Investigation into Just Telecomms UK Ltd (trading as Lo-Rate Telecom) regarding allegations of misconduct in selling and marketing of telecommunications services

03 November 2008

Complainant: Ofcom own-initiative investigation
Complaint against: Just Telecomms UK Ltd (‘JTUK'), trading as Lo-Rate Telecom
Case opened: 31 August 2005
Investigation closed: 27 February 2006
Case closed: 31 October 2008
Issue: Whether Just Telecomms UK Ltd (trading as Lo-Rate Telecom) has complied with the requirements of General Condition 14.3(b) (compliance with the provisions of a Code of Practice for sales and marketing activity) and/or General Condition 13.1 (measures to effect payment or disconnection)

Relevant instruments:

  • General Condition 14.3(b) of the General Conditions of Entitlement governing compliance with the provisions of a code of practice for sales and marketing activity.
  • General Condition 13.1 of the General Conditions of Entitlement governing measures to effect payment or disconnection.

Update note – 3 November 2008

As a result of breaches of Ofcom’s rules concerning sales and marketing of telecommunications services (mis-selling), Ofcom considered that following its investigation, monitoring of JTUK was appropriate. As reported below Ofcom had previously served an enforcement notification and imposed a financial penalty on JTUK

Ofcom undertook monitoring of JTUK’s compliance in order to ensure that JTUK adhered to the enforcement notification by paying refunds to affected customers, providing Ofcom with reports on customer contact and refunds paid and co-operated fully with the adjudications of the Telecommunications Ombudsman scheme (Otelo).

JTUK produced regular reports to Ofcom as part of the compliance process. The compliance reports from JTUK have been monitored to confirm whether it has complied with the terms of the enforcement notification.

Ofcom has completed its monitoring in this matter. The compliance reports show that JTUK has taken appropriate action to remedy instances of mis-selling to customers on a case by case basis as required under the enforcement notification.

On this basis Ofcom has now closed the case.

End of update note

Update Note – 12 July 2006

A non-confidential version of Ofcom’s enforcement notification of 23 June served on JTUK under sections 95 and 96 of the Communications Act has now been prepared and can be found at the bottom of this page.

End of update note

Update Note – 27 June 2006

Summary

On 23 June 2006 Ofcom served an enforcement notification and imposed a penalty on JTUK under sections 95 and 96 of the Communications Act. Ofcom has concluded that JTUK has contravened General Condition 14.3(b) in relation to sales and marketing activity and that it has failed to remedy the consequences of that contravention within the one month specified in the Section 94 notification issued to JTUK on 14 March 2006.

Ofcom has imposed the maximum financial penalty of 10% of relevant turnover on JTUK. This decision reflects the serious nature of JTUK’s contravention. Since JTUK's turnover has not been disclosed in published management accounts to date, the exact amount of the penalty may be confidential and is not being published by Ofcom at the present time.

In addition to imposing a financial penalty, Ofcom is also requiring JTUK to:

  • pay refunds to affected customers where appropriate;
  • provide weekly reports to Ofcom on customer contact and refunds paid; and
  • fully co-operate with, and comply with the adjudications of, the Telecommunications Ombudsman scheme (Otelo).

Full details of the action which JTUK is now being required to take are set out below.

Ofcom’s conclusions

On 14 March 2006 Ofcom issued a notification under s94 of Communications Act to JTUK setting out Ofcom’s conclusion that it had reasonable grounds for believing that JTUK had failed to comply with the provisions of its Code of Practice for Sales and Marketing. Ofcom specified a period of one month for JTUK to make representations to Ofcom about the notified contraventions and remedy any consequences of those contraventions.

Having taken account of those representations and having carefully considered all of the available evidence, Ofcom has now decided that JTUK:

(a) has failed to comply with relevant provisions of its Code of Practice for Sales and Marketing (representing a contravention of General Condition 14.3(b)); and

(b) has not, during the period specified by Ofcom, taken all such steps as Ofcom considers necessary for remedying the consequences of the contravention.

JTUK’s contravening conduct took two particular forms:

  1. Misrepresenting to potential customers (during initial sales calls in particular) that JTUK (or the trading name or style under which it was presenting itself at the material time) was part of, or working on behalf of or in association with, BT; and
  2. Failing to clearly and straightforwardly explain to new or potential customers, and/or failing to offer only accurate information in relation to, the long minimum contract terms into which new customers were being entered.

Ofcom regards this case as being particularly serious. JTUK’s engagement in mis-selling was co-ordinated, systematic and affected a large number of consumers. Despite well-founded complaints coming to the attention of JTUK’s senior management team, JTUK failed to take effective action to prevent further mis-selling from taking place; and at least one member of senior management was actively involved in the promotion of mis-selling activity by its sales staff.

JTUK customers who sought to leave JTUK for another service provider were charged ‘breach of contract’ fees of up to £395 + VAT per line, and threatened with disconnection if they did not pay those fees immediately. As a result, some people who only became JTUK’s customers in the first place as a result of misrepresentations having been made to them over the phone were subsequently stung with high ‘breach of contract’ fees when they tried to revert back to their original provider.

Action to be taken by JTUK

JTUK is now required to take steps for remedying the consequences including:

  1. Write to all present customers, and to all past customers who paid termination charges, informing them of their possible right to a refund of termination charges and/or exit from current contract without penalty;
  2. Investigate all outstanding or new complaints falling within or closely related to the contraventions specified above within 30 days;
  3. Promptly refund in full all ‘breach of contract’ or other termination charges found to have been paid by a complainant:
  1. to whom a misrepresentation was made by JTUK to the effect that JTUK was part of, or working on behalf of, or in association with, BT; or
  2. who was not clearly informed, either during the initial sales call or the following confirmation call, of the length of the minimum contract term and the fact that early termination fees were payable;
  1. Where a complainant who remains a customer of JTUK is found to be a complainant falling within (i) or (ii) above, JTUK is to notify that complainant that he is entitled to terminate his contract at any time without being charged a ‘breach of contract’ termination charge or any other penalty;
  2. Report to Ofcom on a weekly basis on persons who have raised complaints with JTUK including the status of any investigation and details of any refund of termination charges which have been paid;
  3. Notify both Ofcom and the complainant immediately upon deciding, in relation to any complaint which JTUK is to investigate, that no remedy is to be provided, and simultaneously supply to the Office of the Telecommunications Ombudsman (Otelo) a copy of the complaint and any evidence within JTUK’s possession or control which may be relevant to the determination of the validity of that complaint; and
  4. Comply in full, and in good faith, with all adjudications made by the Ombudsman.

A non-confidential version of Ofcom’s notification is currently being prepared and will be published shortly.

Additional Note: in publishing this update to the Competition Bulletin, Ofcom has also amended the previous entries for this case in order to refer consistently to Just Telecomms UK Ltd as ‘JTUK’ throughout. JTUK trades under the trading name or style “Lo-Rate Telecom” and should not be confused with any other company, including Just Telecomms Ltd.

End of update note

Update Note – 15 March 2006

Ofcom has issued a revised enforcement notification under section 94 of the Communications Act 2003 to JTUK. The revised notification includes clarification that the notification applies to all the activities of JTUK, not only those services provided under its Lo-Rate Telecom brand.

Accordingly, the timescales by which JTUK shall complete the actions specified in the notification have been amended to 22 March 2006, in respect of those obligations imposed via section 98 of the Act, and 15 April 2006 in respect of all other obligations. JTUK therefore has until 15 April 2006 to identify and respond to customers who have been harmed by its conduct including, in some circumstances, the payment of refunds to customers.

End of update note

Summary

Ofcom has closed this investigation and issued an enforcement notification to JTUK (trading as Lo-Rate Telecom) under section 94 of the Communications Act 2003. Ofcom's investigation found that JTUK has engaged in serious and repeated breaches of rules concerning both sales and marketing activity and disconnection of service following imposition of termination charges. Ofcom's action follows evidence gathered by Ofcom and Hertfordshire Trading Standards.

The enforcement notification issued to JTUK sets out the nature of the breaches and the steps the company must take to comply with its obligations. In light of the serious nature of misconduct in this case and the ongoing risk of damage to its customers, Ofcom has used powers under section 98 of the Communications Act 2003 to require action to be taken by JTUK on certain obligations by 7 March 2006. It has until 29 March 2006 to comply with a number of other obligations.

The enforcement notification also specifies the steps JTUK must take to identify and respond to customers who have been harmed by its conduct. JTUK has until 29 March 2006 to complete these actions including, in some circumstances, the payment of refunds to customers.

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

Ofcom's conclusions

Ofcom's investigation followed more than 800 individual complaints from small business customers of JTUK. Ofcom has reasonable grounds to believe that JTUK has engaged, and continues to engage, in conduct which includes:

  • Misleading potential customers into believing that JTUK is part of British Telecommunications plc (BT) or is affiliated with BT;
  • Demanding early termination charges of up to £395 + VAT per line when customers realise they have been misled and try to cancel their service; and
  • Disconnecting or threatening to disconnect service if these termination charges are not paid.

In reaching its conclusions, Ofcom's investigation considered evidence gathered by Hertfordshire Trading Standards. This evidence includes telephone scripts used by sales staff of JTUK containing statements which, in Ofcom's view, are deliberately misleading.

Action to be taken by JTUK

JTUK has until 29 March 2006 to comply with the obligations set out in the notification except where, as referred to above, Ofcom has required JTUK to take more immediate action by 7 March 2006. The enforcement notification also requires JTUK to identify affected customers in order to remedy its misconduct. Specifically, Just Telecoms is required by 29 March 2006 to do the following (where customers meet the criteria set out in the section further below):

  • Pay full refunds to customers of cancellation or termination charges/ fees paid;
  • Allow current customers the opportunity to exit their agreement without penalty for early termination;
  • Write to all past and current customers explaining their entitlement to a refund or exit from contract and the process for exercising their rights in relation to either; and
  • Publish a notice with due prominence on the homepage of all their company web-sites setting out the fact of their obligations in relation to the customer groups identified below.

Customers qualifying for refund or exit from contract

Both past and current customers might be entitled to a refund or exit from their agreement without penalty as referred to above. Any past or current customer falling into any of the categories listed below will qualify for such entitlement.

  • All customers who were approached after 26 May 2005 and were misled during the sales process as to the identity of JTUK and its relationship with BT. Such customers to be identified according to:
  1. any customer who has already made a complaint to JTUK (or who identifies themselves to JTUK as having made a complaint to BT, or to Ofcom or other complaint handling authority), regarding mis-leading information provided by JTUK during the sales process; and/ or
  2. any customer not falling under (a) above making a signed written statement that they were misled during the sales process by JTUK and would not have signed up to a contract with JTUK had they not been misled.
  • All customers who, since 26 May 2005, have attempted to cancel any order with JTUK (whether that cancellation was through JTUK or BT) within the switchover period of 10 working days.
  • All customers who, since 26 May 2005, cannot be demonstrated by JTUK to have been subject to its contract review and confirmation process.
  • All customers who since 26 May 2005, have made a complaint to JTUK (or has identified themselves to JTUK as having made a complaint to BT, or Ofcom) concerning a failure by JTUK to explain adequately its contract terms and conditions.

Any past or present customers of JTUK for whom these requirements might be relevant should contact the company to exercise their rights.

Consequences of failure to comply with Ofcom's enforcement notification

Where a customer believes that JTUK has failed to meet its obligations in terms of providing a refund or opportunity to exit from contract by 29 March 2006, they should contact Ofcom in writing at Ian.Vaughan@ofcom.org.uk after that date setting out the facts of their situation.

If JTUK fails to comply with GC 14.3(b) and GC 13.1 and/ or fails to take the action required by the notification issued to it (for example, if it fails to fully comply with the obligation to make repayment of termination payments as set out above), Ofcom may issue a further enforcement notification under section 95 of the Act and/or may impose a financial penalty (of up to 10 per cent of turnover) under section 96 of the Act.

Text published when the case was opened

Ofcom has opened this investigation following complaints from small businesses about the mis-selling of fixed-line telecoms by JTUK UK Limited (company number 05307650). JTUK is a communications provider based in Hertfordshire trading under the name Lo-Rate Telecom.

Ofcom's investigation will examine whether JTUK has failed to comply with the requirements of its Code of Practice for Sales and Marketing activity. General Condition 14.3 requires that communications providers establish, and comply with, a Code of Practice for sales and marketing.

Compliant Codes set out a minimum standard of behaviour in areas such as promotion and marketing, sales, customer contact and the process of entering into a contract with customers.

Ofcom notes that this investigation concerns the activities of Just Telecomms UK Limited (company number 05307650). There are a number of alternative communication providers using the word 'Just' in their name or brand, who have no link to Just Telecomms UK Limited. In particular, as far as Ofcom is aware there are no links between Just Telecomms UK Limited and Just Telecomms Limited, trading in Lincolnshire .

This investigation is part of a sequence of investigations Ofcom has commenced or will be pursuing into misconduct by individual communications providers. These investigations form part of a wider campaign that includes the active enforcement program (CW/00838) to monitor compliance with new regulations designed to prevent mis-selling in fixed-line telecoms and protect consumers from abuses such as 'slamming'.

Case Leader: Ian Vaughan ( e-mail:Ian.Vaughan@ofcom.org.uk)
Case Reference : CW/00857/08/05