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1. What is mis-selling?

A competitive market for fixed-line telecoms increasingly offers UK consumers lower prices and more choice. Competing services are offered to customers via a number of different marketing channels, including direct mail, telesales, and doorstep selling. However, there is also the potential, under certain circumstances, for abuse of these channels.

The term mis-selling describes a range of sales and marketing activities which are not fully transparent and / or are intended to mislead and therefore work against consumers' interests. In particular mis-selling includes so-called slamming, where consumers are switched from one supplier to another without their knowledge and consent.

2. How does Ofcom’s regulation combat this problem?

On 13 April 2005 Ofcom announced measures to increase consumer protection from mis-selling in fixed-line telecoms services. See news release at:

http://www.ofcom.org.uk/media/news/2005/04/nr_20050413

After an extensive public consultation which began on 29 April 2004, Ofcom concluded, in line with a majority of responses to the consultation, that the existing voluntary guidelines on sales and marketing should become mandatory for the next two years. All fixed-line service providers will be required to draw up Codes of Practice consistent with the guidelines and comply with them.

Mandatory Codes of Practice on sales and marketing will provide Ofcom with effective powers to take action against companies who are found to engage in irresponsible sales and marketing practices.

Ofcom will investigate allegations of mis-selling on a case by case basis, in line with its published complaints and disputes guidelines.

Ofcom's enforcement powers will include securing written undertakings from companies about their sales and marketing practices, and ultimately the power to fine companies up to 10 per cent of turnover.

The obligations came into effect on 26 May 2005.

3. Why are the changes being introduced for a two year period? Does Ofcom expect the problem of mis-selling to have disappeared in two years time?

In proposing a sunset clause, Ofcom has had regard to its regulatory principles and, in particular, its bias against intervention and evidence-based decision-making.

In light of this, Ofcom believes that the requirement upon Communications Providers to establish, and comply with, codes of practice should be a short-term interim measure aimed at preventing mis-selling of fixed-line telecoms services, during the continuing rollout of CPS and WLR.

As service provider competition becomes more established over the next two years, Ofcom believes that the requirement should be replaced by self-regulatory mechanisms.

Ofcom would, however, expect that there would be a concerted effort by the industry to address the issue of mis-selling during the relevant two-year period. Ofcom would reinstate the requirement should there be a positive need to do so.

4. Why has Ofcom increased regulation in this area?

Following the consultation process, Ofcom decided that the measures in place did not create sufficient incentives upon all Communications Providers to improve performance and follow best practice in this area.

Ofcom considered that without action, there was a risk that consumers could lose confidence in the switching process, which would have a detrimental effect on competition.

Therefore Ofcom believed that further measures were needed.

Ofcom does not consider that requiring Communications Providers to establish, and comply with, codes of practice for sales and marketing consistent with published guidelines, should represent an unnecessary regulatory burden. The guidelines were originally published in early 2003 following extensive consultation with stakeholders.

The majority of responsible Communications Providers will already be following these guidelines, which aim to secure best practice in the area of sales and marketing of fixed-line telecoms services. Accordingly, any costs would only be borne by those Providers who do not currently follow these guidelines.

5. Does this mean that Ofcom considers that mis-selling is a serious problem?

Ofcom’s view is that the balance of evidence suggests that mis-selling of fixed-line telecoms services is a problem at present, and that this, together with the risks to consumers should mis-selling grow as a problem, supports the introduction of additional regulatory safeguards.

Between 500 and 600 consumers currently contact Ofcom each month to complain about mis-selling and/or slamming. Ofcom considers that this volume of customers contacting us directly is too high, and we would expect to see these volumes substantially reduced before we could accept the argument that no further safeguards were required.

6. BT suggests that mis-selling is currently in the region of 15,000 customers each month? Does Ofcom accept this figure?

No. Over the last year, the use of this data by BT to indicate the extent of mis-selling by service providers has generated considerable concern and debate by the industry who have queried the extent to which it accurately reflects mis-selling.

As a result, Ofcom decided to commission research into BT’s data. These findings were published by Ofcom on 13 April 2005 as well, and show that BT’s data does not necessarily give an accurate reflection of levels of mis-selling.

Analysis of the data in 220 cases investigated, including using recordings and transcripts from the gaining provider, showed that mis-selling had only occurred in 53% of those cases. Many incidents which appeared to be mis-selling based on the calls to BT, were, in fact, legitimate trades when evidence from the gaining provider was taken into account.

7. What other consumer safeguards are there in this area?

There are a number of safeguards which have been put in place to protect consumers from mis-selling and, more specifically, slamming of fixed-line telecoms services.

There is an industry-agreed transfer process that includes a ten-day switchover period before a customer’s order can be activated, and the customer switched. During this time the customer should receive two letters – one from the losing provider and one from the gaining provider – notifying the customer of the details of the transfer. This process is intended to ensure that customers should not be transferred without their express knowledge and consent.

There is a telephony consumer guide, Promoting competition in fixed-line services: a customer guide to using different phone companies for your line and phone calls. This guide aims to ensure that customers are adequately informed about the nature of these services.

Ofcom monitors complaints data and meets with those individual Communications Providers who, on the basis of Ofcom’s complaints data and data from BT about the number of alleged selling issues, appear to be causing most problems in respect of their sales and marketing activities.

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