 100% Network Coverage. The Complaint 3. The complainant stated that in the advertisement, PCCW-HKTC had made references as to the general service quality of its competitors, i.e. connection stability and clarity as well as network coverage, which the complainant believed to be derogatory. Further, the complainant claimed that the advertisement indicated that should the business-line customers take advantage of the 20% discounts offered by the other FTNS operators, their businesses would be immediately jeopardized since the network quality of the FTNS operators is so low and poor which was, in the view of the complainant, misleading, unjustified and defamatory. 4. The complainant considered PCCW-HKTC s claims of its absolute network ownership and diversity to be misleading and deceptive in nature. The complainant pointed out that PCCW-HKTC does not own the entire network nor does it have network diversity for every building in Hong Kong for its business-line customers. The complainant is of the view that the advertisement attacked other FTNS operators and damage their goodwill in front of the public and misled the public to believe that the other operators have failed to deliver quality products or services to their business-line customers. 5. The complainant alleged that PCCW-HKTC s campaign was misleading in respect of the other operators network or products and that the advertisement was disparaging or smearing which caused harm to the industry. 6. In view of the above, the complaint stated that, PCCW-HKTC is in breach of Section 7M of the Telecommunications Ordinance which requires 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 advertising the network, system, installations, customer 3

equipment or service. 7. The complainants also submitted that PCCW-HKTC is in breach each and every of the following principles in the Advertising Code of Practice issued by the TA (the Advertising Code ): - Advertising should be clean, honest and truthful. - Comparative advertising is acceptable so long as references to a competitor, or a competitor s products or services is fair, reasonable and not misleading. - Advertisements which criticize a competitor or a competitor s products or services should be avoided. Disparaging or smearing advertising does harm to the image of the industry. - Advertisements should be capable of substantiation. The purpose is to prove any claims made in advertisements. While the substantiation needs not be unequivocal, it is good practice to indicate the source of research or authority on which the claim is based. - The use of superlatives should be avoided unless substantiated by facts. Issues 8. The TA was concerned that the statements made by PCCW-HKTC in the advertisement implied that consumers that take advantage of the 20% discount and switch to another operator will experience call dropout and unavailable lines. The TA is also concerned that the advertisement may have misled the public to believe that PCCW-HKTC has the best network in the industry and that the other FTNS operators have poor and low standards in their network quality. 9. Accordingly, the TA was concerned that the advertisement may be misleading or deceptive pursuant to Section 7M of the Ordinance and may be in breach of the Advertising Code. 4

PCCW-HKTC s Response 10. PCCW-HKTC objected that the advertisement was misleading or deceptive. Further, PCCW-HKTC submitted that all the contents of the advertisement can be substantiated by facts and that the advertisement does not breach Section 7M of the Ordinance or the Advertising Code. 11. To support PCCW-HKTC s claim of Wholly Owned Network, PCCW-HKTC stated that they wholly own the local loops over which its services are provided (unlike the other FTNS operators who use a combination of their own loops and LALs rented from PCCW-HKTC). PCCW-HKTC also stated that the reference to whole ownership of network is, therefore, correct and PCCW-HKTC does not state or imply in the advertisement that they own all the networks in Hong Kong, and to suggest that it does would be to distort the intended meaning of the advertisement. 12. To support PCCW-HKTC s claim of Line Diversity, PCCW-HKTC alleged that they have built a line diversity system into their entire core network (including unit diversity, route diversity and exchange diversity) which can provide alternative routes and switches to pre-empt a single point of failure in affecting the ultimate call connections. PCCW-HKTC claimed that this is to ensure the resilience of their network and high successful rate of call connections. Hence, PCCW-HKTC concluded that the reference to line diversion system is correct. PCCW-HKTC stated that they do not state in the advertisement, and the advertisement does not imply, that PCCW-HKTC have network diversity for every building in Hong Kong for their business-line consumers which the complainant suggested. 13. To support PCCW-HKTC s claim of Reliability of up to 99.99%, PCCW-HKTC stated that their reliability measurement is a calculation on the core network availability of all their exchanges which is conducted on a regular basis and the latest April 2002 figure for the telephone network s reliability is 99.9999%. Further, PCCW-HKTC offered the TA to inspect their Engineering Department who can provide the relevant equations and diagrams to support the network s reliability. 14. To support PCCW-HKTC s claim of 100% Network Coverage, PCCW-HKTC stated that they offer full network coverage in Hong Kong and is obliged to do so under the Universal Service Obligation in its licence. PCCW- HKTC submitted that the reference to network coverage is therefore correct. 5

15. PCCW-HKTC provided media reports dating from December 2001 to June 2002 concerning unavailable lines and call drop out of other service providers. PCCW-HKTC stated that during the period, no complaints were received by PCCW- HKTC in relation to either unavailable lines or call drop out. 16. PCCW-HKTC also provided an interview of a customer who wished to be ported back as he/she had experienced problems of call dropout and unavailable lines in using other service providers. Therefore, PCCW-HKTC stated that the advertisement s implication that customers may experience dropped calls and unavailable lines if they move to other operators (to which the phrase may cut you off from your customers clearly refers) is correct. 17. PCCW-HKTC provided the TA with results of a survey conducted from November 2001 to January 2002 by an independent research company employed by PCCW-HKTC, Taylor Nelson Sofres Hong Kong Limited, on 543 business customers about the service quality of the major telecommunications service providers in the market. PCCW-HKTC explained that according to the survey, PCCW-HKTC obtained the highest rating in the high quality and reliable network among the major service providers. 18. PCCW-HKTC stated that they were selected as one of the 20 leading telecommunication operators worldwide by A.T. Kearney, Inc., a renowned global management consulting firm who conducted a study in January 2000 to identify the best practices of the leading telecommunications operators worldwide for network operation streamlining and cost optimization. PCCW-HKTC claimed that their network quality had a high rating among the leading global operators. Extracts of A.T. Kearney, Inc. s study report was provided to the TA. 19. PCCW-HKTC believed that it was reasonable for PCCW-HKTC to conclude that they have the best network in the industry as regards to fixed line service quality. 20. PCCW-HKTC submitted that since all of the claims and statements in the advertisement are correct and can be substantiated, the advertisement does not breach 7M of the Ordinance or the Advertising Code. PCCW-HKTC stated that comparative advertising is acceptable so long as references to a competitor, or a competitor s products or services are fair, reasonable and not misleading. 6

21. PCCW-HKTC also stated that the advertisement made no mention of any specific competitor, products or services of any specific competitor. PCCW- HKTC argued that even if the advertisement mentions a specific competitor or its services or products, given that the claims and statements are correct and can be substantiated, there is no breach of either 7M of the Ordinance or the Advertising Code. 22. PCCW-HKTC stated that in these circumstances, it is particularly important, in the interests of achieving a level competitive playing field, that its ability to compete on the basis of genuine differences in service quality is not also constrained. TA s Findings 23. The TA considers that the words wholly owned network appearing in the advertisement did not mean or imply that PCCW-HKTC owns all the network in Hong Kong as indicated by complainant. Instead, the words refer to the whole ownership of PCCW-HKTC s network. As PCCW-HKTC owns the local loops over which its services are provided, the TA considers that the reference is not misleading. 24. The TA considers that the words Line Diversity appearing in the advertisement did not imply that PCCW-HKTC has network diversity for every building in Hong Kong for PCCW-HKTC s business-line consumers. The English version of the advertisement states that PCCW-HKTC s Line Diversity system makes certain your calls are relayed quickly and efficiently even during high traffic. The Chinese version carries a very similar meaning. Hence, the TA considers that PCCW-HKTC s claim of Line Diversity was not misleading as PCCW-HKTC confirmed that they have built a line diversity into their entire core network (including unit diversity, route diversity and exchange diversity) which ensures the resilience of their network and high successful rate of call connections. 25. PCCW-HKTC s claim of Reliability of 99.99% is substantiated by a test conducted by PCCW-HKTC on a regular basis. Therefore, the TA considers that the claim is not misleading. However, the TA is concerned that these figures do not correlate precisely with OFTA s own figures and considers that the statement had not fully comply with the Advertising Code which states that the source on which this statement relies should be indicated. 7

26. In relation to PCCW-HKTC s claim of 100% network coverage, the TA considers that PCCW-HKTC offers full network coverage in Hong Kong as obliged under the Universal Service Obligation, hence, not misleading. 27. The evidence referred to in paragraph 15 above did not substantiate PCCW-HKTC's claim that customers of other networks faced a real risk of being cutoff from their constituent consumers should they subscribe to another operator. The TA does not consider anecdotal customer stories or press reports of interruptions, as a result of catastrophic like events, as being any different to the outages that PCCW- HKTC itself experiences when a similar failure occurs, often as the result of extraneous events. PCCW-HKTC's figures, supplied to OFTA, did not appear to incorporate like events. Accordingly, the TA considers PCCW-HKTC s claim was not substantiated. 28. The reference to a 20 per cent discount and the statements 剪 低 優 惠 分 分 鍾 剪 斷 你 同 客 關 係 (In English translation: Cutting off this coupon may well cut you off from your customers) and/or Clipping this coupon may also sever ties with your customers were equated by PCCW-HKTC, in the context of the advertisement, as alluding to customers facing a substantive risk of call dropouts (i.e. Advertisement stated that 貪 小 小 著 數 而 要 遭 受 斷 線 唔 到 線 苦 惱, 生 意 點 會 有 發 展! (In English translation: How can your business prosper with hassles like dropped calls and the lines being unavailable merely for some tiny gains?) and/or Cutting your costs is good for business. Or is it? What you might get is poor line quality and disconnected calls! ). In a factual sense, the magnitude of discount and the cutting of coupon bore no relationship to call disruption (i.e. the discount was real whereas the risk of call dropout was not). 29. Placing the advertisement in this context described above was not clean, honest or truthful and had criticized PCCW-HKTC s competitors in general because of the unfair parallel it had drawn between the discount being offered and an equivalent call failure rate. The use of the word 'sever' had a tendency to accentuate this distortion. Accordingly, the TA considers the advertisement is in breach of the Advertising Code. 30. PCCW-HKTC used the word may in its phrase which, in common usage, means that the subscriber had the potential or a degree of risk in suffering from cutting off from their customers. Had PCCW-HKTC used will in place of may, 8

the TA may consider PCCW-HKTC s statements to be more serious in nature. Therefore, the TA considers that the above phrase was on the cusp of misleading the public to believe that other operators had failed or were not capable of delivering quality products or services to their business-line consumers. 31. Whilst the TA does not find the misleading claim made out, it does consider that the campaign was on the cusp of breaching Section 7M of the Ordinance. Accordingly, the TA will carefully examine any further complaints, particularly those from consumers, and will also closely monitor PCCW-HKTC's future advertising campaigns including, in particular, its response to the TA's finding in this case. 32. The TA considers that PCCW-HKTC has not breached Section 7M of the Ordinance, however, for the reasons stated in the paragraphs 27 to 29, the TA considers that PCCW-HKTC is in breach of the Advertising Code. Warning 33. In considering the appropriate action to take in respect of PCCW-HKTC for the breach of the Advertising Code, the TA has taken into account: (i) the impact on the industry generally; (ii) nature and seriousness of the infringement; (iii) the damage or loss caused to third parties, the industry and/or the public; 34. Having considered all the materials of the case, the TA considers that a warning is sufficient to address the breach of the Advertising Code. Accordingly, PCCW-HKTC is warned that any future advertisements should comply with the Ordinance, the Advertising Code, licence conditions and any governing regulations. PCCW-HKTC is also advised to discontinue the advertisement or to amend the phrase in concern. 35. The TA is disappointed at this campaign as it generally brings down the reputation of the industry. The TA recognizes the need to fiercely compete and promote product differentiation however, in this case, the campaign unnecessarily denigrated PCCW-HKTC's competitors. 9