Ofcom UK Fine EE £6.3m and Virgin Media £7m for Overcharging UPDATE

Billing mistakes can be costly. The national UK telecoms regulator has today fined mobile operator EE and cable broadband ISP Virgin Media a combined total of £13.3m for overcharging customers (those on discounted deals) who wished to leave their contracts early. Overall nearly 500,000 customers were affected.

Some readers may recall that Ofcom has been busy investigating the implementation of Early Termination Charges (ETC) at both operators since last year. Most of the UK market’s largest telecoms providers will levy some form of ETC, which applies to customers who choose to exit their contract before the current term has come to an end (Virgin calls these Early Disconnection Fees).

Such charges should be covered by the regulator’s General Condition 9.3 (GC9.3) rule, which is designed to “ensure that the conditions which apply if you terminate your contract don’t disincentivise you from changing to a new provider, e.g. through excessive early termination charges.” The charges must also be made clear to customers.

Meanwhile section 62(1) of the Consumer Rights Act 2015 (CRA) similarly states that unfair terms in a consumer contract are not binding on the consumer (this means provisions within the contract itself).

What Happened?

Ofcom’s investigation found that both EE and Virgin Media had “failed to comply” with these rules. Firstly, the regulator noted that both companies had “failed to make sufficiently clear the charges customers would have to pay if they ended their contract early.”

On top of that they found that around 400,000 EE mobile customers who ended their contracts early were “over-billed” (this occurred over a 6 year period – January 2012 to June 2018), and customers ended up over-paying up to £4.3 million. Essentially EE “mis-calculated” its early-exit charges for those affected based on the non-discounted monthly retail price (i.e. they paid a discounted monthly rate, but the ETCs were based on a different higher rate).

Overall Ofcom said EE’s customers were “collectively over-billed” by up to £13.5m in early exit charges, although some of these were subsequently waived by EE and hence why the above figure is much lower. Meanwhile almost 82,000 of Virgin Media’s broadband customers were similarly “overcharged” a total of just under £2.8 million (this occurred over a single year – September 2016 to August 2017).

Virgin’s mistake was similar to EE’s and it’s noted that some 6,800 of those affected were overcharged by more than £100! On top of that Virgin’s fine was pushed up slightly after they provided “incomplete information in response to a statutory information request.”

Gaucho Rasmussen, Ofcom’s Director of Investigations and Enforcement, said:

“EE and Virgin Media broke our rules by overcharging people who ended their contracts early. Those people were left out of pocket, and the charges amounted to millions of pounds.

That is unacceptable. These fines send a clear message to all phone and broadband firms that they must play by the rules, in the interests of their customers.”

In response EE has changed its terms, plans to conduct and in-depth review of its processes and systems, significantly reduced its ETCs and refunded just over £2.7m to the affected customers it has been able to identify, although this means up to £1.6m cannot be refunded.

Meanwhile Virgin Media has reimbursed or made donations to charity in respect of more than 99.8% of affected customers (aiming to do this for 100%), significantly reduced its ETCs (by an average of 30%, and up to 50% in some cases), updated their terms and they now apply an additional reduction to ETCs for those who end their contract after moving house (i.e. moving into an area where Virgin’s network is not present).

Virgin has also made changes to its procedures and contract terms for home movers.

Virgin’s Home Movers Changes

• Make it clearer in contract terms, on its website and in conversations with customers, that Virgin Media’s network does not cover the whole of the UK; and that, if a customer moves home to an area outside of its network, they may be liable to pay an early-exit charge;

• Promote 30-day rolling contracts as an alternative option for customers who are aware they may need to move house in the near future; and

• Update its training processes and customer service agents’ scripts and materials to ensure that customers who indicate they may need to move home are provided with correct information.

In addition, customers who move house within Virgin Media’s network, and retain its services, will no longer have to sign up to a new minimum-term contract to avoid paying early-exit charges. Instead, they can now continue their existing contract at their new address. But elsewhere Virgin is far from happy.

Tom Mockridge, CEO of Virgin Media, said:

“We profoundly disagree with Ofcom’s ruling. This decision and fine is not justified, proportionate or reasonable.

A small percentage of customers were charged an incorrect amount when they ended one or more of their services early and for that we are very sorry.

As soon as we became aware of the mistake we apologised and took swift action to put it right by paying refunds, with interest, to everyone affected. For those few people we could not locate, we have made an equivalent donation to charity. We also reviewed our internal processes and systems, and improved our customer communications to make sure that this does not happen again.

We wholeheartedly reject the claim by Ofcom that our ETC levels dissuaded customers from switching.

This unreasonable decision and excessive fine does not reflect the swift actions we took, the strong evidence we have presented, or our consistent, open and transparent cooperation with the regulator. We will be appealing Ofcom’s decision.”

The reference to a “small percentage” (1.5%) above is correct but this is perhaps one of the problems with big providers, which have a tendency to look at the numbers and forget that 82,000 people will have been affected and stressed by their mistake. On the other hand they do seem to have been hit particularly hard, especially when compared with the 400,000 affected by EE’s similar mistake.

Virgin will now appeal Ofcom’s decision in the Competition Appeal Tribunal (CAT). Otherwise the move should hopefully act as a warning shot to any other operator that doesn’t understand the concept of setting ETCs at a level that is fair for their customers, especially those on a discounted package.

However in EE’s case today’s development comes roughly a year after they were fined £2.7m for overcharging 40,000 mobile customers (here); hopefully it isn’t becoming a trend.

UPDATE 11:10am:

A statement has arrived from EE and complaints handler firm Ombudsman Services.

A Spokesperson for EE told ISPreview.co.uk:

“We accept Ofcom’s findings and recognise that we have made a mistake. We apologise to customers with discounted tariffs who paid more than they should have when cancelling their contracts early. We’ve already refunded customers and changed the way we calculate early termination charges, and we will continue to focus on ensuring our policies are clear and fair for all customers.”

Matthew Vickers, CEO of Ombudsman Services, added:

“Good consumer protection relies on the regulator being able to gather intelligence from a range of sources.

As Ofcom has recognised today, complaints from consumers are one of the most important sources.

A joined-up approach involving the industry regulator, the ombudsman and consumer advice bodies strengthens consumer protection – ultimately increasing trust and confidence in key markets.

An example of where this works particularly well is in energy, where we as the single ombudsman for the sector work closely with Ofgem and Citizens Advice in a tripartite model based on collaboration and intelligence sharing.”