The Consumer Council is concerned over the detrimental effect on consumer welfare and choice in the case of the bundled building management fees.
A crucial issue at stake is the restriction in the freedom of choice to home buyers in the need and use of Internet service.
The Council has raised a number of concerns in a study to assess the impact of this emerging trade practice on home buyers and consumers of telecom services, and recommends safeguards necessary to address the problems surfaced.
The Council is concerned that, first and foremost, such bundling arrangement effectively predetermines on behalf of individual home buyers the collective need for the use of a telecom service on the terms and conditions of one particular service provider.
All tenants, users or non-users, are irrevocably bound to pay for the service. Not to mention the fact that some tenants may be under contract to another telecom service provider.
Even with the best intention of offering an efficient service, the developers have inadvertently denied the consumers' fundamental right to choice - that should rightly be based on considerations of own particular needs and requirements, price, quality of service such as access speed and network security problems in a shared telecom service.
Secondly, the Council is concerned over the practices of some property developers in representing the provision of telecom services in their sales brochures for the information of prospective home buyers.
In a survey of 64 sales brochures on property developments, between January 2002 and August 2004, it was revealed that at least eight of the developments had not disclosed the existence of the bundled management fees for the information of prospective home buyers.
The eight were among 27 sales brochures with descriptions pertaining to the provision of telecom services of some sort.
Only three of these 27 brochures stated in no uncertain terms that the management fee will be inclusive of the Internet service charges. Nonetheless, one was less than completely candid, implying in the first place that the broadband Internet service requires no additional fee but declaring later in the brochure that the management fee in fact includes the Internet charges.
Further, only four revealed the identity of the Internet service providers while nine others were found to withhold the information despite the service providers had already been selected and engaged.
It is, therefore, not surprising that many home buyers were either unaware of such bundled fees, or paid little or no attention to the long-term consumer implications of the availability of the predetermined telecom service to them at the time of the purchase.
The Consumer Council is also deeply concerned over a "carve out case" in which the communications network area has been excluded from the estate common areas thereby requiring costs for the property owners to access the network or use alternative service provider.
By means of a lease, the property developer assigned to its associated company the right to install and operate the telecom networks in the estate for a period of 47 years at the nominal rent of $1 per year.
There was in fact express disclosure of the lease in the sales brochures, but the legal implications of the lease were apparently not understood by the purchasers at the time.
Complaints arose when it was found out that the broadband Internet services charges and the public antenna maintenance charge were bundled with the management fees for the estate. Upon the opposition by the owners' committee, the associated company subsequently agreed to levy the broadband Internet service charges only on users of its service, but persisted on bundling the public antenna maintenance charge with the management fees.
Thirdly, home buyers are advised to examine the implications of bundling on consumer welfare in terms of costs to users (the initial cost may not be higher than market rate, however, consumers should check if the service provider has unilateral power to fee increase during the contract period), quality of service (it may not reflect the diverse needs of individual residents), fairness to all telecom users (the question of cross-subsidization by other patrons of the particular telecom service provider), lengthy service contracts binding property owners, etc.
The Council believes that wider public discussion is warranted on whether broadband Internet services should be regarded as an essential service appropriate for bulk purchase on behalf of individual property owners.
Apart from telecom services, the Council is also concerned over the possibility of wider application by developers in "carving out" essential facilities which can effectively place relevant facilities and areas (of what should be common areas) out of reach of property owners.
Therefore, the government is urged to take all necessary steps, such as through imposing conditions in the land lease and issuing guidelines on the definition of common facilities and services in DMCs, to ensure fundamental protection of the rights of individual owners to have access to the essential facilities and use of common areas.
The Council sees in the emerging bundling practice a drastic shift of emphasis in the market. Instead of competing with each other for individual consumers through lower prices, higher quality services and more choices, telecom service providers will now focus on property developers and management companies to vie for the appointment as the 'pre-arranged service provider' on the basis of a somehow standardized set of service.
- To address these concerns and introduce safeguards for consumer protection, the Consumer Council has put forward a package of recommendations which includes:
- Defining "essential facilities and services" that should be provided by developers and paid for through management fees.
- Ensuring consumer choice and fair access to telecom and other services.
Ensuring transparent and responsible practice of property developers and property managers. - Enhancing consumer protection by fair competition in residential buildings.
The full report and executive summary can be found in the website of the Consumer Council.
Chairing the press conference today (September 27) are Mr. Larry KWOK, Vice-chairman of Consumer Council and Chairman of Competition Policy Committee, Dr. LO Chi-keung, Chairman of Trade Practices Committee and Mrs. CHAN WONG Shui, Chief Executive of the Consumer Council.