Analysis A broadband balancing act
Power companies have had to rewrite customer contracts, after a Commerce Commission investigation found some of their terms were unfair.
A review has found unacceptable contract terms that included automatic renewals that customers were then charged to get out of, companies being allowed to hold on to customers’ credit after they had terminated their contracts and terms that made new homeowners liable for the debt of a previous owner of the property.
A 2015 change to the Fair Trading Act introduced provisions for the commission to tackle unfair contracts.
Contract terms are considered unfair when they would cause significant imbalance in the two parties’ rights and obligations, are not necessary to protect a legitimate business interest and would cause detriment to the customer.
The commission has an ongoing project to review a range of standard-form consumer contracts in various sectors for unfair terms, including gyms and credit contracts.
Its report on the energy sector is the second, after one on telecommunications.
Commissioner Anna Rawlings said the sector was chosen because it is an essential service for New Zealanders.
‘‘Almost all New Zealanders use electricity provided by an energy retail company, so the potential impact of any unfair contract terms was significant,’’ she said.
‘‘The majority of the nine energy companies included in the review had made real efforts to comply with the provisions before they were introduced. However, we did identify 59 terms that we considered potentially unfair.’’
Many of the surveyed retailers had a number of the same unfair terms identified, including clauses that limited the company and distributor’s liability to the customer, but not the customer’s liability to the power company.
Meridian and Mercury had terms that allowed them to unilaterally determine when a contract had been breached.
Automatic renewals of fixedterm contracts were also identified as problematic. Three of the companies included this in their terms.
‘‘The energy retailer had the right to automatically extend the length of the contract, on new, unnegotiated, terms, including potentially higher price. The customer had no right to automatically renew the contract,’’ the commission said.
It said while automatic renewal was not inherently unfair, it was not fair that a customer would then have to pay a termination fee to break the renewed contract.
‘‘The commission is also concerned that these terms rely on customer inertia, in that customers could be locked into extended contracts, which they did not necessarily want, because they were not sufficiently engaged to take the positive action to opt out of the contract.’’
Many also had terms that allowed them to vary the price and conditions of a fixed-price contract, but did not allow the customer any right to terminate the contract as a result.
Trustpower had terms allowing it to retain customers’ credit balance after they terminated their contract. Pulse’s contract allowed it to reverse any credit given to customers, if they terminated their connection.
The Lines Company included a term that made customers who purchased a property with an existing electricity installation liable for any outstanding lines charges, incurred by previous owners. The commission said that created a significant imbalance because it gave the company a right it would not otherwise have had under contract or common law. It has now been removed.
The commission wrote to all the retailers, advising which contract terms could be considered unfair.
Two of the companies will continue to automatically renew fixedterm contracts, but will now allow customers to cancel without paying a termination charge. The other company will no longer automatically renew fixed-term contracts
They have also changed their liability clauses to make them more balanced and acknowledged that their contracts need to be reworded to make it clear that the price of fixed-term contracts would not change.
‘‘We are pleased that the energy retail companies constructively engaged with us and were receptive to our concerns, avoiding the need for the commission to consider court action,’’ Rawlings said.
An act of generosity, or a thinly disguised pricehike? Spark’s move on Monday to rejig its broadband plans has been reported in different lights, depending on whether reporters took their cue from the top or the bottom of Spark’s media release.
There is probably no ‘‘right or wrong’’, but it is worth looking this gift horse in the mouth.
Spark spokeswoman Ellie Cross says ‘‘around half’’ of Spark broadband customers will benefit from a 50 per cent increase in the data caps on its capped broadband plans.
In contrast, fewer than 15 per cent of consumers will face a price rise of $5 a month, which will kickin a year from now.
The catch is that the plans for which Spark is increasing data caps are rapidly becoming less popular, while many of the ones that are going up in price are likely to become more popular.
That is because services such as internet television are encouraging consumers to switch from capped copper to unlimited UFB broadband in ever increasing numbers.
In particular, Spark is increasingly the price of its uncapped entry-level and mainstream 100 megabit-persecond ultrafast broadband plans by $5 a month, with no obvious corresponding increase in value.
Many Spark customers are likely to want to switch to these plans over the coming year as connections to the UFB network boom.
This may be why it makes marketing sense for Spark to announce these prices rise now and then offer customers a ‘‘credit’’ for a year before they actually kick in, which would otherwise be quite bizarre.
In a year’s time, the proportions of customers affected by the data cap and price changes will look quite different.
If consumers don’t want to pay, say, Spark’s new ‘‘deferred’’ standard price of $105 a month for an uncapped 100Mbps UFB service, there are alternatives.
In fact they can buy pretty much the same product from Spark’s sub-brand Bigpipe for $79 a month.
At the time of writing, that appears to be cheapest price for the service from any UFB retail provider.
Spark’s decision to charge consumers different prices depending on whether they
Spark’s decision to charge consumers different prices depending on whether they register under its main brand or a new ‘‘discount’’ brand it has invented needs some explaining.
register under its main brand or a new ‘‘discount’’ brand it has invented needs some explaining.
There are a few genuine differences between the services.
Most significantly, ‘‘Spark’’ customers get free use of internet television service Lightbox, a gigabyte of wi-fi a day from Spark phone boxes, a free modem and installation on a 12-month contract, the ability to pay extra for Spark’s fibre-based internet phone service.
Bigpipe customers don’t get those benefits and will either have to organise their own internet telephony service if they want a family home phone, or rely on mobiles for calls.
Spark likes to pretend that Bigpipe and its discount mobile service Skinny are fairly autonomous from Spark proper.
But you can bet the company is keeping a close eye on the relative value-propositions of its ‘‘frills’’ and ‘‘no frills’’ services, and the extent to which its customers migrate between them.
Its goal will be to ensure it makes a decent profit margin out of its long-term customers – many of whom will be prone to inertia when it comes to switching between providers – while trying to capture some value from customers who would otherwise slip the net, and from new business.
Despite the inherently unstable nature of that balancing act, it is a strategy that seems to be working well for the company at the moment.