Protecting consumers from mis-selling of fixed-line telecommunications services

Summary

Summary

1.1 Tackling mis-selling of fixed-line telecommunications services remains an important Ofcom priority. Mis-selling works against the interests of consumers, both directly through harm and distress as well as undermining confidence in the development of competition and in the industry as a whole.

1.2 Ofcom introduced new rules to protect consumers from harm caused by mis-selling on 26 May 2005 in the form of an amended General Condition 14 (‘GC14’). General Conditions are rules imposed by Ofcom on specific categories of Communications Provider (‘CPs’) in accordance with the Communications Act 2003 (‘the Act’). The amended GC14 required all CPs supplying fixed-line telecommunications services to establish, and comply with, sales and marketing codes of practice, which are consistent with Ofcom published guidelines annexed to the amended GC14.

1.3 Ofcom has since pursued an active enforcement programme through an industry-wide investigation with the aim of securing compliance with the rules. We have been monitoring allegations of mis-selling in order to identify companies who are engaged in mis-selling, so that we can take action to protect the interests of consumers.

1.4 Despite these new rules, and our active enforcement programme, we continue to see high levels of fixed-line telecommunications mis-selling complaints. We have examined the existing regulations, and our experience of enforcing against these as well as the evidence on complaints and changes in the industry. In the light of this analysis, we have not been persuaded that sufficient progress has been made in reducing levels of fixed-line telecommunications mis-selling.

1.5 We are therefore proposing changes to strengthen the regulations to address this ongoing consumer harm.

Ofcom’s policy objectives and aims

1.6 Ofcom’s overall policy objective is that switching processes should promote switching and competition, whilst protecting consumers. In particular, we seek to ensure:

• a good customer experience of switching;
• protection against inappropriate sales and marketing activity;
• well-informed consumers; and
• that competition is supported to the benefit of consumers, particularly by minimising obstacles to switching.

Proposals

1.7 Based on our analysis of the existing regulations, and our experience of enforcing against these, we have identified the following:

• genuine confusion by some CPs on what is expected of them;
• the Code of Practice approach may not be the most effective to secure compliance and to enable enforcement activities;
• consumers switching without realising they had existing contractual liabilities with their existing CP e.g. an early termination charge (‘ETC’) for ceasing service within a minimum contract period;
• consumer harm arising from abuse of the Cancel Other process where it has been used to prevent customers from switching. Cancel Other allows a customer’s existing CP to cancel a live order before a transfer takes place. However, it is only allowed to be used to prevent a transfer taking place where the customer alleges slamming; and
• variability of sales records made, and retained, across the industry, meaning we have found it difficult, on occasion, to enforce the rules.

1.8 In light of this, we are consulting on the following as our preferred options:

• clarifying the regulations to aid understanding;
• simplifying the regulations by moving away from an approach requiring all CPs to establish, and comply with, Codes of Practice, to one of prohibiting inappropriate sales and marketing activity;
• better information for consumers on the potential consequences of switching by requiring CPs to alert consumers at the point of sale, and through letters, that they may have existing contractual liabilities with their existing CP;
• extending Cancel Other rules to cover all CPs providing fixed-line telecommunications services – at present the rules that are in place apply only to BT; and
• clarifying existing general record-keeping requirements, together with a proposal requiring CPs to make, and retain, voice recordings of all relevant telephone contact.

1.9 These proposals are part of a package of measures aimed at delivering sustained reductions in harm from mis-selling. Other recent initiatives include our step-up in enforcement activity and the publication of consumer guides on mis-selling.

1.10 Based on our analysis, we expect there to be a net benefit to the economy from implementing our preferred options as a package, both on conservative estimates of benefits and on less-conservative estimates of benefits.

1.11 Ofcom is also inviting comments on more radical options e.g. Third Party Validation models. We are not proposing any such changes at the current time. Nevertheless, we would welcome views on these options and intend to keep them under review in the event that any changes we may institute following this consultation do not lead to sufficient reduction in fixed-line mis-selling volumes.

1.12 We are inviting comments on our proposals and on the other options we have considered by 27 May 2009.

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