Enforcement programme into early termination charges

Ofcom is today announcing the closure of its enforcement programme into early termination charges (‘ETCs’).

Communications Providers (‘CPs’) should ensure their ETCs are fair and transparent to consumers on fixed term contracts. Where this is not the case, this is likely to hinder the ability and willingness of consumers to switch provider when that may be in their interests. This in turn may undermine competition and result in harm to consumers.

Through our ETC programme, we have successfully tackled a wide range of issues relating to CP’s ETCs and/or the transparency of ETC information made available by CPs to consumers, to ensure the following:

• that CPs are taking appropriate steps to make consumers aware of any applicable ETCs when they are signing up to a minimum contract period; and
• that terms and conditions imposing ETCs on consumers comply with C1.3 and are fair for the purposes of the CRA.

We have:

• concluded two investigations into EE and Virgin Media in relation to ETCs where we found both companies in breach of C1.2 and C1.3. Our investigations found that c. 400k EE customers overpaid ETCs by up to £4.3m and c. 82k Virgin Media customers overpaid ETCs to the value of just under £2.8m. Both companies also failed to make sufficiently clear the charges customers would have to pay if they ended their contract early. As a result, we fined them a combined total of £13.3m (EE £6.3m and Virgin Media £7m) and they were required to refund affected customers;
• concluded initial assessments into four CPs about the inputs they use when calculating ETCs and their terms, conditions and procedures relating to ETCs. These initial assessments secured a number of positive results, including a reduction in the level of ETCs charged and refunds to customers that had been overcharged ETCs;
• following our EE and Virgin ETC investigations, we also wrote to seven of the larger CPs reminding them of their regulatory obligations in relation to the calculation and transparency of their ETCs. As a result of these letters, a number of CPs made positive changes to the ETC information on their websites and/or changed the way in which their ETCs were calculated; and
• engaged more generally with CPs on a number of broader contracts issues.

In light of these successes to date and generally high levels of compliance, we have decided that it is no longer necessary to undertake this enhanced level of monitoring. As a result, we are closing this enforcement programme.

Nevertheless, ensuring ETCs are fair and transparent to consumers are among the most important regulatory obligations on telecoms companies. We therefore remain committed to ensuring there are no issues of concern with the transparency and fairness of ETCs and that companies continue to comply with their obligations in this area.

We will continue to monitor compliance and maintain an oversight of these important requirements albeit we envisage many of the aims and objectives of the ETC enforcement programme will be taken forward under the Customer Fairness programme. We will not hesitate to consider formal enforcement action where we identify any suspected non-compliance.

Ofcom has decided to extend this programme for a further six months to 28 June 2019.

We are continuing to engage with CPs where we have queries or concerns about their ETCs and/or the transparency of ETC information made available by CPs to consumers, particularly in light of the findings of our recent investigations into Virgin Media and EE's ETCs. As indicated in those investigations, a CP is unlikely to be fulfilling its regulatory obligations where:

• ETCs are calculated based on an amount that is higher than a consumer’s monthly subscription price (e.g. by failing to take account of any price discounts being received by the customer);
• if a specific ETC rate is not published, the amount and nature of the cost savings that are applied to calculate the ETC are not clearly specified (e.g. VAT, or the specific percentage discount that is applied), so that a consumer is unable to work out, with certainty, how much their ETC will be; and
• consumers have to refer to information set out in separate documents in order to be able to calculate their ETCs.

Any formal enforcement action that is taken as a result of the work under this programme will be published in a separate Bulletin.

Ofcom has decided to extend this programme for a further six months to 28 December 2018.

We are continuing to engage with CPs about their ETCs where we have queries arising from our review of evidence gathered under the programme to date.  We are also continuing to review consumer complaints to assess where to prioritise our resources under this programme. If we decide to take formal enforcement action we will publish separate Bulletin entries as appropriate.

We will publish further updates on our work under the programme in due course.

Ofcom has decided to extend this programme for a further six months to 28 June 2018. We are analysing evidence received so far about CPs policies for setting early termination charges (ETCs), including information provided by CPs' and complaints from consumers about ETCs. Our assessment of this evidence, and any further information that we may gather, will inform our review of compliance in this area.

We will publish further updates on our work in due course. If any formal enforcement action is taken as a result of the work undertaken in this programme, we will publish separate Bulletin entries as appropriate.

Ofcom has launched a monitoring and enforcement programme in relation to the early termination charges imposed by CPs under the terms and conditions of their consumer contracts. The programme will examine whether these raise issues under GC9.3 and the CRA in order to determine whether any further action, including enforcement, is required.

GC9.3 requires CPs to ensure that their conditions or procedures for contract termination for electronic communications services do not act as a disincentive for end-users against changing provider.  

The CRA provides that consumer contract terms must be transparent and that an unfair term is not binding on the consumer. Ofcom has powers under the CRA and Part 8 of the Enterprise Act 2002 to take enforcement action in respect of unfair terms under the CRA.

Ofcom receives a large number of complaints about ETCs from consumers trying to exit their communications service contracts. Complaints indicate that some consumers are unclear about the circumstances in which an ETC can be charged and question whether such charges are fair.

Our objectives for this programme are:

• To ensure that CPs are taking appropriate steps to make consumers aware of any applicable ETCs when they are signing up to a minimum contract period; and
• To ensure that terms and conditions imposing ETCs on consumers comply with GC9.3 and are fair for the purposes of the CRA.

Under this programme, we will collect information from relevant sources, including CPs, and review relevant consumer complaints data, in order to assess compliance and take any action as appropriate.

Where we identify specific issues in relation to ETCs, we may initiate separate investigations of named providers. Where we do so, these will be announced via our Competition and Consumer Enforcement Bulletin.

We have today launched an own-initiative investigation under GC9.3 and the CRA into Virgin Media’s ETCs.