27 March 2017
| Alan Burkitt-Gray
UK regulator Ofcom has fined BT £42 million for failures in its Openreach wholesale last-mile division, and BT will pay a further £300 million in compensation to Openreach’s wholesale customers.
The Ofcom investigation –
provoked by an official complaint from Vodafone –
found that BT had misused its contract terms to reduce
compensation payments to wholesale telecoms customers when it
failed to deliver Ethernet services on time.
A Vodafone spokesperson told Capacity: "We welcome
Ofcom’s decision to hold BT and BT Openreach to
account. We hope this ruling will encourage BT Openreach to
finally drop the unacceptable practices it has used to avoid
paying compensation for late delivery of fixed fibre lines,
which have impacted businesses across the country as well as
our own 4G roll out. We look forward to improved quality of
service from Openreach in order to deliver high speed broadband
to businesses up and down the country."
Gaucho Rasmussen, Ofcom’s investigations and
enforcement director, said: "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
The period that Vodafone complained about runs for the whole of
the years 2013 and 2014. Liv Garfield was CEO from 2011 until
the end of 2013, after which she moved to head Severn Trent
Water. Joe Garner took over from Garfield but left in late 2015
to head Nationwide Building Society.
Clive Selley, who took over as CEO in February 2016, said today:
"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."
Selley said that, since he took over, "we have monitored this
area very closely, we have made improvements to how we process
and deliver such connections, and we will make sure the same
mistakes aren’t repeated in future".
He added: "This issue is unrepresentative of the vast majority
of work conducted by Openreach and we are committed to
delivering outstanding service for our customers."
It is the second piece of bad news Ofcom has delivered to BT
about Openreach this month. Earlier in the month the regulator told
the group to move Openreach into a separately managed company,
with a separate board.
Ofcom said that it had taken today’s action
because BT breached rules that address the
company’s significant market power.
BT’s contracts require it to deliver Ethernet
services within 30 working days, or pay compensation to the
The regulator added that "If BT encounters problems that
require more time to resolve, in certain circumstances it can
assume that a customer has agreed to an extension. But Ofcom
found that BT did this retrospectively over a sustained period,
to reduce the level of compensation it owed to telecoms
providers. 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."
Vodafone brought allegations to Ofcom that BT had misused its
contractual terms through the late delivery of Ethernet
services without Vodafone’s consent, and by
failing to compensate the company for these delays. BT admitted
liability, so the fine has been reduced by 30% from
Ofcom’s planned £60 million.
But BT will also be fined at extra £300,000 for failing
to provide information to Ofcom. The regulator said: "Through
this Ethernet investigation, Ofcom became aware that BT failed
to provide accurate and complete information for the original
dispute, the Business Connectivity Market Review 2016 and this
Openreach said it will be contacting all the affected
communications providers in the coming weeks and offering them
a full and fair settlement.
Estimates suggest that this will be in the region of £300
million, covering the period from January 2013 to September
2016 – longer that the period covered by
Ofcom’s investigation. Openreach says that it
changed its processes at that later point.
But the £300 million also follows BT’s
writing off of £500 million in January thanks to its
Italian accounting scandal. Both of these penalties are
expected to have an impact on BT’s results when
they are published on 11 May.
BT CEO Gavin Patterson said: "We fell short of the high
standards we expect in serving our communications provider
customers. We take this issue very seriously and we have put in
place measures, controls and people to prevent it happening
A TalkTalk executive warned: "There is nothing inherent in
legal separation that could stop it happening again.
There’s an even greater onus on Ofcom to monitor
Openreach even more closely."
Openreach "haven’t really understood how badly
they’ve damaged the relationship with the
industry", said the executive.