Ofcom proposals “will send dealers to the wall”

The networks are preparing a massive overhaul of their indirect channel relationships to make way for Ofcom’s General Condition 23 this summer.
General Condition 23 was announced by Ofcom in March in response to mis-selling and cashback. Under its terms, networks will be made liable for the practices of third parties, and penalised up to 10 per cent of their annual turnover for failing to keep their sales channels in line.
Networks will be required to carry out checks on retailers; to ensure customers are fully informed of contracts they enter into and the cashback terms they sign up for are fair.
Ofcom is to consider feedback from all five networks, plus Virgin Mobile, BT, the Citizens Advice Bureau, Office of Fair Trading, local councils, trading standards bodies and certain individuals. The condition is expected to be made part of the Communications Act by the summer.
But the networks last week labelled the condition unreasonable and unworkable.
3 said the basic initial cost of introducing a team to monitor dealer activity would be upwards of £1 million, and suggested it would force it to slash the dealer channel further.
3 director of indirect sales Bernie O’Beirne said: “We fear the regulatory burden will force us to make some tough choices about the scale of the businesses we trade with.
“If the risk lies solely with operators, then smaller dealers, especially ones that trade intermittently, are likely to become unviable. The unintended result of Ofcom’s condition could send many dealers to the wall.”
3 head of regulatory and public policy Julie Minns added: “Once formal regulation is introduced the cost of compliance goes up and that cost has to be recovered from somewhere.
“For the first time, one business will become legally responsible for the compliance of another within general consumer law. We’re not set up to take on that sort of responsibility, and in a number of cases, these businesses could be our high street competitors.
“We’re not belittling how painful cashback and mis-selling has been, but its a small proportion in a market of more than 70 million customers.
“Intervention from a regulator has to be proportionate and targeted. Ofcom should be using its powers to go after retailers who mis-sell, rather than introduce new regulation that will hit everyone.”
A Vodafone spokeswoman said the network would need to undertake a “thorough review of the contractual relationships in its independent channels” to ensure compliance.
Vodafone regulatory affairs manager Richard Sullivan said: “This approach does not provide encouragement that Ofcom will seriously encourage or promote self-regulation. Vodafone believes Ofcom could, and should, have worked with mobile operators for longer to sort out any perception of unevenness in the code’s application,” it said.
T-Mobile said the cost of due diligence obligations would be “extremely high and disproportionate”, and one networks would have to bear on Ofcom’s behalf.
“T-Mobile cannot physically police every transaction; it can only enforce General Condition 23 through its commercial contracts with retailers.”
Orange said Ofcom’s proposals “are seriously flawed and should be fundamentally reviewed” and would push more dealers into administration. “Orange strongly regrets Ofcom is simply adopting the easy approach of a new General Condition, rather than thinking and working more imaginatively to address the problems,” it said.
O2 suggested Ofcom could pursue irresponsible traders through existing legal avenues.