Investigation into EE’s early termination charges

Ofcom has today issued a Confirmation Decision to EE under s96C of the Communication Act 2003 for contraventions of GCs 9.2(j) and 9.3 of the General Conditions between at least 1 January 2012 and 5 June 2018 for consumers of its mobile services and 1 January 2012 and 7 August 2018 for consumers of its landline and broadband (‘home’) services.

Ofcom and EE entered into a settlement process in respect of these matters and EE wrote to Ofcom admitting its liability in relation to the nature, scope and duration of the contraventions on 12 November 2018. Having considered EE’s admissions, Ofcom is satisfied that EE:

(i) contravened GC 9.2(j) by not specifying the ETCs clearly enough in the terms and conditions of its mobile contract. It failed to specify the amounts that made up its ETCs for mobile consumers, which meant they were unable to calculate how much these charges would be when considering ending their contracts; and

(ii) contravened GC 9.3 by not taking into account any discounts that consumers of its mobile and home services paid on their monthly subscription price when calculating early termination charges. Those charges were not based on the retail price the relevant consumers were actually paying and instead were based on a higher, undiscounted retail price and were, accordingly, excessive. Between 8m and 15m consumer contracts included such terms and around 400,000 customers were billed for these excessive ETCs. Taking account of ETCs that were not paid, EE’s customers overpaid by around £3m-£4.3m.

Ofcom’s Confirmation Decision imposes a financial penalty of £6.3m on EE. The penalty includes a 30% discount from the penalty that Ofcom would otherwise have imposed, on account of EE’s admissions of liability and its agreement to enter into a settlement. The Decision also requires EE to take steps to ensure it complies with its regulatory obligations, including:

• compliance training for staff in its Marketing Department and BT Group Board members who participate in the preparation, oversight, review or approval of pricing proposals or separate proposals affecting ETCs; and
• implementing a process for the review and approval of its ETCs on an annual basis by senior managers of an equivalent or higher grade to the leadership group of its Marketing Department.

In setting the penalty Ofcom has had regard to our penalty guidelines. The penalty reflects a number of factors including the objective of deterrence and EE’s previous compliance record, the seriousness of the contraventions, the harm they caused and the gains EE made, and the role of EE’s senior management. It also reflects EE’s co-operation with our investigation and that it volunteered admissions and took steps to come into compliance and remedy its contraventions. EE also offered to conduct a compliance review of its processes and systems.

A non-confidential version of the Confirmation Decision is currently being prepared and will be published shortly.

This investigation resulted from an Enforcement Programme looking into CP’s compliance with rules around ETCs. We are continuing to monitor CPs’ compliance with these rules.

Following consideration of information provided by EE in response to Ofcom’s initial enquiries, Ofcom has decided to open an investigation into EE’s compliance with GC9.2 and GC9.3.

GC9.2 requires communications providers (CPs) to specify certain minimum terms when entering into a contract for communications services with consumers and for these to be expressed in a clear, comprehensive and easily accessible form. It specifies that this should include terms relating to the length of contracts and the conditions for termination, including any charges due on termination.

GC9.3 requires CPs to ensure that their conditions or procedures for contract termination for electronic communications services do not act as a disincentive for end-users against changing provider.  

The investigation will examine EE’s compliance with GC9.2 and GC9.3, in particular whether:

1. its early termination charges (ETCs) were set out in a clear, comprehensive and easily accessible form; and
2. by not accounting for discounts given to customers on their monthly retail price in its conditions and procedures for calculating ETCs, these ETCs acted as disincentives to customers against changing provider.

We aim to complete our evidence gathering phase in this investigation by August 2018. We will then publish a further update on next steps.