The $400,000 fine handed down to the country's largest mobile operator should serve as a wake up call to companies about the need to be clear in their marketing of new products in a bid to avoid confusing customers.
Vodafone was fined $402,375 plus court costs in the Auckland District Court this morning for breaching the Fair Trading Act with its mobile internet service, Vodafone Live.
It has since apologised to customers who were charged hundreds of dollars for a mobile internet service they thought was free - saying it did not deliberately set out to mislead them.
The Commerce Commission brought five charges against Vodafone under the Act. Vodafone is also defending a further five charges relating to alleged misleading broadband or mobile phone promotions.
Vodafone's mobile internet service Vodafone Live was advertised with the phrases "completely free", "absolutely free" and "you won't be charged" on the company's website.
However, customers were billed when they left the Vodafone Live sites.
The anti-trust regulator said providers need to be certain that their marketing and promotions did not mislead consumers, who often had no way of easily verifying the claims being made.
"This is especially necessary when a new or innovative product is being launched, as customers will not have built up any understanding of its use or cost," the commission said.
Telecommunications Users Association chief executive Paul Brislen said he believed the Vodafone breach was not intentional, but there was 'something about the telco market' which made it easy to include confusion - whether it was deliberate or not.
"When you start as a telco and you are coming up with a new service you have blank piece of paper and you just build it from there. What starts at as a simple solution gets quite technical and it's not until you get into production where you get problems that you have seen here."
"Theresa Guttang (former Telecom chief executive) said telcos had used confusion as a marketing tool and she was absolutely right."
The Auckland District Court heard how one Vodafone Live customer spent sleepless nights and another rang the company call centre in tears after being charged hundreds of dollars for a mobile internet service they thought was free.
Vodafone said it had taken the charges seriously and had put in place measures to ensure customers were not confused by data charging.
The commission said while it acknowledged that Vodafone had since refunded some of the affected customers and changed the way it promoted the service, it had been slow to respond to the problem.
"The offending continued over a period of 14 months. Refunds were given reluctantly and on an inconsistent basis," the commission said.
Commerce Commission lawyer Nick Flanagan said the Vodafone case involved large-scale offending by a major corporate over 14 months in 2007 and 2008.
Flanagan said victim impact statements show customers spent sleepless nights worrying about large phone bills. One customer was charged more than $1000 and another was threatened by a debt collecting agency.
"One describes being in tears when calling the Vodafone call centre."
Vodafone lawyer Bruce Gray QC said last month the problem was with different operating systems on different phones sold by the company.
He said some phones continued to display the Vodafone Live banner when customers went online, even when the customer had left Vodafone Live sites.
"Vodafone fell down (when) it said 'We'll tell you when you incur cost' and some people incurred cost without being told."
Judge Roderick Joyce said Vodafone's shortcomings had had a very real impact on many customers.
"The money sums in question might have meant nothing to someone of considerable means but pay-as-you-go customers are surely not in that category."
The fine, while significant, is not the largest imposed on a corporation for a Fair Trading Act breach.
In 2009 Telecom was fined $500,000 after pleading guilty to 17 Fair Trading Act breaches over claims made in 2006 when promoting Xtra's Go Large broadband plan.
HIT IN THE POCKET
* Vodafone Live advertised as 'absolutely free'.
* Company billed customers for use when they left specific sites - but didn't tell them.
* Customers were billed hundreds of dollars for Vodafone Live use.
* One customer called company in tears while another was chased by debt collectors.