BT fined record £42m over '˜serious' rules breach

BT has been hit with a record £42 million fine by the telecoms watchdog and is facing compensation costs to rivals of £300mn over delayed high-speed cable installations.

The telecoms watchdog found BT's Openreach arm had failed to pay other providers proper compensation for delays. Picture: Rod Kirkpatrick/VisualMedia/PA

Ofcom said BT’s Openreach infrastructure arm committed a “serious breach” of its rules for reducing payments owed to other providers such as Vodafone.

The telecoms giant was supposed to pay compensation after failing to deliver high-speed lines to the rival companies in adequate time.

• READ MORE: BT agrees to legally separate from Openreach division

The communications regulator has rules to curb BT’s “significant market power” to ensure competitiveness, including an obligation to provide the so-called Ethernet cables within 30 days.

The huge sum is the largest fine issued against a telecoms provider by Ofcom and almost ten times larger than the previous record, a £4.6m penalty against Vodafone last year.

Openreach said it “apologised wholeheartedly” over the incident.

Gaucho Rasmussen, Ofcom’s investigations director, said: “These high-speed lines are a vital part of this country’s digital backbone. Millions of people rely on BT’s network for the phone and broadband services they use every day.

“We found BT broke our rules by failing to pay other telecoms companies proper compensation when these services were not provided on time.

“The size of our fine reflects how important these rules are to protect competition and, ultimately, consumers and businesses. Our message is clear - we will not tolerate this sort of behaviour.”

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Compensation will now have to be paid to affected providers within 12 months, Ofcom said.

Many providers are dependant on BT’s vast network to deliver services such as broadband to customers.

Ethernet lines are often used by large businesses to ensure high speed and was said by the regulator to “underpin the UK’s communications infrastructure”.

An investigation into BT’s conduct was launched after concerns were flagged by Vodafone that it had been misusing contractual terms.

It was found Openreach had retrospectively found problems which delayed it delivering the Ethernet lines, to slash its compensation costs incurred by delays.

Ofcom said: “Not only did this harm other telecoms companies, but it was also likely to have harmed the UK businesses and consumers who rely on high quality, high-speed, broadband services every day.”

An even greater fine had been averted after the company admitted full liability, knocking 30 per cent off the overall sum. It was fined a further £300,000 for “failing to provide information” to Ofcom.

BT said it estimated the total cost of the compensation payments would be around £300m.

• READ MORE: Openreach recruiting 195 trainee engineers in Scotland

Openreach chief Clive Selley said: “We apologise wholeheartedly for the mistakes Openreach made in the past when processing orders for a number of high-speed business connections. This shouldn’t have happened and we fully accept Ofcom’s findings.”

Earlier this month, BT reached an agreement with Ofcom to legally separate its infrastructure arm Openreach.

It followed growing calls from rivals to hive off Openreach and in November the communications regulator ordered a legal separation of the firm.

HUGE FINE DWARFS PREVIOUS OFCOM PENALTIES

BT’s fine by Ofcom dwarfs all other previous penalties dished out by the regulator.

Here are some of the bigger financial sanctions Ofcom has given to both telecoms companies and broadcasters.

• ITV: £5.7m. ITV was fined in 2008 over a series of premium-rate phone-in scandals. Several shows – including Ant and Dec’s Saturday Night Takeaway – were found to have duped the public by not selecting entrants for phone-in competitions at random, instead by factors such as proximity to studios. Ofcom said at the time: “This was a thorough set of investigations which uncovered institutionalised failure within ITV that enabled the broadcaster to make money from misconduct on mass audience programmes.”

• Vodafone: £4.6m. Vodafone was punished by Ofcom for breaching consumer protection rules last year by mishandling customer complaints. It was found the provider had not credited the accounts of more than 10,000 pay-as-you-go customers after they topped up their balance. Ofcom consumer group director Lindsey Fussell said: “Vodafone’s failings were serious and unacceptable, and these fines send a clear warning to all telecoms companies.”

• TalkTalk and Tiscali: £3m. TalkTalk billed customers for services they had not received and was fined in 2011. The company’s wrongly issued bills had resulted in Ofcom receiving more than 1,000 complaints from disgruntled customers.

• EE: £2.7m. EE was found to have overcharged tens of thousands of customers and was slapped with a penalty of more than £2m in January. Nearly 40,000 customers were overcharged a total of around £250,000. 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.”

• GMTV: £2m. GMTV was given what was the largest financial penalty dealt by Ofcom in 2007 over a TV competitions scandal. The breakfast broadcaster was found to have been charging viewers to enter competitions even though they had no chance of winning. The regulator said the breaches “constituted a substantial breakdown in the fundamental relationship of trust between a public service broadcaster and its viewers”.

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