The regulator Ofcom has fined Vodafone £4.6m for "serious" breaches of consumer protection rules, after the company was found to have charged customers without providing anything in return, and breaking the rules on handling customer complaints.

Dr Andreas Kokkinis from Warwick's School of Law provides expert comment on the story.

"I think that this was a clear case of breach of contract by Vodafone as they did not do what they were contractually obliged to do (i.e. top up the customers’ credit). Apart from returning the money, customers are prima facie entitled to recovery of any other damage they suffered resulting from the event.

"As a matter of good practice, Vodafone might as well offer some additional relief perhaps in kind (such as free or discounted services for some period of time).

"The fine is an example of how regulated industries work. The regulatory authority has a mandate to protect customers and has thus imposed a considerable fine. However, in oligopolistic markets (Vodafone has a significant market share in the UK) it is likely that such fines will in the long-term (at least partially) end up being added to the cost of services for customers.

"Also the fine illustrates the importance of regulatory theory, as it assumes that Vodafone rationally chose to make this breach and thus the punishment will act as a disincentive. But if Vodafone was merely incompetent the fine may not help as much as it will reduce the resources available to tackle the lack of competence.

"From a corporate governance perspective Vodafone’s failure illustrates problems around boards of directors maintaining effective oversight of large companies. Due to the bad publicity and the fine this situation is clearly not in Vodafone’s shareholders’ interests and it was thus the duty of the board to have prevented such failings."

26th October 2016

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