Ofcom 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.”

A Vodafone spokeswoman said the network would need to undertake a “thorough review of the contractual relationships in its independent channels” to ensure compliance.

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.

Orange said Ofcom’s proposals “are seriously flawed and should be fundamentally reviewed” and would push more dealers into administration.

O2 suggested Ofcom could pursue irresponsible traders through existing legal avenues.

For full story see next issue of Mobile News, out Monday