Contracts Warning to small Business
Small businesses should be wary of telecommunications contracts offering
cheaper services combined with incentives such as phone equipment, laptops or
plasma-screen TVs.
The TIO is receiving up to 20 complaints a week from
small businesses who say they were misled about, or did not fully understand,
the nature and operation of equipment leases bundled with telecommunication
deals when they signed up to them.
"Small businesses are telling us they
are being approached by a sales person who offers a contract for call costs at
the same price or less than what they are currently paying. They also say they
were offered a handset, plasma TV, laptop or even an overseas holiday at 'no
extra cost'," Deputy Ombudsman Simon Cleary said.
"What small businesses
sometimes don't fully appreciate is that they are signing two separate
contracts: one for the phone calls with a telecommunications service provider
and the second being a lease of the equipment from a finance
company.
"The two contracts are inter-related, with monthly lease
payments often being offset by 'credits' on the phone bill from the
telecommunications service provider. The size of these credits is similar to the
monthly lease payments for the finance contract and the sales person will often
ask to see a past telephone account for the purpose of calculating the
credits.
"However, small businesses say that their call rates
subsequently increase and the package proves to be more expensive than their
previous arrangement. Importantly, if the business then transfers to another
phone company, the small business will still be bound by the finance company
lease but without receiving the credits.
"And far from being free, the
equipment can prove to be quite expensive if the business ends up paying just
the finance lease. We have received complaints of standard model laptops leased
over a five-year period costing up to $20,000 in lease payments."
Mr
Cleary said that while the dual contract arrangement might meet the needs of
many businesses the TIO was concerned by the number of complaints from small
businesses who said they had been misled and then found themselves locked into
expensive equipment leases. The TIO can make binding rulings to direct service
providers to release a small business or consumer from a telecommunications
contract, but has no similar power over a finance company and their
leases.
Given the number of similar complaints received by the TIO, the
TIO warns small businesses who might be offered equipment leases bundled with
telecommunication deals to take extreme care before signing contracts. In
particular, small businesses should ask:
| who are the parties involved in the deal?
are commissions paid as part of the deal, and to whom?
how many contracts does the deal involve? Is it just one contract with one
company or are they separate contracts?
exactly what services are being offered by the phone company? If
"credits"are being offered to offset the lease payments, how much are the
credits and are there any limitations on when they are paid?
is there a lease? If so, what are the monthly lease payments, and how long
is the lease for?
what happens if the telecommunications contract ends? Is the business still
bound by the lease?
what is the total cost of the deal over the term of the contracts?
does it actually work out to be cheaper than the small business’s existing
telecommunications arrangements? |
The following cases illustrate some of the problems that small businesses have
experienced with equipment leases bundled with telecommunication deals. The
cases are presented from the perspective of the small businesses and do not
represent completed TIO investigations.
Example one :
A small business owner was approached by a salesperson who said
that for $400 a month - less than what she was paying with her current provider
- he would provide four business landlines and also supply "at no cost" a
50-inch plasma television and $4,000 worth of phone handsets.
The
salesperson said that to obtain the deal, the owner would have to sign a
five-year contract. After gaining a verbal reassurance that the plasma
television and the handsets were indeed "free", the owner signed the five-year
contract. After a short time, the owner approached the TIO seeking to be
released from the contract.
She claimed that:
the service provider initially transferred only one line from her original
provider. It told her that a clause in the contract allowed it up to three
months to transfer all four lines across
she was also invoiced for a further amount of almost $500 to cover the
repayments for the “free” handsets and the plasma television
all four phones were eventually transferred across, but the free handsets
were defective. This meant that the business had only one phone line for two
weeks and office staff had to use their mobile phones to contact clients.
Problems with the handsets continued
she was advised by the service provider that she would need to be given a
new number for one of her services.
This led to significant problems for
clients trying to call the business.
The small business owner decided to
transfer her service back to her original provider and attempted to be released
from the five-year contract. She was then advised that as well as a contract for
telephone services she had also signed a five-year finance contract for the
“free” television and phone handsets. The finance company, which said it had no
relationship with the telephone service provider, said she would have to pay
$25,000 to be released from the finance lease. The woman said the plasma
television was worth only $3,000. |
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