Ofcom announced today that it has fined EE and Virgin Media a combined total of £13.3m for overcharging phone and broadband customers who wanted to leave their contracts early.

Contract law expert Christopher Bisping from Warwick Law School explains the legal context:-

"The telecoms regulator OFCOM is concerned to protect the competitiveness of telecoms markets - that is its primary function. Competitiveness is achieved by allowing customers to switch providers easily, thus incentivising providers to come up with better and more attractive offers for customers.

“In the telecoms market customers are generally quite happy to switch providers as that enables them to upgrade their hardware (mobile phone handset, wireless router etc). In order to attract new business, many telecoms providers offer reduced tariffs to new customers for a fixed period of time. Under Ofcom’s General Conditions contracts initially must not be longer than 24 months.

“If a customer wants to leave early, they have to pay exit charges to leave their contract before its expiry. In itself, that is perfectly understandable – the customer benefits from a discounted price for agreeing to stick with the provider for a certain amount of time. Ofcom’s General Conditions provide a maximum to the amount that customers can be charged on early exit; no more than what they would have paid under the contract up to its end.

"Ofcom ruled that EE and Virgin Media charged more than this permitted amount and did not inform customers of the exit charges in an intelligible fashion when they entered into the contract, or make them available on their website in a manner that was easy to find. The companies charged the customers the undiscounted price for the amount of time that they terminated the contract early.

“As a matter of contract law the view can be taken that these higher charges were not in breach of Ofcom’s General Conditions as the discount was given in exchange for the customer’s agreement to be loyal to the provider for a certain amount of time. In light of the customer’s breach of contract, the price would revert back to its standard level.

“This position would also seem in line with the recent decision of the Supreme Court on contractual penalty clauses (Beavis and Cavendish), in which the Supreme Court places emphasis on a party’s legitimate interest to stipulate a penalty, which the exit payment can be regarded as. In the telecoms situations it appears not unlikely that the providers had infrastructure investments, such as connecting a property to the cable network, or providing a subsidised handset, which are now futile.”

16 November 2018