TECHNOLOGY SPECTATOR: Keeping telco cowboys in check

Many telecommunications resellers and aggregators are still operating in a regulatory wilderness and that's bad news for their clients.

Technology Spectator

Over a considerable journey in the Australian telecommunications marketplace, I have been fortunate (and unfortunate) to be privy to the best and the worst that carriers can offer.

In fact, one area that often fails to receive the necessary coverage is the role of the sub-carrier. It’s a vendor category that goes by many names – dealer, licensee, aggregator or reseller – and the one similarity between all of the sub-carriers is that they do not own any aspect of their own network.

However, the differences far outweigh the similarities as the commercial and legal constructs that govern each of these types of telecommunications vendor differ markedly, and that creates a range of issues.

Where is the regulation?

When you are a carrier of services you have licence commitments and a raft of specific carrier (telecommunications) legislation that governs many aspects of your telecommunications carriage. Obviously, there is quite some scope in terms of pricing and marketing, but the larger the carrier, the greater the impact of other legislation that governs your commercial activities.

When you are reselling (the generic term) the services of a carrier, there is even less of a legal construct or set of requirements that govern your marketing and pricing and your ongoing client responsibilities.

Here are a few examples:

Dealers and resellers

This can be a commercial arrangement that allows an entity to sell the solutions of a company under its banner. The service is provided by the company and the entity acts as a channel to market.

The one big issue with that is the lack of a fitness for purpose test and no requirement to ensure that the dealer is saying the correct things about the carrier’s products. Sure there is the TPA (Trade Practices Act) and the dealer agreement itself, but there is no requirement on the carriers to conduct any due diligence on the dealer before entering into the commercial agreement, and no ongoing requirements to maintain a level of education of the product. If a dealer sells a customer up the river, then they often are left with little recourse to anyone. The dealer will explain that the contract is with the carrier, and the carrier will say that the dealer sold you the product – caveat emptor.

Aggregators

The commercial arrangements for an aggregator (often called wholesale arrangements) are far more complex and robust. The investment required to be an aggregator (as opposed to a dealer) is generally significant and the ongoing requirements to service customers mean that this space self-regulates (under the guise of capitalism).

However, an aggregator can have multiple services from multiple carriers (often called tails), and we have seen aggregators who say they are selling Telstra but are actually selling Optus or AAPT. Again, there are no checks and balances to compel transparency.

Another issue is that there is no compulsion to back off service-level agreement (SLAs) or pricing from the wholesalers to the retail clients. In many cases, we have seen SLAs promised that can never be delivered because the wholesale agreement does not support such timeframes. We have also seen the promised pricing made subject to changes in wholesale rates. What usually happens is that the promised pricing creates an expectation of savings for clients. However, as soon as they are locked into a contract a wholesale pricing movement triggers a shift in pricing and this is passed down the line to the customer. Any promised saving completely disappears.

Licensees

These are organisations that can sell the product and services of a particular carrier (or carriers in some instances) under a structured legal framework (which is often a licence). These arrangements allow the benefits of the carrier itself to be flowed down to the reseller (branding, access to premium services and more). This framework most often makes the licensee in charge of its own sales, but provides all the collateral and support for sales. Also, post sales, there are structures in place for provisioning and ordering as well as support.

These licensees are remunerated on a commission structure. In the past (and still for some carriers) the commissions paid comprise an up front and ongoing component often known as airtime or trails. In recent times, some of the major carriers have taken away the trailing component and forced licensees to make all their money on each sale. This has led to behaviour which includes selling customers onto higher plans than they actually need to make money and finding loopholes in the ordering systems so that extra commissions can be gained.

All of the above organisations do not have a governing body, set of rules, or watchdog that means that most of these behaviours go unchecked and it’s no surprise to see that the Telecommunications Industry Ombudsman is fielding record complaints against telcos.

Now most of these issues are not new and exist to some extent in every industry. Greater legal and regulatory frameworks also exist in other spheres (such as the ACCC or common law). However, the industry should have a greater responsibility when selling its products and services down the line and it’s about time those who are making money off the core network and licences were held accountable.

Tony Simmons is the managing director and founder of The Full Circle Group, an independent telecommunications consultancy firm focused on Telco expense costs and management.