Universal Utilities Ltd/Unicom hit by £200,000 Ofcom fine
Who: Ofcom, Universal Utilities Ltd
When: 29 July 2015
Law stated at: 13 August 2015
Communications service providers are required to avoid misleading advertising which breaches the CAP and BCAP Codes, and also avoid breaching legislation such as the Consumer (Protection from Unfair Trading) Regulations 2008 and the Business Protection from Misleading Marketing Regulations 2008.
As regulated entities, they are also subject to communications regulator Ofcom’s General Conditions of Entitlement (the “General Conditions”). There are a number of General Conditions, including General Condition 22.3 which is a specific prohibition on mis-selling. This prohibits a number of practices such as dishonest, misleading or deceptive conduct, aggressive conduct, inappropriate methods of contacting customers, and so-called “Slamming” – instigating a transfer of the customer’s service without their valid authority to do so.
The consequence of this is that complaints regarding misleading marketing or mis-selling in this sector can potentially also trigger Ofcom investigations and penalties, as provider of telecoms services Universal Utilities Ltd found to its cost this July.
Universal Utilities (“UU”), which trades under the “Unicom” brand, was fined £200,000 by Ofcom and made subject to a number of other requirements as a result of a finding of mis-selling landline telephone services to small businesses following an Ofcom investigation. UU was found to have been using sales processes that misled prospective customers as to the charges that they would be likely to face if switching to Unicom’s services.
In a press release, Ofcom stated that UU had been found to mislead over the course of just over a year from 1 March 2013 until 8 July 2014 by using sales processes that gave some prospective business customers a misleading impression about costs they could face, specifically:
- the impression it gave about early termination charges for which the prospective customer would be liable if leaving its existing provider, and
- that it had misled some prospective customers that transferring their landline service to Unicom would not affect their existing broadband services.
In addition to the fine, the regulator imposed a number of other requirements on UU, which was ordered to:
- pay compensation to any customers who were misled and allow them to exit their Unicom contract penalty-free,
- cover the cost of any reconnection charges to their previous provider,
- update its policies, procedures and marketing and sales materials so that these comply with Ofcom rules, and
- provide additional training to sales staff and introduce a system to monitor the compliance of Unicom agents.
In a response to Ofcom’s ruling, published on the Unicom website, UU notes that it had been “constructively engaged with Ofcom on a number of points and [was] pleased that there were not adverse findings relating to three of the four areas listed in the original investigation notice”. The company also indicated that it was disappointed with Ofcom’s conclusion on the fourth area but recognises that it “fell short of expectations for a limited number of landline customers” and is taking steps to make sure that this does not happen again.
Why this matters
The action by Ofcom is a salutary reminder that the stakes for getting sales and marketing processes wrong for businesses operating in regulated areas can be even higher than usual. While there clearly remains a commercial need to differentiate and vigorously promote products in competitive markets, the desire to do so should always be balanced with ensuring that how products are sold remains within legal and regulatory requirements.
Many high profile misleading marketing cases involve consumers, however businesses should also remember that – as this instance shows – risks still apply to B2B marketing, and appropriate levels of diligence and compliance checks should also be given to campaigns or marketing targeting business.
Businesses should ensure that all business areas including sales teams are fully briefed on what claims can or cannot be made, and that marcomms are regularly audited to ensure that the messaging that is set out in policy reflects what is being delivered to potential customers in reality.
Thomas Spanyol Associate