You work as the head of Legal Compliance for major Australian telecom company Virgo.

Virgo offers the latest mobile phones either for outright purchase or on a plan via its

network services in competition with major Australian providers like Telstra and Optus.

Virgo has decided that it will manufacture its own phone and offer it, together with the

usual competitor brands it offers, for either outright purchase or on a contract plan.

At the monthly management meeting, Virgo's head of Research & Development, Corey

Ander, announces that the new phone the company has been working on is now ready for

production. The phone is to be called the 'EyePhone'. It has a simar look to the latest

phones of Virgo's competitors but, as Corey says, "They all look the same these days".

The EyePhone will be sold at Virgo's stores throughout Australia and will be displayed next

to the latest iPhone and Samsung phones. The price for the EyePhone will be $1,500

outright. This is slightly more expensive than competitor prices despite the EyePhone having

much poorer specifications. The EyePhone costs about $100 each to produce.

Virgo's head of Sales, Bill Moore, states that the high price is intentional. The high outright

price might generate an impression that the EyePhone is comparable to the top phones in

terms of quality even though Virgo will be careful never to state that the quality is similar.

Bill says that Virgo aims to entice customers to take up the EyePhone by offering an

unbeatable contract. Virgo will offer the EyePhone for free on a two year contract for $30

per month which includes unlimited national calls, text messages and 10GB of data per

month. This plan is so cheap that it beats its nearest rivals by far. Customers should literally

be falling over themselves to secure this plan.

Always worried about money, Virgo's Accountant Laura Norder asks Bill how Virgo can

afford to offer such a cheap plan and a free phone. Bill replies that because of the new

terms they want to put into their standard contracts, customers will end up paying a lot

more than $30 per month. He explains that Virgo will be updating their standard contracts

to include the following terms:

1.

Plans can only be paid by monthly direct debit from the customer's bank or credit

card account;

2.

Customers cannot cancel their contract before the two year term has expired. If

they do, they agree that Virgo can take from their account the monthly fees for the

remainder of the contract and the upfront price of $1,500 for the phone;

3.

Customers who exceed their 10GB of data will be charged at a rate twice as high as

even the most expensive competitor;

4.

The Customer agrees that Virgo can, at its discretion, increase the monthly plan price

on individual plans by $5 per month every 3 months without notice.3

Bill believes that most customers will simply sign the contract without reading it, as most

customers tend to do. However, Bill intends to raise the monthly price by $5 every 3

months for existing customers, i.e. new customers will still sign up at $30 per month and

then receive the increases every three months thereafter, like other existing customers.

Virgo's Production manager Jack Hammer then raises an issue with the group. He says that

road access to the factory, where the EyePhone is manufactured, may be impacted by major

government roadworks and that in 6 months' time, there may be a period of 6 months

during which all road access will be impossible and the factory will not be able to operate.

The factory is actually on premises rented by Virgo for 5 years and Virgo has occupied the

premises for only 1 year so far. Virgo is building its own factory on land it owns in order to

ramp up production in the near future, but this factory will only be operational a year from