The regulatory move that the mobile industry last year warned would see networks strike off further dealers was confirmed by Ofcom last week.
The industry body will implement its revised rules on mis-selling and new enforcement programme in September 2009. Networks will be warned and given a chance to discipline retailers in breach before being fined 10 per cent of their turnover.
Ofcom’s new rules state that mobile networks and staff of direct or indirect retailers must not mislead customers, and that networks must put measures in place to prevent this.
Staff must ensure the customer is authorised to enter a contract and that they get the appropriate information at the point of sale. Networks must monitor that cashback deals where offered are not “unduly restrictive” and carry out due diligence checks on retailers.
Networks will be required to implement practices to better monitor mis-selling within nine months of the regulation being enforced.
Ofcom said the average number of complaints about mobile mis-selling over the last six months had been around 200 a month. Chief executive Ed Richards said: “Our announcements are designed to tackle misleading sales practices in landline and mobile services.”
Ofcom announced its intention to introduce such heavy-handed regulation in June last year. Industry heads claimed the move would force networks to further cull dealers as the cost of such in-depth monitoring would prove unviable.
The networks said they favoured the voluntary code, which Ofcom had branded as ineffective.
In its response to Ofcom’s proposal, T-Mobile said that given that Ofcom has relationships with larger retailers; where they are deemed to be in breach, Ofcom should deal directly with those retailers.
3 said that making the network responsible for a retailer’s failure to comply with its own regulatory responsibilities may result in networks reducing the number of indirect partners they deal with.
O2 said Ofcom should crack down on bad sales practices on a targeted basis, and “name and shame” organisations at fault.
Orange said it was not realistic to heighten retail monitoring practices within the nine months prescribed by Ofcom.
Vodafone said problems that had occurred with cashback were down to a small number of dealers. Ofcom should be more pointed in directing responsibility for situations that have caused consumer harm.
Meanwhile, Consumer Direct reports that mobile phone service agreements are the second most complained about item in the UK, behind used car sales.
Of all mobile phone related complaints in 2008 (51,400), around 10,600 are estimated to have included mobile mis-selling issues – up from 9,000 in 2007.
Ofcom estimates the current ongoing value of financial harm to consumers from general mis-selling at £21 million a year.
It estimates cashback mis-selling to cost £8 million a year. The cost of time spent dealing with mis-selling and cashback problems is £3 million per year, it said.