Own-initiative investigation into Continental Telecom LTD - adherence to its Code of Practice governing sales and marketing,

18 May 2011

Complainant: Ofcom own-initiative investigation
Investigation against: Continental Telecom LTD ("Continental Telecom")
Case opened: 15 February 2010
Investigation closed: 15 June 2010
Case closed: 18 May 2011
Issue: Continental Telecom's compliance with General Condition 1.2, 13, 14.5 and 24 of the General Conditions of Entitlement, as well as compliance with the Unfair Terms in Consumer Contracts Regulations 1999.
Relevant instrument: General Conditions 14.5 ("GC14.5"), 1.2 ("GC1.2"), 13 ("GC13"), 24 ("GC24") of the General Conditions of Entitlement, and the Unfair Terms in Consumer Contracts Regulations 1999 ("UTCCRs").

Following breaches of Ofcom’s rules concerning sales and marketing of telecommunications services (mis-selling) (GC24), and suspension/disconnection of services for alleged non-payment of bills (GC13), Ofcom considered that following its investigation, continued monitoring of Continental Telecom’s compliance with these General Conditions was appropriate.

Through our compliance monitoring, we are aware that the majority of Continental Telecom’s customers appear to have been transferred to another service provider (Plus Save Limited). We are also aware that due to contractual issues, between Continental Telecom and its wholesale provider, all remaining lines i.e. those that had not been transferred to Plus Save, were terminated at the end of March (see below).

On the basis that Continental Telecom is no longer providing telephony services, Ofcom has now closed this case. However, Ofcom will continue to closely monitor the company.  Should Continental Telecom begin to actively sell telephony services again, Ofcom will take the appropriate steps to enforce the notifications that have been issued to the company.

Advice for consumers:

We are aware that some consumers have contacted Ofcom about being pursued for payment of bills. Ofcom is able to offer the following guidance:

  • If you have consented to a Direct Debit being set up and have had incorrect Direct Debit amounts taken out of your account i.e. duplicate bills or incorrect amounts debited, you should attempt to contact Continental Telecom and also contact your bank or building society as you will be protected by the Direct Debit guarantee which provides as follows:
  • if there is a change in the amount to be paid or the payment date, the person receiving the payment (the originator) must notify the customer in advance.
  • if the originator or the bank/building society makes an error, the customer is guaranteed a full and immediate refund of the amount paid.
  • customers can cancel a direct debit at any time by writing to their bank or building society. (-1-)
  • If you believe that you have been affected by an action that you consider to be unlawful then this is likely to be outside of Ofcom’s remit and it would be appropriate to contact the police. An example of an activity that may be unlawful would be where monies have been taken out of your account without consent.
  • Even where you do consider it appropriate to go to the police, if the matter relates to a loss of money from your bank account, you should also contact your bank or building society to make them fully aware of the situation as they will be able to advise you on whether and how you can recover such payments.

Footnotes:

1.- This information is from the website of the Financial Ombudsman Service (the official independent expert in settling complaints between consumers and banks etc) - http://www.financial-ombudsman.org.uk/publications/ombudsman-news/27/27-directdebit-guarantee.htm

Update note 17 March 2011

Following the update below published on 16 February 2011, O-bit Telecom has now confirmed that all remaining lines, where customers of Plus Save Ltd have not placed an order with an alternative provider, will be ceased by 31 March 2011.

Ofcom has been made aware that a small number of customers have not responded to communication made by O-bit and BT Retail. Initially, these customers’ telephone lines will be suspended between 21 and 31 March 2011. During this period, customers will still be able to place an order to transfer their lines to another provider. However, they will be unable to make outbound calls (except for calls to emergency services) or receive incoming calls. Following the suspension, all remaining lines will then be ceased on 31 March 2011. During the suspension period, affected customers will be able to change the service so that only outbound calls are barred by calling 08008495001.

Ofcom continues to urge customers of Continental Telecom and/or Plus Save, who have received notification from O-bit that they are affected, to find an alternative supplier, and place an order as soon as possible.

Ofcom has also been informed that a small number of customers of Continental Telecom had their lines provided through a different wholesale provider, and due to another contractual dispute, these were ceased on or around 11 March 2011. These customers will now have lost service, but O-bit will not able to assist these customers. However, customers who have already lost services can place an order with an alternative provider.

End of update note

Update note: 16 February 2011

Ofcom has been informed by O-bit Telecom Limited (“O-bit”), which provides wholesale services to Plus Save Limited (“Plus Save”) that, due to contractual issues, it will be terminating services to Plus Save.  
Ofcom understands that a number of Plus Save’s customers had their service transferred from Continental Telecom from September 2010. Customers may not have realised that they have been moved to Plus Save. We do not have any specific information on this migration, but are currently looking into this as part of our investigation into Plus Save.

Should O-bit terminate Plus Save’s wholesale services, this will result in all Plus Save customers losing service, unless they transfer their telephone services to an alternative provider. If they have broadband with another provider this may also be affected.

O-bit has been advising customers (through a letter sent on 13 January 2011) that they could either transfer their services to O-bit, or to another provider of their choice, to avoid their service being ceased. In addition, BT Retail has been contacting customers, giving them the option to place an order with BT or another provider of their choice, as customers are at risk of having their services ceased.

We therefore strongly advise customers of Continental Telecom and/or Plus Save, who have received notification from O-bit that they are affected, to find an alternative supplier, if they have not already done so, and place an order as soon as possible. Customers who fail to respond are likely to have their phone line disconnected, will lose service, and may have to pay a reconnection fee to set up any future service. As soon as we know the date when services will cease, we will update this bulletin.

Ofcom understands that a small number of lines for Continental Telecom customers are provided through a different wholesale provider.  If you are in any doubt as to whether you, as a customer of Continental Telecom, are affected you should call O-bit on 08008495001 to confirm the status of your line.

Ofcom is continuing to monitor both Continental Telecom and Plus Save in relation to its ongoing cases against them.

End of update note

Update note: 20 January 2011

A non-confidential version of the Penalty Notice issued to Continental Telecom on 14 December 2010, under section 139 of the Communications Act 2003 has now been prepared and can be found at the foot of this entry.

As the information requested from Continental Telecom remains outstanding, Ofcom has decided to issue a second section 138 notification to Continental Telecom. Continental Telecom has a reduced period of 10 working days in which to make any representations on the second section 138 notification and to provide the specified information. If Continental Telecom does not comply with the second section 138 notification, Ofcom may issue a further penalty under section 139 of the Act or bring criminal proceedings under section 144 of the Act. Additionally, Ofcom has the power, under section 140 of the Act, to issue a direction for the suspension of services in the event of serious and repeated contravention of information requirements.

A non-confidential version of the second section 138 notification can also be found at the foot of this entry.

The deadline of 14 January 2011 set for Continental Telecom to pay the penalty of £50,000, which Ofcom imposed in accordance with section 139 of the Act (see below), has now passed and, to date, Continental Telecom has failed to pay the penalty.

Ofcom is now considering what steps to take next in relation to this matter.

End of update note

Update note 15 December 2010

Continental Telecom has failed to respond to the section 138 notification issued on 25 October 2010 (see below). Consequently, Ofcom has decided to impose on Continental Telecom, a financial penalty of £50,000 in accordance with section 139 of the Act. £50,000 is the maximum level of penalty that can be imposed under section 139. A non-confidential version of the Penalty Notice, setting out Ofcom’s decisions and reason for making those decisions, will be published shortly.

End of update note

Update note 12 November 2010

A non-confidential version of the enforcement notification issued to Continental Telecom on 2 November 2010, under section 95 of the Communications Act 2003 has now been prepared and can be found at the foot of this entry.

End of update note

Update note 3 November 2010

On 2 November 2010 Ofcom issued an enforcement notification to Continental Telecom under section 95 of the Communications Act 2003 ("the Act"). Ofcom has concluded that Continental Telecom has contravened GC13, GC14.5(b) and GC24 and that it has failed to take all the steps to remedy fully any consequences arising from its contraventions as specified in the Notification issued to Continental Telecom under sections 94 and 98 of the Act on 15 June 2010 (the "Section 94 Notification"),

Those steps considered appropriate by Ofcom for remedying the consequences of the notified contravention of GC13, GC14.5 and GC24, which Continental Telecom has failed to take, were:
GC13

  • investigate the reasons why customers, whom Ofcom required Continental Telecom to reconnect, were suspended and/or disconnected and report the results of these investigations to Ofcom by the Deadline (16 July 2010);

GC24

  • allow those customers who have suffered3 due to Continental Telecom's contraventions of GC14.5 and GC24 to be able to cease their contract with Continental Telecom, regardless of the length of contract served, with no requirement to pay an ETC or late payment fees and no requirement to pay any charges for services other than those the customer consented to be supplied; and/or
  • allow those customers who have suffered due to Continental Telecom's contraventions of GC14.5 and GC24, and who are no longer customers of (i.e. no longer connected to or receiving services from) Continental Telecom to claim refunds of any ETCs or late payment fees (including any additional or penalty charges made in relation to those charges), incurred from 1 July 2009.

Following the issuing of the Section 95 Notification, Continental Telecom is now required to take the following steps to remedy its contraventions of GC13, GC14.5(b) and GC24:

  • Continental Telecom must investigate the reasons why customers were suspended and/or disconnected, and report the results of these investigations to Ofcom by 2 December 2010
  • allow those customers who have suffered4 due to Continental Telecom's contraventions of GC14.5 and GC24 to be able to cease their contract with Continental Telecom, regardless of the length of contract served, with no requirement to pay an ETC or late payment fees and no requirement to pay any charges for services other than those the customer consented to be supplied; and/or
  • allow those customers who have suffered due to Continental Telecom's contraventions of GC14.5 and GC24, and who are no longer customers of (i.e. no longer connected to or receiving services from) Continental Telecom to claim refunds of any ETCs or late payment fees (including any additional or penalty charges made in relation to those charges), incurred from 1 July 2009;
  • investigate any complaints shared by Ofcom in relation to alleged contraventions of GC14.5(b) and GC24 relating to the period of the Section 94 Notification. Ofcom will continue to share these complaints to Continental Telecom, on a weekly basis. Continental Telecom is required to investigate these complaints and report back its findings to Ofcom no later than two weeks after receiving the complaint(s).
  • investigate the 88 complaints previously shared by Ofcom, as part of the Weekly Compliance Reporting between 9 August 2010 and 2 November 2010 relating to its contraventions of GC14.5(b) and GC24. Continental Telecom is required to report the result of these investigations to Ofcom:

1. in relation to complaints 1 to 30 no later than two weeks from the date of this Section 95 Notification (16 November 2010);
2. in relation to complaints 31 – 60 no later than four weeks from the date of this Section 95 Notification (30 November 2010)
3. in relation to complaints 61 – 88 six weeks from the date of this Section 95 Notification (14 December 2010).

Under section 95(5) of the Act it is the duty of Continental Telecom to comply with the Section 95 Notification. Should Continental Telecom fail to comply with the Section 95 Notification, Ofcom may seek a court order to enforce compliance.

Other matters set out in the Section 94 Notification continue to be monitored by Ofcom. This includes Continental Telecom's ongoing compliance with GC13 and GC24. If at later stage Ofcom acquires new evidence demonstrating that Continental Telecom is continuing to fail to comply with GC13 and/or GC24 then further enforcement action will be considered.

Additionally, Continental Telecom remains subject to the Notification issued under section 138 of the Act in relation to its failure to provide information requested by Ofcom (see below).

Finally, the issuing of this Section 95 Notification does not preclude Ofcom from taking any further enforcement action it considers appropriate, including the issuing of a financial penalty of up to 10% of relevant turnover under section 96 of the Act.

A non-confidential version of the section 95 Notification is currently being prepared and will be published shortly.

End of update note

Update note 26 October 2010

Following the issuing of the Notification to Continental Telecom under sections 94 and 98 of the Communications Act 2003 ('the Act') on 15 June 2010, Ofcom has been actively monitoring its compliance with the Notification. During this monitoring phase, Ofcom issued Continental Telecom with a notice under section 135 of the Act (the "information request") on 4 October 2010.

The information request required Continental Telecom to provide Ofcom with specified information by the deadline of 12 October 2010. Continental Telecom failed to provide the required information by the deadline and has, to date, failed to provide the information.

On 25 October 2010 Ofcom therefore issued Continental Telecom with a notification of contravention of the information request under section 138 of the Act (the "section 138 notification"). Continental Telecom has one month to make any representations on the section 138 notification and to provide the specified information. If Continental Telecom does not comply with the section 138 notification, Ofcom may impose penalties under section 139 of the Act (maximum £50k) or bring proceedings under section 144 of the Act.

A non-confidential version of the section 138 notification can be found at the foot of this entry.

Update note 26 July 2010

A non-confidential version of the Notification issued to Continental Telecom LTD on 15 June 2010, under sections 94 and 98 of the Communications Act 2003 has now been prepared and can be found at the foot of this entry.

Update note 16 June 2010

On 15 June 2010 Ofcom issued a Notification to Continental Telecom, where it found reasonable grounds to believe that Continental Telecom has failed to comply with rules concerning sales and marketing of fixed line telephone services and rules concerning suspension/disconnection of services for non-payment of bills.

Ofcoms investigation concluded that there are reasonable grounds for believing that Continental Telecom has, since 1 July 2009 contravened GC14.5(b)1 GC13, and since 18 March 2010, has contravened GC24.3. Therefore, pursuant to section 94(1) of the Act, Ofcom has issued a Notification to Continental Telecom setting out its failure to comply with GC13, GC14.5(b) and GC24.3, and requiring Continental Telecom to comply with the notified conditions to the extent to which it remains in contravention.

In addition, Ofcom has also determined that there are reasonable grounds for suspecting that with regard to the breaches of GC13 the matter is urgent. Therefore, pursuant to section 98(3) of the Act, Ofcom is reducing the standard period of notice for compliance, contained in the section 94 Notification, in relation to identified breaches of GC13. Continental therefore has a period of one month to comply with the Notification in relation to contraventions of GC14.5 and GC24, and some of GC13 and a reduced period of 2 days to comply with contraventions of GC13 that Ofcom has identified as urgent.

If Continental Telecom does not comply with the actions specified in the Notification issued under section 94 of the Act, Ofcom may issue an enforcement notification under section 95 of the Act and/or may impose a penalty (up to 10 per cent of relevant turnover) under section 96 of the Act.

Additionally, in urgent cases, Ofcom has the power under section 98(4) of the Act to give Continental Telecom a direction suspending or restricting its entitlement to provide electronic communications networks or electronic communications services, or to make associated facilities available. We have not given such a direction at present but may review this position if Continental Telecom fails to comply with the Notification in relation to identified breaches of GC13 that we consider require urgent remedy.

GC14.5 and GC24 (mis-selling)

Specifically, Continental Telecom has from 1 July 2009 to 18 March 2010 contravened GC14.5(b) which required it to comply with the provisions of its Code of Practice for Sales and Marketing for dealing with Domestic and Small Business Customers (the Code). Specifically, Continental Telecom failed to comply with the provisions of its Code by:

  • Failing to offer factual and accurate information about Continental Telecoms services and contracts and misrepresenting the services offered by Continental Telecom and other companies;
  • Failing to ensure that customers fully understood Continental Telecoms contract terms and are sure that they wanted to enter into a contract on those terms by entering customers into a verbal contract without their express consent to transfer their telephone service to Continental Telecom;
  • Failing to provide customers with higher standards of protection than the consumer law requires and not informing customers of their right to cancel during the switchover period by failing to inform the customer of when and how they can exercise their unconditional right to cancel under The Consumer Protection (Distance Selling) Regulations 2000 (the DSRs);
  • Failing to protect vulnerable consumers by abusing the trust of vulnerable customers, for example people who are elderly or who have special needs, or whose first language is not English.

Continental Telecom has also from 18 March 2010 contravened, and is contravening, the mis-selling prohibition under GC24.3, which requires that when selling or marketing Fixed-Line Telecommunications Services, the Gaining Communications Provider must not engage in dishonest, misleading or deceptive conduct, must not engage in aggressive conduct, must not contact the Customer in an inappropriate manner, and must not engage in Slamming.

Specifically Continental Telecom has been:

Engaging in dishonest, misleading and/or deceptive conduct by omitting relevant information relating to the terms and conditions attached to the specific offer including any restrictions on, or limitations of the offer, and/or providing false and/or misleading information, which is likely to affect a customers purchase decision; and

Engaging in aggressive conduct by coercing the customer and/or applying unacceptable pressure on a customer to enter into a contract.

Ofcom would expect that the steps Continental Telecom takes to comply with the requirements of GC24 may include, but are not limited to:

  • Ensuring that, during its sales and marketing activities with customers or prospective customers, Continental Telecoms representatives provide only factual and accurate information about its services and contracts and do not misrepresent its services or those of other companies;
  • Ensuring that, during its sales and marketing activities, Continental Telecoms representatives do not misrepresent to potential customers that Continental Telecom is part of, working on behalf of, or has a service agreement with the potential customers existing service provider;
  • Ensuring that Continental Telecoms representatives do not misrepresent the services of other companies;
  • Ensuring that Continental Telecom provides customers or potential customers with accurate information about its key charges, tariffs and call set up fees;
  • Ensuring that, when asked by customers entering into a contract, Continental Telecom provides only factual and accurate information about the circumstances where minimum contract charges might be applied by either Continental Telecom and/or the customers existing communications provider;
  • Ensuring that customers fully understand the terms of the contract and have given their express consent to transfer their telephone services to Continental Telecom;
  • Ensuring that customers are informed of their right to cancel at no cost during the switchover period and how to use this right; and
  • Ensuring that all sales and marketing staff are trained thoroughly on the Code, and that its content and interpretation are explained fully.

Continental Telecom has until the 16 July 2010 to remedy fully any consequences arising from its contravention of GC14.5(b) during the period 1 July 2009 to 18 March 2010 and GC24 from 18 March 2010 to the date of this Notification. Ofcom would expect that the steps Continental Telecom takes to remedy any consequences arising from its contravention may include, but are not limited to;

  • Allowing those consumers who have suffered2 due to Continental Telecoms contraventions of GC14.5 and GC24 to be able to cease their contract with Continental Telecom, regardless of the length of contract served, with no requirement to pay an Early Termination Charge (ETC) or late payment fees and no requirement to pay any charges for services other than those the consumer consented to be supplied; and/or
  • Allowing those consumers who have suffered due to Continental Telecoms contraventions of GC14.5 and GC24, and who are no longer customers of (i.e. no longer connected to or receiving services from) Continental Telecom to claim refunds of any ETCs or late payment fees (including any additional or penalty charges made in relation to those charges), incurred from 1 July 2009;
  • Refunding any minimum contract charges paid by a customer who was not provided with factual and accurate information during the sales and verification process about minimum contract charges that would be payable where that customer seeks to transfer away from Continental Telecom to another communications provider during the minimum term of the contract; and/or
  • Refunding any minimum contract charges paid by a customer who was not provided with factual and accurate information during the sales and verification process about minimum contract charges that might be payable where that customer seeks to leave their existing communications provider and transfer their telephone services to Continental Telecom; and/or
  • Refunding any minimum contract charges paid by a customer who was not clearly informed of their right to cancel during the switchover period and how to exercise that right.

Alternatively, the Notification provides that by 16 July 2010 Continental Telecom may make a proposal to Ofcom concerning the remedying of consequences by a specified date to be agreed by Ofcom (although Ofcom is not bound to accept such a proposal).

GC13 (suspended and disconnected services)

In addition, Continental Telecom has contravened, and is contravening GC13 which requires a CP to be proportionate and not unduly discriminatory with regard to non-payment of bills. Specifically, Continental Telecom has contravened GC13 by:

  • Failing to take proportionate measures to effect payment or disconnection;
  • Failing to provide customers with due warning beforehand of any service interruption or disconnection, where the Subscriber has not paid all or part of a bill; and by
  • Failing to publish details of the measures it may take to effect payment or disconnection on its website.

Ofcom requires Continental Telecom to comply with the requirements of GC13 by 5.00pm on 22 June 2010. In particular, Ofcom would expect that the steps Continental Telecom takes to comply with the requirements of GC13 may include, but are not limited to:

  • Amend payment request letters so that they provide approximate timeframes for when the call restriction/disconnection will take place.
  • Follow its disconnection policy using amended payment request letters.
  • Ensure that appropriate consideration is given to elderly, vulnerable and special needs customers, and the proportionality of any action taken against them.
  • Update information regarding the disconnection policy on its website.

Continental Telecom must take the following steps to remedy the consequences of its breach:

  • Reconnect all suspended and disconnected customers in order that those customers may make outgoing as well as receive incoming calls by 5.00pm on 17 June 2010.
  • Where these customers wish to move to another provider or return to their previous provider, Continental Telecom must allow those customers to move away with no requirement to pay an ETC or late payment fees and no requirement to pay any charges for services other than those the customer consented to be supplied, by initiating the process on request by 17 June 2010.
  • Following this, Continental Telecom must investigate the reasons why these customers were suspended and/or disconnected and report the results of these investigations to Ofcom by the Deadline.

Ofcom will now monitor Continental Telecoms compliance with the Notification.

Ofcom has not yet formed a view on Continental Telecoms compliance with GC1.2 and the UTCCRs.

A non-confidential version of the Notification is currently being prepared and will be published shortly.

End of update note.

Update note 23 April 2010

On 18 December 2009 Ofcom published a statement entitled Protecting consumers from mis-selling of fixed line telecommunications services.  The effect of the statement was, in part, to replace the obligation imposed by General Condition 14.5 (GC14.5) requiring providers to establish, maintain and comply with a Code of Practice for sales and marketing, with specific obligations set out in new GC24 prohibiting inappropriate sales activity.  On 18 March 2010, GC24 replaced GC14.5.

Ofcom has therefore decided to extend the scope of this investigation to include Continental Telecoms compliance with GC24 on the Sales and Marketing of Fixed Line Telecommunications Services from 18 March 2010 onwards. Ofcom will continue to investigate Continental Telecoms compliance with the old GC14.5 for the period up to 18 March 2010.

For further information on GC24, please see related items.

End of update note

Update note 26 February 2010

Ofcom has decided to include, within the scope of the Investigation, Continental Telecoms compliance with GC13 in respect to the measures taken in instances where the customer has not paid Continental Telecom all or part of the bill for Services provided by Continental Telecom.

GC 13.1 states that measures taken by the Communications Provider should be proportionate and not unduly discriminate and give due warning to the customer beforehand of any subsequent service interruption or disconnection.

Ofcoms consideration of GC13 follows receipt of complaints against Continental Telecom which raised further concerns. Continental Telecom has, since the opening bulletin was published, been invited to comment on these matters, and taking all matters into account, we have now decided to include GC13 within the scope of our investigation.

End of update note

Text published when the case was opened

Ofcom has opened an own-initiative investigation into Continental Telecom, following an increase in the number of complaints received by Ofcom's Advisory Team, and a review of the substance of these complaints.
GC 14.5 requires that communications providers establish, and comply with, a Code of Practice for sales and marketing ("Code of Practice"). The investigation will examine whether there are reasonable grounds for believing that Continental Telecom has failed to comply with the requirements of its Code of Practice, and whether there are reasonable grounds to believe that Continental Telecom has failed to comply with GC 1.2 with regard to its use of information obtained during the customer transfer process.

The investigation will also examine whether the contractual terms contained within Continental Telecom's standard Terms and Conditions comply with the UTCCRs.

If you are a consumer and wish to discuss this case please contact Ofcom's Advisory Team on 020 7981 3040 or 0300 123 3333.
Case Leader: Rapinder Newton (email: rapinder.newton@ofcom.org.uk)
Case Reference: CW/01043/01/10

Footnotes:
1.- GC14.5 as in force from 1 July 2009 to 18 March 2010
2.- Ofcom expects Continental Telecom to presume that any consumer who has made a formal complaint of having suffered (for example to Continental Telecom, Ofcom, Otelo, CISAS, Trading Standards, Members of Parliament or Consumer Direct) has suffered. However, Ofcom considers that consumers who have suffered is not necessarily limited to those customers who made a complaint.