A doubling of complaints to the Telecommunication Industry Ombudsman (TIO) about dodgy debt collection practices over the last three months has seen the Australian Communication Authority impose strict new conditions on carriers over the way they sell off their debt.
The new conditions form part of the "Australian Communications Industry Forum C541: 2003 Credit Management Industry Code".
Under the new code, telcos are explicitly prohibited by the ACA from on-selling disputed debt and placing customers onto credit reference blacklists until the dispute is determined - a practice in which Telstra has been widely accused of engaging through struggling collection agencies Baycorp Advantage (via subsidiary Alliance Factoring) and Receivables Management Group (RMG).
“Registration of the code is timely given the recent significant increase in consumer complaints about credit in telecommunications. Complaints about credit matters to the Telecommunications Industry Ombudsman doubled in the March 2003 quarter, the largest single area of increase,” ACA chairman, Tony Shaw, said.
“The ACA will be looking for these complaint levels to fall as companies change their policies and practices in response to the industry standard set by this code.”
An ACA spokesperson, Frances Wood, confirmed that most of the complaints arose from Telstra's recent $580 million sell-off of debt to Baycorp ($300 million) and RMG ($280 million).
While Wood refused to comment on whether Telstra's sale of the debt was related to the imposition of new code, she did confirm that Telstra would have been aware of the regulatory changes.
Sentiment from market analysts is that both companies overpaid and overestimated the rate of return on the acquired debt, which now appears to be infested with errors, duplications and disputes from billing system problems stretching back five years. Telstra, Baycorp and RMG have all steadfastly refused to divulge any rate of billing system error or disputation carried through onto sold-on debt books.
Last week, Baycorp announced a further write down of the book value of its debt ledger to the tune of $4.6 million.
It said: "The initial recovery profile of this purchased debt ledger has not met expectations and accordingly a write-down has been recorded. This reduces the carrying value of the ledger to its expected net present value, based on actual performance to date and revised forecasts".
The company has also stated the write-off of a CRM system as part of a separate $5 million asset write-down, although this is believed to be the result of a merger with Data Advantage.
General manager of Baycorp's Receivables Management Division, David Fleming, has since quit for personal reasons, following closely in the footsteps of CFO Tim Wilson, who resigned suddenly in May – also for personal reasons.
IDG understands that June has seen complaints levels to the TIO regarding telco debt recovery remain similar to those in May - with little sign of abatement in the near future.