UK carrier avoids Ofcom regulatory action by making £2.5 million of ‘goodwill’ payments

When two companies merge, effective management of the integration of IT systems is often critical. When the systems in question control customer billing, and billing is subject to regulation, mistakes can be costly, not only in monetary terms but also in reputational damage.

The Carphone Warehouse was founded in the early days of mobile telephony (when mobile phones were so bulky you needed a car…) and built a very successful business and brand based on impartial advice and customer service. In 2003 it branched out from selling mobile handsets and contracts to selling own brand telephony and broadband products under the TalkTalk brand. Unfortunately, its experience of running retail outlets did not prepare it for the process intensive business of a retail carrier, and soon after launch it found itself on the receiving end of consumer activism with (now-defunct) sites such as ‘MyTalkTalkHell’.

TalkTalk was demerged from Carphone Warehouse in 2010, but is still living with the legacy of its £236 million acquisition of Tiscali in June 2009.

In July 2010 Ofcom opened an investigation as to: ‘whether the TalkTalk Group has contravened General Condition 11.1, which prohibits Communications Providers from billing customers for services that have not been provided’.

In November 2010, Ofcom: ‘determined that there are reasonable grounds for believing that since 1 January 2010, TalkTalk Group has contravened, and is contravening, GC11.1 by issuing bills to customers (end-users) for services that have not been provided (in particular for cancelled services).’

Ofcom then required TalkTalk to undertake a series of remedial measures and to compensate customers. Those compensation requirements were significant, and included:

  • providing refunds of all sums paid by end-users to the TalkTalk Group for which it had billed them in contravention of GC11.1;
  • in relation to any affected end-user whose credit rating has been adversely affected by steps taken by or on behalf of TalkTalk Group, or by any party, in connection with its contravention of GC11.1, taking the necessary steps to repair the affected credit rating, including but not limited to applying to have any relevant court judgment set aside and notifying relevant credit reference agencies;
  • in relation to any affected end-user against whom TalkTalk Group has instituted legal proceedings to claim monies purportedly owed, withdrawing forthwith from such legal proceedings, and paying the end-user’s reasonable legal costs in resisting the claim; and
  • paying an appropriate amount to affected end-users in respect of annoyance, inconvenience or anxiety to which they have been put.

In addition, TalkTalk suffered significant brand and reputational damage from adverse press reports. Despite TalkTalk taking significant remedial steps and paying out almost £2.5 million to 62,000 customers in refunds and goodwill payments, the matter is not yet closed and Ofcom continues to receive customer complaints and indicated yesterday that it may take further action including imposing a financial penalty.

Whilst it is easy to look at this issue as a regulatory issue, for me the wider lesson is the importance of good diligence and post-merger systems integration planning.

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