They say elephants have long memories so they do not lose their way as they walk through the forest. Perhaps Ofcom, the UK comms regulator, needs to employ some elephants because they repeatedly say the same thing to telcos and consumers: overcharging is not acceptable. Or maybe the telcos need to employ elephants, because they are regularly found to be overcharging customers, despite all those warnings from Ofcom. Instead of walking the line on charging accuracy, both the regulator and the regulated are going around in circles, rather like goldfish in a bowl. This was confirmed, yet again, by last week’s announcement that EE and Virgin Media have both been fined for overcharging customers.
Gaucho Rasmussen, Ofcom’s Director of Investigations and Enforcement, said: “EE and Virgin Media broke our rules by overcharging people who ended their contracts early. Those people were left out of pocket, and the charges amounted to millions of pounds.
“That is unacceptable. These fines send a clear message to all phone and broadband firms that they must play by the rules, in the interests of their customers.”
EE was fined GBP6.3mn (USD8.1mn) after 400,000 customers were found to have overpaid contract termination charges by GBP4.3mn (USD5.5mn) in total. EE’s fine was reduced by 30 percent because they admitted they were at fault and agreed to settle. The fine for Virgin Media was GBP7mn (USD9mn), after they were blamed for almost GBP2.8mn (USD3.6mn) of overcharges applied to the accounts of nearly 82,000 customers. However, Virgin Media issued a press release stating they would appeal, and that the fines are “not justified, proportionate or reasonable”.
I have no idea why Ofcom thinks it clever to link two separate enforcement cases by making a single announcement that covers them both. Are they trying to reduce the number of negative headlines for the telecoms industry by fining different companies at the same time? That would help the regulator to maintain the impression of being tough without drawing attention to how often its rules are ignored. Rather than demonstrating consistency, this announcement illustrates the arbitrary way that Ofcom issues fines. EE made the larger error, which affected more customers, but received the smaller penalty. Partly the difference reflects how much each telco is prepared to battle the regulator, and how they choose to fight. Virgin also received an additional GBP25,000 (USD32,000) fine for not meeting its obligation to disclose information to Ofcom.
Virgin Media provided incomplete information to Ofcom about one of its internal pricing projects and the extent to which it had involved a review of early-exit fees. Ofcom has statutory powers that require companies to provide information that we consider necessary for the purpose of carrying out our functions. Where the information provided in response to such requests for information is inaccurate, incomplete or not provided by the deadline set by Ofcom, we consider these matters to be serious as they can adversely affect Ofcom’s ability to carry out its functions.
Industry insiders will appreciate that when Ofcom asks for ‘complete’ and ‘necessary’ information this means Ofcom has made vaguely-worded general requests because they literally do not know what they need to know. Part of the blame for that lies with Ofcom mandating recurring regulatory audits of charging accuracy that fail to collect the kinds of information that would have been useful in these investigations. Every significant telco is audited, but these audits never seem to gather the kind of evidence relevant to the separate ‘investigations’ that Ofcom launches whenever overcharging comes to light. What is a charging audit supposed to be, if not a systematic and proactive investigation of whether the charges are correct? The routine failure of these audits means that serious errors only come to light when customers complain about them. Punishing telcos for not providing complete information is hence vital to ensuring Ofcom obtains the information that regulatory auditors failed to gather, without admitting to fundamental flaws in the way those audits are conducted.
Any professional who specializes in dealing with mistakes made by telcos when charging customers will find the errors made by EE and Virgin to be tediously familiar. EE offered discounts on their standard tariffs but then applied early termination charges that were calculated using the standard numbers, thus penalizing customers as if they had agreed to pay a higher rate than was actually written into their contract. Virgin’s mistake was relatively similar in that they lowered the standard tariffs for customers who already had a contract, but continued to calculate exit fees based on the older, higher rates.
It does not take a rocket scientist to calculate that the amount of revenue being lost when a contract is terminated early is reduced if the monthly fee has been reduced. The failure to update calculations like this has nothing to do with system glitches, or business complexity, or all the other excuses that telcos make from time to time. These mistakes reveal a slovenly, slapdash, lackadaisical attitude to calculating what customers owe. These errors are easy to spot and easy to prevent. They occur because not a single employee ever thought to check for them.
Virgin was as careless as EE, but chose to go on the offensive, pleading they had only overcharged a “small” percentage of its customers. Screwing up the bills of 1.5 percent of all customers does not sound like a small mistake to me, especially when the error could have been avoided so easily. This is also a strange metric to apply when the relevant charges were only incurred by those customers who terminated services early. Virgin systematically overcharged customers for 11 months in a row, with the result that 23,500 were overcharged by more than GBP50, and 6,800 were overcharged by more than GBP100. But Virgin Media CEO Tom Mockridge complained that Ofcom had not given Virgin credit for the “swift action” his team took “as soon” as they became aware of the mistake!
It is a shame that Mockridge cannot be made to face the 6,800 customers overcharged £100 because they decided not to use Virgin’s services any more. Many of them received no compensation, as they canceled their service because they were moving home, and had other things to worry about than checking bills. If these former customers knew the truth, they might be tempted to swiftly apply their boots to this CEO’s backside, because he clearly needs a “small” kick up the arse from somebody.
Limited choice means Virgin can afford to be aggressive towards the regulator and customers; many customers will find the alternatives to be just as dire. However, the executives may come to regret their belligerence. This is the company that used to be known as NTL Telewest, which had a wretched reputation and thus opted to change its brand following a merger with Virgin Mobile. Now they risk ruining the Virgin brand too. Though overcharging is not the same as choosing to set high prices, it suits regulators to crack down on telcos accused of both, and the distinct ethical issues are usually confused when the press takes an interest. As a consequence, it is hardly a surprise that the BBC is currently pushing an interview with a former Virgin customer who described his exit charge as ‘outrageous’. The BBC seemingly followed the lead of ThisIsMoney.co.uk, which a few weeks earlier had run an article about a different Virgin customer with the same complaint about the same early termination fee of GBP240 (USD310). Exit fees generate good revenue because most customers do not worry about them when signing a new contract, but continued publicity like this will dampen the enthusiasm for Virgin amongst prospective new customers.
Virgin clearly has problems which cannot be solved by getting Richard Branson to do something stupid and diverting. However, they are not alone in deciding they could wait to learn how they are mistreating customers instead of making the proactive effort needed to ensure charges are correct. It is no surprise that a telco like Virgin feels bold enough to challenge Ofcom, because the regulator’s approach to charging accuracy has always been a joke. Gaucho Rasmussen has a memorable name, and we should look forward to hearing from him again, but this latest Ofcom messenger fails to remember all the other times that Ofcom sent similar signals. For example, there was the time when Plusnet was fined GBP880,000 (USD1.1mn) for overbilling…
Lindsey Fussell, Ofcom’s Consumer Group Director, said: “There can be no margin for error, and no excuses, when it comes to billing customers correctly.”
“This fine should serve as a reminder to telecoms companies that they must adhere to Ofcom’s billing rules at all times, or face the consequences.”
Or there was the time when Vodafone was fined GBP4.6mn (USD5.6mn)…
Lindsey Fussell, Ofcom Consumer Group Director, said: “Vodafone’s failings were serious and unacceptable, and these fines send a clear warning to all telecoms companies.
“Phone services are a vital part of people’s lives, and we expect all customers to be treated fairly and in good faith. We will not hesitate to investigate and fine those who break the rules.”
And you would think both Ofcom and EE would remember the time that EE received a GBP2.7mn (USD3.3mn) fine for overcharging…
Lindsey Fussell, Ofcom’s Consumer Group Director, said: “EE didn’t take enough care to ensure that its customers were billed accurately. This ended up costing customers thousands of pounds, which is completely unacceptable.
“We monitor how phone companies bill their customers, and will not tolerate careless mistakes. Any company that breaks Ofcom’s rules should expect similar consequences.”
Poor Lindsey Fussell appears to have worn herself out with all these warnings, forcing Rasmussen to read from her script without explaining why he believes the telcos will listen more attentively this time. It is meaningless for a regulator to say that errors are ‘unacceptable’ or ‘intolerable’ when the regulator’s actions confirm that these errors are part of a recurring cycle of behavior. For decades the regulator has had a rule, now known as General Condition C3, which says it…
…aims to ensure that customers of communications providers are not overcharged and that they receive the services they are charged and pay for…
The regulator’s aim must be faulty, because decades of enforcement and audits have not even motivated telcos to perform even the simplest checks on how they calculate relatively large charges. An example of a simple check would be arranging a 15-minute meeting of relevant staff where they list all the customer charges which will be affected by a fundamental change of tariffs, and then assign responsibility to managers for making sure the necessary updates to calculations are implemented in practice! Such basic procedures appear to be beyond the wit and sophistication of both Ofcom and the telcos they regulate. And if that is true, then the only way forward for this gaggle of nincompoops is to ratchet the fines higher and higher until CEOs recruit staff with the intellect and authority to genuinely ensure things are done correctly from the very beginning, instead of complacently waiting to hear about the mistakes they made a year earlier.
All of this has happened before, and I dare to forecast it will happen again, and again, and again. My confidence in predicting the future stems from my recollection of the past. I wrote about the need for a collective memory for revenue assurance almost exactly 10 years ago:
…if revenue assurance does not develop a collective memory, it is doomed to ask, and answer, the same questions over and over.
In 2008 we needed a collective solution to a common problem, and we still do. Back then the UK had a lousy approach to auditing the accuracy of consumer phone charges, and it still does. Telcos need to come together to solve common issues, and the urgency needs to increase precisely because we have known about these problems for so long that we have become used to them, and so have lost the motivation to make essential changes. One critical and obvious change that should become the industry norm is to set the scope of work for revenue assurance and charging accuracy functions so they are responsible for covering every charge presented to every customer, instead of covering some charges in a piecemeal fashion and then ignoring the others. Ofcom is right to say errors are unacceptable, but these words have become camouflage for the truth: most telcos do accept these errors, and the regulator’s desultory audits have encouraged business practices that should have been deemed inadequate.
I have posed a problem – how to generate a memory for revenue assurance – for which I have no answers. Anyone care to make a suggestion? I promise, whatever answers you give, I will not let them be forgotten ;)
The need was there, but the answers have not been forthcoming. Thankless tasks soon become somebody else’s problem. As a result, UK telcos have not developed the collective memory they needed. Good RA staff may remain in their roles for a while, but others come and go, whilst proving unable to persuade their telcos to invest in a legacy of steady improvement. The UK’s regulator is certainly not learning from past experience, which is why they continue to back the same solutions to the same old problems, with the only innovation being their increased willingness to fine telcos, although this begs the question of how the fines are determined, when they are imposed, and why so many mistakes have never resulted in any punishment.
In the meantime, vendors have lost interest in revenue assurance, so they will not help provide a solution. Have you noticed how they talk so much more about fraud these days, as if the RA systems they previously sold have resolved all known errors with charging? Having an RA system is no substitute for common sense and real responsibility. The charging errors made by EE and Virgin would not have been detected by an RA system; this is evidence that revenue assurance controls are inadequate because the scope of RA is being defined too narrowly. RA teams who fail to appreciate this fact deserve to become obsolescent as voice usage revenues decline. Who needs an RA team that methodically tracks calls that are only worth pennies, but ignores the £100 mistakes applied to thousands of bills?
Vendors are not doing enough to develop this industry’s memory of past mistakes, and I do not expect they ever will. But who should be held responsible for this vital undertaking? Is it the CEO of Virgin Media? Is it Ofcom? Is it you? Is it me? The answer is that the responsibility is as vague as a request for information from the regulator, with the result that it falls to all of us, and so belongs to none of us.
Revenue assurance and billing accuracy are already being treated like old slow-moving elephants, shuffling their way to the graveyard. Our industry prefers to talk about agile younger creatures, like machine learning and analytics. Some supposedly ‘mature’ telcos perceive no need for further investment in revenue assurance, because they believe that all the important work has already been done. These charging errors show why that belief is false. But unlike elephants, the industry forgets how it came to be where it is. And that is why those of us with memories must question if the herd is making any progress at all.