£13.3m in fines levied by Ofcom on EE and Virgin Media for overcharging
Two of the larger broadband and mobile providers in the UK have been fined by Ofcom with £13.3 million in penalties because of EE and Virgin Media over charging on contract early exit fees.
A little background, many years ago if you were paying for £20/m for broadband on an 18 month contract and wanted to leave with 6 months left to run on the contract you would have to pay the full 6 x £20 due under the contract. Some time ago Ofcom imposed a new rule (General Condition 9.3 now C1.3) to make it easier for people to leave contracts early and this means that the early exit fee should normally be less than the price you expected to pay over the remaining months. These charges for termination of a contract early are meant to be made available in a clear, comprehensive and easily accessible format. The idea being that people unhappy with a service or that something substantially better is now available can leave early without an onerous financial impact.
On these latest fines the picture is slightly for the two providers.
EE mobile customers were overcharged for six years from 2012 to June 2018 and landline/broadband customers from June 2012 to June 2018.
The overcharging was a result of calculating the early exit fee based on the standard price rather the discounted price which in the earlier years would often only last for a few months of the minimum term.
This affected 15 million contracts and some 400,000 actually were impacted by leaving during the minimum term, with the result of being over-billed by up to £13.5 million.
Some customers appear to have avoided the charge and the EE estimate of what was over charged is up to £4.3m.
Ofcom has levied a fine of £6.3 million and EE has refunded £2.7 million to those affected but due to deletion of customer details after 18 months for mobile and 2 years for home consumers there is some £1.6 million that cannot be refuned.
The overcharging period for Virgin Media was much shorter 22nd September 2016 to 22nd August 2017. 82,000 customers were affected to the tune of £2.8m. The average was just £34 per person, 23,500 were overcharged by more than £50 and 6,800 customers overcharged by over £100.
The problem seems to have arisen due to changes in how price offers were made, and when the shift to the welcome offer lasting the full minimum contract term was made the standard out of contract price was mistakenly used to calculate the early exit fee.
Virgin Media has refunded or made donations in relation to 99.8% of those affected and if after further efforts others cannot be identified the overpayments will be made as donations to charity.
Early exit fees at Virgin Media are now apparently lower by between 30% and 50%.
Making sure that broadband consumers can easily switch between providers is one of the key aims for Ofcom and as various alternate broadband infrastructure appears making it cheaper and simply to switch between them is important, particularly as not all retailers sell the full fibre services and as firms like Vodafone roll-out further this will become more of a problem.
One outstanding quirk that would make listing broadband packages more work but would improve consumer choice would be if Ofcom was to take a longer look at the 12, 18 and 24 month long contracts on services such as VDSL2 and ADSL2+ that still exist. Invariably the underlying VDSL2 and ADSL2+ part of the connection is on a simple 1 month term but the consumer is tied in for a long period, the benefit of the long contract is usually seen as subsidised broadband hardware and welcome offers. Offering 1 month or 3 month contracts would likely mean people paying for the broadband hardware and any migration or service activation fees and no juicy rewards but could unleash a wave of customer migrations and maybe encourage people to try out new services and if they like it then stay.
Virgin Media does offer 30 day contract options already and NOWTV was promoting its monthly contract option until recently, so some of the larger companies are trying.
The problem though is at a time when many broadband operators are investing in new networks or gearing up to do so they need to keep their churn rates down and ARPU stable, so a marketplace where people are switching a lot more could undermine investor confidence for full fibre roll-outs.
Another thing that needs solving if we are to embrace a switching market is all the e-waste this generates, sending old routers for recycling is better than landfill but for a sustainable market broadband hardware supplied by providers needs to be able to be migrated particularly when the public is staying on the same platform e.g. VDSL2.