Neil Brown draws lessons from a recent judgment of the Court of Justice of the European Union concerning pre-loaded SIM cards
In 2012, the Italian competition and consumer protection authority, Autorità Garante della Concorrenza e del Mercato, penalised two Italian telecoms operators for marketing SIM cards ‘with pre-loaded and pre-activated functionalities, such as internet browsing services and voicemail services, the use of which was charged to the user if they were not deactivated at his express request, without that user having been informed in advance of the existence of those services or of their cost.’
The CJEU was asked to rule on whether this activity amounted to an aggressive commercial practice, prohibited under EU consumer protection law, and whether specific rules in the telecoms regulatory framework trumped the general rules on consumer protection.
Telecoms law does not trump consumer protection
Let’s get the easy bit out the way up front. There are specific rules in the telecoms sector which require Member States to ensure that operators provide a contract which specifies ‘in a clear, comprehensive and easily accessible form’ certain information, as well as provide certain transparency information — this is set out in Articles 20 and 21 of the Universal Service Directive. In the UK, this is implemented through C1.2 of the new General Conditions of Entitlement.
One of the arguments put forward was that, since there are specific rules requiring operators to publish certain information, that this should be taken as lex specialis, overriding the more general obligations under the directive on unfair practices.
The CJEU was unpersuaded by this, and the argument was certainly not aided by Article 1(4) of the Universal Service Directive, which provides that ‘[t]he provisions of this Directive concerning end users' rights shall apply without prejudice to Community rules on consumer protection…’
The outcome is that operators must ensure that they comply with Ofcom’s General Conditions, in terms of the provision of information, and also ensure that their behaviour does not amount to an unfair commercial practice.
Was the operators’ approach an unfair commercial practice?
Unpicking what the CJEU considered to be the unfair commercial practice is a little difficult.
The court’s description of the issue is:
‘the sale of SIM cards on which internet browsing services and voicemail services had been pre-loaded and pre-activated, the fees for using those services being charged to the user if the services were not deactivated at the user’s express request, without the user having been sufficiently informed, in advance, of the fact that those services had been pre- loaded and pre-activated, nor of their cost.’
The description of something — especially services — being ‘pre-loaded’ on SIM cards makes no real sense, even back in 2012 when the original enforcement decision was taken by the Italian regulator.
My interpretation is that a consumer had bought a SIM which enabled them to access a voicemail facility and to use data services to access the Internet. However, it appears that the operator had not told them that these facilities were enabled by default, nor the costs associated with them.
The CJEU does not make clear whether the costs in question were costs associated with a subscription (ie a facility for accessing the Internet, or using voicemail) or for the incremental costs of such usage, such as the cost of data transfer if someone used an Internet connection.
Since the court states that ‘from the moment those SIM cards are first inserted into a mobile telephone or any other device allowing browsing on the internet, the internet browsing service could even result in connections without the user’s knowledge, inter alia by means of “always on” applications’, and that ‘the internet browsing service could have caused internet connections to be made without the consumer’s knowledge, incurring fees without the consumer being aware of that fact’, it seems that the court had the incremental cost of usage in mind.
Apparently, according to the court, ‘[i]t is not clear that the average buyer of a SIM card might be aware’ that, if they buy a SIM and pop it into their phone, they might incur fees relating to Internet usage, and that an operator’s failure to tell a customer about the presence of these services, or inform them of the costs, amounted to an unfair commercial practice, since the customer could incur fees without knowing that this was happening.
The court held that it was no defence that a customer could have configured their phone not to make connections to the Internet, or not to dial voicemail, or that the customer could have opted for deactivation of the services in question — a reasonable finding if the customer did not know about the services, and did not know that use would incur costs.
Given all of this, the CJEU held that the operators had engaged in an unfair commercial practice of ‘inertia selling’.
Key points for operators
The key points for operators are:
To avoid a complaint that sales techniques amount to unfair commercial practices, operators must describe the services which the SIM lets a customer access by default before point of sale, along with information about costs of those services.
This is particularly important, since the UK’s Consumer Protection from Unfair Trading Regulations 2008 contains a number of criminal offences, including an offence of engaging in a commercial practice which is a misleading omission — failing to provide material information which is likely to cause the average consumer to take a transactional decision they would not have otherwise taken — or engaging in an aggressive commercial practice. The maximum penalty is a fine or imprisonment for up to two years.
If the offence was committed with the ‘consent or connivance’ of a director or other officer of a company, that person is individually guilty of the offence, as well as the company.
Similarly, operators which have not historically provided the necessary information could face challenges for consumers for reimbursement of fees paid for the services in question, under the ‘right to damages’ in the Regulations.
However, as this is a CJEU decision on the application of EU law, it would be for a domestic court to determine whether any given situation amounted to an unfair commercial practice.
Neil Brown runs decoded:Legal, a telecoms, technology and Internet law firm.