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To Mr JP O'Neill
Senior Assistant Commissioner
Australian Competition and Consumer Commission
Dear Mr O'Neill,
Thankyou for the opportunity to make final comments on ADMA's application for the ACCC to approve its code of practice. Thanks also for pre-decision conference, which provided advocates with a good opportunity to talk about our major concerns with ADMA's code, and about our concerns about the ACCC's handling of the matter prior to that conference.
It would be tiresome and redundant for me to re-iterate all the shortcomings in ADMA's code which have already been documented and discussed. I believe that even if only a fraction of those concerns were were accepted as valid by the ACCC, then the code proposal should not be approved, because of the net public detriment which would result if the code did receive government approval.
My final comments concern:
The second matter concerns ADMA's suitability, as the organisation is currently managed, to be entrusted with administering a code which is supposed to protect consumers. The ACCC needs to consider this since the interpretation, promotion, administration and enforcement of the code can only be as good as the principles and practices of the sponsoring organisation.
Intrusive, costly, burdensome, distracting and upsetting electronic communications have for too long remained a hot potato which no government or government agency has yet taken responsibility for regulating. This is despite the pervasive nature of outbound telemarketing - and the almost universal expectation amongst people targeted (at home and at work) that the government should regulate these activities, since the telephone network is not sophisticated enough to allow any form of self-defense.
ADMA's code is purportedly intended to protect the public. If it did, consumer advocates would be full of praise for it - but our condemnation of most of the code's provisions and enforcement arrangements have been unanimous and comprehensive.
The ACCC has a crucial role to play at this point in time. If this code is deemed to be genuinely protective of the public, then it should be approved - but only after every effort has been made to maximise its protective nature. This is not an option at present, because this code, if approved, would clearly cause massive detriment to the pubic, and because ADMA has refused to improve the code in any way except those amendments required by the ACCC.
The current code and ADMA's intransigence in refusing to improve the code and discuss the code with consumer representatives means that this proposal cannot be satisfactorily improved with a few amendments. The only course of action compatible with the ACCC's responsibility to protect the public (both businesses and consumers) is to reject ADMA's application.
The only code which should be approved by the ACCC in this or any other
field is one which has the widespread support of consumer advocates.
While it is possible that such a code might arise purely from the work
of an industry body, ADMA's clumsy, secretive and deceptive development
of this code shows that it is completely incapable of generating on its
own a code which will properly protect consumers. ADMA should work
with consumer bodies (and business bodies, for businesses need to be protected
too) to arrive at a code which genuinely protects those who are affected
by direct marketing practices. Only when ADMA approaches the ACCC
with a code developed in such a way, and when the code is supported by
the majority of consumer bodies, can the ACCC be confident that the code
is the best possible means of protecting the public.
The primary form of anti-competitive impact of an enforceable code occurs if a company is expelled from the Association. This has two direct impacts on that company's ability to compete: the loss of public credibility and other possible benefits of being a member of the Association, and more seriously that company being prevented from dealing with Association members. The secondary impact is that the code itself, with the threat of sanctions such as fines or expulsion, restricts the range of activities a member company may pursue, arguably limiting innovation and so stifling competition to provide services which would be welcomed by consumers.
These processes are common to any enforceable code, and are potentially highly anti-competitive - assuming that the code is enforced vigorously. Of course if the code is not properly enforced in a way which restricts the business opportunities of non-complying participants then its anti-competitive impact is lessened - and so is its public benefit.
There are unique anti-competitive aspects to the business practice of direct marketing. (It is not really an "industry".) These anti-competitive processes follow a very different pattern to those just described: they concern the cost burdens placed on businesses by being targeted, against their will, by direct marketers. My first set of comments to the ACCC explored this in some detail - including tying up telecommunications services, the costs of receiving emails and faxes, and most importantly the staff time wasted and the disruption to work and concentration caused by direct marketing approaches by telephone, email and door-to-door salespeople. Direct mail may be added to this list, but personally, I find direct mail to be easy to identify and throw away without stress or distraction - and direct mail catalogues, brochures and samples can be highly valuable when properly targeted.
Most business have a sign on their front door such as "Absolutely No Hawkers!". This is to reduce the lost time and disruption of door-to-door direct marketing. Businesses rightfully expect the government and/or the telecommunications carriers to develop an effective method for achieving the equivalent of the "Absolutely No Hawkers" sign for all their telephone numbers. However the government has been lax and the carriers earn good money from the millions of typically short calls of outbound telemarketers. Consequently businesses are currently defenseless and their staff are regularly distracted from productive work by direct marketers.
Telemarketing currently occurs in a regulatory vacuum. It is neither prevented nor approved by government legislation or any other form of regulation. Many people cannot understand why the government has been so tardy in preventing this systematic privacy intrusion and burden on businesses. The danger in this ADMA code is that it would place outbound telemarketing (and mass commercial email) in a positive regulatory framework - contrary to the wishes of the great majority of the public. Rather than the government outlawing such systematic abuse of people's telecommunications services and intrusion into their homes and businesses, there would be a government approved document saying it is acceptable for businesses, charities and businesses licensing the names of charities to call people, at home and at work 362 days a year 8AM to 9PM. This is exactly what ADMA is seeking - the ability to say to aggrieved consumers and their representative organisations, that this unfair and burdensome form of marketing (which ADMA, on its web site, cheerily calls "Home Shopping") is government approved.
ACCC approval of ADMA's code would constitute government approval for ADMA members - and by implication non-members - to systematically engage in intrusive marketing practices which cost virtually all Australian businesses significantly in terms of lost productivity. This facet of ADMA's code is probably not one which the ACCC has had to consider before in terms of it being an anti-competitive, unfair burden, free-rider effect on businesses who do not consent to being targeted by intrusive direct marketing. Its difficult to place a figure on the costs to businesses - but collectively it would be millions of dollars per year. Meanwhile, outbound telemarketing has no benefits whatsoever for those targeted compared to non-intrusive forms of marketing backed up with a free-call number.
It would be extraordinary for the ACCC to approve a code of practice
which allows competitors in one market (the competition between sellers
and fundsraising operations for sales and donations) to burden participants
in every other market (all other forms of business) with substantial and
This is a criticism of ADMA as the organisation is currently managed - not of ADMA members in general. Many ADMA member companies are businesses of high integrity, and most of them are probably not involved in privacy-invasive practices such as the systematic outbound telemarketing of homes and businesses. I believe the official stance of ADMA reflects the short-sighted, exploitative and manipulative business practices of an unprincipled subset of the organisation's membership. Direct marketing, if properly conducted (without intrusive communications), has some unique benefits for the public - such as informative printed catalogues being mailed to those who are interested in them. In the long term society will not tolerate systematic privacy invasion and other exploitative practices.
A primary purpose of having a government is to systematically protect the public from threats they cannot protect themselves from individually. Intrusive communications and privacy-threatening misuse of personal information are perfect examples of fields in which governments have a responsibility to regulate, because this is the only available means of controlling such activities.
Even if ADMA were, at present, an organisation of the highest integrity and if the organisation was recognised as such by a broad cross-section of consumer advocates, then the arguments against the code being approved by the ACCC would still be overwhelming. The code is badly written, offers no effective protection against telemarketing, offers minimal benefits to direct-mail customers and could not possibly form the basis of any meaningful industry self-regulation for electronic commerce. The restrictive nature of the code's definition of direct marketing restricts it to only a subset of what the public regards as direct marketing and likewise to a subset of the activities of ADMA members. The shortcomings of the code compliance arrangements and the inadequate involvement of individual consumers and consumer organisations in its enforcement have been well documented by other advocates.
Criticism of the integrity of ADMA may seem redundant, since even an organisation with the best intentions and resources would not be capable of genuinely protecting the public against the problems of direct marketing with the code as it stands with the proposed amendments as suggested by the ACCC.
Nonetheless, the integrity of ADMA is an important question which has so far received little attention.
For a code such as this to be effective in protecting consumers, the organisation which is responsible for it needs to have a genuine interest in protecting the privacy of all members of the public, and in protecting them from other problems which arise from inappropriate direct marketing.
The points I will explore are:
In their "ADMA Highlights" page entitled "Protecting Members from Unnecessary Government Regulation" and "Addressing threat to database marketing" is the following text (with my boldface for emphasis):
When the Federal Government proposed strict data protection laws for the private sector, ADMA prepared a major submission on behalf of the industry, drawing on current DM practices and laws from throughout the world. After reviewing ADMA’s and other comments, Prime Minister John Howard withdrew the proposed legislation. ADMA, both before and after the announcement, represented the industry to the media and at numerous public forums and conferences.
Whether or not ADMA's actions actually influenced the Prime Minister is not the point. The key issue is that ADMA is proud of its apparent contribution to a decision which consumer advocates unanimously agree has been the greatest blow to Australian privacy protection in recent years.
Point 2 concerns ADMA's secret development of the code. If ADMA had been interested in protecting privacy or other aspects of the interests of consumers, then the organisation would have discussed the proposed code with advocates. Nothing of the sort happened. ADMA developed the code by a cut-and-paste method from various pre-existing documents which it argued - generally falsely - were the product of genuine consumer consultation. ADMA applied to the ACCC for approval and the ACCC produced its initial positive assessment before a single consumer advocate knew what was happening. Given this course of events, it is impossible to sustain an argument that in late October 1998, ADMA genuinely wished to protect the interests of consumers. ADMA's secretive actions were clearly intended to catch advocates off-guard, and so minimise critical input to the ACCC authorisation process.
Point 3 concerns a similar issue - the claims that consumer representatives had been consulted in the development of the code. Mr Chris Connolly has comprehensively documented the falseness of these claims. Similarly ADMA's claims about the code being "tough" have no credibility in the light of the many criticisms from consumer advocates. If ADMA had been genuinely interested in working with consumer groups, then it would not have deliberately and dishonestly stated that these consumer organisations had contributed to the development of the code.
Point 4 concerns the fact that ADMA's approach to this matter has not changed at all from the pattern of isolation, manipulation and intransigence which characterised the period leading up to the application to the ACCC. The public availability of detailed, constructive and carefully considered criticisms of the code (from the ACCC and my web site) gave ADMA a perfect opportunity to suggest improvements to the code and/or to make contact with advocates in an effort to work towards a code which would genuinely protect consumers. Similarly, at the pre-decision conference, after two-and-a-half hours of criticism of the code, ADMA had the opportunity to admit that there were shortcomings which should be rectified, and to offer to work with advocates on improving the code. If ADMA's representatives at the conference had had any interest in maximising the benefit for consumers, then they would certainly have admitted some shortcomings with the code (such as the obvious and debilitatingly narrow definition of direct marketing, and so the scope of the code). They didn't. This proves beyond any doubt whatsoever that ADMA has no interest in this code genuinely protecting consumers.
Instead, the ADMA representatives stated that criticism of the code was motivated by some other agenda than the protection of consumers and their privacy, and told the ACCC that the code should be approved, based on the narrow, perhaps legalistic, position that there was public-benefit in the code and that it outweighed what they asserted was a minimal anti-competitive impact. In doing so, they misconstrued the position of advocates - stating that all of us agreed that the code (if approved by the ACCC) had at least some public benefit. In fact, I and many other advocates believe that the net effect of ACCC approval of this code would cause great detriment to the public - since this would constitute government approval of privacy intrusive marketing approaches which the great majority of the public find completely unacceptable.
On page 8 of the ACCC's notes on the pre-decision conference, the words "continue to engage in discussion" are attributed to ADMA. (Fifth dot-point.) I do not recall a statement to this effect. ADMA has not discussed this code with consumer representatives at all. ADMA's representatives showed no interest in the offers made during the conference by advocates to work on refining the code, for instance on such basic matters as the definition of direct marketing - which as currently drafted greatly restricts the scope of the entire code.
Considering all these points, it is clear that ADMA:
This code really is a worst case situation. It is, I believe, the product of selfishness, incompetence and contempt for consumers. It has been created and presented to the ACCC with the intention of legitimising some of the worst privacy abuses of direct marketing, of giving ADMA a claimed stake in the regulation of electronic commerce (which is extraordinary for an organisation which has no email address), and of quarantining the direct marketing field from any future Federal privacy legislation which makes exemptions for industries with ACCC approved codes.
This code and the approach of ADMA to date has been a cynical exercise in presenting a shallow and badly-drafted document, claiming it is genuinely for the public benefit, ignoring all attempts at improving at and finally arguing on a narrow and false basis that the ACCC must accept it as it stands.
There is no basis on which the ACCC can be confident that net public
benefit would result from authorisation of ADMA's code. The list
of problems with the code is so overwhelming, and the attitude of ADMA
is so clearly antagonistic to the welfare of the public, that I cannot
imagine how the ACCC could approve it.