Recent consumer research by the Australian Communications Authority (ACA) showed that customers had experienced difficulties with both fixed and mobile phone contracts.
"Small businesses and households found contracts to be too long and difficult to understand," ACA acting chairman Allan Horsley.
The research respondents complained that it was unfair that providers were able to alter the terms and conditions of the contracts after sign-up. They also raised the unexpected charges hidden in the fine print, such as high cancellation fees.
The ACA asked the ACIF to develop a contracts code that requires contracts to be fair and "provide guidance about fair and unfair contract terms".
The ACIF draft code on consumer contract states that with the exception of Victorian legislation, federal and state laws "do not identify or provide guidance on contract terms which may be unfair, nor provide guidance on the structure and format of contracts to ensure consumers can easily read and understand important contract terms".
The ACA surveyed more than 1,000 small businesses and residential households in the first half of 2004vabout their information needs and expectations as consumers of telecommunications products and services.
"The survey also found that consumers were concerned about being locked into a lengthy contract, which meant they were unable to take advantage of better offers," Horsley said.
Horsley said the research has reinforced the ACA's initial view on the inadequacies of many phone contracts.
The draft code "builds on the European Communities' Directive and the UK Regulation as well as the Victorian legislation" by providing industry specific examples and specific rules identifying contract terms which are unfair and how contracts should be set out to ensure legibility and comprehension of the terms.
The objective of the ACIF draft code is "to redress the consumer detriment arising from the imbalance in bargaining power as between service providers and residential and small business customers".
The code rules also cover mass market contracts used by residential and small business consumers.
"This Code seeks to ensure that the terms of contracts between suppliers and residential and small business consumers are fair and are presented by suppliers in a form that is readily accessible, legible and capable of being readily understood by consumers."
The draft code applies to carriage service providers, including Internet service providers (ISPs) and covers contracts for supply of telecommunications services, including fixed and mobile telephone calls and Internet services to residential and small business customers.
Also included in the code are minimum requirements for the format and structure of contracts, as well as rules to promote the use of plain language.
Complaints will be sent to the Telecommunications Industry Ombudsman (TIO) where the investigative staff will consider whether a code rule has been breached.
"The TIO will address every complaint irrespective of whether an industry participant is a signatory to the Code. The TIO records all potential and confirmed breaches, which are, in turn, reported to the ACA."
The ACIF is expecting industry participants to "incur substantial initial and ongoing costs" in relation to compliance with the code.
In order to comply with the code, existing suppliers need to review the terms of their existing contracts and all related documentation and modify them. In order to implement the modified contract terms, suppliers will also need to modify their processes and systems, as well as policies and operating practices and associated procedures, including staff education and training.
"Implementation of the Code will have a significant impact on some of the existing operating practices and procedures which will add major costs to industry."
Consumer contracts were among the topics raised by organisations present during the recently conducted ACIF forum on telco bill shock.