Ofcom’s latest proposals to clean up cashback and put a stop to mis-selling have provoked comments from the networks that could signal trouble for dealers and distributors.
Ofcom wants operators to be responsible for the deals offered by their independent retailers, but operators think Ofcom is asking too much.
The regulator has to perform a balancing act; making sure consumers are protected, and at the same time promoting healthy and fair competition in the marketplace. Of late, Ofcom has come under fire from policy makers in Europe and Westminster, who have accused it of being too weak in its dealing with operators.
Ofcom’s director of consumer policy, Claudio Pollack (pictured) is the man tasked with keeping both sides happy. He is clear about his views on the voluntary code that was signed by the operators at the end of July, with the aim of stamping out dodgy deals.
‘We gave the voluntary code plenty of time. The voluntary approach does not give enough protection for consumers, and there is still very much potential for harm.
‘Complaints levels haven’t gone down. There is evidence of continuing harm, and there is a risk,’ he says.
Ofcom says that complaints have continued to grow at the same level since the introduction of the code, and the number of complaints in February 2008 exceeded those in July 2007.
Since the voluntary code was introduced, a number of cashback retailers have gone bust, including Dialamobile, Click, Ikohi, Mobile Media Systems, Simply 3G and Mobile Outlet. Operators say the demise of these now infamous retailers is evidence of the code’s success, and that the code should be been given more time to weed out any lingering nefarious dealers.
However, Pollack has one eye on the future and he says there is no guarantee that the situation won’t deteriorate further. ‘What happens in a year’s time when people have forgotten a bit about all the fuss there was over mis-selling, cashback difficulties, slamming and then a new problem emerges?
‘We don’t have any kind of mechanism to oblige [operators], so that was the key driver in our proposals: to say when things do go wrong we must have the ability to act and take steps to change behaviour - I think that’s absolutely vital.’
After reviewing the effectiveness of the voluntary code, a proposal document was drawn up, which included a General Condition that will require operators to not engage in dishonest or misleading conduct, to make sure customers know what they are getting into, to ensure cashback terms are not restrictive and to carry out due diligence checks on dealers. Those that breach the terms could be fined 10% of their relevant turnover.
Unsurprisingly, operators don’t want the responsibility of policing the independent channel. As well as saying the voluntary code wasn’t given enough time, they say the terms of Ofcom’s proposals will cost them time and money, and they are threatening to take it out on their industry partners.
The Mobile Broadband Group (MBG), which represents the interests of all five networks and Virgin Mobile and was one of the signatories of last year’s voluntary code, said it welcomed the ‘thoroughness’ of the review, but said it had ‘serious concerns’ about some of the proposals.
MBG’s complaints centre on what it describes as the potential cost and inefficiency of multiple operators regulating the same independent dealer.
Most worryingly for the smaller dealer on the high street, the MBG said: ‘It is almost certain that it will make it less viable to do business with the smaller independent outlets, as the costs of monitoring General Condition 23 will exceed any potential business benefit.’
Vodafone has similar concerns. In its response to the proposal document, it too said ‘the costs of monitoring entailed in GC23 could exceed potential business benefit’.
It is not just the ‘extremely high and disproportionate’ cost, but the scope of the requirements that has prompted operators to stamp their feet. 3 says ‘it would not be possible to confirm that every supermarket checkout assistant was aware of their conduct requirements under the code’, while Orange complains that it ‘cannot review every one of their terms and conditions for every sales incentive nor review all of their advertising material’.
3 takes it one step further and claims that distributors will also be adversely affected, as they will no longer be responsible for managing their own stockists. The consequence would be that 3 may have to reduce the number of distributors and retailers they deal with so they can meet the requirements of the proposed regulation.
And in a pointed statement reminding Ofcom of its duties, 3 adds: ‘This would result in a potential reduction of competition and consequently consumer choice.’
Operators continually reassure the independent retailers that they are a valuable part of their operation, but over the past year they have all made efforts to increase their own retail presence, and direct-only deals still dominate their window displays. Could Ofcom be a convenient scapegoat for their abandonment of the independent sector?
Concern for independent dealers
Pollack says that causing damage to the independent sector is a concern. ‘We think it’s vital in any market that there is diversity of offering through different channels. Consumers don’t all want to purchase or seek advice from the same kind of operator,’ he says. ‘Having diversity of outlet is important so long as, as a consequence, it does not have a route in to scam them or cause them direct harm.’
Pollack thinks that alternatives to the proposals could have been worse for the independent sector. In its proposal, it warns that it had considered two other options: banning cashback and making operators responsible for paying it.
‘Generally, the view is that we’ve got it right and that we did need to go to a mandatory approach. We need to focus on efforts to stop the harm without interfering with those relationships that are delivering value to consumers. For that reason, I think we’ve got it right.’
Ofcom’s consumer chief adds that the proposals don’t differ that much from the code, and that those who are already enforcing it won’t have too much to worry about.
The plans for regulatory intervention have not only set operators against the regulator, it has also prompted a confrontation between networks and consumer groups. 3 blames the Office of Fair Trading and Trading Standards for ‘not effectively using their existing enforcement powers to prevent such activities’.
While operators are concerned that the two-month implementation period is too short, the Citizens Advice Bureau urges Ofcom to ‘implement change quickly’. London Trading Standards thinks the plans are not severe enough and has called for more robust measures, including redress for cashback sufferers.
Pollack says that he would like to see customers owed cashback helped out by networks, but he admits Ofcom is powerless to force them into action.
‘Under the Communications Act we set General Conditions of entitlement which [operators] must comply with to operate in the market. They only apply to a category of companies called electronic communications providers. Our powers only apply to electronic communication providers, not to retailers, so we cannot impose sector-specific regulation against them.’
A lack of statutory power is scant consolation for customers left with high bills and no cashback