UK mobile operator Vodafone has been hit by a £4.625m fine by communications industries regulator Ofcom for “serious and sustained breaches of consumer protection rules”.

The penalty is the result of two Ofcom investigations into Vodafone which opened in June 2015 and completed today. One investigation found that 10,452 pay-as-you-go customers lost out when Vodafone failed to credit their accounts after they paid to top-up their mobile phone credit. The affected customers collectively lost £150,000 over a 17-month period.

Vodafone also failed to act quickly enough to identify or address these problems, which stemmed from the company transferring to a new billing system. Only after Ofcom intervened did the company take effective steps to stop pay-as-you-go customers from paying money for nothing, and to reimburse those affected. Vodafone also breached Ofcom’s billing rules, because the top-ups that consumers had bought in good faith were not reflected in their credit balances.

In a second investigation, Ofcom found that Vodafone failed to comply with its rules on handling customer complaints. Vodafone’s customer service agents were not given sufficiently clear guidance on what constituted a complaint, while its processes were insufficient to ensure that all complaints were appropriately escalated or dealt with in a fair, timely manner. Vodafone’s procedures also failed to ensure that customers were told, in writing, of their right to take an unresolved complaint to a third-party resolution scheme after eight weeks.

The operator has been fined £3.7m for taking pay-as-you-go customers’ money without providing a service in return; and £925,000 for the flaws in its complaints handling processes. The money, which must be paid to Ofcom within 20 working days, will be passed on to HM Treasury.

The penalties incorporate a 7.5 per cent reduction to reflect Vodafone’s agreement to enter into a formal settlement, which will save public money and resources. As part of this agreement, Vodafone has admitted the breaches. It has also reimbursed all customers who faced financial loss, with the exception of 30 whom it could not identify, and made a £100,000 donation to charity.

Money for nothing
In its investigation into the pay-as-you-go problems, Ofcom found that Vodafone took money from pay-as-you-go customers but provided nothing in return. This was as a result of problems that occurred when Vodafone moved customers to a new billing system.

Vodafone disconnects inactive pay-as-you-go accounts after a certain period of time and recycles the numbers, a common practice in the industry. Where a pay-as-you-go phone has not been used or ‘topped-up’ for 270 consecutive days, Vodafone puts the customer’s SIM card into a ‘pre-disconnection state’ for up to 24 hours, before disconnecting it from its network. During this period, customers should not be able to make calls or top-up their accounts.

Vodafone had problems transferring customer accounts to the new billing system, and so stopped disconnecting inactive SIMs from its network. Consequently, they remained in a ‘pre-disconnection state’ for significantly longer than 24 hours. Customers were able to pay for top-ups at cash machines and via other electronic methods during this period, which should not have been possible.

Although receipts confirming the success of their ‘top-ups’ were issued to some of those customers, Vodafone did not credit any of the customers’ accounts, or provide them with the services they had paid for. Nor did the credit show on customers’ account balances. This practice lasted for 17 months, costing 10,452 pay-as-you-go customers in the region of £150,000. Vodafone staff failed properly to investigate the matter and put things right.

“Vodafone’s failings were serious and unacceptable, and these fines send a clear warning to all telecoms companies,” said Lindsey Fussell, Ofcom Consumer Group director. “Phone services are a vital part of people’s lives, and we expect all customers to be treated fairly and in good faith. We will not hesitate to investigate and fine those who break the rules.”

Responding to the fine, Vodafone said in a statement: “We deeply regret these system and process failures. We are completely focused on serving our customers: everyone who works for us is expected to do their utmost to meet our customers’ needs, day after day, and act quickly and efficiently if something goes wrong. It is clear from Ofcom’s findings that we did not do that often enough or well enough on a number of occasions. We offer our profound apologies to anyone affected by these errors.”

Vodafone blamed the failures on “a consequence of errors during a complex IT migration which involved moving more than 28.5m customer accounts and almost 1bn individual customer data fields from seven legacy billing and services platforms to one, state-of-the-art system”. Despite controls it put in place to reduce the risk of errors, it said, a small proportion of individual customer accounts were incorrectly migrated, leading to mistakes in the customer billing data and price plan records stored on the new system.

The statement concludes:  “This has been an unhappy episode for all of us at Vodafone: we know we let our customers down. We are determined to put everything right. We are also confident that our customers are already beginning to see the benefits of our substantial investment in new systems designed to meet their needs much more effectively in future.”