Protecting consumers from mis-selling of telecommunications services

Summary

Background

1.1 Ofcom has a duty to further the interests of citizens and consumers through a regulatory regime which, where appropriate, encourages competition. Effective competition delivers choice and lower prices to consumers as well as opportunities for new services and Communications Providers (‘Providers’). However, consumers may need protection from inappropriate and unacceptable behaviour by certain providers that may undermine confidence in the market as well as causing individual harm.

1.2 An example of such unacceptable behaviour concerns the mis-selling of telecommunications services. The term ‘mis-selling’ covers a range of sales and marketing activities, and includes ‘slamming ’, which is where customers are simply switched from one company to another without their knowledge and consent.

1.3 Ofcom is committed to reducing instances of mis-selling of telecommunications services as an important priority. Mis-selling works against the interests of customers, both directly through harm and distress as well as undermining confidence in the development of competition and in the industry as a whole.

1.4 Instances of mis-selling and slamming result in an unacceptable customer experience. Consumers typically suffer substantial inconvenience where it occurs, particularly where transfers are not stopped in time. Consumers also suffer financial harm where a transfer goes ahead and they find themselves on a higher tariff with the new provider or face an early termination fee when attempting to return to their original provider.

1.5 In response to the increase in incidences of mis-selling and slamming, Ofcom introduced new measures in 2005 to improve the effectiveness of safeguards to protect consumers.

1.6 The modification to General Condition 14 on Codes of Practice and Dispute Resolution (specifically General Condition 14.5 (‘GC 14.5^(-1-) ’)) which took effect on 26 May 2005:

• placed an obligation on all Providers who provide fixed-line telecommunications services or the wholesale inputs to fixed-line telecoms services to establish, and comply with, codes of practice for sales and marketing activity, in accordance with guidelines published by Ofcom;
• made the obligation subject to a ‘sunset’ clause, the effect of which was that the modification would lapse after two years unless a positive need was demonstrated to reinstate the requirement; and
• required Providers to supply codes of practice on sales and marketing on request, and free of charge, to customers.

Consultation

1.7 On 8 February 2007, Ofcom published a consultation document on whether the mis-selling of fixed line telecommunications services has been addressed over the last two years to such an extent that it is appropriate to remove the current regulatory obligations or whether it remains a problem that continues to require continued regulatory intervention by Ofcom.

1.8 The consultation also considered whether the obligations should only apply to fixed-line telecommunications services or whether they should be extended to cover other services, such as, broadband services, cable services, services using Local Loop Unbundling (‘LLU’) and/or mobile services. It is available on the Ofcom website.

Conclusions following the consultation

1.9 In light of the comments received in response to that document and, in particular evidence that levels of mis-selling in the fixed line telecommunications sector remain unacceptably high, Ofcom is retaining the obligations on Providers to establish, and comply with, codes of practice for sales and marketing activity in accordance with published Ofcom guidelines.

1.10 Ofcom is also extending the obligations to cover services offered on full LLU. As set out in the consultation document, the process for switching to, from and across, full LLU is identical to that of fixed-line telecommunications, and works on the basis of customers being notified that they are being transferred through letters from the losing and gaining providers (the ‘letter facilitation’ process).

1.11 The letter facilitation process minimises customer involvement in the switching process ensuring customers can switch between providers easily. However, conversely, it also increases the potential for irresponsible sales and marketing activity to take place, as seen in the fixed-line telecommunications market. For this reason, where the letter facilitation process is used, Ofcom believes that it is necessary to have strong measures in place to ensure that there are adequate disincentives for gaining Providers not to engage in irresponsible sales and marketing activity.

1.12 Ofcom has also decided that it is not appropriate to extend mis-selling obligations to broadband, mobile and cable services at this stage. We remain of the view that the process for switching between these services involves much greater levels of customer validation upfront (which minimises the potential for mis-selling and slamming to occur) than in the case of fixed narrowband service and full LLU.

1.13 Ofcom has also decided that only two further changes to the guidelines are necessary in addition to those which were proposed in the consultation document. This is because the majority of comments received during the consultation relating to changes to the guidelines were more substantive in nature rather than suggested changes to improve clarity. We consider that these issues are more appropriately dealt with as part of the review of consumer related general conditions. We will therefore feed these comments into this review.

Future reviews

1.14 In renewing these obligations, Ofcom is not inserting a sunset clause. This is because Ofcom will be conducting two related reviews over the course of this year which will directly impact on these obligations:

• a review of migrations, switching and mis-selling across all transferable products, including an examination of the scope for establishing a common approach to switching and consumer protection; and
• a review of the general conditions which will include broader consideration of the use of codes of practice as part of Ofcom’s approach to enforcement.

1.15 We expect that the implementation of these reviews, taken together with the continuing enforcement programme, should minimise the opportunity for mis-selling to occur. We will take account of the impact of these related workstreams, once implemented, in assessing the continuing need for the sector-specific obligations relating to mis-selling.

Notification

1.16 Ofcom is, therefore, today giving effect to the proposals set out in the February 2007 consultation document with a modification of General Condition 14 on Codes of Practice and Dispute Resolution under section 48(2) of the Communications Act 2003 (“the Act”) by means of a publication of a Notification. The published guidelines for sales and marketing codes of practice for fixed-line telecoms services are set out in the Annex to the Schedule to the Notification, published at Annex 2 to this document.

1.17 The Notification sets out the following:

• that there is an obligation upon all Providers who engage in sales and marketing of fixed-line telecommunications services to establish, under set guidelines, codes of practice, and to comply with the provisions set out in those codes;
• that the requirement to establish, under set guidelines, codes of practice, and to comply with the provisions set out in those codes, is not subject to a sunset clause;
• the amended guidelines for sales and marketing codes of practice for fixed-line telecoms services; and
• that there is an obligation to provide codes of practice on sales and marketing on request, and free of charge, to customers.

1.18 This measure will ensure that codes of practice for sales and marketing are enforceable. Ofcom will have the power to take enforcement action against those providers who breach the provisions of their code, including imposing fines on Providers.

1.19 These requirements shall enter into force on 26 May 2007 save for services based on full LLU which will enter into force 4 weeks from the date of publication of the final statement and Notification.

Footnotes:

1.- Formerly General Condition 14.3 prior to 19 June 2006. For ease of reference all references to General Condition 14.5 will be references to General Condition 14.3 prior to 19 June 2006.

The full document is available below