BT to be fined £42m for breaching contracts with telecoms providers
- Ofcom investigation finds BT cut its compensation payments for delays in connecting high-speed business lines
- These important networks underpin the UK’s communications infrastructure
- BT has admitted failings, and agreed to compensate the companies affected
BT will be fined £42m for a serious breach of Ofcom’s rules, after the company reduced compensation payments to other telecoms providers for late installations.
The penalty is a result of an investigation by Ofcom into BT’s network arm, Openreach.
The investigation found that, between January 2013 and December 2014, BT misused the terms of its contracts to reduce compensation payments owed to other telecoms providers for failing to deliver ‘Ethernet’ services on time.
Ethernet services are the most common type of ‘leased lines’ – dedicated, high-speed cables used by large businesses, and mobile and broadband providers, to transmit data. These lines also provide vital, high-capacity links for hospitals, schools and libraries.
Ofcom has taken enforcement action because BT breached rules that address the company’s ‘significant market power’. This market power comes from the fact that most telecoms companies rely on access to BT’s network to provide services such as broadband to their customers. Ofcom’s rules are therefore fundamental in ensuring BT does not act in a way that could harm competition and, ultimately, consumers and businesses.
Gaucho Rasmussen, Ofcom’s Investigations Director, said: “These high-speed lines are a vital part of this country’s digital backbone. Millions of people rely on BT’s network for the phone and broadband services they use every day.
“We found BT broke our rules by failing to pay other telecoms companies proper compensation when these services were not provided on time. The size of our fine reflects how important these rules are to protect competition and, ultimately, consumers and businesses. Our message is clear – we will not tolerate this sort of behaviour.”
BT is obliged, under Ofcom’s rules, to install Ethernet services to its wholesale customers (providers such as Vodafone and TalkTalk), in accordance with its contracts, and to make compensation payments for late delivery. BT’s contracts require it to deliver Ethernet services within 30 working days, or pay compensation to the company affected.
If BT encounters problems that require more time to resolve, in certain circumstances it can assume that a customer has agreed to an extension. But Ofcom found that BT did this retrospectively over a sustained period, to reduce the level of compensation it owed to telecoms providers. Not only did this harm other telecoms companies, but it was also likely to have harmed the UK businesses and consumers who rely on high quality, high-speed, broadband services every day.
Ofcom opened the investigation in November 2015. This happened shortly after Vodafone brought allegations to Ofcom that BT had misused its contractual terms through the late delivery of Ethernet services without Vodafone’s consent, and by failing to compensate the company for these delays.
Financial penalty and compensation
As a result of these findings, Ofcom will impose a penalty of £42,000,000 on BT.
The penalty incorporates a 30% reduction to reflect BT’s agreement to settle Ofcom’s investigation by admitting full liability, and to set up a scheme to compensate the telecoms providers that have been affected.
BT must compensate, within twelve months, all the telecoms providers who faced financial loss because of its conduct. We anticipate that BT’s customers will engage constructively in the compensation process.
Additional £300k fine
BT will also be fined £300,000 for failing to provide information to Ofcom. Through this Ethernet investigation, Ofcom became aware that BT failed to provide accurate and complete information for the original dispute, the Business Connectivity Market Review 2016 and this investigation.
Ofcom takes any breach of our information gathering powers very seriously as such failures undermine the integrity of the regulatory regime. Any company that breaks these rules should expect similar consequences.
NOTES TO EDITORS
- In market reviews of wholesale business connectivity services, which Ofcom completed in 2008, 2013 and 2016, Ofcom found that BT had a position of significant market power in providing wholesale Ethernet services. Ofcom has imposed regulatory obligations on BT to ensure that communications providers are able to access these services. These obligations are intended to promote competition – in particular by facilitating competition in retail markets, enabling providers to compete without needing to invest in a national network.
- Vodafone’s allegations were in the form of a regulatory dispute submission. Ofcom considered these issues under its dispute resolution powers. Ofcom issued its final statement (PDF, 1.2 MB) on the dispute between Vodafone and BT in January 2016.
- The original level of penalty, prior to the application of a 30% reduction, was £60m. The fine will be paid to Ofcom, and passed on to HM Treasury.