BT faces £342m penalty over wholesale Ethernet failings

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 behaviour."

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 company affected.

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 investigation."

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 again."

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.