Broadband ISPs Accused of Overcharging UK Consumers by £100m

The Citizens Advice agency has accused Ofcom of allowing UK phone and broadband providers to “overcharge” consumers to the tune of £100m between 2014 and 2018 due to “errors” they allegedly made when setting price controls on network operators. The charity now wants to see ISPs being forced to refund it.

Overall the agency calculated that similar mistakes by Energy (gas and electric) companies between 2004 – 2019 had resulted in consumers being overcharged by a total of £11bn, while Water companies between 2005 – 2019 did the same to the tune of £13bn and, as above, broadband providers were calculated to owe consumers the much lower figure of £100m over a smaller window of time (combined total of £14.2bn).

In terms of the broadband market, Ofcom typically sets charge controls on operators deemed to have Significant Market Power (SMP) as part of their regulatory solution, which at present primarily impacts Openreach’s (BT) national telecoms network (plus KCOM in Hull). Such controls tend to impact consumer bills and thus any mistake by the regulator is an important consideration.

Unfortunately the CA doesn’t provide any detail on precisely how they calculated the figure of £100m. Instead they explain that the alleged overpayments “partly occurred because regulators made forecasting errors … they predicted that costs, such as debt, would be higher than they in fact were.” Regulators also over-estimated how risky these businesses were for investors.

The charity believes that, instead of forecasting costs, regulators should “use available market data to calculate costs and adjust their estimates of investment risk“. In total CA finds that Broadband, Energy and Water firms have collected £81.1bn in baseline returns for equity and debt costs from consumers’ bills, while their own model suggests that this should have been £57bn (the difference between these two figures is how you get £24.1bn).

Gillian Guy, CEO of Citizens Advice, said:

“Regulator error has meant customers have been charged too much by energy, broadband and phone networks for far too long.

At a time when so many people are struggling to pay their essential bills, regulators need to do more to protect customers from unfair prices. They have started to take steps in the right direction but it is vital they continue to learn from their past mistakes when finalising their next price controls.

Companies need to play their part in putting this multi-billion pound blunder right. They must compensate customers where they have been paying over the odds. If they don’t government needs to intervene.”

We have asked Ofcom for a comment and are awaiting their reply. In the meantime it’s noted that “several energy and water companies have taken steps to return some money to customers.” However Citizens Advice is calling upon all firms to provide a voluntary rebate to their customers and, if not, then they want the Government to step in.

Sadly we don’t have enough detail on how the £100m figure was arrived at in order to make a judgement. Nevertheless it’s worth noting that £100m split between 20-30 million consumers (could be more or less, depending upon which services and charge controls are involved) would only amount to a few pence per month or less than a handful of £ pounds in one year (less if repaid gradually over four years).

On the other hand ISPs would probably argue that it would be grossly unfair to expect them to repay such money unless their supplier, Openreach (BT), is required to do the same. Nobody wants to end up paying for somebody else’s mistake.

UPDATE 9:21am

We’ve had a response from Ofcom, although they don’t seem to give any opinion on CA’s call for repayment.

An Ofcom Spokesperson told ISPreview.co.uk:

“Our decisions have helped customers benefit from more choice and better services. That involves making complex forecasts on the cost of finance, which Citizens Advice have found to be largely accurate. We’ll continue to encourage investment in broadband, while protecting customers from high charges.”