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Over the last fortnight there have been a litany of connectivity faults preventing users getting online. First up was a power outage at TeleCity on the 20th July, followed by a failure at Telehouse North the very next day. Zen then suffered an outage that affected its DSL and leased line Internet services, and this week Sky’s fibre network was hit with an unusual routing problem and Virgin Media suffered a major fibre break. No business – no matter how big or small – is immune from faults that affect service delivery.

The outages that affected central infrastructure (TeleCity, Telehouse North and Virgin’s fibre break) impacted everyone in the supply chain. Some of our partners’ customers were unable to get online, along with the retail customers of BT, Plusnet and others, for several hours. There wasn’t anything we could do to physically fix the issues as the repair work was under their control; we could only keep our customers informed and manage their dissatisfaction as best we could. But the experience got us thinking: if Ofcom’s proposals for automatic compensation had been in place, how much happier would affected customers have been, and whose pocket would be feeling the pinch?

The proposals

Ofcom first announced its intention to introduce automatic compensation in February as part of its interim conclusions of the once-in-a-decade Strategic Review of Digital Communications. This was followed by a six-week consultation from the 10th June to the 22nd July. Although full details are yet to be published (the consultation has only been closed for two weeks), we know that Ofcom’s aim was “to protect consumers from the adverse impacts that service quality problems can cause, particularly when the quality they receive is not in line with reasonable expectations at the point of purchase, by ensuring they receive compensation quickly and easily. In addition, [Ofcom expects] automatic compensation to provide incentives for communication providers to improve overall service quality”.

While Ofcom’s aims are noble (although perhaps influenced by Government a tad – automatic compensation is also a major policy of the proposed Digital Economy Bill), we do have our concerns.

Defining an important communications failure

The call for input that Ofcom released at the start of their consultation says that “when important communications failures happen, the disruption and difficulties caused can be significant and on a par with a power cut or a loss of water supply” [our emphasis] suggesting that this will be the focus of any automatic compensation payment. Yet, what one residential customer considers important is very different from what another thinks is important, which is very different again from what a business owner thinks is important. Just how do we define whose version of ‘important’ is valid? Is a simple inability to get online a valid reason for compensation, or do outages need to last for multiple hours to qualify?

Who is liable?

Ofcom’s document says “Automating the payment of compensation… should ensure that customers are compensated quickly by their retail provider…” [our emphasis] suggesting that it’s the first line supplier who’s responsible for making the compensation payment. In the case of the outages we’ve experienced over the last couple of weeks, end-users would be claiming from their ISP (i.e. Entanet’s reseller partners) even though the issues were not in their direct control. To us this seems the equivalent of asking your car salesman to pay you compensation because the road you wanted to drive on has been closed due to an accident…

The danger of making first line suppliers bear the brunt of compensation payments is that the smaller ISPs could be forced out of business thereby reducing competition – which we’re sure Ofcom wants to avoid – unless there’s an agreement in place between the wholesaler and reseller to have the compensation payment reclaimed up the supply chain.

Cost and frequency of payments

Then we get to the issue of the logistics of making payments. Any compensation to be paid will need to be set at sensible levels, otherwise the consumer will find it a pointless exercise. So, should levels be set at a percentage of a customer’s monthly fee, or a fixed amount based on the gravity of the issue? Here the issue becomes bundles. If a fault affected just one element of the bundle, how do you calculate the percentage of the monthly fee that’s attributable to the affected service? Or do you end up paying compensation for the whole bundle?

Another question we have is how should payments be made? As one-off payments or smaller instalments? While smaller ISPs might prefer an instalment-based process in order to manage cashflow, the cost of making payments may well exceed the level of compensation to be paid in the first place. In any event, we’d assume that the customer would want a single payment to be made.

Increasing the cost to the consumer

Of course, one way to manage compensation payments is to ensure that all suppliers have a dedicated fund available for such payments. This is OK if you’re BT and have cash in the bank, but if you’re an SME you’re much less likely to have capital just lying around. This could mean that small businesses are unable to invest in their own development, reducing competition, or quite simply that the cost of providing compensation is passed onto consumers through higher installation or monthly rental fees, which clearly isn’t in the consumer interest.

Is this just a complete waste of time?

Our biggest concern is that the time that the industry has spent in considering and responding to these proposals could be a waste of time. Ofcom themselves recognise that “over 80% of fixed line, broadband and mobile consumers are satisfied with their services” and “it is perhaps unsurprising that when a communications service fails, the consumer’s main concern is getting the issue fixed as soon as possible”. So if all of this is to satisfy a minority of a minority, why is the status quo where a consumer who actively wants compensation asks for it, no longer good enough? Why are we diverting our attention away from just providing a good service and dealing with problems as and when they arise? Ofcom – you’ve got some explaining to do.

Have your say!

Did you respond to Ofcom’s Consultation? Whether you did or didn’t, we’re interested to know what you think about the proposals for automatic compensation. Do you think it’s a good idea, given that it puts the consumer first, or does more thought need to be given in terms of the impact on our industry? Let us know by leaving a comment below.

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One Response to “Where there’s blame there’s a claim – really?”

  1. Being an Entanet reseller, I agree that to make us responsible for any compensation is ludicrous. We supply PSTN and ADSL/FTTC connections to our clients as an add on service and in the best case make £1-5 per month.

    If the client lost the internet connection for a couple of days, would a few pounds compensation satisfy them? I do not think so.

    A client being supplied a simple ADSL for £20 per month using VoIP, losing internet access stops their business dead, so compensation of a for pound is not going to cut it. Possibly there will need to be “Internet loss” insurance, but this is not likely to be cheap, so would stop reseller in their tracks, so the reseller program at Enta would be be killed. This would leave everyone to the mercy of BT, Sky and the other big suppliers.

    Lets hope Ofcom take consideration of the small telecoms companies.

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