Consumers are being offered greater choice in relation to the performance and cost of their home internet services. While a number of larger providers have rolled out their own network infrastructure in a bid to increase broadband speeds and win new customers, most retailers still rely on more established networks.

This means that most retailers purchase network access or “bandwidth” from wholesale companies, the conditions of which are subject to exhaustive wholesale agreements. 

Increasingly, wholesale providers are changing the terms of their supply contract with the retailer. For the consumer, this may mean that the conditions of their contract with the retailer are also varied, often to their detriment. Few consumers are aware of the “upstream” contract between the wholesaler and retailer and fewer still are aware of the impact it can have on their own service arrangements.

The TIO is now receiving an increasing number of complaints from broadband customers claiming that their internet service providers (ISPs) have unilaterally varied the conditions of their services.   

In varying contracts, ISPs often refer to clauses in their standard terms and conditions. These are often lengthy documents which are accessible on the company’s website.  Customers who sign up on-line must acknowledge having read them as part of the application process. Variation clauses are often worded very generally and enable an ISP to change fundamental aspects of the conditions of service, such as the level of performance and the price.

Most commonly, a unilateral variation will be either an increase in the monthly access fee or the introduction of an Acceptable Use Policy (AUP) which may restrict the speed of the connection, the volume of data downloads, or both. 
In the TIO’s experience, such changes are commonly the result of escalating wholesale costs and a reduction, at a wholesale level, in the capacity to supply services.

These changes appear to be the result of increasing wholesale/retail competition. But while most ISPs make provision in their standard terms for unilateral variations, consumers are not always informed of their rights to cancel. Where cancellation of the contract is offered, customers complain of being asked to pay cancellation fees and/or equipment costs for hardware such as modems and routers. Complaints about broadband contracts doubled in 2005/06.

A consumer’s right to cancel in circumstances of unilateral variation is recognised in the Consumer Contracts Code, developed by the industry body, the Communications Alliance. The code was drafted in recognition of the absence of guidance on unfair contract terms in federal and state legislation.

The exception is Victoria where the Fair Trading Act 1999 identifies, and renders void, terms which are potentially unfair. At this stage, none of the other states have made provision for unfair contract terms in their respective fair trading laws. The Consumer Contracts Code mirrors many of the provisions in the Victorian legislation and now represents one of the main safeguards for telecommunications customers committed to contracts.

In respect of unilateral variations, the code provides that any term which allows a supplier to amend or vary the characteristics of a fixed-term agreement to the detriment of the customer, without issuing appropriate notice and an opportunity to cancel without further cost, is deemed to be unfair. The effect is that ISPs who seek to enforce unfair terms will be required to release customers and amend the wording of their contracts.

It is the TIO’s experience, particularly among small or new ISPs, that variation clauses often do not meet the requirements of the Consumer Contracts Code. This appears to be a result of companies either not knowing of or not interpreting the code correctly, or holding the mistaken belief that variations made by an upstream provider in the wholesale arrangement can be filtered down to the individual contract with the consumer, without consequence. (See Case Notes)