First Principles Research and Expression

Robin Whittle
11 Miller St Heidelberg Heights 3081 Melbourne Australia
Ph +61 3 9459 2889 Fax +61 3 9458 1736

Thursday 24 June 1999

To Mr JP O’Neill
Senior Assistant Commissioner
Adjudication Branch
Australian Competition and Consumer Commission
PO Box 1199 Dickson ACT 2602

Dear Mr O’Neill,

Thankyou for providing the consumer and privacy advocates with this three week opportunity to comment on the ACCC's draft determination on ADMA's application for registration of their code of conduct. This opportunity to comment, and your organisation's supportive and open approach to the concerns of advocates in the pre-decision conference are very much appreciated and are vital methods by which the true worth of this proposed code can be established. The advocates seek genuine improvement in consumer outcomes. We are not a particularly argumentative or obstructive group of people. We give credit where it is due and would support ADMA's code overall if we thought it would benefit consumers.

It is a matter of great frustration and concern that most of the dozen or more major problems identified with ADMA's code remain in the amended version the ACCC is currently planning to authorise.

I am left wondering what further breadth and depth of criticism from consumer advocates, what greater degrees dishonesty and recalcitrance by ADMA, and what higher levels of incompetent drafting and consumer detriment in the code itself would be required in order for the ACCC to actually reject this code.

Following some informal inquiries, I understand that the ACCC receives relatively few applications to register a code such as this, and that in the past your organisation's response has always been to approve those codes, often with minor amendments. It seems then that the extent of the amendments required to make ADMA's code pass muster is comparatively high, and is probably unprecedented. This, I am sure, is because the ACCC has never before been asked to approve such a code so deficient as ADMA's.

ADMA's code is an amateurish document.

It was devised in secret, but falsely represented as being the product of negotiation with consumer and privacy advocates.

It concerns three areas which fall under a modern definition of "direct marketing":

1 - Direct postal mail.

2 - Outbound telemarketing.

3 - "Electronic commerce" – including mass "SPAM" unsolicited commercial email.

(It does not cover door-to-door sales, or multi-level-marketing – which are also long established forms of direct marketing, although not of distance selling.)

ADMA's membership is primarily involved in direct postal mail. Few members are involved in outbound telemarketing or electronic commerce. No other organisation better represents Australian direct mail marketers than ADMA. One organisation (Teleservices Australia, previously the Australian Telemarketing and Call Centre Association) clearly represents a far greater proportion of outbound telemarketers than ADMA and is far more active and focused in this field than ADMA could ever be. The field of electronic commerce is young, yet a number of other organisations are already more representative of businesses involved in electronic commerce than ADMA.

The ACCC's initial positive response (the first draft determination in October last year) to ADMA's proposal was immediately recognised by the advocates as the result of a poorly informed, uncritical, "rubber-stamp" approval process. The fact that the new (3 June) draft determination is very different proves as much. Our response to that first draft was a concerted effort of constructive criticism of the code, of that first draft determination and of the ACCC's apparent involvement in promoting and/or launching the code. We were confident that by alerting the ACCC to the numerous serious failings in the code, and to ADMA's undeniably anti-consumer intentions, that your organisation would not approve the code in anything like its original form.

The new draft determination is a great disappointment to us all. Again we are forced to plead with your organisation firstly to see the importance of the glaring faults with the code, many of which have already been acknowledged in discussions and/or in the new draft determination – such as its support of open-slather telemarketing with an opt-out scheme which no privacy-valuing person could use. Secondly we have to ask you explicitly to take the decisive action of complete or partial rejection, which is the only way of protecting the public from the damage to privacy which ACCC approval would cause. Regrettably, such a rejection implies that in this particular instance the process of industry-based codes of conduct has been a complete or partial failure. This is an unfortunate fact, and it is no reflection on the ACCC, the legislative and government support for such codes, or on other codes and other industries. Responsibility for the failings in this particular code rests entirely with ADMA.

It may seem that by working over many months to gain ADMA's agreement to a number of valuable amendments, that the ACCC is fulfilling its responsibilities. This would be true if the result was a code which could be expected to give rise to whatever positive level of public benefit was deemed necessary to justify its anti-competitive effects. However the amendments are only a band-aid solution to a problem which really requires major surgery. The advocates I communicate with are adamant that the revised code will result in a high level of net public detriment if approved as your organisation currently proposes.

The number of amendments may be high compared to previous ACCC experience in this field, but it is low compared to the number of amendments which would be required to ensure that this code would achieve net consumer benefit in each of the three fields of direct mail, telemarketing and electronic commerce. (This is assuming that the organisation implementing the code had a genuine interest in positive consumer outcomes. However ADMA's actions have shown time and again that its primary purpose is to minimise regulatory pressure on its members, without genuine concern for the interests of consumers. Formulating a code which would coerce such an unwilling organisation into actions which lead to substantial consumer benefit is a difficult task indeed.)

The ACCC has been altogether too polite and/or naive in responding ADMA's application – both in the initial draft determination (October 1998) and in this June 1999 version. This is a situation which calls not for minor amendments but for decisive action: rejection of the entire code, or rejection of the two areas which would give rise to net public detriment.

ADMA's actions in secretly developing this code and seeking ACCC approval proves that it seeks to gain approval for a code which minimises consumer protection.

The code itself has numerous glaring deficiencies, far beyond the level explicable by incompetence. This proves beyond a shadow of doubt that ADMA's aim is to gain ACCC approval for a code which minimises consumer protection.

ADMA's extraordinary recalcitrant attitude at the end of the pre-decision conference – refusing to acknowledge any deficiency in the code, and demanded the ACCC accept it without modification – after listening to two-and-a-half hours of detailed and constructive criticism of virtually every aspect of the code, proves again that ADMA's seeks approval for a code which minimises consumer protection.

I think that this is a new experience for the ACCC. Normally, your organisation is probably correct in assuming that industry organisations have a significant interest in the public good, although perhaps somewhat diluted and imperfectly attuned. Normally, the ACCC can achieve the best outcome via negotiation and minor improvements to the proposed code.

Perhaps advocates too have been overly polite about this code and about the ACCC's response to it. We too like to avoid unpleasantness and flat rejection. Although we were horrified at the ACCC's October draft determination, we were greatly encouraged by the pre-decision conference. Now, seven months later, we again consider the ACCC's new draft determination to be completely inadequate, but we are greatly encouraged by this three week opportunity to comment on it.

The ADMA code was and remains an incompetently drafted, deeply cynical document.

I believe the ACCC's initial response should have been to identify some of the most obvious problems which the advocates have identified, and to inform ADMA that their code stands no chance of passing the test of producing a minimum net positive public benefit, and that therefore they should correct the most obvious deficiencies (for instance the absence of any opt-out scheme for telemarketing, direct mail and mass email) before formally submitting the code for approval. The ACCC might also have informally suggested that ADMA work with consumer advocates to refine the code and maximise its consumer benefit in order to improve the chances of the ACCC being able to approve it.

Instead, the ACCC initially gave ADMA's code a rubber stamp of approval – subject to a pre-decision conference and the extensive written submissions which preceded the conference.

So by December last year, with the benefit of that conference and the submissions, your organisation should have been able to form a comprehensive understanding of the deficiencies of ADMA's code.

That understanding should properly only have lead to one of two decisions. Either:

1 - Declining to approve the entire code, because the ACCC accepts the many detailed arguments of the advocates that approval would cause net public detriment – and so could never possibly meet the statutory requirements for some positive level of public benefit.


2 - The ACCC accepts the many detailed arguments of the advocates about net public detriment in the fields of telemarketing and electronic commerce, notes the relative lack of criticism in respect of the direct mail provisions, notes ADMA's high coverage in direct mail and the lack of any other industry organisation in this field, and then – subject to the many needed improvements in the code provisions, enforcement and review – grants approval to only the direct mail sections of this code.

From December onwards your organisation has had plenty of time to read all the submissions and reflect on the verbal submissions in the pre-decision conference. Having done so, it is unthinkable that approval could be given to ADMA's grossly deficient code provisions for telemarketing and electronic commerce.

It should have been a straightforward decision between the two above options. A decision which could easily have been delivered, as promised, before Christmas last year.

For some reason the ACCC soldiered on trying to find a way of approving this code with a few band-aid amendments. For some reason, this took five more months.

The amendments listed in the new draft determination are all improvements over ADMA's original code. Most of them are corrections to the incompetent drafting and design of code while the rest correct a few of ADMA's direct attempts to minimise benefits for consumers.

I believe it is a waste of taxpayers money for the ACCC to be dragging an unwilling industry organisation through the process of improving on its own incompetent drafting. ADMA's code should simply have been rejected entirely or in all respects other than direct mail, both because of its manifestly inadequate provisions and of its amateurish, inconsistent drafting.

Early this year, the ACCC became aware of code development processes in industry organisations with far better coverage of the telemarketing and electronic commerce fields than ADMA could ever achieve. The already bulletproof arguments for rejecting these aspects of ADMA's code thus gained another simple and incontrovertible facet: approval of ADMA's code (irrespective of whether its provisions were effective or not) would undermine the development of codes by the most appropriate and representative industry bodies in the fields of telemarketing and e-commerce.

Now, in late June, seven months after the pre-decision conference, nearly ten months after ADMA's initial application, and after eight months of criticism of the code and the ACCC's response to it by consumer advocates, the ACCC is proposing to approve ADMA's code, with a few tax-payer funded corrections. It would be an appalling outcome if such approval is in fact granted. It would be an outcome which defies explanation if one assumes that the ACCC is above corruption and has both the intellectual capacity and the courage to carry out its statutory obligations.

The ACCC is widely respected for wise, swift and demonstrative action in many of the fields of competition policy and consumer protection which it is responsible for. This ADMA code episode to date has been a striking exception to this pattern of success.

I have no reason to believe that corruption is an issue with the ACCC, although I note that ADMA is extremely effective at "lobbying" – claiming that it played a role in the cancellation of federal privacy legislation for the corporate sector. So their persuasive powers in Canberra are clearly highly developed.

The key ACCC officers working on this application certainly do posses the intellectual capacity and motivation to comprehend all the written and spoken criticisms of ADMA's code. Their conduct and questions during the conference shows that senior ACCC staff are perfectly capable of insightful understanding and questioning of all the issues raised. Indeed this June draft determination acknowledges quite a few of the fundamental problems which the advocates identified with ADMA's code.

What seems to be lacking is the fortitude or the courage to carry out the unpleasant task of rejecting ADMA's code – entirely, or at least rejecting its telemarketing and electronic commerce provisions. This is not a matter, as noted in the June draft determination, of designing or insisting upon the development of an ideal Code of Practice. Rejection of the entire code or of its telemarketing and e-commerce provisions is simply a matter of deciding that the entire code, or its divisions C and D, are incapable of delivering net public benefits if approved by the ACCC.

The only way I can understand this unwillingness or inability to make this straightforward decision is that the ACCC staff concerned have never had to deal with such a stinker of a code before. Other sections of the ACCC are well versed in the rogue elements of small and large businesses. Here, in the Australian Direct Marketing Association and its code, we have a text-book example of an anti-consumer code, developed in secrecy, being pushed through the regulatory process in order to get ADMA members "off-the-hook" in respect of federal privacy legislation and to gain government approval for their exploitative business practices.

An analogy would be an inexperienced school-teacher's first confrontation with a seriously destructive child – a child who's behaviour it is the teacher's responsibility to curtail for the protection of others. Previous experiences with relatively normal children encouraged the teacher to think that a little chat and some encouragement would be the most productive approach. Wary of damaging the child's self esteem, and lacking confidence to impose the sanctions which are so clearly required, the teacher repeats the only approach they know, the mild-mannered conciliatory approach, albeit a little more vigorously.

So over six months after the ACCC was fully informed of the many inadequacies of this code and was shown in many ways how approval would lead to net public detriment, we tax-payers and advocates find the ACCC is still lacking the confidence to do its statutory duty: to reject this code entirely or to approve only its direct mail provisions subject to extensive amendments regarding code administration and review.

The ACCC should step beyond any shyness about being characterised as "obstructive bureaucrats". Not a thought should be spared for the effects of this seemingly harsh rejection on the self-esteem of ADMA's leadership and membership.

I urge the ACCC officers involved in this case to consider how ineffectual and inadequate the current draft determination is. Yes it is a great improvement from the rubber stamp of October. Yes it may be the most detailed and critical code determination the ACCC has have ever written, with the most amendments ever negotiated with an industry organisation. But it still fails, at least in respect of telemarketing and e-commerce, to achieve the ACCC's statutory obligation to approve codes with at least some positive level of net public benefit.

It would be tiresome to revisit the many previously identified failings in ADMA's code. Nor will I comment in detail on this new draft determination. It contains significant improvements to ADMA's code, and other advocates will no-doubt discuss these and suggest further improvements.

ADMA has minimal coverage in the field of telemarketing. Its proposed in-house opt-out scheme for telemarketing is completely at odds with some principles which have been firmly established:

1 - It is unreasonable for consumers to have to register with an opt-out body in order to ensure that their privacy remains intact.

2 - It is unreasonable to expect consumers to have to take any opt-out action every time they adopt a new method of communication (telephone, email, ICQ etc.)

3 - An effective opt-out scheme for telemarketing will soon grow to include the majority of the population. So the costs of such a scheme would be higher than an opt-in scheme.

4 - ADMA states that its members pride themselves on the targeted nature of their communications and on their desire to respect consumer privacy and preferences. Therefore ADMA members should be required (by law or by any code of conduct) to gain prior approval by non-intrusive means for any form of intrusive communication.

5 - The only acceptable form of opt-out scheme is one administered by an independent, privacy-audited body or company (for instance: ) – in the form of a secure database which is used to filter mailing and calling lists supplied by marketers. This is the only way of ensuring that personal details of those who opt-out are not divulged to marketers.

6 - ADMA's proposed in-house opt-out scheme, in accordance with the ACCC's amendments, is completely unusable for any individual who values their privacy, especially those 15 to 20% of residential telephone customers who have unlisted telephone numbers. It involves ADMA collecting phone numbers, addresses and/or email addresses, each linked with the name of an individual or household. That list would then be distributed to all ADMA members where it would be completely impossible to prevent the misuse and transferral of that data to other companies and individuals, including criminals.

The ACCC knows from ADMA's own research that at least 70% of the population do not want to receive any telemarketing calls at all. To continue with the proposed approval for ADMA's code in respect of telemarketing would lead to direct and massive consumer detriment and so would constitute a dereliction of the ACCC's statutory duty and of its generalised duty to protect the public.

ADMA's claims to expertise and coverage of electronic commerce are laughable. The e-commerce provisions of its code are an incompetent shadow of what a proper code would contain. ADMA's web site is a shambles – it is poorly organised, slow to load, hard to navigate and completely unwelcoming to consumers. No public material has changed on the site since November 1998. ADMA's web version of their code does not contain its footnotes or the amendments for a "Don't call or mail" scheme. It has been left to me to provide a complete, properly laid out version of the code for the public. ADMA still has no publicly available email address.

It would be a dereliction of the ACCC's statutory duty to approve ADMA's code in respect of electronic commerce, because such approval would lead to significant direct net public detriment.

Should the ACCC proceed along the currently contemplated path of approving the ADMA code in all three areas, with the proposed amendments, then this failure of duty would be demonstrable to anyone who inquired into the matter, including a court. All the arguments are fully documented and on the public record, and the current draft determination acknowledges quite a few of them, but fails to heed them.

The arguments are so strong and so numerous – proving that ACCC approval for ADMA's code as it stands will lead to net public detriment – that I cannot imagine how the ACCC could follow this path, now that it has availed itself of feedback from the consumer and privacy advocates.

Yours sincerely

Robin Whittle