Utility providers are subject to tight regulation in order to ensure free competition and fair dealing with the public, and if they break the rules – even inadvertently – they can expect heavy financial penalties. In one case, a communications company which mistakenly overcharged its customers received a multi-million-pound fine.

The company supplied broadband, phone and pay TV services to customers’ homes. In common with other communications providers, it levied early termination charges (ETCs) if customers decided to terminate their contracts prior to expiry of a minimum period. An error in calculating ETCs resulted in more than 80,000 customers being overcharged almost £2.8 million over an 11-month period.

After the error was corrected, the company refunded almost all of the customers who had been overcharged. It donated over £66,000 to charity in respect of affected customers whom it had been unable to trace or whose refunds would have amounted to less than £1. Although the company had made no financial gain from the overcharging, industry regulator Ofcom identified failings in its procedures following an in-depth investigation and imposed a £7 million fine.

In ruling on the company’s challenge to that decision, the Competition Appeal Tribunal (CAT) noted the steps that the company had taken to remedy the consequences of the error and that, had the ETCs been levied at the correct contractual rate, there would have been no breach of consumers’ rights.

Arguments that Ofcom had exceeded its remit and imposed an arbitrary, unfair and disproportionate financial penalty were, however, rejected. The company’s plea that the overcharging arose from a mere oversight missed the point. Shortcomings in the company’s governance contributed to the failure to swiftly spot and correct an error that had caused financial harm to thousands of consumers. Refunding them, whilst a mitigating factor, had not wiped the slate clean.

In dismissing the company’s appeal, the CAT found that Ofcom was entitled to pitch the fine at a level that incentivised future compliance by the company and deterred other communications providers from similar breaches of the rules. Ofcom’s justified objective was to ensure that appropriate procedures were put in place to prevent this type of error from occurring again.