Investigation into Telefonica UK Limited (O2) about its compliance with metering and billing requirements

Following our investigation, Ofcom has today issued a Confirmation Decision to Telefónica UK Limited (trading as O2) under s96C of the Communication Act 2003 (the “Act”) for contravening the rules set out under General Condition (“GC”) C3.2 and former rule GC 11.1. Ofcom and O2 entered into a settlement process and on 3 February 2021 O2 wrote to Ofcom admitting its liability in relation to the nature, scope and duration of the contravention.

GC C3.2 (and previously GC 11.1) is an important consumer protection provision which embodies one of the basic, fundamental exchanges between a communications provider (‘CP’) (and indeed, any business) and its customers, namely that they are only charged for services they have subscribed to, and that they are charged no more than the amount owed.

In light of the evidence and O2’s admissions, Ofcom is satisfied that, between at least 26 May 2011 and 15 March 2019, O2 contravened GC C3.2 and former rule GC 11.1 by failing to render or make available accurate final bills to customers after their cancellation of services (i.e. termination bills) and by overcharging a significant number of customers terminating their ‘Pay Monthly’ services with O2.

We found that this billing error arose in four different scenarios and meant that amounts already scheduled to be taken by direct debit were not being taken into account by O2 in final termination bills. As a result, where those termination bills were paid, O2 took payment for that same charge twice.

The evidence seen by Ofcom showed that, of those affected by the billing error:

• c.140,000 customers paid c.£2,410,000 in overcharges;
• c.26,500 customers were overcharged c.£2,320,000 but did not pay those charges largely due to their own (in)action rather than the actions of O2; and
• c.85,200 customers were overcharged c.£35,930,000 but had been disconnected by O2 for non-payment of bills and did not pay those charges.

Our Confirmation Decision acknowledges and takes into account that the potential for financial harm may have been significantly reduced for those customers disconnected by O2 for non-payment of bills. However, it also noted that this did not mitigate the fact that those customers were issued termination bills that included amounts already scheduled to be taken as part of their regular monthly bill, and this was therefore an important factor in Ofcom determining the scale and scope of the contravention.

We consider that several aggravating factors support our finding that this was a serious breach by O2 (and are reflected in the penalty amount):

• the significant duration of O2’s contravention;
• the significant degree of actual and potential harm caused by O2’s contravention;
• the significant scale and scope of O2’s contravention;
• the significant absence of effective governance processes in place to prevent the billing error from occurring in the first instance and to identify the billing error once it occurred; and
• the significant failure by O2’s senior management to adequately ensure that the governance process it had put in place for fixing and remedying billing errors was followed or, to the extent that it was followed, it failed in some key respects in both 2011 (when O2 first identified the billing error) and 2019 (when the error was re-identified).

In light of the seriousness of O2’s breach, our Confirmation Decision imposes a financial penalty of £10.5 million on O2. This penalty was set having had regard to our Penalty Guidelines and includes a 30% discount from the penalty Ofcom would otherwise have imposed. This discount reflects the resource savings Ofcom achieved as a result of O2’s admissions of liability and its agreement to enter into a settlement. Our Confirmation Decision also sets out the steps O2 must complete to comply with the GCs and remedy the consequences of the contravention.

While we considered all of the factors in the round, we considered that a significant penalty was also appropriate in order to act as a deterrence against future breaches. Our penalty therefore signals to others that any failures to comply with GC C3.2 (and previous GC 11.1) will be taken very seriously by Ofcom. Also, because O2 did not self-report the billing error to Ofcom, no mitigating weight was given in our penalty assessment for self-reporting.

It is important that CPs take compliance with their regulatory responsibilities seriously. We strongly encourage all CPs to carefully review the findings of all our confirmation decisions to ensure that they put into place effective monitoring processes and compliance programmes.

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

Our separate investigation into O2’s compliance with section 135 information requests remains ongoing.

Following information about a billing incident provided to Ofcom from an Approval Body, under the Metering and Billing Direction (the Direction), Ofcom has decided to open an investigation into O2’s compliance with GC C3, formally GC 11, and the Direction. GC C3 places obligations upon all CPs to, among other things, ensure that all charges are accurate and represent the services received by the customer.

GC C3.2 states that:

“Regulated Providers shall not charge an End-User or render or make available any Bill to an End-User, in respect of the provision of any Public Electronic Communications Services, unless every amount charged and/or stated in the Bill represents and does not exceed the true extent of any such service actually provided to the End-User in question.”

In addition, the Metering and Billing Direction is intended to ensure that communications providers have systems and processes in place which are fit for purpose, deliver accurate bills to consumers and ensure that consumers are not overcharged for services. It sets out requirements which includes obtaining approval of their metering and billing systems from third-party assessors, known as Approval Bodies and outlines requirements when a performance failure is identified.

Failure to comply with the Direction can lead to enforcement action under GC C.3.

A notification provided by O2’s Approval Body under the Direction has informed Ofcom that O2 has experienced a Category 1 Extraordinary Performance Failure (EPF).

That notification also suggests that from at least 1 January 2012 – 7 March 2019, O2 took duplicate final direct debit payments from customers who terminated their contracts on a Saturday or Sunday and had an outstanding periodic bill to pay. The notification explains that the termination bill did not take into account other payments made against the outstanding bill when calculating the final payment. This means that there is an issue as to whether the termination bill included the whole value of the outstanding periodic bill and so whether final payment was in fact taken twice.

In addition, O2 did not classify this incident as EPF, and did not follow all the requirements in the timeframes set out in the Direction.

Ofcom has therefore decided to open an investigation that will examine whether there are reasonable grounds to believe O2 has failed to comply with its obligations under GC C3 and the Direction.

We are aiming to complete our evidence gathering phase in this investigation by the end of December. We will publish a further update on next steps once that phase is complete.