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Ofcom Unveil Automatic Compensation System for Broadband Faults

Friday, Mar 24th, 2017 (7:47 am) - Score 2,514

Expect price rises. The UK telecoms regulator has today unveiled its chosen proposal for a new Automatic Compensation System, which will require fixed line phone and broadband ISPs to give either a cash payment or bill credit to consumers when they suffer a total loss of service.

At present providers are not required to compensate consumers for service faults, although some will occasionally credit a small amount for such problems and others may only pay out following a long complaint. Meanwhile those taking a proper (more expensive) business service are usually covered via a Service Level Agreement (SLA), which often includes a compensation clause.

The Government and Ofcom now believe that all consumers should benefit from an automatic right to compensation, which is an idea that was first tabled earlier this year as part of Ofcom’s Strategic Review and has since been implemented into the Government’s new Digital Economy Bill 2016-17. Ofcom believes this system will offer “incentives for providers to improve service quality“.

Lindsey Fussell, Ofcom’s Consumer Group Director, said:

“When a customer’s landline or broadband goes wrong, that is frustrating enough without having to fight tooth and nail to get fair compensation from the provider.

So we’re proposing new rules to force providers to pay money back to customers automatically, whenever repairs or installations don’t happen on time, or when people wait in for an engineer who doesn’t turn up. This would mean customers are properly compensated, while providers will want to work harder to improve their service.”

Under the new system Ofcom proposes that customers, specifically residential consumers and around a third of small and medium sized enterprises (businesses) who buy domestic fixed line broadband services, would be entitled to automatic compensation, without having to go through a potentially lengthy and difficult claims process.

Ofcom says that its system would only be applied to faults that lend themselves to being “objectively defined and measured” and which have not been caused by consumers themselves (e.g. you wouldn’t be compensated if you damage your home wiring or aren’t at home when the engineer arrives), which is easier to say than deliver.

Additionally the regulator states that SMEs who buy business products should be provided with greater clarity on the quality of service they are entitled to under their contracts and whether they can claim compensation when problems occur. This proposal reflects that SMEs can negotiate bespoke terms and there are already standard business contracts currently on offer that provide compensation for a number of different issues (Service Level Agreements), which are not available for residential consumers.

Situations Allowable for Compensation

• The Customer’s landline or broadband is not fixed quickly enough after it has stopped working; or
• The new landline or broadband service is not up and running on the day promised; or
• An engineer doesn’t arrive for an appointment as scheduled.

The compensation payments would be set by Ofcom and designed to reflect the degree of harm suffered by consumers, although we suspect that some ISPs might spit their teeth out at the thought of having to pay £10 for each day (after the first two days) that the service is not repaired. Quite a lot of money, considering how much people pay for broadband and phone services on a monthly basis.

On the other hand most major outages tend to be resolved within two full working days and this should make the change easier for ISPs to handle. Ofcom will also be pushing Openreach to meet even tougher service performance and quality standards in the future, which may further reduce the number of incidents that might attract compensation.

broadband compensation proposal from ofcom

Just to put this in some perspective. Ofcom estimates that there are 5.7 million cases of consumers experiencing a loss of their landline or broadband service every year and engineers also failed to turn up for around 250,000 appointments. Similarly around 1 in 8 landline and broadband installations were delayed (12%), affecting more than 1.3 million people.

In other words, the regulator states that its plan would mean up to 2.6 million additional customers could receive up to £185m in new compensation payments each year. However ISPs have recently expressed deep reservations about the idea of such a system (here), not least because it will add an extra cost and that could push up the prices we all pay. On top of that a lot of service faults aren’t necessarily caused by your provider, but identifying who is responsible can sometimes present a difficult challenge

For example, it’s not the provider’s fault if your broadband fails due to a problem in your third-party router / bad setup, but end-users often won’t recognise that the fault is with them and sometimes even Openreach can have trouble identifying faults in their own network.

Even ISPs that support the measure, such as Zen Internet (here), suggest that some external network issues like street cabinet vandalism or flooding “are clearly beyond our control” (i.e. Openreach’s responsibility), although the impact upon the end user would still be a loss of service and is thus likely to attract compensation.

The Responsibility of Openreach and Wholesale Suppliers

On the above point many ISPs that depend upon a core wholesale supplier (e.g. Openreach) have warned that it might not be fair if ISPs are forced to shoulder the entire financial burden, especially for faults caused by their supplier. But others would say that this is a contractual matter between the ISP and its suppliers to resolve (easy to say, difficult to fix).

Ofcom’s view on this is that “in principle the party responsible for the quality of service problem should bear the cost of retail level compensation. We expect that any changes to Openreach’s SLAs or SLGs necessary to achieve this should be the subject of industry negotiations, facilitated by the OTA2, in line with current practice.” Ofcom added that it would only step in if the industry was “unable to reach agreement” on these points, although their “provisional policy position is that in principle a wholesaler – in this case, Openreach – should meet the cost of retail level compensation in circumstances where it is at fault.”

However there is uncertainty around the impact of major network outages (MBORC), such as those caused by storms or flooding over a wide area. The regulator states that “we do not have a view on whether the cost of force majeure-type events should be borne by the wholesale provider or retailers, especially as the issue may be no more under the wholesale network provider’s control than the retail provider’s. Our provisional view is that the aggregate cost to industry of providing automatic compensation for service problems caused by force majeure-type events is not disproportionate.”

Otherwise the regulator has proposed an implementation period of 12 months between the date of their final statement and the introduction of automatic compensation. This will give ISPs and wholesale suppliers time for a six month OTA2-led industry negotiation process and a four month dispute resolution process, should both of these prove necessary.

Other Bits

Meanwhile the new system will not apply to Mobile Network Operators (MNO). Ofcom found that connectivity issues with mobile operators were naturally very complex to assess (coverage is tricky, especially indoors) and that only less than 1% of people were likely to lose their service for more than 24 hours. On top of that mobile operators were also found to give better compensation than fixed line providers.

Apparently BT, Sky Broadband and Virgin Media had also jointly proposed their own voluntary approach to automatic compensation for service failures, although Ofcom rejected it. “At this stage, we do not think that the industry proposal sufficiently meets our concerns when quality of service falls short,” said the regulator.

Ofcom will now consult with the industry until 5th June 2017 and they hope to publish a final statement by the end of 2017.

Automatic Compensation Consultation

UPDATE 2:33pm

The UK Internet Service Providers Association has given their reaction.

A Spokesperson for the ISPA said:

“Customer service is a priority for ISPA members, borne out by Ofcom’s own research that shows the overwhelming majority of consumers are satisfied with their communications services. ISPA’s own consumer complaint data shows a huge fall in numbers over a ten-year period which demonstrates that ISPs are continually improving their complaint handling.

We understand that on occasion service standards may fall short of what is expected and so ISPA is supportive of a strong and fair consumer protection regime.

ISPA will continue to work with its members to scrutinise the proposals and the potential for unintended consequences, and work with Ofcom to ensure that the UK broadband market remains competitive, transparent and effective.”

By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on X (Twitter), Mastodon, Facebook and .
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