in Business Contracts

Be wary of small business telecommunication contracts

The Australian Competition and Consumer Commission (ACCC) has released a new warning to small businesses to be wary when entering into contracts with telecommunication companies that bundle a telecommunications service and call credit with what is perceived to be ‘free’ equipment. The warning makes note that many of the agreements being signed by the smaller businesses are, in fact, two separate contracts – one for the telecommunications service, and the other for the lease of the telecommunications equipment from a finance company.

Two-contract system as a “misleading” offer?

While this ‘two contract system’ is by no means illegal, and for some businesses quite convenient, a number of small businesses are reporting to the ACCC that they have been misled and induced into signing such dual contracts. Problems arise for the businesses when the telecommunications service provider stops providing the service (most recently the most common reason for this is that the service provider has gone out of business) and the consumer is left locked into a lease contract with the finance company for expensive equipment that has no use without the telco service.

ACCC checklist recommendations

The ACCC has recommended that small business operators run through the following checklist prior to signing any contract for telecommunications service:

  • 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?

If your business has been affected by a situation similar to that mentioned above, call us now and speak to us about the problem.