Own-initiative investigation into Telephonics Integrated Telephony Limited about sales and marketing and the use of information obtained during the transfer process

06 August 2010

Complainant: Ofcom own-initiative investigation
Investigation against: Telephonics Integrated Telephony Limited (Telephonics)
Case opened: 23 September 2008
Investigation closed: 20 March 2009
Issue: Adherence to the requirement to establish, publish and comply with a code of practice for sales and marketing and the use of information obtained during the transfer process
Relevant instrument: General Conditions 1.2, 14.5 and 14.6 of the General Conditions of Entitlement.

Update note: 9 August 2010

On 14 April 2010, Ofcom filed an application for default judgment to enforce the section 95 and 96 notification issued by Ofcom, as Telephonics had failed to acknowledge receipt of proceedings with the court or file a defence.

During Ofcoms legal action against Telephonics, Telephonics ceased trading. On 11 June 2010, Telephonics was placed into creditors voluntary liquidation and a liquidator was appointed to wind up the companys affairs.

Ofcom has submitted its claim in the winding up proceedings. On 29 July 2010, in light of the fact Telephonics is no longer trading, Ofcom discontinued its legal action against Telephonics.

End of update note

Update note: 18 February 2010

On 5 February 2010, Ofcom started proceedings against Telephonics, before the High Court of Justice (Chancery Division). Ofcom is seeking Telephonics' compliance with the enforcement and penalty notifications issued to it by Ofcom on 27 August 2009, under sections 95 and 96 of the Communications Act 2003.

End of update note

Update note: 23 September 2009

A non-confidential version of the enforcement and penalty notifications issued to Telephonics Integrated Telephony Limited on 24 August 2009, under sections 95 and 96 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: 27 August 2009

On 24 August 2009 Ofcom issued an enforcement notification and imposed a financial penalty on Telephonics under sections 95 and 96 of the Communications Act 2009 (the Act) (the Section 95 and 96 Notification).

Ofcom has imposed on Telephonics the maximum financial penalty of ten percent of its relevant turnover as set out in section 97 of the Act. The penalty amount imposed on Telephonics is 183,898. Ofcoms decision to impose the maximum financial penalty reflects the serious nature of Telephonics contravention.

This action follows Ofcoms monitoring of Telephonics behaviour in relation to a section 94 notification which was issued to Telephonics on 20 March 2009, and which concluded that there were reasonable grounds for believing that since at least 1 June 2008, Telephonics had contravened, and was contravening, General Condition 1.2 of the General Conditions of Entitlement (GC 1.2)

As set out in the Section 95 and 96 Notification, Ofcom has concluded that Telephonics has:

1. contravened General Condition 1.2 (GC1.2) by misusing information obtained for the purpose of facilitating a transfer, by incorrectly applying the Cancel Other facility and engaging in Inappropriate Save Activity;

2. failed to take steps to comply with GC 1.2; and

3. failed to remedy the consequences of its contravention of GC 1.2.

Action to be taken by Telephonics to comply with GC 1.2

In addition to imposing a financial penalty on Telephonics, Ofcom is also requiring Telephonics to take a number of steps to comply with GC 1.2. These steps include, but are not limited to:

1. introduce controls to ensure that information acquired for the purpose of negotiating network access is used solely for the purpose for which it was supplied, including, but not necessarily limited to, (i) the drafting and implementation of standard Notification of Transfer letters to be sent to customers following receipt of a LRN and submit a copy of this letter to Ofcom for Ofcoms review; and (ii) recording all verification calls (calls made to customers following notification of their transfer request (known as a Losing Receipt Notification (LRN)) to verify that they wish to transfer away) for a period of six months;

2. apply Cancel Other only where Telephonics has permission from the customer to cancel the order in the circumstances identified in the section 94 notification;

3. cease to engage, upon receipt of a LRN, in Inappropriate Save Activity, this being use of information obtained by a losing provider for the purpose of facilitating a transfer, to engage in marketing or other activity to try and retain a customer, including, but not limited to, threats of, or demands for, payment of termination fees and threats to cease providing telephone services and/or ceasing to provide telephone services;

4. draft and implement use of a written training plan for cancellation and retention staff and draft and implement call scripts for use in making calls to customers following receipt of a LRN, and submit a copy of the call scripts to Ofcom for Ofcoms review.

Remedial action to be taken by Telephonics

Ofcom is also requiring Telephonics to take a number of steps to remedy the consequences of its non-compliance with GC 1.2, including, but not limited to:

  • writing to all of its current and previous customers (during the period of 1 June 2008 to 24 August 2009) and informing them:

1. that Telephonics has been issued with a section 95 and 96 notification which, in addition to requiring Telephonics to pay a financial penalty to Ofcom, requires Telephonics to remedy the consequences of its non-compliance with the notified contravention;

2. that if they are still customers of Telephonics and had their transfer order(s) cancelled by Telephonics without their consent, they are allowed, without any charge (subject to contractual provisions), to transfer to another communications provider and that in order to do so they must instruct their new provider to submit a transfer order on their behalf;

3. of their right to transfer away from Telephonics at any time irrespective of a notice period, but that if they do so they may be liable for early termination fees; and

4. that, if they send a complaint to Telephonics requesting to be allowed to transfer to another communications provider on the grounds that their transfer order(s) had been cancelled by Telephonics without their consent, and Telephonics thinks that any charge is payable by them, they are entitled to refer their complaint to the relevant Dispute Resolution Body (DRB) which Telephonics will be a member of at the date of the Template Letter, for such DRB to decide if they agree with Telephonics decision;

  • promptly allowing, without any charge (subject to contractual provisions), the transfer of any customer whose gaining provider had placed a transfer order which was subsequently cancelled by Telephonics using the Cancel Other facility without that customers consent or authorisation;
  • investigating all outstanding and new complaints;
  • providing fortnightly reports to Ofcom on these investigations.

As set out in section 95(5) of the Act, Telephonics has a duty to comply with these requirements and that duty shall be enforceable in civil proceedings by Ofcom, as per section 95(6) of the Act.

A non-confidential version of Ofcoms Section 95 and 96 Notification is currently being prepared and will be published shortly.

Ofcom is continuing its separate own-initiative investigation into Telephonics compliance with GC 14.5, which requires that communications providers establish, and comply with, a code of practice for sales and marketing. (http://www.ofcom.org.uk/bulletins/comp_bull_index/comp_bull_ocases/open_all/cw_01028/)

Update note: 17 June 2009

We are continuing to monitor Telephonics behaviour in relation to the section 94 Notification issued to it on 20 March 2009. If Telephonics does not comply with GC 1.2 and/or fails to remedy the consequences of its breach of 1.2 as set out in the Notification and Explanatory Statement, Ofcom may issue an enforcement notification under section 95 of the Communications Act 2009 (the Act) and/or may impose a penalty on Telephonics under section 96 of the Act.

End of update note

Update note:  20 April 2009

A non-confidential version of the notification issued to Telephonics Integrated Telephony Limited on 20 March 2009, under section 94 of the Communications Act 2003 has now been prepared and can be found at the link below.

End of update note

Ofcom's investigation has concluded that there are reasonable grounds for believing that since at least 1 June 2008, Telephonics has contravened, and is contravening, General Condition 1.2 of the General Conditions of Entitlement (GC 1.2). Specifically:

a) Telephonics is a communications provider offering telephony services to end-users;

b) where an end-user arranges to transfer the provision of their telephony services from Telephonics to another communications provider, Telephonics, as the losing provider, acquires information (the Calling Line Identity (CLI) of the transferring end-user) from another communications provider, the gaining provider, in connection with this transfer process; and

c) Telephonics has used and is using this information (the CLI of the transferring end-user) which is acquired from another communications provider in connection with the provision of Carrier Pre-selection (CPS) and/or Wholesale Line Rental (WLR) for a purpose other than that for which that information was supplied (facilitating the transfer), namely:

  • preventing the customer transfer through the unauthorised use of the Cancel Other process (i.e. without the customers express consent); and
  • engaging in Inappropriate Save Activity.

During our investigation, we did not find reasonable grounds to believe that Telephonics has, or is failing to comply with GC 14.5. In respect of GC 14.6, Telephonics remedied its non-compliance with GC 14.6 by publishing a Code of Code of Practice for Sales and Marketing for fixed-line telecommunications services (the Code) on its website.

On 20 March 2009, Ofcom issued a Notification to Telephonics under Section 94 of the Communications Act 2003 (the Notification) regarding its past and ongoing contraventions of General Condition 1.2.
Telephonics has until 24 April 2009 to make representations to Ofcom about the matters contained in the Notification, to comply with the requirements of GC 1.2 and to remedy fully any consequences arising from its contravention of GC 1.2.

Ofcom would expect that the steps Telephonics takes to comply with the requirements of GC 1.2 may include, but are not limited to:

a) introducing controls to ensure that information acquired for the purpose of negotiating network access is used solely for the purpose for which it was supplied; and

b) applying Cancel Other only where Telephonics has permission from the customer to cancel the order in the following circumstances:

(a) a request for a fixed-line telecommunications service has been made without the customers express knowledge and consent (slamming) or at the customers request, that is, in the following circumstances:

1. where the customer has never been contacted by the gaining provider;

2. where a customer has been contacted by a gaining provider, but has not given the gaining provider authorisation to transfer some or all of his telephone calls and/or line rental to the gaining provider;

3. where the customer has agreed to purchase a product or service from the gaining provider and the gaining provider has submitted a request for a different product or service which the customer has not agreed to purchase; or

4. where the customer has agreed to transfer some or all of his telephone calls and/or line rental to the gaining provider having understood, as a result of a deliberate attempt by the gaining provider to mislead, that he is making an agreement with a different communications provider;

(b) where the gaining provider has failed to cancel the request after being directed by the customer to do so (Failure to Cancel);

(c) where the telephone line is ceased during the transfer period (Line Cease); and

(d) for other specified reasons not related to a customers request to cancel a transfer, and agreed by the service providers forum.
Ofcom would expect that the steps Telephonics takes to remedy any consequences arising from its contravention may include, but are not limited to:

  • allowing, without charge (subject to contractual provisions), the transfer of any customer whose gaining provider had placed a transfer order which was subsequently cancelled by Telephonics using the Cancel Other facility without that customers consent or authorisation.

Alternatively, the Notification provides that by 24 April 2009, Telephonics 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).

We will now monitor Telephonics compliance with the Notification.

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

Text published when the case was opened

Ofcom has opened an own-initiative investigation into Telephonics, following receipt of information gathered through Ofcoms enforcement programme: Monitoring and enforcement of mis-selling and conduct relating to the transfer of customers between communications providers, and consumer complaints received by Ofcoms Advisory Team.

This investigation will consider sales and marketing obligations as required under General Conditions 14.5 and 14.6. In addition, the investigation will also consider whether Telephonics is compliant with General Condition 1.2 with regard to its use of information obtained following a customer request to transfer.

Case Leader: Miriam Martin (e-mail: Miriam.martin@ofcom.org.uk)
Case Reference: CW/00998/09/08

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.