The Australian Competition and Consumer Commission (ACCC) is taking Telstra Corporation Ltd (ASX: TLS) to court after the ASX telco admitted to “unconscionable conduct” with regard to its selling practices.
What happened?
The consumer watchdog found that 108 consumers were sold plans by the telco that the customers didn’t understand or couldn’t afford. The customers were from an Indigenous background, with many of the customers speaking English as a second or third language.
ACCC Chair, Rod Sims, slammed the telco for its “extremely serious conduct” that “exploited social, language, literacy and cultural vulnerabilities”, with the affected customers of Telstra racking up an average of $7,400 of debt.
Why does it matter?
The exploited Telstra customers are from regional Northern Territory, South Australia, and Western Australia, where Telstra is the only telco with coverage. The customers were forced to choose Telstra over other telcos such as Optus and TPG Telecom Ltd (ASX: TPG), which merged with Vodafone Australia earlier this year.
Telstra exploited the customers as the only telco that could provide coverage to them, and took advantage of a vulnerable community whose only option is Telstra.
What happens next?
The consumer watchdog imposed a $50 million fine, although that fine will be ultimately decided by a Federal Court, so the final penalty may be more or less than $50 million.
Telstra Chair John Mullan and CEO Andrew Penn wrote in the FY20 report that “we failed to recognise that many of the customers were vulnerable” and that Telstra needs to “re-define our understanding of what responsible business looks like in the new decade”.
What does this mean for investors?
The $50 million fine represents around 2.78% of Telstra’s net income for 2020, or 0.21% of Telstra’s revenue. The Telstra share price has remained flat on news of the fine, which was announced last Thursday.
Investors should not be too concerned about the financial impact of this conduct on the share price of Telstra, however, investors should weigh the breach in ethical standards and exploitation of vulnerable communities with the financial performance of Telstra when considering the telco as an investment.
