Ofcom Hits Vodafone UK with Record £4.6m Fine for “Failing Customers”

The telecoms regulator has today hit “failing” UK mobile and broadband provider Vodafone with a “record” fine of £4,625,000 after they were found to have breached a series of consumer complaint handing rules. Ofcom’s investigation of the case uncovered a variety of serious mis-selling, inaccurate billing and poor complaints handling procedures.

Anybody paying attention to Ofcom’s quarterly consumer complaints report will know that Vodafone’s mobile business has been going through a particularly rough period and consistently managed to attract more gripes than any other UK network operator (example).

In keeping with that Ofcom has been busy conducting two investigations into Vodafone, one of which was looking at flaws in their complaints handling procedures (here) and another of which had been examining the operator’s selling and billing practices for their pay-as-you-go services (here). Today was judgement day for both of those.

Lindsey Fussell, Ofcom Consumer Group Director, said:

“Vodafone’s failings were serious and unacceptable, and these fines send a clear warning to all telecoms companies. Phone services are a vital part of people’s lives, and we expect all customers to be treated fairly and in good faith.

We will not hesitate to investigate and fine those who break the rules.”

In short, Vodafone was found to have taken money from PAYG customers without providing a service in return, which was as a result of problems that occurred after they moved customers to a new billing system. Overall some 10,452 PAYG customers lost out when Vodafone failed to credit their accounts after they paid to ‘top-up’ their mobile phone credit. The affected customers collectively lost £150,000 over a 17-month period.

Ofcom said that Vodafone also “failed to act quickly enough to identify or address these problems” and only sprang into life after the regulator intervened, which they say promoted Vodafone to finally “take effective steps to stop pay-as-you-go customers from paying money for nothing, and to reimburse those affected.” The operator also breached Ofcom’s billing rules, because the top-ups that consumers had bought in good faith were not reflected in their credit balances. The result was a fine of £3,700,000.

On the subject of customer complaints handling, Ofcom found that Vodafone’s customer service agents “were not given sufficiently clear guidance on what constituted a complaint, while its processes were insufficient to ensure that all complaints were appropriately escalated or dealt with in a fair, timely manner.”

The operator’s procedures also failed to ensure that customers were told, in writing, of their right to take an unresolved complaint to a third-party Alternative Dispute Resolution (ADR) scheme after eight weeks. The result was a fine of £925,000.

A Spokesperson for Vodafone said:

“We fully appreciate the consequences for our customers of various failures in the migration process over the last three years.

We have sought to remedy these through an additional £30 million investment this year in customer service and training including hiring an additional 1,000 new UK-based call centre personnel and more than 190,000 hours of training to improve how we identify and resolve individual customer problems.

We are also working with the Ombudsman to ensure that customers are able to escalate problems more effectively if we are unable to resolve these within our own systems quickly.

This has been an unhappy episode for all of us at Vodafone: we know we let our customers down. We are determined to put everything right. We are also confident that our customers are already beginning to see the benefits of our substantial investment in new systems designed to meet their needs much more effectively in future.”

The penalties, which must be paid to Ofcom within 20 working days (this must be passed on to HM Treasury), incorporate a 7.5% reduction to reflect Vodafone’s agreement to enter into a formal settlement, which requires them to admit the breaches and reimbursed all customers who faced financial loss (except for 30 people it could not identify). Vodafone will also have to make a donation of £100,000 to charity.

In terms of the fine, on the surface £4.6 million is a hefty figure, although it’s unlikely to give Vodafone too much pain given that they’re a global company and one that works in the tens of billions territory.

However the negative publicity is likely to be a lot more damaging, although Vodafone may well point to a recent investment of £15 million into improving their customer service related training and systems as evidence of their effort to remedy the situation (here).

We’ve pasted a longer summary of Ofcom’s investigation outcome below and you can read Vodafone’s own take on the situation here.

Pay-as-you-go investigation

Ofcom found that Vodafone took money from pay-as-you-go customers but provided nothing in return. This was as a result of problems that occurred when Vodafone moved customers to a new billing system.

Vodafone disconnects inactive pay-as-you-go accounts after a certain period of time and recycles the numbers, a common practice in the industry.

Where a pay-as-you-go phone has not been used or ‘topped-up’ for 270 consecutive days, Vodafone puts the customer’s SIM card into a ‘pre-disconnection state’ for up to 24 hours, before disconnecting it from its network. During this period, customers should not be able to make calls or top-up their accounts.

Vodafone had problems transferring customer accounts to the new billing system, and so stopped disconnecting inactive SIMs from its network. Consequently, they remained in a ‘pre-disconnection state’ for significantly longer than 24 hours. Customers were able to pay for top-ups at cash machines and via other electronic methods during this period, which should not have been possible.

Although receipts confirming the success of their ‘top-ups’ were issued to some of those customers, Vodafone did not credit any of the customers’ accounts, or provide them with the services they had paid for. Nor did the credit show on customers’ account balances. This practice lasted for 17 months, costing 10,452 pay-as-you-go customers in the region of £150,000. Vodafone staff failed properly to investigate and put things right.

Ofcom’s investigation concluded that Vodafone had breached General Condition 23.2(a), which prohibits the mis-selling of mobile telephone services; and General Condition 11.1, which prohibits inaccurate billing.

Complaints handling investigation

All telecoms providers must have procedures in place that follow Ofcom’s approved Code of Practice for complaints handling. The Code sets minimum standards covering the accessibility, transparency, and effectiveness of providers’ complaints handling processes.

Ofcom’s investigation found that Vodafone provided its frontline customer service staff with insufficient and ambiguous information on when to treat a customer’s call as a complaint.

Vodafone’s procedures also failed to ensure that complaints were escalated quickly enough, and that customers received written notification of their right to alternative dispute resolution (ADR) after eight weeks.

We found that Vodafone’s flaws in its complaints handling processes did not comply with our Code of Practice, and so contravened General Condition 14.4.