Investigation into potential over-charging on pre-paid calling cards

11 October 2004

Complainant: Ofcom own-initiative investigation
Complaint against: Vectone Group Holding plc, Calling Card Company (UK) Limited, Primus Telecommunications Limited, Cheers International Limited
Case opened: 17 December 2003
Case closed: 11 October 2004
Issue: Potential use of misleading advertising and unfair contract terms with regard to pre-paid calling cards
Relevant instrument: Part 8 of the Enterprise Act 2002

Background

Pre-paid calling cards offer consumers an alternative way of making international calls to a variety of destinations. Calling cards are generally sold in denominations of £5, £10 and £20. Research conducted by Ofcom suggests that around 8% of the adult population in the UK uses calling cards (around 3.7 million adults), with the average spend amongst regular users being £10 per month. Calling cards are particularly popular amongst those in lower income (under £15,000 per annum) households or those using English as a second language.

Based on estimates provided by the industry trade association, ECCSA (the European Calling Card Services Association) and its own research, Ofcom estimates the UK pre-paid calling card industry to be worth over £500 million per annum. There are over 50 different providers of calling cards, with around 150 million cards being sold each year.

The investigation

Following complaints from consumers and representations from ECCSA, Ofcom opened an investigation under Part 8 of the Enterprise Act 2002 into potential discrepancies between the charges advertised by the companies for calls made using their calling cards and the actual charges levied for those calls. Ofcom found that many of the potential discrepancies in the charges were due to a lack of clarity in the advertisements for the calling cards and the terms and conditions associated with their use, contrary to the Control of Misleading Advertisements Regulations 1988 and the Unfair Terms in Consumer Contracts Regulations 1999.

Ofcom was particularly concerned that a number of advertisements used by calling card companies failed to make clear all the charges that applied to the use of the cards, particularly as regards when connection and maintenance charges were incurred and the level of those charges.

Ofcom was similarly concerned that many advertisements failed to make clear the main terms and conditions that applied to the use of calling cards and where full details of those terms and conditions, including prices, could be obtained. This frequently led to consumers purchasing calling cards without being fully aware of the terms that applied to their cards.

Following the co-operation of Vectone, Calling Card Company (UK) and Primus, Ofcom has obtained undertakings from these three firms to ensure that, in future, their advertisements clearly set out all applicable charges and the terms and conditions that apply to the use of callings cards. In particular, the three companies have agreed to amend their advertising material so that it makes clear when the advertised rates will apply, sets out all the charges that apply when using the calling card and makes clear where the most up-to-date call charges are available. Where necessary, the three companies have also agreed to include details of all their main terms and conditions on the advertising material.

A further complaint about Cheers International has been received by Ofcom. On the basis of this complaint, Ofcom has decided that it is appropriate to open a new investigation under the Communications Act 2003 and the Enterprise Act 2002 into the accuracy and reliability of the billing system operated by Cheers International and the availability of information on the applicable charges for the use of its calling cards.

Going forward

Ofcom would expect all companies operating in the calling card market to ensure that their advertisements and terms and conditions similarly comply with consumer protection legislation, particularly as regards the issues highlighted above. Ofcom will therefore be sending a copy of this case closure statement to as many calling card companies as possible and intends to monitor future compliance.

Ofcom, however, remains concerned that the most up-to-date information on prices and terms and conditions is not available to consumers when purchasing calling cards. Ofcom intends to canvass views on the best ways of getting more information to consumers at the point they purchase calling cards, including whether the inclusion of inserts setting out prices and conditions with the actual calling cards may be appropriate.

Case leader: Martin Hill (e-mail: Martin.Hill@ofcom.org.uk)
Case reference: CW/00729/12/03

Text published when the case was opened

Complainant: Ofcom own-initiative investigation
Complainant: Ofcom own-initiative investigation
Complaint against: Vectone Group Holding plc, Calling Card Company (UK) Limited (Alpha Telecom), Cheers International Limited, Primus Telecommunications Limited
Case opened: 17 December 2003
Issue: Possible overcharging, early expiry and unexplained credit loss on pre-
paid calling cards
Relevant instrument: Part 8 of the Enterprise Act 2002

Consumers buy pre-paid calling cards with a certain amount of credit from retailers such as newsagents. The consumer then uses a local access number, together with a PIN number, to make phone calls using the credit on the card. At present, the most common use of pre-paid calling cards is to make international calls. Tariffs may be displayed where the card is purchased, or may be obtained by accessing the relevant customer services.

Following informal representations made to Oftel, Oftel opened an own initiative investigation into billing and performance issues associated with the use of pre-paid calling cards, in particular possible discrepancies between the published tariff and the charges applied. As from 29 December 2003, Ofcom continued this own-initiative investigation.

Case Leader: Ruth Gibson (e-mail: Ruth.Gibson@ofcom.org.uk)
Case Reference: CW/00729/12/03