Competition Tribunal Push BT Landline Overcharging Case to Trial UPDATE2

The Competition Appeals Tribunal (CAT) has issued a preliminary ruling that rejects BT’s attempts to stop a new £600m class action claim against the UK broadband ISP and phone operator, which alleges that they overcharged c.2.3 million landline-only customers between 2015 and 2018.

The claim was raised earlier this year through law firm Mishcon de Reya, which is acting on behalf of a former Ofcom telecoms consultant, Justin Le Patourel. The issue itself stems from Ofcom’s 2016/17 review of the associated market (here and here), which found that landline-only customers (i.e. those who didn’t take a cheaper broadband bundle) had been “getting poor value for money compared to those who buy bundles of landline, broadband and/or pay-TV services.”

The review found that customer bills for line rental had risen significantly since 2009, while at the same time BT’s costs (wholesale) for providing it had fallen over the same period. One catch here is that this largely reflected monthly line rental, but not so much the fall in calling volumes that hit related revenues (a key weighting factor for operators when setting retail prices).

Ofcom then put pressure on BT to respond, and the operator did so in 2018 by voluntarily cutting the line rental charge for c.900,000 vulnerable landline-only customers (reduction of £7 per month), while at the same time capping any subsequent overall increases to line rental and call charges to inflation (here) – this was again extended at the end of 2020 (here).

Update on case progress

The new class action claim is thus based around the somewhat retrospective allegation that BT were overcharging around 2.3 million landline-only customers between 2015 and 2018 (current rules prevent this being dated back to 2009). The case is also seeking compensation for customers who took both a broadband service and a BT landline, albeit not together as a bundle (such customers would have paid more for the individual services).

In theory, a victory for Justin Le Patourel could force BT to pay out up to £600m in compensation to consumers (up to £500 each). The first limited hearing at the CAT on this took place in June 2021, which had to decide whether the case should proceed to a full trial and whether Justin would be granted authorisation by the CAT to act for all the BT customers who were allegedly overcharged (i.e. relevant customers could be automatically represented).

The preliminary ruling on that hearing, which has just been published, unanimously rejected BT’s opposition and has allowed the case to proceed to trial.

Summary of CAT’s Ruling (PDF)

Judgment of the Tribunal on two applications. The first, made by the proposed Class Representative (“Mr Le Patourel”), is for a Collective Proceedings Order (“CPO”) within the meaning of section 47B of the Competition Act 1998 (“CA”) (the “CPO Application”). The case concerns a claim that the proposed Defendants, BT Group Plc and British Telecommunications Plc (collectively “BT”) abused their dominant position in two telecommunications markets by imposing unfair prices, contrary to section 18 CA. The claim is brought by Mr Le Patourel in respect of approximately 2.3m affected BT customers. Subject to the question of merits BT did not resist the making of a CPO on an “opt-in” basis. However, the PCR sought a CPO on an “opt-out” basis exclusively, which BT did resist.

The second application, made by BT, was a cross-application (a) to strike out the claim pursuant to Rule 41 (1) (b) of The Competition Appeal Tribunal Rules 2015 (“the Rules”) on the basis that there are no reasonable grounds for making it and/or (b) for summary judgment to dismiss the claim pursuant to Rule 43 (1) (a) of the Rules on the basis that it has no real prospect of success.

The Tribunal decided that the PCR’s application for a CPO should succeed and BT’s cross- application to strike out and/or summarily dismiss the putative claim must fail.

All affected customers will automatically be represented, and therefore do not need to take any steps to join the action. Customers can however choose to opt out if they wish. Naturally, BT is not pleased with the outcome and has pledged to “vigorously defend itself against the speculative claim of overcharging customers.”

A BT Spokesperson said:

“We strongly disagree with the speculative claim being brought against us and will consider all available options as we review the preliminary ruling on the procedural matter of certification.

We take our responsibilities to customers very seriously and will defend ourselves against any claim that suggests otherwise.

We take pride in our work on the Customer Fairness agenda. For many years we’ve offered a discounted social tariff in what is a competitive market with competing options available, and, earlier this year, extended that to help a potential four million households on low incomes save on bills and stay connected to vital online services. We also worked hard to support our customers and the UK more broadly during the pandemic.

We assure our customers that we will not let this claim disrupt the relationship BT has with them. We will continue to support our customers through the pandemic and beyond.”

Le Patourel said:

“We think that these customers could be entitled to a substantial repayment of up to £500 each. This decision is a great step in the right direction and we look forward to the full trial, where we will continue fighting for BTs loyal and mistreated customers.”

At this point, it’s worth remembering that Ofcom’s original statement made no official finding of excessive pricing or breach of competition law more generally. Admittedly, it’s unclear whether that would have changed had BT not made such a voluntary commitment in the first place (i.e. the lower pricing for landline-only customers), but the fact is they did and so any prospect of a clash was avoided.

At the same time, we shouldn’t forget that retail broadband ISPs and phone providers ultimately have the freedom to set retail pricing however they so choose, albeit often restricted by the realities of natural competition (i.e. making your service too expensive or too cheap can be counter-productive). Many other ISPs were also happily charging (or overcharging) similarly high prices for retail line rental during that same period.

However, the fact that BT was charging a similar price to other providers in the Standalone Fixed Voice (SFV) market may not be so relevant in this legal case, which is making use of the Competition Act. By comparison, Ofcom’s review simply used its ex ante regulatory powers, rather than its Competition Act powers.

Under the Competition Act, Justin’s team has to prove that there is a market for SFV (Ofcom said there is), that BT was dominant in this market (it seems to have held around a 70% share), and that it abused this dominance by pricing excessively (Ofcom’s review said it priced “above the competitive level“). Crucially, there is a legal obligation on dominant players not to abuse their market position (e.g. excessive pricing).

Suffice to say that it’s easy to see why Justin has brought the case and feels confident that it can succeed, although it remains to be seen how all of this plays out in the courtroom. Even if Justin’s side win, then BT will probably appeal, and such cases can sometimes end up dragging on for years.

One possible risk, should the case succeed, is that it might discourage operators – especially those considered to be holding a dominant market position – from making similarly pro-consumer voluntary commitments on pricing in the future, for fear of leaving themselves exposed to such claims. The outcome of that might then be a rise in the number of protracted legal cases that Ofcom have to fight in order to reach their desired solution, which is something that regulators prefer to avoid as they aren’t always guaranteed total success.

UPDATE 11:11am

The Tribunal has already fixed a hearing date on 19th October, which will decide consequential issues and move the case for claims forward.

UPDATE 30th Sept 2021

We’ve added a bit of extra legal context to the final paragraphs.