Chunghwa Telecom Co., Ltd. violated the Fair Trade Law with its "Buy Two Minutes and Get Five Minutes Free" advertisement
Case:
Chunghwa Telecom Co., Ltd. violated the Fair Trade Law with its "Buy Two Minutes and Get Five Minutes Free" advertisement
Key Words:
advertisement; promotional program; comparison table
Reference:
Fair Trade Commission Decision on March 28, 2002 (the 542nd Commissioners' Meeting); Disposition (91) Kung Ch'u Tzu No. 091059
Industry:
Telecommunications Industry (6000)
Relevant Law:
Article 21 of the Fair Trade Law
Summary:
1. The Fair Trade Commission (FTC) received complaint letters from Consumers "A," "B," and "C" about the "Buy Two Minutes and Get Five Minutes Free" advertisement published by Chunghwa Telecom Co., Ltd. (Chungwha Telecom) (seen, for example, on the full-page advertisement on the back cover of the September 2001 edition of Digital Times). The advertisement allegedly failed to disclose that the most favorable rates (NT$1.61 per minute for an outgoing call to mainland China and NT$0.79 to the United States) applied only to Chunghwa Telecom's long-term or major clients. Chunghwa Telecom was thus suspected of violating Article 21 of the Fair Trade Law, which prohibits misleading representations. Chunghwa Telecom advertised this promotional program in print media and other forms of mass media, listing the rates of three competitors for outgoing calls to Mainland China and to the United States during the same period. As these price disclosures were also suspected of involving unfair competition, the FTC also launched an investigation into this allegation ex officio. 2. After investigation, it is the finding of the FTC that Chunghwa Telecom used the advertisement "Buy Two Minutes and Get Five Minutes Free" in its promotional program from 21 August 2001 to 4 September 2001. In addition to disclosing the most favorable rates adopted in the program, Chunghwa Telecom also used a comparison table to draw a comparison between its rates and those of its three competitors, "T," "S," and "E," for international outgoing calls to Mainland China and the United States. The investigation revealed that the most favorable rates (NT$1.61 per minute for an outgoing call to mainland China and NT$0.79 to the United States) published in the advertisement at issue applied only to long-term contracted clients (a monthly fee of over NT$1 million for at least three year), benefited from the best discount (48% off) plus another 5% as a bonus if they placed an seven-minute outgoing call during the discounted time slots. Other client categories, such as major clients, might enjoy a discount of 35%. As for other common clients, no discounts were provided. These kinds of client classification and price discrimination were unknown to the general public and were not disclosed in the contested advertisement. Chunghwa Telecom listed its most favorable rates for its goods or services without disclosing the restrictions thereupon. It merely generalized such rates as "starting from NT$XX". Based upon the standard of members of the general public paying an ordinary degree of attention to the advertisement, average consumers would be likely to mistakenly infer that the most favorable rates were applicable to them. Also, although the advertisement at issue listed corresponding per-minute rates of Chunghwa Telecom, operator "T," operator "S," and operator "E" for outgoing calls to mainland China and to the United States, Chunghwa Telecom did not name the companies or enterprises under comparison. However, there are only four fixed network operators in Chinese Taipei at the moment: Chunghwa Telecom, Taiwan Fixed Network Co., Ltd., Eastern Broadband Telecommunications Co., Ltd., and New Century InfoComm Tech Co., Ltd., which markets its service under the service mark "Sparq." The objects under comparison were thus obvious and specifiable: Operator "T" obviously refers to Taiwan Fixed Network Co., Ltd., Operator "S" to New Century InfoComm Tech Co., Ltd., and Operator "E" to Eastern Broadband telecommunications Co., Ltd.Furthermore, the FTC also discovered that the service prices that Chunghwa Telecom listed in its advertisement were only applicable to the calls placed by its contracted clients during discounted time slots and were calculated based upon the best discount rates such clients might enjoy plus a 5% bonus. The service prices it listed regarding the other three competitors, however, were calculated based on rates applied to their general customers at the time the contested advertisement was published. Clearly, the comparison was not conducted on an entirely objective and fair basis. Based upon all the rates of all operators applied to general customers, Chunghwa Telecom's was not the most competitive. When the contested advertisement was published, the other three operators also provided further favorable discounts for their contracted or important clients, reducing significantly the advertised disparity between them and Chunghwa Telecom in terms of rates. This actual rate situation was obviously at odds with the impression conveyed by the contested advertisement that Chunghwa Telecom still enjoyed an enormous advantage in rates over its competitors following deregulation of the fixed network market in Chinese Taipei.
3. Disposition grounds made by the FTC are as follows:
(1) Chunghwa Telecom's promotional advertisement "Buy Two Minutes and Get Five Minutes Free" focused solely on the most favorable prices calculated under a convergence of specific conditions, and deliberately concealed the multiple restrictions on application of such favorable prices. In addition, Chunghwa Telecom used a comparison table to compare its and its competitors' per-minute rates for outgoing calls to mainland China and the United States, but did not found the comparison on an equal basis or conditions, nor explain the basis to consumers. Chunghwa Telecom thus used misleading representations or symbols regarding the prices and content of its services in violation of Article 21 (3) and, mutatis mutandis, Article 21(1) of the Fair Trade Law. (2) Considering Chunghwa Telecom's motives and purposes for the violations, its expected improper profits, the duration of the damage to trading order, the benefits obtained by the violations, its business scale, its market position, and its cooperativeness during the investigation, the FTC ordered Chunghwa Telecom to immediately cease the misleading representations in its advertisements and imposed an administrative fine of NT$1 million pursuant to the fore part of Article 41 of the Fair Trade Law.Appendix:
Chunghwa Telecom Co., Ltd.'s Uniform Invoice Number: 96979933 Summarized by Yeh, Su-Yen; Supervised by Lee, Wen-Hsiu