Notification to Talktalk Telecom Limited and Tiscali UK Limited of a Penalty Under Section 96 of the Communications Act 2003

Notification to TalkTalk Telecom Limited and Tiscali UK Limited of a penalty under section 96 of the Communications Act 2003

Notification served on TalkTalk Telecom Limited and Tiscali UK Limited (the “TalkTalk Group”) by the Office of Communications (“Ofcom”)

This is the non-confidential version. Confidential information and data have been redacted and the Annexes are omitted. Redactions are indicated by []

Issue date: 17 August 2011

Contents

Section Page

Notification to TalkTalk Telecom Limited and Tiscali UK Limited of a penalty under section 96 of the Communications Act 2003 2

Explanatory Statement

1 Explanatory Statement 6

2 Background 10

3 Ofcom’s decision on further action 55

4 Determination of the amount of penalty 77

Annex Page

5 Table of Annexes 133

Notification to TalkTalk Telecom Limited and Tiscali UK Limited of a penalty under section 96 of the Communications Act 2003

Subject of this Notification

1.1 This Notification is addressed to TalkTalk Telecom Limited (“TalkTalk”), whose registered company number is 04633015, and Tiscali UK Limited (“Tiscali”), whose registered company number is 03408171 (together, for ease of reference in this Notification and the Explanatory Statement that follows, the “TalkTalk Group”).

1.2 It notifies them of the imposition by the Office of Communications (“Ofcom”) of the following penalties under section 96 of the Communications Act 2003 (“the 2003 Act”):1

a) on TalkTalk, a penalty of £1,524,728; and

b) on Tiscali, a penalty of £1,512,392,

giving a total penalty of £3,037,120 for the TalkTalk Group. Ofcom imposes these penalties for their contravention of General Condition 11.1 (“GC11.1”) between 1 January and 1 November 2010 notified to them in a notification pursuant to section 94 of the 2003 Act, in respect of 62,055 End-Users.2

Background

1.3 On 1 November 2010 Ofcom issued to the TalkTalk Group, under section 94 of the 2003 Act, a notification (the “s94 Notification”) that Ofcom had reasonable grounds for believing that since 1 January 2010 to the date of that Notification, the TalkTalk Group (both TalkTalk and Tiscali) had contravened, and was contravening, GC 11.1.

1.4 GC11.1 provides that:

“The Communications Provider shall not render any Bill to an End-User in respect of the provision of any Public Electronic Communications Services unless every amount stated in that Bill represents and does not exceed the true extent of any such service actually provided to the End-User in question.”

1 As explained in the following Explanatory Statement, the provisions of the 2003 Act, in particular sections 94 – 97, as they applied prior to their amendment on 26 May 2011, continue to apply in this matter. 2 The definition of whom is set out in the following Explanatory Statement. 2

1.5 Ofcom determined, specifically, that we had reasonable grounds for believing that the TalkTalk Group had contravened, and was contravening, GC11.1 by issuing Bills to End-Users in which the amount stated does not represent, and exceeds, the true extent of any relevant service actually provided to the End-User in question. The reasons for Ofcom’s determination were set out in the Explanatory Statement accompanying the s94 Notification.

1.6 In accordance with section 94 of the 2003 Act, the s94 Notification provided the TalkTalk Group with an opportunity of doing the following things:

a) making representations about the matters notified;

b) complying with GC11.1; and

c) remedying the consequences of the notified contravention (or to make representations to Ofcom about how it proposes to remedy the consequences arising from its contravention of GC11.1 by a specified date to be agreed with Ofcom, which Ofcom was not bound to accept).

1.7 Pursuant to section 94(4) of the 2003 Act, Ofcom specified a period of one month (the “Opportunity Period”), during which the TalkTalk Group had the opportunity of doing those things referred to in the previous paragraph.

1.8 The deadline for the TalkTalk Group’s representations was 5.00pm on 2 December 2010. Ofcom received written representations from the TalkTalk Group on 30 November 2010.

1.9 Ofcom considered these representations and conducted further investigation. On 4 July 2011 Ofcom served on the TalkTalk Group a provisional notification of a possible penalty under section 96 of the 2003 Act (the “Provisional Notification”). The Provisional Notification set out Ofcom’s preliminary view that we should impose on the TalkTalk Group a penalty under that section in respect of the Group’s contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End-Users.

1.10 It also set out the preliminary view that a penalty of []% of their turnover for relevant business between 1 April 2009 and 31 March 2010 should be imposed on each of TalkTalk and Tiscali. That is, £2,179,440 for TalkTalk and £2,160,560 for Tiscali, giving a total of £4,340,000 for the TalkTalk Group. The reasons for Ofcom’s provisional determination were set out in the Explanatory Statement accompanying the Provisional Notification.

1.11 The Provisional Notification gave the TalkTalk Group until 1 August 2011 to make written representations to Ofcom about the matters set out in it and the accompanying Explanatory Statement. It also gave the TalkTalk Group the opportunity to make oral representations to Ofcom in relation to these matters. The TalkTalk Group made oral representations on 14 July and written representations on 29 July.

Sections 96, 97 and 392 of the 2003 Act

1.12 Section 96 of the 2003 Act applies where:

a) a notified provider has been given a notification under section 94;

b) Ofcom have allowed the notified provider an opportunity of making representations about the matters notified; and

c) the period allowed for the making of the representations has expired.

1.13 Section 96 provides that Ofcom may impose a penalty on a notified provider if it:

a) has, in one or more of the respects notified, been in contravention of a condition specified in the notification under section 94; and

b) has not, during the period allowed under that section, taken the steps Ofcom consider appropriate:

i) for complying with the notified condition; and

ii) for remedying the consequences of the notified contravention of that condition.

1.14 Section 97 of the 2003 Act provides that the amount of a penalty imposed under section 96 is to be such amount not exceeding ten per cent of the turnover of the notified provider’s relevant business for the relevant period as Ofcom determine to be:

a) appropriate; and

b) proportionate to the contravention in respect of which it is imposed.

1.15 It also provides, amongst other things, that in making that determination Ofcom must have regard to:

a) any representations made to them by the notified provider;

b) any steps taken by the provider towards complying with the conditions contraventions of which have been notified to it under section 94; and

c) any steps taken by the provider for remedying the consequences of those contraventions.

1.16 Section 392 of the 2003 Act provides that Ofcom must, in determining the amount of any penalty to be imposed by us under section 96, have regard to the guidelines we must publish pursuant to section 392 that are for the time being in force.

Determination made by Ofcom

1.17 Having taken account of the available evidence, the TalkTalk Group’s representations, the steps taken by it towards complying with GC11.1 and for remedying the consequences of its notified contravention and of our penalty guidelines, Ofcom has decided to impose on the TalkTalk Group a penalty under section 96.

1.18 This penalty is imposed in respect of the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End-Users. It is being given to the TalkTalk Group by reason of Ofcom being satisfied that the TalkTalk Group:

a) has, in respects notified in the s94 Notification, been in contravention of GC11.1; and

b) has not, during the Opportunity Period specified in that Notification, taken the steps that Ofcom considers appropriate for complying with GC11.1.

1.19 Ofcom has determined that a penalty of £1,524,728 be imposed on TalkTalk and a penalty of £1,512,392 be imposed on Tiscali in respect of each company’s contravention of GC11.1 from 1 January to 1 November 2010, giving a total of £3,037,120 for the TalkTalk Group. Each company must pay the penalty imposed on it to Ofcom no later than 30 days after the giving of this Notification.

1.20 The reasons for Ofcom’s decision and determination are set out in the following Explanatory Statement.

Interpretation

1.21 Words or expressions used in this Notification have the same meaning as in the General Conditions or the 2003 Act except as otherwise stated in this Provisional Notification.

Claudio Pollack (Group Director, Consumer Group) for and on behalf of himself and Stuart McIntosh (Group Director, Competition Group) as decision makers for Ofcom

17 August 2011

Section 1 1 Explanatory Statement

Executive Summary

1.1 This document is a notification of Ofcom’s imposition of a financial penalty on TalkTalk Telecom Limited (“TalkTalk”) and Tiscali UK Limited (“Tiscali”), together the “TalkTalk Group”, under section 96 of the Communications Act 2003 (“the 2003 Act”). It sets out Ofcom’s decision that such a penalty should be imposed on the TalkTalk Group and our determination of what that penalty should be.3

1.2 The issue of this Notification follows Ofcom’s:

a) investigation into the TalkTalk Group’s compliance with General Condition 11.1 (“GC11.1”) 4 between 1 January and 1 November 2010;

b) determination on 1 November 2010 that there are reasonable grounds for believing that, since 1 January 2010 to the date of the determination, the TalkTalk Group had contravened, and was as of 1 November 2010 contravening, GC11.1 by rendering Bills to End-Users for public electronic communications services (“PECS”) in which the amount stated did not (or does not) represent, and exceeded (or exceeds), the true extent of any such service actually provided to the End-User in question;

c) service on the TalkTalk Group on 1 November 2010 of a notification under section 94 of the 2003 Act (the “s94 Notification”) setting out, amongst other things, the determination described in the previous sub-paragraph (at Annex 2 to this notification), and the TalkTalk Group’s representations made to Ofcom in response on 30 November 2010 (Annex 6 to this Notification);

d) subsequent investigation of the steps the TalkTalk Group took for complying with GC11.1 and remedying the consequences of its notified contravention, as described in sections 2 and 3 of this document in particular;

e) service on the TalkTalk Group on 4 July 2011 of a provisional notification of a possible penalty under section 96 of the 2003 Act (the “Provisional Notification”) (Annex 14 to this Notification), setting out, amongst other things, Ofcom’s preliminary view:

3 and how it should be divided between the two companies in the group as defined for the purposes of this document. 4 GC11.1 says: “The Communications Provider shall not render any Bill to an End-User in respect of the provision of any Public Electronic Communications Services unless every amount stated in that Bill represents and does not exceed the true extent of any such service actually provided to the End-User in question.” 6

i) that we should impose on the TalkTalk Group a penalty in respect of its contravention of GC11.1 between 1 January and 1 November 2010; and

ii) that penalty should be []% of the turnover for relevant business between 1 April 2009 and 31 March 2010 for each of TalkTalk and Tiscali (£2,179,440 for TalkTalk and £2,160,560 for Tiscali, giving a total of £4,340,000 for the TalkTalk Group); and

f) the TalkTalk Group’s oral representations of 14 July 2011 in response to the Provisional Notification and its written representations of 29 July 2011 and 9 August 2011, (Annexes 15 - 18 to this Notification).

1.3 Ofcom’s decision is that a financial penalty be imposed on the TalkTalk Group in respect of its contravention of GC11.1 between 1 January and 1 November 2010 specified in the s94 Notification, in respect of 62,055 End-Users. Ofcom’s determination is that that penalty will be £1,524,728 for TalkTalk and £1,512,392 for Tiscali, giving a total of £3,037,120 for the TalkTalk Group.

1.4 Ofcom’s determination is that these penalties are appropriate and proportionate to the contravention in respect of which they are imposed. In taking that view Ofcom has had regard to:

a) the representations made to us by the TalkTalk Group;

b) the steps taken by the TalkTalk Group towards complying with GC11.1, the contravention of which was notified to it in the s94 Notification;

c) the steps taken by the TalkTalk Group for remedying the consequences of the contravention of GC11.1 notified to it in the s94 Notification; and

d) the penalty guidelines in force under section 392 of the 2003 Act at the time the decision to impose the penalties, and the determination of their amount, was made.5

1.5 The reasons for Ofcom’s decision and determination, and the regard we have had to the matters in paragraph 1.4 in reaching them, are set out in the following sections of this Notification. In particular, aspects of Ofcom’s decision and determination include that:

a) the TalkTalk Group has, in one or more of the respects notified to it in the s94 Notification, been in contravention of GC11.1;

5 On 17 December 2010, Ofcom published a document consulting on changes to its penalty guidelines under section 392 of the 2003 Act, which document included proposed new guidelines (see http://stakeholders.ofcom.org.uk/consultations/penalty-guidelines/?a=0). The consultation closed on 11 February 2011. Ofcom received seven responses, which it has considered. Ofcom decided to adopt the proposed new guidelines with some, but not material, changes and published that decision and the new guidelines on 13 June 2011 (see http://stakeholders.ofcom.org.uk/binaries/consultations/penalty-guidelines/statement/statement.pdf). They are, therefore, the guidelines in force and applicable at the time Ofcom decided to impose a penalty on the TalkTalk Group, and determined its amount, in this matter. 7

b) whilst it took appropriate steps for remedying the consequences of its notified contravention of GC11.1 and some important steps for complying with that Condition within the period during which it had the opportunity for doing so,6 the TalkTalk Group continued significantly to contravene that Condition after 2 December 2010 by rendering 2,928 bills to End-Users in the period between that date and 4 March 2011 for PECS not provided to them;

c) the TalkTalk Group had not, therefore, taken all the steps Ofcom consider appropriate for complying with the Condition during the relevant period;

d) the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010, involving rendering bills to 62,055 End-Users for PECS not provided to them, and its ongoing contravention as at and after the latter date, is, amongst other things, sufficiently serious and long-standing, as to warrant the imposition of a penalty in order both to reflect the level of its culpability for the contravention and to create a deterrent effect for it, and for all those subject to regulation by Ofcom, in turn to help ensure widespread compliance with legislation and regulatory rules and to further the interests of citizens and consumers; and

e) having regard to matters including:

i) the number of relevant End-Users to whom each of TalkTalk and Tiscali rendered bills between 1 January and 1 November 2010 for PECS not provided to them, the value of those bills and the duration of the contravention and the level of culpability of the TalkTalk Group for it;

ii) the steps each took towards complying with GC11.1 and for remedying the consequences of its notified contravention; and

iii) the objective in imposing a penalty and determining its amount, set out in the penalty guidelines, of deterrence: setting the amount of any penalty to be sufficient to ensure that it will act as an effective incentive to compliance for both companies in the TalkTalk Group, having regard to the seriousness of their infringement, and others to whom the General Conditions regime applies,

a penalty of £1,524,728 in TalkTalk’s case and £1,512,392 in Tiscali’s is appropriate and proportionate to the contravention for which it is imposed.

6 That is, by 2 December 2010. 8

1.6 The following sections of this Notification set out:

a) the background detail to this matter, including the applicable statutory framework;

b) Ofcom’s analysis of the options open to it and the bases for our decision to impose a penalty; and

c) Ofcom’s determination of the amount of that penalty and the bases on which that determination is made.

Section 2 2 Background

2.1 The following section sets out the background to Ofcom’s investigation into the TalkTalk Group, both before and after the issue of the s94 Notification to the TalkTalk Group on 1 November 2010.

The statutory framework7

2.2 Ofcom is the national regulatory authority for electronic communications networks and services. We have a number of duties and functions under the 2003 Act.

Ofcom’s duties

2.3 Ofcom’s principal duty when performing our functions is set out in section 3(1) of the 2003 Act:

“(1) It shall be the principal duty of OFCOM, in carrying out their functions—

(a) to further the interests of citizens in relation to communications matters; and

(b) to further the interests of consumers in relevant markets, where appropriate by promoting competition.”

2.4 Section 3(3) of the 2003 Act says that:

“(3) In performing their duties under subsection (1), OFCOM must have regard, in all cases, to—

(a) the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed; and

(b) any other principles appearing to OFCOM to represent the best regulatory practice.”

2.5 With section 3(3) in mind, Ofcom has published a statement of regulatory principles.8 These include that Ofcom will:

a) regulate with a clearly articulated and publicly reviewed annual plan, with stated policy objectives;

7 By virtue of the transitional provisions contained in Schedule 3 to The Electronic Communications and Wireless Telegraphy Regulations 2011 SI 2011/1210, in paragraph 13 in particular, the provisions of the 2003 Act apply in this matter as they applied prior to their amendment on 26 May 2011. That is, as set out in the following. 8 http://www.ofcom.org.uk/about/what-is-ofcom/statutory-duties-and-regulatory-principles/ 10

b) operate with a bias against intervention, but with a willingness to intervene firmly, promptly and effectively where required;

c) strive to ensure our interventions will be evidence-based, proportionate, consistent, accountable and transparent in both deliberation and outcome; and

d) always seek the least intrusive regulatory mechanisms to achieve our policy objectives.

2.6 As to the first of the principles set out above, Ofcom said the following in its Annual Plans for 2010/11 and 2011/12:

a) in the former we set out that one of our strategic objectives was to support and protect consumers across the UK, and that one of the ongoing areas of Ofcom’s work for the year, pursuant to that objective, would be our work to protect consumers and audiences from harm and unfair practices; and

b) in the latter we said one of our strategic objectives is to help communications markets to work for consumers, and that one of our major areas of work for the year, based on that objective, would be to work towards ensuring that appropriate consumer protection regulations and mechanisms are in place, taking enforcement action against Communications Providers where necessary.

Ofcom’s functions and powers

2.7 Ofcom’s relevant functions, for present purposes, in performing which we must fulfil the duties above, and the powers we have to perform those functions, are as follows.

2.8 Under section 45 of the 2003 Act, Ofcom has the power to set (and the function of setting) general conditions binding the persons to whom they are applied in accordance with section 46. Under section 46, a general condition may be applied to every person providing an electronic communications network or electronic communications service, or to every person providing such a network or service of a particular description specified in the condition. Under section 51 of the 2003 Act, those general conditions may include conditions making such provision as Ofcom considers appropriate for protecting the interests of the End-Users of PECS.

2.9 One of the General Conditions9 for which these provisions are the statutory basis is GC11.1, which provides that:

"The Communications Providers shall not render any Bill10 to an End-User11 in respect of the provision of any PECS unless every amount stated in that Bill

9 Consolidated version of the General Conditions of Entitlement as at 31 July 2010: http://stakeholders.ofcom.org.uk/binaries/telecoms/ga/cvogc300710.pdf 10 “Bill” is defined in GC 11.7(c), which states: ““Bill” means the information issued by a Communications Provider to an End-User of the charges levied and due for payment or the information retained by a Communications Provider for the purpose of recording and enabling debits and credits to be applied to an End-User’s account.” 11 “End-User” is defined in Part 1 of the General Conditions, which states: End-user in relation to Public Electronic Communications Service, means: (a) a person who, otherwise than as a Communications Provider is a 11

represents and does not exceed the true extent of any such service actually provided to the End-User in question.”

2.10 Ofcom also has the following functions and powers relating to the enforcement of general conditions under the 2003 Act.12

2.11 Under section 94 where we determine that there are reasonable grounds for believing that a person is contravening, or has contravened, a condition set under section 45, Ofcom may give that person a notification. That notification is one which sets out our determination, specifies the condition and contravention in respect of which that determination has been made and specifies the period, usually one month (but longer if Ofcom allows),13 the person notified has for:

a) making representations about the matters notified;

b) complying with notified conditions of which he remains in contravention; and

c) remedying the consequences of notified contraventions.

A notification given in respect of a continuing contravention may be given in respect of any period during which the contravention has continued.

2.12 Ofcom can serve a further notification, under section 95, where we have served a notification under section 94 and given the notified provider an opportunity of making representations about the matters notified and the period for doing so has expired. We can do so if we are satisfied the notified provider has, in one or more of the respects notified, been in contravention of a condition specified in the notification under section 94 and has not during the period allowed taken all the steps we consider appropriate for:

a) complying with that condition; and

b) remedying the consequences of the notified contravention of that condition.

2.13 A notification under section 95 imposes one or both of the following requirements on the notified provider:

a) to take specified steps for complying with the notified condition; and/or

b) to take specified steps for remedying the consequences of the notified contravention.

Customer of the provider of that service; (b) a person who makes use of the service otherwise than as a Communications Provider; or (c) a person who may be authorised, by a person falling within paragraph (a), so to make use of the service. 12 The following provisions of sections 94 – 97 of the 2003 Act, in particular, continue to apply in this matter in the way set out, by virtue of the transitional provisions contained in The Electronic Communications and Wireless Telegraphy Regulations 2011 SI 2011/1210. 13 See section 94(5) of the 2003 Act.

2.14 Under section 96 Ofcom can impose a penalty on a notified provider, as well as or instead of, serving a notification under section 95. Similar conditions apply as to the serving of a section 95 notification.

2.15 Sections 96(1) and (2) provide that:

“(1) This section applies (in addition to section 95) where –

(a) a person (“the notified provider”) has been given a notification under section 94;

(b) Ofcom have allowed the notified provider an opportunity of making representations about the matters notified; and

(2) Ofcom may impose a penalty on the notified provider if he –

(a) has, in one or more of the respects notified, been in contravention of a condition specified in the notification under section 94; and

(b) has not, during the period allowed under that section, taken the steps Ofcom consider appropriate –

(i) for complying with the notified condition; and

(ii) for remedying the consequences of the notified contravention of that condition.”

2.16 Sections 96(3) and (4) go on to provide that where a notification under section 94 relates to more than one contravention, a separate penalty may be imposed in respect of each and, where it relates to a continuing contravention, no more than one penalty may be imposed in respect of the period of contravention specified in the notification. Section 96(6)(a) says that when Ofcom impose a penalty on a person under section 96 we must notify that person of the decision, and our reasons for it, within one week of making the decision. Section 96(6)(b) says we must fix a reasonable period after giving notification of a penalty as the period within which the penalty must be paid. Section 96(7) provides for the payment of the penalty to Ofcom and for it to be recoverable by us if not paid.

2.17 Section 97 is concerned with the amount of the penalty Ofcom may impose under section 96.

2.18 Section 97(1) says:

“The amount of a penalty imposed under section 96 is to be such amount not exceeding ten per cent of the turnover of the notified provider's relevant business for the relevant period as OFCOM determine to be—

(a) appropriate; and

(b) proportionate to the contravention in respect of which it is imposed.”

2.19 Section 97(2) says:

“In making that determination OFCOM must have regard to—

(a) any representations made to them by the notified provider;

(b) any steps taken by him towards complying with the conditions contraventions of which have been notified to him under section 94; and

2.20 Section 97(3) says the turnover of a person's relevant business for a period shall be calculated in accordance with any rules set out in an order made by the Secretary of State. It also says that such an order may provide for determining what is to be treated as the network, service, facility or business by reference to which the calculation of that turnover falls to be made.

2.21 Section 97(5) says, as far as relevant here, that “relevant business” means (subject to the provisions of an order under subsection (3)) business carried on by the notified provider that consists in any one or more of the following:

a) the provision of an electronic communications network;

b) the provision of an electronic communications service;

c) the making available of associated facilities;

d) the supply of directories for use in connection with the use of such a network or service; and

e) the making available of directory enquiry facilities for use for purposes connected with the use of such a network or service.

It also says the “relevant period”, in relation to a contravention by a person of a condition set under section 45, means the period of one year ending on 31 March before the notification of the contravention was given under section 94.

2.22 The Electronic Communications (Networks and Services) (Penalties) (Rules for Calculation of Turnover) Order 2003 sets out rules governing the way in which the turnover of a notified provider of electronic communications networks, services, facilities, or apparatus should be calculated for the purposes of section 97. Relevant paragraphs of the Schedule to that Order say:

“1. The turnover of a notified provider shall be calculated in conformity with accounting practices and principles which are generally accepted in the United Kingdom.

2. The turnover of a notified provider shall be limited to the amounts derived by that provider from the relevant business after deduction of sales rebates, value added tax and other taxes directly related to turnover.

3. When a notified provider's relevant business consists of two or more undertakings that each prepare accounts then the turnover shall be calculated by adding together the turnover of each, save that no account shall be taken of any turnover resulting from the supply of goods or the provision of services between them.”

2.23 Section 392(1) of the 2003 Act, meanwhile, requires Ofcom to publish a statement containing the guidelines we propose to follow in determining the amount of penalties imposed by us under provisions in the 2003 Act (or any other enactment apart from the Competition Act 1998). Section 392(6) says Ofcom has a duty, in determining the amount of any penalty to be imposed by us under the 2003 Act (or any other enactment apart from the Competition Act 1998) to have regard to the guidelines contained in the statement for the time being in force.

Ofcom’s relevant guidelines

2.24 Ofcom has published guidelines under section 392. On 17 December 2010, Ofcom published a document consulting on changing them, and proposed a set of new guidelines (see http://stakeholders.ofcom.org.uk/consultations/penalty-guidelines/). The consultation closed on 11 February 2011. Following consideration of the seven responses received, Ofcom adopted the proposed new guidelines with some, but not material, changes. We published that decision and the new guidelines on 13 June 2011.

2.25 The new guidelines were, therefore, in force and applicable at the time Ofcom decided to impose a penalty on the TalkTalk Group, and determined its amount. Accordingly, Ofcom has had regard to them in making our determination, as set out in this Notification.

2.26 The relevant guidelines are at Annex 1 to this document. They provide that:

“Ofcom will consider all the circumstances of the case in the round in order to determine the appropriate and proportionate amount of any penalty. The central objective of imposing a penalty is deterrence. The amount of any penalty must be sufficient to ensure that it will act as an effective incentive to compliance, having regard to the seriousness of the infringement.”

2.27 The guidelines also set out examples of potentially relevant factors in the determination of a penalty, such as:

a) the degree of harm, actual or potential, caused by the contravention;

b) the duration of the contravention;

c) any gain (financial or otherwise) made as a result of the contravention;

d) any steps taken for remedying the consequences of the contravention;

e) whether the regulated body in breach has a history of contraventions;

f) whether in all the circumstances appropriate steps had been taken by the regulated body to prevent the contravention;

g) the extent to which the contravention occurred intentionally or recklessly, including the extent to which senior management knew, or ought to have known, it was occurring or would occur;

h) whether the contravention in question continued, or timely and effective steps were taken to end it, once the regulated body became aware of it; and

i) the extent to which the level of penalty is proportionate, taking into account the size and turnover of the regulated body.

The guidelines also require Ofcom to have regard to the need for transparency in applying the guidelines, particularly as regards the weighting of the factors considered.

The investigation and findings

2.28 On 23 July 2010, Ofcom opened an own-initiative investigation14 into the TalkTalk Group’s compliance with GC11.1 following complaints received by Ofcom’s Advisory Team15 (the “OAT”) from consumers about being billed by the TalkTalk Group for services it had not provided to them (in particular, being billed for services the consumers had cancelled). This investigation is referred to in this document as “the Investigation.”

2.29 Prior to opening the Investigation, Ofcom conducted an informal action phase. We considered the rising number and content of complaints to the OAT between April 2009 and April 2010 in Tiscali’s case, and between January and April 2010 in TalkTalk’s case.

2.30 Following an analysis of the complaints, Ofcom raised the matter with the TalkTalk Group by email to its Head of Telecoms Regulation, [], on 14 April 2010. An initial

14 Own-initiative investigations are those which Ofcom opens of its own accord, and not in response to a specific complaint. For example, Ofcom may open an own-initiative investigation to respond to apparent patterns or trends in complaints more broadly or if it, other regulators or stakeholders indentify a particular issue that Ofcom considers warrants further investigation. 15 The OAT offers a point of contact for consumers enquiring, or making complaints about, issues in the telecoms and broadcasting markets. 16

meeting between Ofcom and the TalkTalk Group took place on 27 April 2010, attended by the TalkTalk Group’s [] (Head of Telecoms Regulation), [] (Director of Billing) and [](Senior Operations Manager), where Ofcom set out our concerns regarding the number and the nature of the complaints.

2.31 At this meeting, the TalkTalk Group accepted that it was experiencing some difficulties with its billing and customer records management system, and that it was aware of problems as far back as April 2009. It outlined steps it said it had taken to remedy the problems. Ofcom requested that the TalkTalk Group investigate the matters raised and provide us with an update in one month on the steps taken to remedy the complaints and prevent similar complaints in future.

2.32 Two follow up meetings, to assess the TalkTalk Group’s progress in resolving the complaints and the issues giving rise to them, took place on 27 May and 6 July 2010. These were again attended by [](Head of Telecoms Regulation), [](Director of Billing) and [](Senior Operations Manager) from the TalkTalk Group. They told Ofcom about the various steps the Group had taken to seek to resolve the relevant problems, including:

a) working on identifying root causes of complaints;

b) implementing software bug fixes to address process issues within its customer records management system; and

c) introducing a “One & Done” project to improve the customer experience when resolving complaints.

2.33 Despite the steps TalkTalk Group said it had taken, Ofcom still had a number of concerns, relating for example to the ineffectiveness of those steps, as (later) set out in the s94 Notification. Accordingly, Ofcom opened the Investigation.

2.34 The Investigation involved in particular:

a) analysis of complaint data received by the OAT between 1 January and 25 October 2010 (1,227 complaints were made to the OAT, 835 of which concerned customers being billed by the TalkTalk Group in the period 1 January 2010 to 23 July 2010 for services it had not provided to them, in particular cancelled services, and 392 similar complaints for the period 24 July to 25 October 2010);

b) the issuing of an information request to the TalkTalk Group under section 135 of the 2003 Act (the “First Information Request”), in particular about a sample of the complaints made to the OAT and about the TalkTalk Group’s systems and processes for complying with GC11.1; and

c) Ofcom’s analysis of the TalkTalk Group’s response to the First Information Request.

2.35 As a result of the Investigation, Ofcom obtained evidence that provided us with reasonable grounds to believe that the TalkTalk Group had contravened GC11.1 17

between 1 January and 1 November 2010, and was still contravening that General Condition as of the latter date. Accordingly, on 1 November 2010, Ofcom issued the s94 Notification to the TalkTalk Group.

2.36 The s94 Notification set out, in accordance with section 94 of the 2003 Act:

a) Ofcom’s determination that there are reasonable grounds for believing that, since 1 January 2010 to the date of the determination (1 November 2010), the TalkTalk Group had contravened, and was as of 1 November 2010 contravening, GC11.1 by rendering Bills to End-Users for PECS in which the amount stated did not (or does not) represent, and exceeded (or exceeds), the true extent of any such service actually provided to the End-User in question;

b) the condition (GC11.1) and contravention in respect of which that determination had been made; and

c) the period of one month, ending on 2 December 2010, during which the TalkTalk Group had an opportunity of doing the following:

i) making representations about the matters set out in the s94 Notification;

ii) complying with GC11.1 (of which it remained in contravention); and

iii) remedying the consequences of the notified contravention of GC11.1 (or making representations to Ofcom for remedying the contravention by some other date (which Ofcom may or may not agree to)).

2.37 The s94 Notification also set out steps that Ofcom expected the TalkTalk Group to take to comply with the requirements of GC11.1. These included, but were not limited to, ensuring that it does not render any Bill to an End-User in respect of the provision of any PECS unless every amount stated in that Bill represents and does not exceed the true extent of any such service actually provided to the End-User in question, by:

a) implementing and maintaining a reporting system which monitors the (customer) disconnection process and stops End-Users from being billed for services that are not provided to them;

b) expediting the process that ensures that, in transferring customer accounts records from previous customer records management systems to a new system, old closed customer accounts are not erroneously re-activated, and that the records held on the new system correspond with those on the old systems; and

c) implementing training documentation and briefings for the TalkTalk Group contact centre staff, including detailed training relating to the process involved correctly to disconnect customer accounts when requested by the customer.

2.38 The s94 Notification similarly set out steps that Ofcom expected the TalkTalk Group to take to remedy any consequences arising from the notified contravention of GC11.1. These included, but were not limited to:

a) establishing a specialist team within the TalkTalk Group to which any complaints about Bills for services not provided to End-Users are escalated, on receipt, for resolution;

b) identifying all End-Users of the TalkTalk Group who have been billed by it for services it had not provided to them in the period between 1 January 2010 to the date of the s94 Notification (the “affected End-Users”) and writing to those End- Users informing them of any monies owed to them, providing the contact details of the specialist TalkTalk Group team (referred to in a) above) and setting out the steps required to secure payment of any sums due;

c) suspending all further billing of, and stopping any debt collection activity in relation to, the affected End-Users;

d) providing refunds of all sums paid by End-Users to the TalkTalk Group for which it had billed them in contravention of GC11.1;

e) in relation to any affected End-User whose credit rating had been adversely affected by steps taken by or on behalf of the TalkTalk Group, or by any party, in connection with its contravention of GC11.1, taking the necessary steps to repair the affected credit rating, including but not limited to applying to have any relevant court judgment set aside and notifying relevant credit reference agencies;

f) in relation to any affected End-User against whom the TalkTalk Group had instituted legal proceedings to claim monies purportedly owed, withdrawing forthwith from such legal proceedings, and paying the End-User’s reasonable legal costs in resisting the claim; and

g) paying an appropriate amount to affected End-Users in respect of annoyance, inconvenience or anxiety to which they had been put.

2.39 As indicated above, a copy of the s94 Notification, which sets out in full the matters referred to here, and an explanatory statement containing the reasons for Ofcom’s actions and our determination and other findings, is at Annex 2 to this document.

The TalkTalk Group’s engagement with Ofcom following the issue of the s94 Notification

2.40 On 9 November 2010, Ofcom met with the TalkTalk Group’s Chief Executive Officer (“CEO”) and General Counsel, at their request, to discuss the s94 Notification.

2.41 At this meeting, the CEO explained that the TalkTalk Group would be making representations to Ofcom by the 2 December deadline but that it would not be fully

compliant with GC11.1 by that deadline. It was explained that it would not be until 3 March 2011 that the TalkTalk Group would have all the mechanisms in place fully to comply and that the representations would include a request for more time to comply with the Condition and remedy the consequences of its breach.

2.42 Much of the reasoning for the failure to comply by the deadline was, the TalkTalk Group said, related to the integration of Tiscali customers into the TalkTalk billing platform and customer records management system. It was said this had to be completed by January for contractual reasons (and delay would mean customers would lose service).16

2.43 The CEO, on behalf of the TalkTalk Group, also requested that it be permitted to submit draft representations to Ofcom, including the request for more time, prior to the deadline, to ensure they covered all the matters required by Ofcom. Ofcom agreed to this.

2.44 On 22 November 2010, Ofcom received the draft representations from the TalkTalk Group.17 On 26 November 2010, Ofcom responded. In our response, Ofcom stated that we could not comment on the precise substance of the draft representations, that substance being for the TalkTalk Group, but could provide guidance in respect of the matters we would expect when considering such representations and requests for more time.

2.45 In particular, Ofcom explained that we would expect more detailed and relevant supporting information to demonstrate why the TalkTalk Group could not comply with GC11.1, and remedy fully the consequences of its notified contravention, by the 2 December deadline and to support the request to extend that deadline.18 Most particularly:

a) evidence of the compliance and remedial actions the TalkTalk Group had already taken, or intended to take;

b) an explanation and appropriate evidence of the extent to which the migration of Tiscali customers to the TalkTalk customer records management system has been accelerated since the TalkTalk Group received the Notification (or whether and why the migration remains on a timetable that existed before the s94 Notification); and

c) explanations of why all the relevant actions could not be taken sooner or more quickly.

16 Annex 3 - file note of meeting on 9 November 2010. 17 Annex 4 - TalkTalk Group’s draft representations of 22 November 2010. 18 Annex 5 - Ofcom’s letter of 26 November 2010. 20

The representations submitted by the TalkTalk Group

2.46 On 30 November 2010, TalkTalk Group submitted its formal representations on the matters set out in the s94 Notification (the “30 November Representations”).19 The 30 November Representations:

a) set out the steps the TalkTalk Group had taken and intended to take for complying with GC11.1 and to remedy the consequences of its notified contravention; and

b) also contained, and provided information supporting, a request for an extension to the deadline to take the necessary steps for complying with the Condition and to remedy the consequences of its notified contravention, from 2 December 2010 to 3 March 2011.

2.47 The 30 November Representations summarised “... the underlying reasons behind those matters giving rise to the breach of GC11.1 ...” These were:

a) the integration of Tiscali customers into the TalkTalk customer records management system, the TalkTalk group of companies having inherited billing and provisioning systems that were not fit for purpose, and contained data inconsistencies, when it acquired Tiscali in July 2009, and having decided to resolve this by migrating Tiscali customers to the TalkTalk customer records management system as soon as technically possible (in December 2010 and January and February 2011);

b) the TalkTalk Group’s rapid growth, which has stretched its resources and left, “... insufficient “space” to fix underlying systems and data problems;”

c) the complexity of the TalkTalk Group’s IT systems, which need “... enhancement and possibly, in some places, renewal;”

d) the holding of customer data by the TalkTalk Group in several different systems and multiple inconsistencies in that data;

e) the need for enhancement of the TalkTalk Group’s internal processes for fulfilling customers’ requests to leave its service; and

f) the need for “documenting and formalising” the “multiple manual workarounds” the TalkTalk Group has applied to its processes “over the years during our rapid growth.”

2.48 In connection with a) in the paragraph immediately above, the TalkTalk Group said:

a) “While we had identified the systems and process issues giving rise to our contravention of GC11.1, which predominantly relate to the integration of our

19 Annex 6 - TalkTalk Group’s formal representations of 30 November 2010. 21

residential bases and in particular Tiscali, our integration programme will not be completed by 2 December 2010;” and

b) the migration of Tiscali customers, “... will not be completed until February 2011.”

2.49 The TalkTalk Group’s 30 November Representations also set out the following steps the TalkTalk Group had by then taken for complying with GC11.1 and to remedy the consequences of its notified contravention. For ease of reference for present purposes, Ofcom has characterised some of these as relating mainly to compliance and some mainly to remedy (though some may relate to both).

2.50 The compliance steps taken by the time of the representations were:

a) engaging external consultants independently to review the TalkTalk Group’s “systems architecture and processes;” and

b) identifying a large number of categories of customers at risk of being affected by the TalkTalk Group’s internal systems and process problems and of being billed for services not provided to them, and suppressing billing and collections for 61,719 such customers to whom bills had been issued between 1 January and 1 November 2010 for services not provided to them (19,840 of them former TalkTalk customers and 41,879 former Tiscali customers).

2.51 The remedial steps taken by the time of the representations were:

a) giving bill credits of £1.7 million to the 61,719 customers referred to above (credits of £1,268,594.19 to 19,840 former TalkTalk customers and £499,939.95 to 41,879 former Tiscali customers), including additional credits necessary in some cases to ensure that no such customer’s account showed a debit balance, and of which £1.3 million was paid in actual repayments to 22,000 customers (£988,023.64 to former TalkTalk customers and £316,540.16 to former Tiscali customers);

b) making goodwill payments of between £25 and £65 to certain customers whom the TalkTalk Group believed had, “... experienced inconvenience, annoyance or anxiety by such billing issues” (although the number and amount of such payments was not stated); and

c) establishing a dedicated customer complaint team to which affected customers could refer complaints about bills for services not provided.

2.52 The 30 November Representations also set out the following further actions, which appear to Ofcom to relate mainly to complying with GC11.1, that the TalkTalk Group said it would not have taken by 2 December, but would implement before or by 3 March 2011:

a) the migration of Tiscali customers to the TalkTalk customer records management system described above (though the representations did not say whether this migration had been accelerated despite Ofcom’s invitation that they do so);20

b) ”rolling out” a new “simplified and enhanced end-to-end “I want to leave TalkTalk” process” for the steps that the TalkTalk Group will take when a customer wants to switch to another Communications Provider, work on which process had begun in October 2010;

c) simultaneously “rolling out” a new customer problem resolution process designed to “... capture, manage and resolve complaints by customers who believe something has gone wrong when leaving” the TalkTalk Group, work on which process had also begun in October 2010;

d) a “clean-up” of Tiscali customer data prior to the migration of Tiscali customers to the TalkTalk customer records management system, which was almost complete, so that only Tiscali customers still receiving services from it migrate to the TalkTalk system;

e) building and implementing a “billing safety net” for all customers on TalkTalk’s customer records management system (work on which began in November 2010), “... to check invoices against live network accounts,” which will enable the TalkTalk Group to identify customers who may be at risk of receiving a bill for services not provided to them; and

f) prioritising (having done so since August 2010) five specific groups of “software bug fixes and logic gaps” in its systems that had contributed to customers being billed for cancelled services.

2.53 As far as further steps dealing primarily with remedying the consequences of the notified contravention are concerned, the 30 November Representations set out that the TalkTalk Group:

a) had already taken steps not to refer “any formerly branded Tiscali customers (regardless of whether they have left us or not)” to debt collection agencies after 29 November 2010; and

b) would stop any activities by debt collection agencies already underway.

(They also set out that the TalkTalk Group had not sent any information to credit reference agencies nor obtained any court judgements against any affected End- Users.)

20 The representations did say that the whole customer migration plan was highly complex, with a number of critical steps that must be sequenced in the right order. However, the point is rather about whether the whole migration plan had been accelerated in light of the regulatory difficulties, and ultimately the contravention of GC11.1, said to have a root cause in the unfitness of the Tiscali systems.

2.54 The 30 November Representations also said that, on 15 November 2010, the TalkTalk Group had commenced mystery shopping exercises focussed on the TalkTalk Group’s ability to identify a customer who may be billed after ceasing to receive services and the escalation process once such a case has been identified.

2.55 The TalkTalk Group relied on each of the above matters in support of its request for more time to take the necessary steps for complying with GC11.1 and remedying the consequences of its notified contravention.

2.56 It said, “We have never in our responses to Ofcom’s investigation in this matter nor subsequently sought to dispute that TalkTalk Group is in breach of GC11.1….. We also do not deny the fact that TalkTalk Group is ultimately responsible for the current situation nor do we in any way suggest that the problems are outside our control.” And, that it was being clear as to, “... the scale of the task we face,” and, “... as transparent as we can regarding the time needed.” It said it did not wish to “accept” the 2 December deadline, “… in some false hope that matters will be remedied by such date when we know this will not be the case,” and wanted to “... set a realistic end date that we believe can be delivered for the benefit of customers.”

2.57 It said that the actions it had taken would minimise customer harm pending the extended deadline requested. Those steps it would take by the extended deadline would result in the TalkTalk Group being compliant with GC11.1, and having remedied its notified contravention, from that date.

2.58 It also said it had not sought a shorter extension to the deadline for the following key reasons:

a) the migration of Tiscali customers to the TalkTalk customer records management system is complex and involves a number of critical steps that must be undertaken in the correct order;

b) the “billing safety net” referred to above is being implemented on the TalkTalk customer records management system, so can only be fully in place once all Tiscali customers are migrated to that system; and

c) it anticipates that implementing the new processes for 4,000 employees in 20 call centres in three different continents, including training those employees, and about which it also provided some detailed information in the representations, will take three months.

Second section 135 Notice issued to the TalkTalk Group

2.59 Ofcom considered the 30 November Representations in detail. We noted that the TalkTalk Group had taken some significant steps for complying with GC11.1 and to remedy the consequences of its notified contravention.

2.60 We also considered, however, that the representations made clear, in particular, that most of the steps the TalkTalk Group indicated were necessary for it to comply with

the Condition would not, by its own admission, be taken by 2 December and would be taken only by (or before) 3 March 2011. Ofcom also took the view that the extent to which the TalkTalk Group had remedied the consequences of its notified contravention of the Condition by the former date was unclear. We also took into account that Ofcom continued to receive complaints from (former) TalkTalk Group customers alleging they had been sent bills by it for services not provided to them.

2.61 Ofcom took the provisional view, based on what the TalkTalk Group had said in the 30 November Representations and on the continuing complaints, that we should refuse the TalkTalk Group’s request for more time to comply with the s94 Notification and take steps towards further enforcement action (a notification under section 95 of the 2003 Act and a penalty under section 96). But, we considered that we needed more information so as further to consider that question and to decide whether to take further action (and its type, scope and scale). Accordingly, on 10 January 2011 Ofcom issued a second information request to the TalkTalk Group (the “Second Information Request”).21

2.62 The Second Information Request sought to obtain more detailed information concerning the steps the TalkTalk Group stated in the 30 November Representations that it had taken, and intended to take, in particular in relation to remedying the consequences of its notified contravention of GC11.1. It also required the TalkTalk Group to provide information from its customer records relating to (former) customers who had complained to the OAT in November and December 2010 about receiving bills from the TalkTalk Group for services not provided to them. And, it required financial information regarding the TalkTalk Group’s turnover.

2.63 In particular, the TalkTalk Group was required to provide customer records for 40 customers who had complained to Ofcom between 3 and 30 December 2010 about being billed for cancelled services by the TalkTalk Group. It was also required to provide customer records for 56 customers who complained to Ofcom between 2 November and 2 December 2010 about being billed for cancelled services between 1 January and 1 November that year.

The TalkTalk Group’s response to the Second Information Request

2.64 On 20 January 2011, the TalkTalk Group provided its response to the Second Information Request.22 The response included information derived from its customer records, in respect of the complainants referred to in the previous paragraph.

2.65 It said that:

a) of the 40 customers who had complained to Ofcom between 3 and 30 December 2010 about being billed for cancelled services, 8 had been so billed after 2 December (though in each case the contravention of GC11.1 had been remedied by 19 January 2011 at the latest); and

21 Annex 7 - Second Information Request of 10 January 2011. 22 Annex 8 - the TalkTalk Group response of 20 January 2011 to the Second Information Request. 25

b) of the 56 customers who complained to Ofcom between 2 November and 2 December about being billed for cancelled services in the period between 1 January and 1 November 2010, 19 had been so billed in that period (in 16 of which cases the consequences of the contravention of GC11.1 had been remedied by 2 December 2010, and in the other three, by 1 January 2011 at the latest).

2.66 The TalkTalk Group also included representations about these groups of customers. Of the former it said that the information provided, “… shows that we were compliant with GC11.1, within acceptable thresholds, by 2 December 2010.” It also said that the small number of End-Users in relation to whom the contravention of GC11.1 was remedied only after 2 December 2010 was only 0.00019% of its customer base. And that, in these cases, the consequences of issuing a bill for services not provided were remedied within a short time after that date and “within an acceptable tolerance threshold.”

2.67 Of the latter group, the TalkTalk Group said that the fact only 3 of the 56 contraventions of GC11.1 were remedied after 2 December (5.3% of the group and 0.00007% of the TalkTalk Group’s total customer base) is also “within an acceptable tolerance threshold.”

2.68 The TalkTalk Group also set out the specific steps it had taken to identify affected End-Users23 and that it had identified an additional 336 affected End-Users after 2 December 2010. It further stated that it had provided bill credits/refunds for all of these 336 affected End-Users by the date of its response (but after 2 December 2010).

2.69 In respect of these 336 End-Users, the TalkTalk Group made these representations. It said this 336 is a very small number compared to the 61,719 affected End-Users previously identified as subject to the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010. It is only 0.5% of that number and 0.008% of the TalkTalk Group’s customer base. The consequences of the contravention of GC11.1 in respect of all of these additional affected End-Users were in any event remedied by the date of the response.

2.70 The TalkTalk Group also provided Ofcom with a copy of the policy it said it had implemented from early January 2011, to determine the eligibility of customers to receive goodwill payments for inconvenience, anxiety or annoyance experienced. It said that it had never refused a goodwill payment to any End-User who requested one and “… made our own goodwill payments when we believe such payments were justified.”

2.71 It stated that goodwill payments totalling £1,034,727 had been made to 61,719 affected End-Users as of 2 December 2010 and, as of the date of its response,

23 As defined above, those who have been billed by the TalkTalk Group for services it had not provided to them in the period between 1 January and 1 November 2010.

goodwill payments totalling £1,041,441 had been paid to 62,055 affected End-Users. It also said it had paid refunds to all, save one, affected End-Users it had identified as having paid a bill for services not provided.

2.72 The response also provided information about the specialist team the TalkTalk Group said it had established as of 11 November 2010, to manage complaints about being billing for cancelled services, including that it had received 2,529 complaints (although it could not confirm whether all complaints were affected End-Users). It also stated that debt collection action had ceased for all affected End-Users who were TalkTalk Group customers and that the first customers to be excluded from such debt collection action were so excluded on 24 June 2010. The TalkTalk Group also provided Ofcom with the full details of its relevant turnover.

2.73 The TalkTalk Group’s covering letter to its response:

a) included additional representations; and

b) provided an update on some of the steps that, in the 30 November Representations, it had advised Ofcom it was taking.

2.74 The former included:

a) that the number of complaints of contravention of GC11.1 that Ofcom was receiving was falling, from 23 in the week commencing 3 January 2011 to 18 the following week, which, “…again supports the fact the material steps we have implemented are making a material difference in reducing customer detriment;”

b) it has co-operated fully in Ofcom’s investigation, providing all information requested and additional information, and been transparent in explaining its position “…and the challenges to achieve full compliance;”

c) the numbers of End-Users disclosed in the response in respect of whom a contravention of GC11.1 had occurred after 2 December 2010, or had not been remedied by that date (and the short time taken for remedial action after that date), are so small that “… the actual scale of the contravention of the Notification is not in itself serious and would not warrant an excessive or punitive penalty.”

2.75 The latter included an update on the following:

a) the TalkTalk Group’s new leaver’s process, which it said “is now well underway and is being implemented throughout the group;”

b) the new customer resolution process, which it said had been enhanced and was being implemented throughout the TalkTalk Group;

c) that it had ceased debt collection activity “…for all TalkTalk branded customers who we consider to be End-Users with GC11.1 issues;”

d) the migration of Tiscali customers to the TalkTalk customer records management system, in which 467,000 of 1 million customers had migrated in December 2010 and which process was on schedule to finish in January and February 2011;

e) the billing safety net, previously referred to, which was now operational for all customers on the TalkTalk customer records management system; and

f) the identification of 34 root-causes for software bugs affecting the TalkTalk Group’s compliance with GC11.1, of which 9 had been fixed and 11 were to be fixed on 6 February 2011.

The TalkTalk Group said it was confident these steps were having “…a material effect of reducing customer complaints in respect of the said billing matters,” so that the TalkTalk Group’s position, “…is significantly different to our position as at 30 November 2010 given we are now able to see the results of the steps we have been taking.”

Third section 135 Notice issued to the TalkTalk Group

2.76 Ofcom considered the TalkTalk Group’s response to the Second Information Request. This included:

a) analysing whether the information provided about the 40 customers who had complained to Ofcom between 3 and 30 December 2010 about being billed for cancelled services might indicate further, post-2 December 2010, contraventions of GC11.1 beyond those eight confirmed in the response;

b) considering the information the TalkTalk Group provided alongside (i) continuing complaints to the OAT about being billed by the group for services not provided; and (ii) statements made by it in the 30 November Representations about not taking the steps necessary for complying with GC11.1 by 2 December 2010; and

c) considering the further information the TalkTalk Group provided, in its response to the Second Information Request, about remedying the consequences of its notified contravention of GC11.1.

2.77 As to a) immediately above, Ofcom considered there were seven such cases. As to b), Ofcom identified a further 132 complaints between 30 December 2010 and 14 February 2011 alleging that the TalkTalk Group had issued a bill for services not provided and/or that it had failed to remedy the consequences of doing so. As to c), Ofcom noted that, taken with information the TalkTalk Group had previously provided, this indicated it had taken substantial steps to remedy its notified contravention of GC11.1 by 2 December 2010.

2.78 In light of these matters, Ofcom considered it likely that the TalkTalk Group had substantially remedied the consequences of its notified contravention of GC11.1 by 2 December 2010. However, we also considered that it was not clear that the TalkTalk Group had taken all the steps appropriate for complying with the Condition by that

date (or sufficient steps to make it appropriate for Ofcom to grant the extra time the TalkTalk Group requested). Ofcom considered that this meant it was possible that the TalkTalk Group may be liable to further enforcement action.

2.79 Accordingly, Ofcom continued to consider whether to take such action. As part of that consideration, Ofcom issued a third information request to TalkTalk Group (the “Third Information Request”)24 on 4 March 2011. The purpose of the Third Information Request was to require the provision of information to help Ofcom decide whether the TalkTalk Group was complying with GC11.1 by 2 December 2010 (and thereafter) (and so had taken the appropriate steps for complying) and, if not, the extent of any non-compliance. It was also to require further information about the steps the TalkTalk Group had taken for remedying the consequences of the notified contravention of the relevant Condition.

2.80 Specifically, Ofcom required the TalkTalk Group to provide its customer records in relation to the 132 customers referred to above, who had complained to Ofcom between 30 December 2010 and 14 February 2011 about being billed by the TalkTalk Group for services they had cancelled. Ofcom also required the TalkTalk Group to provide further information in respect of the seven customers referred to above (about whom the TalkTalk Group previously provided information in its response to the Second Information Request).

2.81 The Third Information Request also required the TalkTalk Group to provide from its customer records information about the total number of End-Users to whom, those records showed, it had issued bills, between 2 December 2010 and 4 March 2011, for services not provided to them.

The TalkTalk Group’s response to the Third Information Request

2.82 On 15 March 2011, the TalkTalk Group provided its response to the Third Information Request.25

2.83 In respect of the group of 132 customers about whom information was required, the TalkTalk Group said only 60 were End-Users to whom it had sent bills for services it had not provided. Of these, it said, in 18 cases the contravention of GC11.1 was remedied before 2 December 2010, and in 42 afterwards (in 3 cases by 24 December 2010, in 27 by 19 January 2011 and 12 by 14 March 2011).

2.84 The TalkTalk Group also made representations about the 4226 cases referred to in the previous paragraph in which the contravention of GC11.1 was remedied after 2 December 2010. It said that in all the cases the consequences of the contravention had been remedied, no legal proceedings had been brought in any of the cases and the 42 cases represent 0.001% of the TalkTalk Group’s customer base of 4.2 million.

24 Annex 9 – the Third Information Request of 4 March 2011. 25 Annex 10 - the TalkTalk Group’s response of 15 March 2011 to the Third Information Request. 26 The response wrongly referred to 43.

It said that, “We again believe this information shows that we were compliant with GC11.1, within accepted tolerance thresholds, by 2 December 2010.”

2.85 In respect of the group of seven customers about whom information was required, the TalkTalk Group provided further information which it said confirmed its previous view that none of them was an End-User to whom a bill was sent in breach of GC11.1 after 2 December 2010 (although in at least one case Ofcom noted that the information provided in the response to the Third Information Request was different to that provided in response to the Second, and appeared to indicate that bills for services not provided were sent to the relevant customer after 2 December 2010).

2.86 As to the total number of End-Users to whom, the TalkTalk Group’s customer records showed, it had issued bills, between 2 December 2010 and 4 March 2011, for services not provided to them, the TalkTalk Group said there were 2,928. In respect of these, the TalkTalk Group made these representations in its response:

a) these End-Users only received an average of 1.21 bills before the breach of GC11.1 was identified and remedied;

b) they represent only 0.07% of the TalkTalk Group’s customer base, and are materially fewer in number than the 62,055 End-Users in respect of whom GC11.1 was contravened between 1 January and 1 November 2010;

c) only 9 of them were referred to debt collection agencies;

d) no legal proceedings were started in respect of any of the 2,928;

e) all such cases are now remedied;

f) the average time taken to remedy relevant cases has fallen from 11 days to one; and

g) refunds of £73,639 and goodwill payments totalling £74,215 had been made to these End-Users, and the TalkTalk Group made no financial gain.

2.87 The TalkTalk Group also made the following further representations. It said the steps it had taken over the previous 6 – 8 months have had a “dramatic impact” on its compliance with GC11.1, and that it has taken and continues to take all appropriate steps to remedy the consequences of its contravention of that Condition. It also said the now materially complete migration of Tiscali customers to the TalkTalk customer records management system “will also have a positive impact,” that its non- compliance with GC11.1 was now “within accepted tolerance levels” and that further enforcement action by Ofcom would not be appropriate (and any penalty would, “… given the number of customers involved and the short period of time we have taken to remedy the same, …for any penalty to be appropriate and proportionate, it would have to be so low as not to have any material affect [sic]”).

Fourth section 135 Notice issued to the TalkTalk Group

2.88 In light of the TalkTalk Group’s response to the Third Information Request, and in particular the information it provided that, in the period between 2 December 2010 and 4 March 2011, it had issued bills to 2,928 End-Users for services not provided to them, Ofcom further considered the possibility of imposing on the TalkTalk Group a penalty under section 96 of the 2003 Act.

2.89 As part of our consideration of whether to do so, Ofcom required further information from the TalkTalk Group that went, in particular, to the scale and seriousness of its notified contravention of GC11.1. Most particularly, Ofcom required the TalkTalk Group to provide information giving some measure of the relative size of that contravention both:

a) as a proportion of the size it might have taken; and

b) as a proportion of the total bills issued by the TalkTalk Group to End-Users in the relevant period.

2.90 Accordingly, on 19 April 2011, Ofcom issued a fourth statutory notice under section 135 of the 2003 Act (the “Fourth Information Request”).27 It required the TalkTalk Group to provide Ofcom with the following information from its customer (or other) records:

a) in respect of the 62,055 End-Users referred to by TalkTalk Group in its response to the Second and Third Notices as End-Users affected by the contravention of GC11.1 between 1 January and 1 November 2010 (again, “affected End-Users”), the earliest date on which any of those affected End-Users ceased to receive services from the TalkTalk Group;

b) how many End-Users in total, in the period between the date in a) above and the date of the Fourth Information Request, ceased to receive from the TalkTalk Group services of the kinds that had been received by the affected End-Users;

c) the total number of End-Users to whom, in the period between 1 January and 1 November 2010, the TalkTalk Group sent bills (whether in contravention of GC11.1 or not, and including the 62,055 affected End-Users) for services of the kinds that had been received by the affected End-Users; and

d) how many of the 62,055 affected End-Users were subject to debt collection action by or on behalf of the TalkTalk Group (including reference to a debt collection agency).

27 Annex 11- Fourth Information Request issued on 19 April 2011.

The TalkTalk Group’s response to the Fourth Information Request

2.91 In response to the Fourth Information Request, the TalkTalk Group provided this information:

a) the earliest date on which any of the affected End-Users ceased to receive services from TalkTalk Group was 11 September 2007;

b) [] End-Users in total, in the period between the date in a) above and the date of the Fourth Information Request, ceased to receive from the TalkTalk Group services of the kinds that had been received by the affected End-Users;

c) the total number of End-Users to whom, in the period between 1 January and 1 November 2010, TalkTalk Group sent bills (whether in contravention of GC11.1 or not, and including the 62,055 affected End-Users) for services of the kinds that had been received by the affected End-Users was []; and

d) 5,253 of the 62,055 affected End-Users were subject to debt collection action by or on behalf of the TalkTalk Group (including reference to a debt collection agency).

Provisional Notification of a possible penalty

2.92 Ofcom considered the TalkTalk Group’s response to the Fourth Information Request. In the light of that and, having taken account of:

a) the available evidence;

b) the TalkTalk Group’s representations to that point in time;

c) the steps taken by it towards complying with GC11.1 and for remedying the consequences of its notified contravention; and

d) our penalty guidelines,

Ofcom took the preliminary view that we should impose on the TalkTalk Group a penalty under section 96 in respect of its contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End- Users.

2.93 Accordingly, on 4 July 2011 we issued to the TalkTalk Group the Provisional Notification of the possible penalty. That notification was given to the TalkTalk Group by reason of Ofcom being provisionally satisfied that the TalkTalk Group:

a) had, in respects notified in the s94 Notification, been in contravention of GC11.1; and

b) had not, during the period for doing so specified in the s94 Notification, taken the steps that Ofcom considers appropriate for complying with GC11.1.

2.94 The Provisional Notification set out that Ofcom had taken the preliminary view that a penalty of []% of their turnover for relevant business between 1 April 2009 and 31 March 2010 should be imposed on each of TalkTalk and Tiscali in respect of each company’s contravention of GC11.1 from 1 January to 1 November 2010. That is, £2,179,440 for TalkTalk and £2,160,560 for Tiscali, giving a total of £4,340,000 for the TalkTalk Group.

2.95 Ofcom’s preliminary view, explained in the Provisional Notification, was that these penalties would be appropriate and proportionate to the contravention in respect of which they would be imposed. The notification explained how Ofcom had had regard to:

a) representations so far made to us by the TalkTalk Group;

b) the steps taken by the TalkTalk Group towards complying with GC11.1, the contravention of which was notified to it in the s94 Notification;

c) the steps taken by the TalkTalk Group for remedying the consequences of the contravention of GC11.1 notified to it in the s94 Notification; and

d) the relevant penalty guidelines.

2.96 The reasons for Ofcom’s preliminary view and provisional determination of the possible penalty were set out in the Provisional Notification and accompanying Explanatory Statement. As noted elsewhere, those documents are in Annex 14 to this one.

2.97 In particular, Ofcom’s preliminary views included that:

a) whilst the TalkTalk Group had taken appropriate steps for remedying the consequences of its notified contravention of GC11.1 and some important steps towards complying with that Condition within the period during which it had the opportunity for doing so,28 it continued significantly to contravene that Condition after 2 December 2010 by rendering 2,928 bills to End-Users in the period between that date and 4 March 2011 for PECS not provided to them;

b) the TalkTalk Group had not, therefore, taken all the steps Ofcom consider appropriate for complying with the Condition during the relevant period;

c) the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010, involving rendering bills to 62,055 End-Users for PECS not provided to them, and its ongoing contravention as at and after the latter date, is, amongst other things, sufficiently serious and long-standing, as to warrant the imposition of a penalty in order to create a deterrent effect for it, and for all those subject to regulation by Ofcom, in turn to help ensure widespread compliance with legislation and regulatory rules and to further the interests of citizens and consumers; and

28 That is, by 2 December 2010. 33

d) having regard to matters including:

ii) the steps each took towards complying with GC11.1 and for remedying the consequences of its notified contravention; and

iii) the central objective in imposing a penalty and determining its amount, set out in our penalty guidelines, of deterrence: setting the amount of any penalty to be sufficient to ensure that it will act as an effective incentive to compliance for both companies in the TalkTalk Group, having regard to the seriousness of their infringement, and others to whom the General Conditions regime applies,

a penalty on each of an amount equal to []% of its relevant turnover, £2,179,440 in TalkTalk’s case and £2,160,560 in Tiscali’s, would be appropriate and proportionate to the contravention for which it would be imposed.

2.98 The Provisional Notification gave the TalkTalk Group until 1 August 2011 to make written representations to Ofcom about the matters set out in it and the Explanatory Statement. It also gave the TalkTalk Group the opportunity to make oral representations to Ofcom in relation to these matters.

The TalkTalk Group’s representations

2.99 The TalkTalk Group made oral representations to Ofcom at a hearing on 14 July. A skeleton summary of those representations is at Annex 15 to this document and a transcript of the hearing is at Annex 16. It also made written representations on 29 July, a copy of which are at Annex 17 to this document, and supplemented them, at Ofcom’s request, on 9 August (see Annex 18).

2.100 In those representations the TalkTalk Group conceded that Ofcom should impose on it a penalty under section 96 of the 2003 Act:

a) “…we are conceding that a penalty should be imposed on us. We’re not here today to say that an alternative remedy could have been a section 95 notification or enforcement notice, so I’d just like to make that clear…;”

b) “Our representations mean we concede that a fine should be imposed. As such we are not seeking to argue that a section 95 notification would have been more appropriate in the circumstances, even though this was our original view based on the facts…;”

c) “TalkTalk accepts that it continued to be in contravention of GC11.1 after 2 December 2010 and that a fine should be levied…;”

The focus of the TalkTalk Group’s representations was, therefore, on the amount of that penalty. It made representations on the following grounds (the headings used in connection with which below are those it used, or are its descriptions of what it said were key points).

2.101 The TalkTalk Group’s principal representations were that Ofcom:

a) has misinterpreted sections 96 and 97 of the 2003 Act, our penalty guidelines and the law generally, the proper meaning of which is that we may only impose a penalty in this case for the contravention by the TalkTalk Group of GC11.1 in respect of 2,928 End-Users after 2 December 2010, not in respect of 62,055 End-Users to whom the TalkTalk Group issued bills in contravention of that Condition between 1 January and 1 November 2010;

b) must in any penalty reflect the TalkTalk Group’s culpability for contravening GC11.1 after 2 December 2010;

c) may not in determining a penalty to have deterrent effect “use” the TalkTalk Group’s contravention of GC11.1 in respect of 62,055 End-Users to whom it issued bills between 1 January and 1 November 2010;

d) in taking the preliminary view that we should impose a penalty for the contravention of GC11.1 in respect of 62,055 End-Users to whom the TalkTalk Group issued bills in contravention of that Condition between 1 January and 1 November 2010, has taken an incorrect approach that ignores the TalkTalk Group’s level of culpability after 2 December 2010; and

e) the correct approach is that a penalty may only be imposed for contravention of GC11.1 that continued after 2 December 2010 in respect of 2,928 End-Users.

2.102 Putting things another way, as the TalkTalk Group did at the hearing of its oral representations:

a) “The main thrust of our argument today is that on our facts …you shouldn’t be counting the 62k;”29 and

b) “…we don’t seek to challenge the fact that you should levy a fine on [the TalkTalk Group], but it should be based on the 3,000, not the 62,000.”

2.103 The TalkTalk Group put the point this way in its written representations:

a) “The key focus of both of our oral and written representations is the relevance in calculating the proposed penalty under the Notification to the rendering by TalkTalk between 1 January and 1 November 2010 of bills to 62,055 End-Users for PECS not provided to them (the 62k”). We believe the 62k should not be used

29 The “62k” being the way the TalkTalk Group referred in its representations to the 62,055 End-Users to whom between 1 January and 1 November 2010 the TalkTalk Group sent bills in breach of GC11.1

as an aggravating factor when calculating the penalty amount stated in the Notification…;” and

b) “The level of seriousness and culpability in TalkTalk’s case was only in respect of the 3k. Therefore proportionality and deterrence should only be based around this.”

2.104 It said, based on the points made in its representations, that:

a) “It is TalkTalk’s position that the law provides that any fine should be appropriate and proportionate and in making such determination the steps taken to become compliant, culpability/seriousness and deterrence should all be taken into account. We will therefore show the relevance of each to the calculation of the fine, the consequence of which is that we believe the proposed financial penalty of £4.33 million stated in the Notification is not proportionate and should be reduced accordingly…;” and

b) “Once it is accepted that it is the level of seriousness and culpability after the remedy period (ie the 3k) that should form the basis of the calculation, the consequence is that Ofcom’s preliminary proposed penalty of £4.33 million by reference to the 62k including deterrence, has to be significantly reduced.”

The interpretation and interaction of sections 96, 97, the penalty guidelines and the law generally

2.105 As to section 96 of the 2003 Act, the TalkTalk Group said it “… provides for when Ofcom may impose a penalty.” The TalkTalk Group said (its emphasis), “First, Ofcom has to notify and provide a period to “become compliant and for remedying the consequences of the notified contravention...”

2.106 It went on that this leads to “Two possible outcomes: the contravention has either stopped or continues (and remedied or not remedied) by the end of the period (in our case 2 December 2010).” If the contravention has stopped, and its consequences are remedied, Ofcom may not impose a penalty. If not, the TalkTalk Group said, there are two further scenarios: the situation has either improved or is worse [after the relevant period].

2.107 This latter scenario, the TalkTalk Group submitted, raises the question of whether Ofcom may impose a penalty in respect of the contravention before what the TalkTalk Group described as the “remedy period.” In the present case, where Ofcom considers that the TalkTalk Group had taken appropriate steps to remedy the consequences of the notified contravention of GC11.1 by 2 December 2010, but that the contravention continued after that date, whether, “It is possible to levy a fine for the contravention pre 2 December in respect of the 62k even though the situation had improved after the remedy period?”

2.108 The TalkTalk Group submitted that Ofcom may not so “levy a fine.” It relied on the following in support of that point.

2.109 First, it referred to section 96(3) of the 2003 Act that, “Where a notification under section 94 relates to one or more contravention, a separate penalty may be imposed in respect of each contravention.” It said that, on a literal interpretation this means, “…more than one contravention means more than one penalty.”

2.110 It went on that, “Ofcom’s position is that because the actual contravention has continued after 2 December the 62k can be brought into play,” but, it said, “This is not correct.” Rather, the sub-section is “Agnostic as to time,” and, “No reference is made to taking into account the period before (and the scale of the contravention) the end of the remedy period.”

2.111 The TalkTalk Group put the matter this way at the hearing:

“The first thing I think we would note is that that’s actually agnostic as to time. It doesn’t say that you look at the period prior to the end of the remedy period or indeed after the remedy period. I think it quite clearly does what it says on the tin; I think it says if you are in contravention of more than one general condition then, quite rightly, Ofcom may impose a separate penalty on each. I don’t think that has any bearance [sic] whatsoever on the treatment of the 62k in calculating the penalty, given the 62k bills were all rendered between 1 January and 1 November.”

2.112 It further set out its position in its written representations:

“The literal interpretation of this sub-section is very clear. If there is more than one contravention (as stated in the S94 notice) then a separate penalty (once determined under S96, S97 and the guidelines) can be imposed for each.

This provision is clearly agnostic as to time and makes no reference as to what Ofcom may do if the contravention continues after the remedy period. It simply provides that a separate penalty may be raised in respect of each notified contravention.

As such this Section is irrelevant to using the 62k as an aggravating factor in calculating the fine.”

2.113 Second, the TalkTalk Group referred to section 96(4) of the 2003 Act that (its emphasis), “No more than one penalty may be imposed in respect of the period of contravention specified in the notification.” Again, it referred to the literal interpretation of the provision, “Literal interpretation means only one fine can be levied in respect of the period stated.”

2.114 It said that the provision does not mean Ofcom may impose a penalty for the contravention before the end of “the remedy period” (in this case, in respect of the “62k”). It described an interpretation to the contrary as one that, “…produces such violent damage to the literal interpretation that it would not be adopted by a court.”

2.115 In its oral representations the TalkTalk Group said sub-section 96(4):

“…does refer to a period of time; it talks about the period of contravention specified in the section 94 notification. However, what it doesn’t say is that that allows you to look back at the situation prior to the end of the remedy period – if, for example, the situation was better at the end of the remedy period. It basically simply says you can only issue one fine to cover the situation both prior to and after the remedy period. So again, I don’t think that that has any relevance whatsoever in respect of using the 62k as an aggravating factor in calculating the fine.”

2.116 And, in its written representations, it said of the sub-section:

“While this refers to a continuing contravention, nowhere does it provide that the extent of the effects of the contravention in the period prior the end of the remedy period may be used as an aggravating factor. It simply provides double jeopardy protection in that you cannot be fined more than once for the same continuing contravention.

Again therefore, it provides no ability to use the 62k as an aggravating factor.”

2.117 Third, the TalkTalk Group relied on section 97 of the 2003 Act, in which it said, “…. the real answer in all of this lies.” It referred to subsection (1) saying that (again, its emphasis), “The amount of any penalty must be “as Ofcom determine appropriate and proportionate to the contravention…” It said this means, “…obviously you [Ofcom] can determine the fine, but that fine has to be ‘appropriate’ and it has to be ‘proportionate to the contravention in respect of which it is imposed’.”

2.118 It then made a submission about sub-section (2) that (the TalkTalk Group’s emphasis), “In making that determination Ofcom must have regard to (inter alia):

Any steps taken towards complying…with the…contraventions…notified [in the original s94 notification]; and

Any steps taken…for remedying the consequences.”

2.119 The TalkTalk Group said this means, “…that in making that determination – i.e. the determination of the calculation – you [Ofcom] have to take into account, amongst other things, the steps that we’ve taken towards complying with the conditions and the steps that we’ve taken in remedying the situation.” This, it submitted, means, “The steps taken towards complying and to remedy have to be an integral part of the calculation rather than some discount that is applied at the end.”

2.120 In its case, the TalkTalk Group said, “We have significantly improved the situation from 62k affect customers [sic] to 3k affected customers based on the steps we had taken.” It went on that, “Equally, Ofcom accepts (para 3.16) that we have remedied such that we cannot then be fined for something we have remedied – namely the 62k.” So, “The 62k have been superseded by the 3k,” and, “Any fine should be calculated on the basis of our culpability after the remedy period.”

2.121 The TalkTalk Group summarised the position this way in its oral representations:

“Our situation is very clear …the contravention of GC11 had continued, but the fact is that that contravention was drastically less than it had been between January and November. So what we say is that the fine should be calculated on the basis of our culpability at the end of the remedy period. … you can’t seek to calculate a fine on something we were no longer culpable for. That’s the reason section 94 gives you a remedy period in the first place.”

2.122 In its written representations it concluded that sub-sections 97(1) and (2) mean:

“Consequently, the situation prior to 2 December 2010 cannot be used as an aggravating factor if it is worse than the position after 2 December. This is because the steps taken to improve the position have to be taken into account. The 62k is relevant to the determination but only in determining the starting point to judge the effect (positive or negative) of the steps that have been taken during the remedy period. This is one of the main reasons why section 96 provides that a remedy period must first be given before a fine can be levied.

It is not the case that if the steps taken to comply have not completely stopped the contravention then Ofcom can ignore such steps and refer back to the worse position prior to the remedy period for the purposes of calculating the fine. Ofcom’s current approach in the Notification seeks to do this and therefore ignores the level of culpability after the remedy period and incorrectly uses the 62k in such calculation.”

Culpability

2.123 As indicated above, the TalkTalk Group submitted that any penalty under section 96 of the 2003 Act must be determined on the basis of the relevant Communications Provider’s culpability after the period it is given for taking steps for complying with the relevant General Condition and for remedying its notified contravention of that Condition:

a) “The level of culpability (whether better or worse after the remedy period) is a critical factor in determining what penalty amount is [sic] and should be taken into account by Ofcom…;” and

b) “The way to look at this is the level of culpability after the remedy period.”

2.124 As far as the contravention of a General Condition notified to a Communications Provider under section 94 is relevant at all, the TalkTalk Group said, it is relevant only in assessing the Communications Provider’s culpability for contravening the relevant Condition after the period it has been allowed for complying and remedying. For example, it said:

“So yes, the period before is relevant, because that gives you an idea of what steps should be taken to get you back down to zero. It has to be; that’s the only way you can look at it.”

2.125 In making its representations about culpability, the TalkTalk Group relied upon what the Competition Appeal Tribunal (the “CAT”) said in paragraph 175 of its judgment in Kier Group Plc and others v OFT.30 It quoted the following words (in italics) and accompanied them with the following comments (non-italics) in support of its submission that any penalty, “….must be based on culpability and also proportionate:”

a) “it is a cardinal principle that the ultimate penalty imposed must satisfy the requirements of proportionality” – “We agree with that, obviously; as I’ve said, we were 95% better;”

b) “Whilst deterrence is a relevant consideration when assessing proportionality” – “…we agree; the guidelines quite clearly say that when levying a fine, the primary objective has to be a deterrent” - “… so equally is the culpability of the offender/seriousness of the offence. If these two considerations pull in different directions then a fair balance should be sought;”

c) “But the culpability consideration must not be lost to view, and it may well impose some limit on the extent of any increase based purely on deterrence” – “I think in your case, you’ve looked at the 62k, quite rightly; quite rightly you’ve followed the guidelines and said the main objective of the penalty is to be a deterrent. However, as it quite clearly says here, you always have to bear in mind the level of culpability.”

2.126 In its oral representations, the TalkTalk Group said, in light of these words of the Tribunal and its submissions in relation to them:

“So what we say is that the fine should be proportionate and based on our culpability after the remedy period and, given our significant improvement, yes we were continuing; we were 95% better. So the fine, whilst being a deterrent, has to be proportionate, has to be balanced on culpability and therefore calculated accordingly.”

2.127 It put the same point this way in its written representations:

“What we say is that this [the quoted paragraph of the Kier judgment] means the fine should not only be proportionate and act as a deterrent but should also be based on our culpability after the remedy period. In this regard we refer to the underlined words “so equally.”

Given our significant improvement after the 2 December 2010 (we were 95% better) the fine should be calculated accordingly without the 62k being used as an aggravating factor.

While we also accept the Penalty Guidelines provide that deterrence is the central objective, we do not agree with Ofcom’s reference to the 62k in this regard.”

30 [2011] CAT 3

Deterrence

2.128 As to the extent to which Ofcom may take into account, in determining a penalty that would have deterrent effect, the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End-Users, the TalkTalk Group said in its representations:

“What we say is that the law (including the Penalty Guidelines) is such that Ofcom is not able to use the size of the contravention before the end of the remedy period as a factor to help calculate a fine that will act as a deterrent especially when (as in our case) the size of the contravention (or culpability) is less than that before the 2 December.”

2.129 It said that contravention, for that period and in respect of those End-Users, is only relevant to the determination of a penalty having deterrent effect in this way:

“Our view is that the 62k should not by itself be used in such calculation when the position is better after the remedy period because this would ignore both the steps taken and the level of culpability. The 62k is only relevant as a starting point to help show whether the position (including the results of the steps taken, culpability and remedial action) is better or worse after 2 December.”

2.130 It cited the following in support of that position (its emphasis and underlining):

“We believe this is clearly supported by paragraph 3 of the Penalty Guidelines:

“The central objective of imposing a penalty is deterrence. The amount of any penalty must be sufficient to ensure that it will act as an effective incentive to compliance, having regard to the seriousness of the infringement”.

We have highlighted in bold the last sentence because this qualifies what deterrence means, namely an effective incentive to comply but regard must be had to the seriousness of the infringement.

Therefore, even Ofcom’s own Penalty Guidelines clearly refer to the seriousness of the infringement or in other words the level of culpability. While Ofcom refer to all of such paragraph 3 in the Notification (in particular para 3.8), it makes no specific reference to the last sentence when it should be specifically referred to and Ofcom should pay due regard to it in any calculation.”

2.131 The TalkTalk Group likewise relied again on paragraph 175 of the Competition Appeal Tribunal’s judgment in the Kier case:

“We also repeat paragraph 175 of the Kier case which states that whilst deterrence is a relevant consideration in assessing proportionality, so equally is the culpability/seriousness. If these two considerations pull in different directions then a fair balance should be sought.

Again, this means that given the level of seriousness was only 3k after the remedy period compared to 62k before (we had also remedied the 62k and also the 3k) Ofcom should not use the 62k in determining deterrence as this is no longer the level of seriousness. This creates the fair balance between deterrence and seriousness/culpability in that the 62k should not be used to judge what is necessary to act as a deterrent.”

2.132 As to the role deterrence should play in what it submitted is the correct approach to determining a penalty, the TalkTalk Group said in its oral representations that deterrence is a factor requiring Ofcom’s separate consideration, after we have considered the level of culpability as set out above:

“I think the way you look at deterrence…, is to say – you look at the level of culpability and you say, very broadly in this case, we were 95% better. So okay, they’ve done – they’ve carried out significant steps; however, they are still contravening and quite rightly the central objective of a penalty – and we’re conceding that a penalty should be imposed – should be one of deterrence.

So yes, you want to deter us from doing it again, but equally, in making that calculation…, you have to take into account the steps that we’ve taken. So it’s not a case of linking the prior period to how much fine should be imposed as a deterrent. A deterrent is a separate thought process; it’s something that you would look at completely differently, because you will think, ‘Well what do we need to do to deter this company from continuing being non-compliant?’”

2.133 As to whether Ofcom may take into account the period and size of the contravention notified to the TalkTalk Group in the s94 Notification in order to have a deterrent effect for other Communications Providers, the TalkTalk Group said:

“The answer to that is no when the level of seriousness is materially better after the remedy period and the prior contravention has been remedied in full. Any reference to scale has to be to the level of seriousness after the remedy period and not before. Not only is this what the law and Penalty Guidelines provide, but this also produces a consistent approach whether the seriousness is better or worse after the remedy period.”

2.134 It further submitted in its written representations that, were Ofcom to adopt the approach for which the TalkTalk Group contends, and accordingly to determine a level of penalty which it contends should apply as a result, this would still have a deterrent effect for other Communications Providers. It said:

“If Ofcom wishes to ask the question whether our approach will act as a deterrent to others so they are focused on becoming fully compliant by the end of the remedy period, then the answer is a resounding yes. Others will be deterred because it is clear that the level of fine will be increased to the extent they are still not compliant and if they have not remedied the consequences of the contravention. They will also see from our case that we refunded all money and made goodwill payments which amount to more than £2.5 million which also mitigated the amount of the fine.” 42

2.135 It further said on the same point that:

“For example, if Ofcom followed our proposed range of fines and levied a penalty say of £600,000 then such amount together with the refunds and goodwill payments made in excess of £2.5 million, will show that we have paid out approximately £3.3 million in total. This is more than sufficient to act as a deterrent given the seriousness of the contravention in TalkTalk’s case.”

Ofcom’s approach

2.136 The TalkTalk Group made representations that, in light of the foregoing, Ofcom had taken an incorrect approach in taking our preliminary view of the penalty that we may impose.

2.137 As indicated, the TalkTalk Group’s contention is that Ofcom should determine any penalty based on its culpability for the position after the period it was given for taking steps for complying with GC11.1 and for remedying its notified contravention of that Condition. That is, in this case, after 2 December 2010. Again, “The way to look at this is the level of culpability after the remedy period,” and, “…the level of culpability or seriousness after the remedy period should form the basis of the calculation,” it said.

2.138 So, again, the TalkTalk Group said its contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End- Users, is relevant only in assessing its culpability for contravening that Condition after 2 December 2010:

a) “The position before the end of the remedy period is the starting point to determine what steps have been taken and whether the situation is more or less serious…;”

b) “Both [the periods 1 January - 1 November 2010 and after 2 December 2010] are relevant but you have to start from assessing the scale of the culpability, which you have to assess based on the post-remedy period scale. That’s the argument we’re making…;” and

c) “…that really is the core of our argument, that we should focus on the 3,000 customers that are harmed. We don’t…seek to challenge the fact that you should levy a fine on that, but it should be based on the 3,000, not the 62,000.”

2.139 Ofcom’s approach was, therefore, incorrect, the TalkTalk Group said, because we sought to determine a penalty in respect of the 62,055 End-Users to whom the TalkTalk Group sent bills in contravention of GC11.1 between 1 January and 1 November 2010, relying on sub-sections (3) and (4) of the 2003 Act. We then sought to calculate the amount of the penalty under section 97 (and Ofcom’s penalty guidelines), and then applied “a discount [for the steps the TalkTalk Group took towards complying with GC11.1 and for remedying its notified contravention] at the end.”

2.140 The TalkTalk Group said this was wrong because sub-sections (3) and (4) of section 96 are not relevant for the reasons set out above. The contravention [for which any penalty may be imposed] “…is simply that the contravention of GC11.1 has continued after the remedy period (given we have remedied the consequences).” The steps the TalkTalk Group took for complying with GC11.1 and remedying the consequences of its notified contravention are an integral part of the calculation under s97 of any penalty, rather than a discount to be applied at the end. The drafting of s96 and s97 is very clear about this, it said.

2.141 The TalkTalk Group put these points this way in its oral representations:

“…you’ve looked at subsection three and subsection four [of section 96 of the 2003 Act] as one of the reasons or two of the reasons as to why the 62,000 can actually come into play in making that calculation. Then you calculated the amount under section 97 and the guidelines and then you’ve applied the discount at the very end. So there are a couple of calculations, then the 50% discount comes at the very end. I think it must be that way, because the discount doesn’t come into play until very, very late in the notification; it comes into play at paras 4.112 and paras 4.139 – it’s tucked away at the back end. I think if it was taken account in the steps, then you would have highlighted that in the front end where you go through the mechanics of section 97 and the guidelines.”

2.142 It put them this way in its subsequent written representations:

“The Notification clearly shows that Ofcom has, following a decision to levy a penalty, used the 62k as a key factor in its calculation under the Penalty Guidelines, focused on arriving at an amount that represents a percentage of relevant turnover and has then applied a discount at the end of its calculation. For instance, the discount is not referred to until the end of the Notification in paragraphs 4.112 and 4.139.”

2.143 The TalkTalk Group submitted that Ofcom’s approach produces an “all or nothing” result. It ignores the actual level of culpability after 2 December 2010 and seeks to impose a penalty for a contravention whose consequences we accept have been remedied.

2.144 The TalkTalk Group put that point this way in its oral representations:

“The problem with that approach is that it produces this all-or-nothing situation at the end of the remedy period. It’s basically saying, ‘Well if you are completely compliant, we won’t fine you, but actually, if you are the tiniest bit non-compliant, we can go back to everything that you’ve remedied and bring that back into play’. That simply cannot be right. As we’ve said before, the culpability is after the remedy period and not before. Ofcom readily accepts in its notification to us that we’d remedied the 62,000, so even on that point, you can’t bring that back into play.”

2.145 It put the point this way in its written representations:

“Ofcom’s approach produces an “all or nothing” scenario at the end of the remedy period and is too dramatic. This is not correct. It is not the case that Ofcom can say that if the contravention has not completely stopped then it can refer to the position before the end of the remedy period when calculating the fine (especially in deciding what amount should act as a deterrent) if such prior position is worse than the position achieved at the conclusion of the remedy period. This ignores the actual position after that remedy period and the steps taken towards achieving compliance. It is also worth remembering that if TalkTalk had been 100% compliant then no fine would have been payable.”

2.146 The TalkTalk Group went on to describe Ofcom’s approach as “cherry picking.” It said:

“…while Ofcom has discretion that does not mean Ofcom has the luxury to “cherry pick” in a way where it can choose to take into account as it may decide the position before or after the remedy period depending on which is the worse period of contravention. Ofcom is seeking to do this in our case because it is ignoring the level of culpability and seriousness following the steps we have taken and instead bring back into play a worse level of culpability/seriousness that existed before the end of the remedy period.”

2.147 It illustrated this point by giving the example of a case where a Communications Provider is in bigger contravention of a General Condition after the period it was given for complying with the Condition and remedying its contravention. In its oral representations it said:

“I think the real acid test here is to look at… what the situation would have been if we’d have been worse after the remedy period. So let’s say we’ve issued 100,000 bills rather than 3,000. I think, quite rightly under the legislation and purely from a human nature approach, you would have focused on the 100,000 in calculating the fine, because that is our level of culpability. Equally, you would have brought back the 62,000 into play as an aggravating factor, because the steps that hadn’t been taken or the minimal steps that had been taken had only produced a result whereby we were worse – we were 100,000. So quite rightly, you would have looked at the legislation and said, ‘Well, the steps you’ve taken have obviously been inadequate because you’ve actually gone up from 62 to 100,000’.”

2.148 It put the same point this way in its written representations:

“One of the best ways to illustrate that this approach is incorrect is to refer to the scene setting we explained at the start of these representations and look at how Ofcom would have calculated the fine if the culpability/seriousness was materially worse after 2 December.

Ofcom would surely wish to calculate any fine and the level of deterrence by reference to such worse position. If nothing else, human nature would mean Ofcom would focus more on the increased level of seriousness/culpability and clearly this would show that insufficient steps (or maybe no steps) had been taken.” 45

2.149 It submitted that, “without cherry picking,” Ofcom’s approach would mean that we could only consider the size of the contravention in the period covered by the notification under section 94. Had the contravention got bigger after the period for complying and remedying Ofcom could not, on our approach, take that worsening of the position into account:

a) “ …let’s imagine it was 10,000 customers affected in the period prior to the remedy period and 62,000 in the period after. I don’t think that you would want to calculate a fine based on the 10,000…;” and

b) “Offenders would love to be in a position where all the steps they’ve taken to mitigate have made a situation worse but it’s fine because they only get a calculation based on the history when they were better. That would certainly not be a deterrent…”

2.150 By contrast, the TalkTalk Group contended:

“…if Ofcom adopted our interpretation of the legislation and the Penalty Guidelines it would be able to apply a consistent approach in being able to levy an increased fine to reflect the increased seriousness after the remedy period and greater need for deterrence.”

2.151 The TalkTalk Group said that Ofcom had taken the approach it said is the correct one, as set out in its representations, in previous cases involving Telephonics Integrated Technology Limited (“Telephonics”) and Just Telecomms UK Limited (“Just Telecomms”). In its oral representations it said of Ofcom’s approach in these cases:

“…You make reference to two cases in your notification; one was the Telephonics case, which I think came after the other case you referred to… You quite clearly, in that case – and that case was a situation where it was significantly worse after the remedy period. You don’t focus at all on the period before the notification in calculating the penalty; you simply, as we would all do – you look at the level of culpability after the remedy period. In that case, it was significantly worse and you calculated the fine accordingly. …I think that clearly illustrates what you would do if the situation was worse after the remedy period. All we’re simply saying is you have to adopt a consistent interpretation of the legislation and the guidelines, whether or not the situation is better or worse after the remedy period. That is, quite simply, you have to calculate the fine based on our level of culpability after 2 December.”

2.152 It followed this up by saying in its written representations:

“…they [the two cases] clearly show that Ofcom in those cases adopted our interpretation in that the level of seriousness/culpability after the remedy period and not that in the original notification was used as the basis for calculating the size of the penalty and level of deterrence.

The enforcement and penalty notifications in the Telephonics case [issued under sections 95 and 96 of the 2003 Act and referred to in this document as the “Telephonics Notification”31] contain numerous references that support our view. In particular para 1.16 states that Ofcom reviewed the situation following the expiry of the Opportunity Period (which was the remedy period) in order to determine whether any further action is required. Paras 4.19 and 4.20 also show that Ofcom is more focused on the situation after the remedy period.

More specifically, paras 6.93,6.94, 6.103 and 6.104 of that case clearly show the continuing contravention and failure to take any steps were the aggravating factors rather than arguably the lesser level of seriousness/culpability before the end of the remedy period.

The notifications issued by Ofcom in the Just Telecomms32 case also contain similar references that support our approach. To avoid repetition we have not highlighted these. We do however draw Ofcom’s attention to such notifications and we will if requested by Ofcom happily provide specific references.”

2.153 The TalkTalk Group followed this up further on 9 August 2011. It did so following a request from Ofcom to provide references to the specific paragraphs of our enforcement and penalty notification in the Just Telecomms case (the “Just Telecomms Notification”) upon which it relied in its representations.33

2.154 The TalkTalk Group contended that:

“As stated in our Written Reps [sic], we believe such notifications (and those in the Telephonic’s case) clearly show Ofcom has adopted our interpretation of the relevant legislation and guidelines. This being that it is the level of seriousness/culpability after the remedy period and not that in the original notification which should be used as the determining factor when calculating the level of penalty amount and deterrence.”

2.155 It quoted extracts from paragraphs 7, 9, 16, 20, 112, 113 and 115 of the Just Telecomms Notification, with a commentary on each, that were said to support its contention. What it said is set out in full in Annex 18. It included the following (with quoted extracts in italics and the TalkTalk Group’s commentary in plain text, with the emphasis being the TalkTalk Group’s):

“Para [sic] 7

“The three respects in which Ofcom is satisfied that JTUK has contravened GC14.3, and in relation to which respects has failed to take all appropriate steps to remedy the consequences of its contravention of GC14.3 (whether during the Opportunity Period or, indeed, thereafter) are as follows…”

31 http://www.ofcom.org.uk/files/2010/07/Final_non-confidential.pdf 32 http://stakeholders.ofcom.org.uk/binaries/enforcement/competition-bulletins/closed-cases/all- closed-cases/cw_857/jituk_s95_96.pdf 33 Letter from [] to Claudio Pollack and Stuart McIntosh dated 9 August 2011 (Annex 18) 47

Ofcom makes no reference to what (if any) remedial steps were taken prior to the Opportunity Period.

Para [sic] 9

“In addition, Ofcom has now decided to impose a penalty on JTUK under section 96 of the 2003 Act in respect of matters specified in paragraph 7 above.”

Again, Ofcom clearly when determining the financial penalty cross refers back to paragraph 7 and the period during and after the remedy period, but not the period referred to in the original Section 94 notification.

Para [sic] 16

“Following the conclusion of the Opportunity Period, Ofcom has reviewed the situation with a view to determining whether any further action is required (under section 95 and/or 96 of the 2003 Act, in particular.”

Para [sic] 20 – first sentence

“Ofcom’s decision is also based on a careful consideration of further evidence which has come into its possession since the Section 94 Notification.”

Without question, paras [sic] 16 and 20 further show Ofcom’s approach is to review matters after the end of the remedy period.

Para [sic] 112 – second sentence onwards

“After the opportunity period has elapsed, it is for Ofcom then to review the situation,…, so as to then decide whether it is satisfied that any of the notified contraventions have occurred (or are continuing to occur) and in respect of which contraventions there have been consequences which remain unremedied. If Ofcom is so satisfied, the threshold for the issuance of a Section 95 Enforcement Notification will have been crossed”.

We have highlighted all of these two sentences because they clearly demonstrate Ofcom’s view that the threshold under Section 95 is to be determined by reviewing the situation after the remedy period has ended.

This should be exactly the same approach under Section 96 given sub-sections (1) and (2) are materially the same in effect and purpose.

Para [sic] 113 – second sentence onwards

“A recipient of a Section 94 Notification who avails himself of that opportunity [to remedy the consequences of its contraventions] is able thereby to avoid a remedial process being imposed on it under section 95 and/or the imposition of penalties under section 96. Where that opportunity has not been taken, however, the recipient is liable to further action under section 95 and/or 96 without further warning, provided that the statutory thresholds for such further action are satisfied.”

This completely accords with our view expressed in our Written Reps [sic] and at the Oral Hearing that if at the end of the remedy period the contravention has stopped and the previous consequences remedied, then no penalty would be imposed. Ofcom can only arrive at this interpretation by determining the level of seriousness/culpability after the remedy period and not before.

Para [sic] 155 – last sentence

“The process provided for under the 2003 Act does not envisage that Ofcom will make a final determination that it is satisfied that a contravention actually occurred before allowing the recipient of a Section 94 Notification a further period in which it has the opportunity to remedy the consequences and thereby avoid a remedial scheme being imposed upon it.”

Once more, this demonstrates that the 2003 Act provides a remedy period in order that a party first has a chance to remedy such that the decision to impose a remedial scheme (or penalty) will be based on the position after such period has ended.”

2.156 The TalkTalk Group concluded these further representations by saying:

“The JTUK case involved a notification to remedy as well as a penalty notification because situation had not been remedied after the remedy period. However, the decisions by Ofcom to impose the notifications on JTUK were uncontrovertibly based on the position after the remedy period had finished.

Nowhere does Ofcom refer to the period prior to the end of remedy period as the aggravating factor.…”

Percentage of turnover

2.157 The TalkTalk Group also made representations about Ofcom’s calculation of the proposed penalty. It representations were these:

a) “The 10% [of turnover for relevant business that is the maximum penalty Ofcom may impose] is only a cap; it’s nothing more and nothing less…;”

b) “There’s nothing to say in the legislation that the fine – and indeed your guidelines – that the fine has to be a percentage of turnover…” and nor is there anything to say, “....that the fine should be calculated by working backwards from 10%....;”

c) “If that was the case then Section 97 would have provided this and Ofcom would have also made the point in its own guidelines…;”

d) “…the legislation and the guidelines simply say you look at the facts, you look at the steps that have been taken, you look at the culpability, you calculate a number…;”

e) “You then look at deterrence – and the OFT case maybe talked about some form of margin to bring into that calculation, but it [the 10% limit] is simply to provide a top end for you….;”

f) “So you do your calculation, it may well come out at a significant number – maybe more than 10% – but you know then you’ve reached the ceiling…;” and

g) “The only reference Ofcom needs to make to the cap in its determination and the Notification is that the final amount it has calculated has not exceeded the 10% cap.”

2.158 The TalkTalk Group suggested Ofcom’s view, “ …seems to be this – well you’re at 10%; there needs to be some linear, almost, calculation down from 10% and the fine at the end of the day needs to be expressed as a percentage of turnover.” The TalkTalk Group said, “I don’t know whether that’s hindering or not the calculation.”

Other representations on the Notification

2.159 The TalkTalk Group also made representations on other parts of the Provisional Notification. These were as follows.

2.160 First, as to Ofcom’s preliminary view that its contravention of GC11.1 was “systematic,” the TalkTalk Group said in its oral representations that the contravention may have been “systematic” but, “…we never set any false expectations post-2 December and I would like that noted…so I think “systematic” is quite a hard word.”

2.161 It followed this in its written representations by indicating its disagreement that the contravention was “systematic.” On the basis of the changes it was making to its customer records management systems and its frankness to Ofcom about the nature of its problems and the solutions it was implementing, it said:

“It is therefore incorrect to describe our contravention as being purposefully methodical or regular or following a fixed plan or in any other way systematic as that word may be regularly defined.”

2.162 Second, the TalkTalk Group also submitted that the preliminary assessment of the size and seriousness of the relevant contravention is incorrect (in particular, in paragraphs 4.43 to 4.58 of the Provisional Notification) because it refers to the 62,055 End-Users to whom the TalkTalk Group issued bills in breach of GC11.1 between 1 January and 1 November 2010, rather than the 2,928 to whom it did so after 2 December 2010. Likewise, because those paragraphs refer to the number of End-Users leaving the TalkTalk Group’s services between those former dates, rather than after the latter.

2.163 A similar point applies, the TalkTalk Group said, to Ofcom’s preliminary assessment of the harm arising out of the contravention (“Similarly the degree of harm, you have to take into account that we’ve gone from 62 to 3k”). In this connection, the TalkTalk

Group also re-iterated that it made no financial gain from the contravention, having re-credited wrongly billed End-Users and made goodwill payments to them.

2.164 Third, the TalkTalk Group said that in the Provisional Notification Ofcom took the preliminary view that the Group had been “reckless.” The TalkTalk Group made clear it disagreed it had been reckless in a strict legal sense, and submitted that it would have been more reckless to take key measures – migrating Tiscali customers to the TalkTalk customer records management system – more quickly.

2.165 It agreed members of its senior management team were aware of the contravention of GC11.1:

“…but we were stuck between a rock and a hard place in many respects. Our alternative was to potentially accelerate the Tiscali integration programme even more than we already had done and in doing so, we would have put at risk the service to many, many, many, many customers in excess of 62,000 [the TalkTalk Group’s skeleton argument indicated that if the migration programme were “… not carried out with due care and diligence there was the inevitable loss of service to over a million customers”]. So you have to, when deciding whether someone was reckless or not, look at the facts. It’s a subjective test.”

2.166 It made similar points in its written representations:

“We made it very clear at the Oral Hearing that we had only been permitted to carry out limited due diligence and the Tiscali business had not always paid suppliers on time prior to the acquisition given it was controlled by an Italian parent company which in turn had become controlled by its lending banks. In fact the business would have probably entered into administration or insolvency if our acquisition had not completed. We also explained that the Tiscali billing systems were all being carried on in Sardinia and outside of our direct control prior to the completion of our integration programme during the first calendar quarter of 2011.

[] also expressly made the point with regard to Ofcom’s comment that we should have considered accelerating the Tiscali integration, that the reckless thing to have done would have been to accelerate such integration rather than first carry out all appropriate integration testing of the changes in the billing system. The degree of customer harm would have been far greater if we had accelerated the programme without knowing the results of such testing.

We would also supplement what was said at the Oral Hearing by asking Ofcom to note that [ Redacted confidential details].

We therefore ask that the final notification be changed accordingly to show that we were not reckless and the integration could not be accelerated without producing more customer harm.”

2.167 The TalkTalk Group also “categorically disagreed” it, “…only took ineffective steps prior to 1 November 2010” and “…absolutely disagree[d] with the contention that we didn’t take it seriously prior to November 2010.” It said it had started its project for 51

securing compliance with GC11.1 in August 2010 and that this had improved its compliance in line with the timescale it had indicated to Ofcom:

“…he project that has delivered the significant improvement in billing complaints was kicked off in August 2010 and that’s exactly what we told you in November. So we’ve tried throughout this to be completely open about the problems that we have been facing and that’s why, when [] and I met you in November, we were very clear that we didn’t believe we could be compliant on 2 December, because we wouldn’t by then have completed the billing system migrations with Tiscali. And we delivered almost exactly what we said we would in terms of the run rate improvement through December, January and February.”

Alternative proposals for calculating the quantum of penalty

2.168 The TalkTalk Group continued its representations by putting forward what it described as “alternative proposals” for calculating the penalty to be imposed on it. These are set out in the skeleton summary of the TalkTalk Group’s oral representations at Annex 15 and in its written representations at Annex 17.

2.169 The central premise of these “proposals” is, as indicated above, that the penalty should be calculated by reference to the TalkTalk Group’s contravention of GC11.1 in respect of 2,928 End-Users after 2 December 2010:

“Once it is accepted that it is the level of seriousness and culpability after the remedy period (i.e. the 3k) that should form the basis of the calculation, the consequence is that Ofcom’s preliminary proposed penalty of £4.33 million by reference to the 62k including deterrence, has to be significantly reduced.

We believe the correct range for the fine based on our facts is in the range of £600,000 to £1.2 million. Given the steps we have taken, including the payment to customers of over £2.5 million and the fact we were 95% better at the end of the remedy period, we also believe we are at the lower end of that scale. We also believe, based on the facts of our case that this will quite importantly act as a deterrent to others.”

2.170 As to the first alternative penalty calculation it put forward, the TalkTalk Group said in its oral representations:

“In alternative one, I focused on the 3,000 and said we refunded the £73,000, so just for round numbers call that 75,000. We also made – as you agree or you confirm in your notification, we made goodwill payments of 74,000. So if you round that up to 150,000, that’s what we paid out. So maybe use that as a starting point in terms of how you can then base a fine to, you know, obviously act as a deterrent and we think a range of somewhere between four to eight to that 150,000 would obviously give you a fine in the range of 600,000 to 1.2 million. Again, we accept that the contravention has continued. However, the culpability was the level of problem that we had post 2 December, but equally we accept the fact that the primary objective or

the central objective of a fine is to act as a deterrent. But I think that that just moves you within the range.”

2.171 As to its second alternative calculation, the TalkTalk Group said it based this on, “...a similar approach to Ofcom on the £4.3m namely looking at the number of customers who left during 2 December and 2 March.” Indicating that this number was approximately [], it said the 2,928 End-Users to whom it sent bills in contravention of GC11.1 after 2 December 2010 represented []% of such customers. It said that, “If this is halved as per Ofcom’s view and then halved again to reflect the steps taken (this is calculated pursuant to s97),” this would produce a penalty of £900,000.

2.172 This calculation appears to Ofcom to be based on the fact that []% of the TalkTalk Group’s total turnover for relevant business would be £3.6m. The contention appeared to be that this figure should be halved, to £1.8m, to reflect the steps Ofcom acknowledges the TalkTalk Group took by 2 December 2010 for remedying the consequences of its notified contravention of GC11.1 and then halved again, to £900,000, to reflect other steps the TalkTalk Group took.

2.173 TalkTalk Group’s third alternative was based on the idea that the proposed penalty of £4.33m amounted to £70 for each of the 62,055 End-Users in relation to whom it would be imposed. An equivalent penalty in respect of the 2,928 End-Users to whom the TalkTalk Group contended the penalty should relate to would produce a figure of approximately £210,000, to which a multiplier of between 4 and 6 should be applied to produce a deterrent effect, giving a penalty of between £800,000 and £1.2m.

Other penalties

2.174 The TalkTalk Group also drew Ofcom’s attention to penalties we and other regulators have imposed in other cases, “... in order to provide a “sense check” given the level of seriousness and culpability in TalkTalk’s case.” These were cases in which:

a) “British Gas was fined £1 million by Ofgem on 1 July 2011 for misreporting how much electricity it had supplied. The level of seriousness was much greater than in TalkTalk’s case given the contravention in question had carried on for over 7 years and the scale of the contravention represented an understatement of 0.6%. As stated in our response of 15 March 2011 to the Third Notice, the 3k represented only approximately 0.07% of our customer base.34

b) British Gas was fined £2.5 million by Ofgem on 27 July 2011 for failing to comply with customer complaints regulations during a period of over 2 years in respect of all of its customers and British Gas has a customer base in excess of 16 million. However, TalkTalk’s contravention was only for a short period after 2 December 2010 (given it had remedied the consequences of the contravention prior to that date) and only in respect of the 3k.

34 “Note that Ofgem does not afford a remedy period such that the whole period of contravention is relevant to the calculation of financial penalty.”

c) Network Rail was fined £3 million in May 2011 for safety failings over the Potters Bar train crash which killed seven people and many others injured. Clearly, the level of seriousness in TalkTalk’s case is in no way comparable.

d) GMTV was fined £2 million by Ofcom in September 2007 for “widespread and systematic deception” on premium rate phone-in competitions for “cheating millions of customers” out of £20 million over a four year period. Again the level of seriousness in TalkTalk’s case is in no way comparable.”

2.175 Of these cases, the TalkTalk Group said:

“We contend that the facts of TalkTalk’s case are such that the level of seriousness and culpability (the 3k) are materially less than in all of these cases such that the fine imposed on TalkTalk should be less than both such cases. This is still the case even if Ofcom continue to use the 62k as a basis of seriousness or deterrence (despite our arguments to the contrary and we do not concede these points).”

Conclusions

2.176 The TalkTalk Group concluded its representations in light of all the foregoing:

“The proposed penalty amount of £4.33 million is not therefore appropriate and proportionate in light of the steps taken during the remedy period and the level of seriousness/culpability after it and also such amount cannot be justified solely or primarily on creating a deterrent.

A penalty amount in the range of £600,000 to £1.2 million would be more appropriate and proportionate and also produce a sufficient deterrent. The facts and context of TalkTalk’s case warrant a fine at the lower end of that range.”

Section 3 3 Ofcom’s decision on further action

3.1 The following section sets out Ofcom’s decision to impose a penalty on the TalkTalk Group under section 96 of the 2003 Act.

3.2 Ofcom’s options, set out in the Provisional Notification, were:

a) taking no further action;

b) granting the TalkTalk Group’s request for an extension of time for complying with GC11.1 and to remedy the consequences of its notified contravention to 3 March 2011 (or granting an extension of time to some other date) 35, and considering its compliance and remedy by reference to such date;

c) refusing the TalkTalk Group’s request for additional time and issuing a notification under section 95 of the 2003 Act; and

d) refusing the TalkTalk Group’s request for additional time and imposing on it a penalty under section 96 of the 2003 Act (additionally to, or instead of, a notification under section 95).

For the reasons that follow, Ofcom’s decision is to refuse the TalkTalk Group’s request for additional time and to impose on it a penalty (instead of issuing to it a notification under section 95 of the 2003 Act).

Ofcom’s approach

3.3 Ofcom approach to enforcing GC11.1 in this case is as follows.

3.4 General Conditions like GC11.1 are consumer protection rules specific to the electronic communications sector designed to protect consumers and End-Users of electronic communications services. GC11.1 itself is designed to ensure that the charges made to End-Users for PECS - which can be complex and which End-Users, unlike Communications Providers, are not necessarily in a position to verify – are accurate. Conditions like this are important for protecting End-Users’ interests in their individual relationships with their Communications Providers.36 Likewise, for relationships between End-Users and Communications Providers generally.37 These matters relate to the interests of citizens and consumers.

3.5 Ofcom’s functions and powers in relation to the enforcement of such rules are designed to ensure that those rules are complied with promptly, in order that the

35 For example, granting an extension of time, but not as long as that sought 36 Failure to comply with GC11.1 can result in End-Users being overcharged for PECS in individual cases 37 That is, for ensuring End-Users’ confidence in the accuracy of Communications Providers’ charges generally, which may in turn encourage the take up of electronic communications services. 55

appropriate protection for consumers and End-Users is maintained. In ensuring they are complied with we act in accordance with our principal duty to further the interests of citizens and consumers.

3.6 That is, it is in the interests of citizens and consumers that, where conditions under the 2003 Act have been imposed on Communications Providers in order to protect consumers and End-Users, those conditions are backed up by effective enforcement action in appropriate cases, so as to ensure they are complied with. Ofcom should take enforcement action where doing so would be consistent with the consumer/End- User protection purpose of the condition and our duty to further the interests of citizens and consumers.

3.7 So, for example, if a Communications Provider which has received a notification under section 94 of the 2003 Act has failed to take material steps to comply with a relevant General Condition and/or to remedy the consequences of its notified contravention, and it appears to Ofcom appropriate that it should have a compulsion to take specific steps, we may serve on that provider a notification under section 95. That would compel the taking of specific material steps, to ensure the relevant condition is complied with and End-Users’ interests are protected and furthered.

3.8 Similarly, if a provider which has received a notification under section 94 fails to comply with its terms in a material and serious respect, Ofcom should, in the absence of good reasons not to do so in the particular case, impose a penalty under section 96. This is so whether or not Ofcom also considers it appropriate to compel the taking of specific steps using a notification under section 95.

3.9 The purposes of a penalty are two-fold.38 First, to impose an appropriate and proportionate sanction that reflects the seriousness of the relevant Communications Provider’s contravention of a relevant condition and its culpability in that contravention. Second, to impose such a sanction that will go to securing prompt compliance with relevant conditions at all times. Or, as it is put in Ofcom’s published penalty guidelines:

3.10 The imposition of an appropriate and proportionate punishment of (penalty for) wrongful conduct, including in appropriate cases an element designed to have a proportionate deterrent effect, and the threat of such punishment (penalty) in future cases, should provide an incentive for the relevant provider, and other providers, to comply with relevant conditions, and a corresponding deterrent to non-compliance. That would help to secure Ofcom’s objective of furthering the interests of citizens and

38 We take this view having considered the TalkTalk Group’s representations about the seriousness of relevant contraventions and the perpetrator’s culpability in such contraventions and the relevance of both in the determination of a penalty (see further section 4 below)

consumers by helping to foster widespread compliance with legislation and regulatory rules.

3.11 In addition, whilst we consider each case on its merits, it may be the case in circumstances like those in paragraphs 3.7 – 3.10 that taking further action, in the form of a notification under section 95 or imposing a penalty under section 96, is no more intrusive an action than is necessary and appropriate to secure the aim of compliance with regulatory rules (to protect End-Users’ interests and so further those of citizens and consumers). In particular, not taking action where it would be appropriate and proportionate to do so risks undermining the General Conditions regime. We would not provide the appropriate incentive to compliance and deterrent to non-compliance. In those circumstances, further enforcement action would generally be necessary.

Ofcom’s considerations

3.12 Ofcom has considered the options open to us in the present case in light of the above, in line with our statutory duties and powers, and having regard to all the relevant representations the TalkTalk Group has made. We have considered whether the TalkTalk Group:

a) took appropriate steps by 2 December 2010 for complying with GC11.1 and remedying the consequences of its notified contravention, such that Ofcom should take no further action;

b) took such steps by that date, such that Ofcom should grant its request for more time, until 3 March 2011 (or some other date), to take further steps (and that consideration of any further enforcement action should be undertaken by reference to that later date);

c) failed to take material steps for complying with GC11.1 and/or to remedy the consequences of its notified contravention, by 2 December 2010, such that Ofcom thinks it should have a specific compulsion (by way of a notification under section 95) to take such steps;

d) failed to comply with the terms of the s94 Notification in a sufficiently material and serious respect(s) that Ofcom should, in this case, impose a penalty under section 96 so as to meet the two-fold purposes outlined above and to have the compliance and deterrent effect(s) described (and whether or not we also served a notification under section 95).

3.13 We set out in the Provisional Notification Ofcom’s preliminary view that a penalty should be imposed on the TalkTalk Group for the reasons we explained in that document. In the representations it made in response to that Notification the TalkTalk Group made the concessions outlined above that Ofcom should impose on it a penalty under section 96 of the 2003 Act.

3.14 Having done these things, and taking into account its representations, Ofcom’s decision is that a penalty should be imposed on the TalkTalk Group. This case is one in which the TalkTalk Group has received a notification under section 94 and failed to comply with its terms in a material and serious respect. There are no good reasons not to impose such a penalty, and doing so would in Ofcom’s view meet the purposes and achieve the effects described above and be no more intrusive an action than is necessary and appropriate to secure the aim of compliance with regulatory rules. Our reasons are set out more fully below.

No further action and request for more time

3.15 In respect of the two options of no further action and request for more time, Ofcom has had regard to the following.

3.16 Ofcom has considered that, by 2 December 2010, the TalkTalk Group had taken significant steps for complying with GC11.1 and for remedying the consequences of its notified contravention.

3.17 As to the latter in particular, Ofcom acknowledges that:

a) in providing refunds and goodwill payments to the 61,719 affected End-Users by 2 December 2010, as set out in its responses to the Second and Third Information Requests; together with

b) what it told Ofcom about the cessation of debt collection activity for such affected End-Users,

the TalkTalk Group had substantially remedied the consequences of the notified contravention by that date.

3.18 Accordingly, Ofcom’s view is that the TalkTalk Group did by 2 December 2010 take all the steps we consider appropriate for remedying the consequences of the notified contravention of GC11.1.

3.19 As to the steps the TalkTalk Group had taken for complying with GC11.1 by 2 December 2010, Ofcom again acknowledges that it had taken some important steps. These were the steps it took as outlined above and in its response to the Second Information Request to:

a) engage external consultants independently to review the TalkTalk Group’s “systems architecture and processes;” and

b) identify customers at risk of being affected by the TalkTalk Group’s internal systems and process problems and of being billed for services not provided to them, and suppressing billing and collections for 61,719 such customers (19,840 of them former TalkTalk customers and 41,879 former Tiscali customers).

3.20 We also acknowledge that, as set out in its 30 November Representations, the TalkTalk Group had in place a plan for further steps aimed at complying with GC11.1 58

by 3 March 2011 (and some of which had commenced before 2 December 2010). These steps were, again as outlined above and in its response to the Second Information Request:

a) the migration of Tiscali customers to the TalkTalk customer records management system;

b) “rolling out” a new “simplified and enhanced end-to-end “I want to leave TalkTalk” process, including staff training;”

d) the “clean-up” of Tiscali customer data prior to the migration of Tiscali customers to the TalkTalk customer records management system, including staff training;

e) building and implementing a “billing safety net” for all customers on TalkTalk’s customer records management system to enable the TalkTalk Group to identify customers who may be at risk of receiving a bill for services not provided to them; and

f) prioritising five specific groups of “software bug fixes and logic gaps” in its systems that had contributed to customers being billed for cancelled services.

3.21 Ofcom has considered whether these steps, and the TalkTalk Group’s representation to the effect that it was “95% better” by 2 December 2010, provide a basis for the view that the TalkTalk Group had taken:

a) steps we consider appropriate for complying with GC11.1 by 2 December 2010, such that it would be appropriate for Ofcom to take no further action in this matter; or

b) at least sufficient steps for complying with GC11.1, including by 2 December 2010 and with an appropriate plan for taking further subsequent steps, such that it would be appropriate for Ofcom to grant the TalkTalk Group more time after 2 December 2010 for complying with that Condition (whether until 3 March 2011 as requested or some shorter extension of time).

As to the latter, we have considered, for example, whether the steps the TalkTalk Group took by 2 December bring it close enough to compliance, and give End-Users adequate interim protection, that it should be given more time to implement the other steps it indicated it will take for complying with GC11.1.

3.22 For the following reasons, we take the view that those steps do not provide a basis for either view in the previous paragraph, and that it would not be appropriate for Ofcom to take no further action, nor to grant the TalkTalk Group more time for complying with GC11.1.

3.23 First, and the above steps and representations notwithstanding, the TalkTalk Group did not take all the appropriate or sufficient steps for complying with GC11.1 by 2 December 2010. Rather, it fell short of doing so in serious and material ways. The bases for this view are set out in more detail below in our analysis of the application of sections 95 and 96 of the 2003 Act.

3.24 But, for particular example, as set out in its response to the Third Information Request, between 2 December 2010 and 4 March 2011 the TalkTalk Group issued bills to 2,928 End-Users for services it had not provided to them, in contravention of GC11.1.

3.25 We agree, as the TalkTalk Group pointed out, that this number is materially fewer than the total of 62,055 End-Users to whom bills were issued as part of the notified contravention of the relevant Condition, is a correspondingly smaller proportion of the TalkTalk Group’s customer base and reflects an improvement in the position after 2 December 2010 compared to that earlier in that year. We have taken account of these points and of the other representations the TalkTalk Group made in respect of these 2,928 End-Users, including the refunds and goodwill payments made to them. We likewise take account that the amount of those refunds (£73,639) suggests the amount of each bill issued for services not provided was small.

3.26 However, these cases still mean that in three months the TalkTalk Group issued very nearly 3,000 bills to End-Users for services not provided notwithstanding:

a) as far as each of these End-Users was concerned no bill should have been issued, and demands for payment were made of nearly 3,000 End-Users when none should have been;

b) that the contravention of GC11.1 had continued for at least 11 months by the start of that three month period (2 December 2010);

c) the formal notification of the contravention under section 94 of the 2003 Act;

d) the TalkTalk Group’s awareness of the contravention and its causes for the considerable time referred to above; and

e) the opportunities the TalkTalk Group had, both informally from April 2010, and formally after the service of the s94 Notification on 1 November 2010, for complying with GC11.1.

3.27 That, in itself, is serious, following on from the notified contravention in respect of 62,055 End-Users in nine months. It demonstrates that the TalkTalk Group had not, by 2 December 2010, taken appropriate (or sufficient) steps for complying with GC11.1. Had it done, Ofcom expects the relevant number of End-Users would have been only a very small fraction of 2,928.

3.28 It also demonstrates, in Ofcom’s view, that the steps the TalkTalk Group had taken by that date were not sufficient to give End-Users adequate interim protection

pending the taking of further measures before or by 3 March 2011. There was a continuing contravention relating to too many further cases for Ofcom to take a different view.

3.29 In further connection with this point, Ofcom has considered the numbers of complaints made to the OAT in the same period (2 December 2010 to 4 March 2011) relating to the TalkTalk Group issuing bills for services not provided. In total there were 41639 complaints in which the OAT categorised the consumer’s complaint as one of being “charged for cancelled services.” The weekly figures were as follows:

a) 6-10 December: 42

b) 13-17 December: 32

c) 20-24 December: 27

d) 27-31 December: 17

e) 3-7 January: 33

f) 10-14 January: 22

g) 17-21January: 35

h) 24-28 January: 38

i) 31 January-3 February: 27

j) 7-11 February: 38

k) 14-18 February: 18

l) 21-25 February: 30

m) 28 February-4 March: 57

3.30 In light of the TalkTalk Group’s admission that in the relevant period it issued bills to 2,928 End-Users for services not provided, Ofcom has not investigated all of the complaints listed in paragraph 3.29 detail nor verified them. We acknowledge that not all of them will be complaints properly alleging, or disclosing, a contravention of GC11.1. By way of illustration, as set out in section 2 above in relation to the Third Information Request, we identified 132 complaints between 30 December 2010 and 14 February 2011 alleging that the TalkTalk Group had issued a bill for services not provided and/or that it had failed to remedy the consequences of doing so. The TalkTalk Group’s response to that Information Request disclosed that, of these, 42 were justified complaints of billing for services not provided after 2 December 2010.

39 390 were logged by the OAT as TalkTalk complaints, and the remaining 26 were logged as Tiscali complaints. Ofcom notes that during this period (2 December 2010 to 4 March 2011), the TalkTalk Group were migrating Tiscali customers to the TalkTalk Group billing platform.

Nonetheless, we note that during this period40 the complaint numbers were on average higher (32 per week) than in the period between Ofcom opening the Investigation on 23 July 2010 and issuing the s94 notification on 1 November 2010 (28 per week).

3.31 Second, the TalkTalk Group’s notified contravention of GC11.1 was a systemic one (see section 4 below). That is, a deep-rooted one arising out of the inadequacies of its customer records management systems, rather than isolated incidents. And, these systems require a fundamental overhaul – including by migrating Tiscali customers to the TalkTalk system, rather than being liable to a quick and easy solution – for compliance with GC11.1. The TalkTalk Group acknowledged this prior to Ofcom’s issue of the s94 Notification and it was a part of Ofcom’s findings and determination in that Notification.

3.32 The TalkTalk Group also acknowledged this in the 30 November Representations. As we note above, it said one of the root causes of the contravention was its inheritance of billing and provisioning systems that were not fit for purpose, and which contained data inconsistencies, when it acquired Tiscali in July 2009. It said it decided to resolve this by migrating Tiscali customers to the TalkTalk customer records management system, and that:

"While we had identified the systems and process issues giving rise to our contravention of GC11.1, which predominantly relate to the integration of our residential bases and in particular Tiscali, our integration programme will not be completed by 2 December 2010.”

3.33 Third, this systemic failure has given rise to a large and serious contravention of the GC between 1 January and 1 November 2010 by issuing bills to End-Users for services not provided in 62,055 cases (of which at least 19,840 involved (former) TalkTalk customers and at least 41,879 (former) Tiscali customers). The size and fundamental systemic nature of this contravention is illustrated by the TalkTalk Group’s submission that it would take it a further 3 months after the period allowed by the s94 Notification to take steps for complying with the Condition.

3.34 Fourth, the notified contravention is, or was, substantial in duration. It had already continued for nine months and was continuing as at the date of the s94 Notification. In Ofcom’s view, that is already too long for a contravention of a rule for protecting End-Users to continue without the taking of further enforcement action.

3.35 Fifth, the TalkTalk Group has been aware of its contravention of GC11.1, and its causes, for considerable time, as it has told Ofcom as set out above. To re-iterate for example, it told Ofcom in April 2010 that it was aware of problems as far back as April 2009. TalkTalk acquired Tiscali, and its flawed customer records management system in July 2009. Ofcom raised the matter with the TalkTalk Group in April 2010 and gave it opportunities to take steps for complying with GC11.1 and remedying any

40 That is, 2 December 2010 to 4 March 2011.

contravention before we took any formal action. The TalkTalk Group did not take effective steps to do so.

3.36 Sixth, compliance with GC11.1 is a fundamental and ongoing obligation. Like any Communications Provider, compliance is within the TalkTalk Group’s own control and responsibility (notwithstanding the representations it made about the acquisition of the Tiscali business and its consequences – see section 2 above and section 4 below) and it should have processes for compliance as part of the ordinary course of its business.

3.37 The TalkTalk Group acknowledged as much when it said in the 30 November Representations:

“We have never in our responses to Ofcom’s investigation in this matter nor subsequently sought to dispute that TalkTalk Group is in breach of GC11.1…We also do not deny the fact that TalkTalk Group is ultimately responsible for the current situation nor do we in any way suggest that the problems are outside our control.”

3.38 Seventh, it is not clear that the TalkTalk Group took sufficient steps to expedite the changes to its customer records management system that it indicated were fundamental to its compliance with GC11.1. Nor that any failure to do so, or take other steps to secure compliance, is justified, so as to provide a reason why Ofcom should not take further action.

3.39 For example, it remains unclear, whether, in light of its long-standing knowledge (as set out above) of the difficulties with the TalkTalk customer records management system, the difficulties the Tiscali records and billing system was causing in relation to GC11.1 and/or the notification of its contravention of GC11.1, it more quickly took steps it was going to take anyway in order to come into compliance with GC11.1. Likewise, whether any failure to do so has real merit. As set out above, in our letter of 25 November 2010 Ofcom expressly invited the TalkTalk Group to confirm it was accelerating the changes. As also set out, it did not do so.

3.40 It is similarly not satisfactorily clear why steps securing compliance with GC11.1 were not taken earlier in any event. The TalkTalk Group took over Tiscali in July 2009. Once again as noted above, it told Ofcom in April 2010 that it was aware of billing- related problems as far back as April 2009. Its response to the First Information Request in September 2010 made clear it had known since at least April 2010 that issues relating to the TalkTalk and the Tiscali systems were a cause of customers being billed for services not provided (i.e. non-compliance with GC11.1).41 Not completing steps for complying until February and March 2011 means root causes of the TalkTalk Group’s difficulties in relation to GC11.1 will have remained in place for around 18 months since TalkTalk’s acquisition of Tiscali and for 13 months since the start of the TalkTalk Group’s notified contravention of GC11.1.

41 Annex 2 Section 94 Notification, first information request issued to TalkTalk Group on 11 August 2010. 63

3.41 We have considered what the TalkTalk Group said in this regard in its representations about the possible consequences of accelerating the migration of Tiscali customers to the TalkTalk customer records management system. Those representations do not wholly justify the position. For example, they do not seem to explain why changes to the system in relation to TalkTalk customers, as opposed to Tiscali’s, were not accelerated. Nor do they mean the TalkTalk Group did expedite the steps necessary for compliance or take them, or other steps for securing compliance, quickly enough. They tend to confirm the opposite. Moreover, even if the TalkTalk Group could not expedite the steps or could not in any event have taken them earlier, that is a matter for which it is responsible and liable.

Conclusion

3.42 Ofcom’s conclusions in light of the above matters are as follows.

3.43 The TalkTalk Group had not taken appropriate steps for complying with GC11.1 by 2 December 2010. Neither had it taken sufficient steps, bringing it close enough to complying with GC11.1 and giving End-Users adequate interim protection, to provide a basis for Ofcom extending the deadline for compliance beyond 2 December 2010 (to 3 March 2011 as requested or to any other date).

3.44 Rather, the TalkTalk Group failed in a serious way to take material steps to comply with a General Condition designed to protect End-Users and consumers, having been in contravention of that Condition in a serious way for a long period.

3.45 As a result, it is necessary and appropriate for Ofcom to take further enforcement action, to ensure rules imposed to protect consumers and End-Users are complied with. In particular, to ensure an appropriate sanction is imposed, and to give the TalkTalk Group, and other providers, sufficient incentive to comply with the General Conditions and deterrent to non-compliance, so as to protect End-Users interests and further those of citizens and consumers.

3.46 Given the size and duration of the contravention, the TalkTalk Group’s long-standing knowledge of it, the time it has taken so far for complying and the further time it requires for doing so, it would undermine the General Conditions regime if Ofcom does not take such action. That is, by appearing to accept the idea that a provider can be in contravention of a condition designed to protect End-Users for over one year without being subject to (further) enforcement action. Ofcom’s view, therefore, is that further action is no more than is necessary to secure compliance with the regulatory rules contained in the General Conditions, in order to further the interests of citizens and consumers.

Further enforcement action: notification under section 95 of the 2003 Act

3.47 The following is Ofcom’s consideration of whether any further enforcement action should involve serving on the TalkTalk Group a notification under section 95 of the 2003 Act. For the reasons set out, Ofcom’s decision is that we should not.

3.48 It appears to Ofcom that we would have the power to serve a further notification, under section 95, on the TalkTalk Group in this case. We have served a notification under section 94 on it and given it an opportunity of making representations about the matters notified. That period has expired (on 2 December 2010).

3.49 Further, we have grounds to be satisfied the TalkTalk Group has, in one or more of the respects notified in the s94 Notification, been in contravention of GC11.1. Those grounds include the following (amongst other matters set out in section 2 of this document). These grounds are not changed by anything the TalkTalk Group said in its representations in response to the Provisional Notification.

3.50 First, the information provided by the TalkTalk Group in its response to the First Information Request in respect of 80 of the 100 OAT complainants Ofcom asked it about. In that information the TalkTalk Group confirmed it had sent those End-Users bills for services not provided to them. It was partly on the basis of that information that Ofcom made the findings and determination set out in the s94 Notification.42

3.51 Second, the TalkTalk Group’s admissions in the 30 November Representations that:

a) “We have never in our responses to Ofcom’s investigation in this matter nor subsequently sought to dispute that TalkTalk Group is in breach of GC11.1” (and its reference in those representations to “... the underlying reasons behind those matters giving rise to the breach of GC11.1 by reason of certain customers having been billed after they ceased to receive services from us…”); and

b) it had identified a large number of categories of customers at risk of being affected by the TalkTalk Group’s “internal systems and process problems” and suppressed billing and collections for 61,719 such customers whom it had identified as having been billed between 1 January and 1 November 2010 for services not provided to them (19,840 of them former TalkTalk customers and 41,879 former Tiscali customers).

3.52 We are similarly satisfied that during the period allowed under the s94 Notification – to 2 December 2010 – the TalkTalk Group had not taken all the steps we consider appropriate for complying with GC11.1. This makes it liable to further enforcement action under section 95 notwithstanding that, as we acknowledge above and explain further below, it had taken the appropriate steps for remedying the consequences of its notified contravention of GC11.1 by 2 December 2010. We set out our reasons as follows below (which, again, are not changed by anything the TalkTalk Group said in its representations in response to the Provisional Notification).

42 Which also sets out the bases on which Ofcom considers that the TalkTalk Group is a Communications Providers providing PECS to End-Users and renders Bills to them for doing so, and so is subject to GC11.1. Ofcom relies on that assessment (as well as other evidence and findings set out in the s94 Notification) for the purposes of this provisional notification also.

Steps for complying with GC11.1 by 2 December 2010

3.53 We base our decision that by 2 December 2010 the TalkTalk Group had not taken all the steps we consider appropriate for complying with GC11.1 on matters set out in section 2 above, including in particular:

a) the steps the TalkTalk Group said in the 30 November Representations it needed to take for complying with the Condition but would not have taken by 2 December 2010;

b) information provided by the TalkTalk Group in its response to the Second Information Request; and

c) information provided by the TalkTalk Group in its response to the Third Information Request.

30 November Representations

3.54 As to the first of the points in paragraph 3.53 above, about what the TalkTalk Group said in the 30 November Representations, we base our view on the following in particular.

3.55 In the s94 Notification Ofcom set out that we expected the steps TalkTalk Group took for complying with GC11.1 would include, but were not limited to, ensuring that it does not render any Bill to an End-User in respect of the provision of any PECS unless every amount stated in that Bill represents and does not exceed the true extent of any such service actually provided to the End-User in question, by:

a) implementing and maintaining a reporting system which monitors the disconnection process and stops End-Users from being billed for services that are not provided to them;

c) implementing training documentation and briefings for the TalkTalk Group contact centre staff, including detailed training relating to the process involved to correctly disconnect customer accounts when requested by the customer.

3.56 Ofcom is satisfied, from what the TalkTalk Group said in the 30 November Representations about, for example:

a) the migration of Tiscali customers to the TalkTalk customer records management system;

b) the associated “data cleansing;”

c) the introduction of the “billing safety net;”

d) the introduction of the “new leavers” and “new customer problem resolution” processes;

e) “software bug fixing;” and

f) requiring a further three months from 30 November 2011 to train staff in relevant matters,

that the Group had not taken all the appropriate steps for complying with the Condition by the deadline. In particular, what the TalkTalk Group said indicated that none of these measures had been (or would be) fully implemented by 2 December 2010.

Tiscali data cleansing and migration

3.57 The TalkTalk Group’s plans to “clean up” the Tiscali customer data, and to migrate Tiscali customers to the TalkTalk customer records management system, goes to the following step that Ofcom indicated in the s94 Notification we would expect to be included in those steps the TalkTalk Group took for complying with GC11.1:

“…. expediting the process that ensures that, in transferring customer accounts records from previous customer records management systems to a new system, old closed customer accounts are not erroneously re- activated, and that the records held on the new system correspond with those on the old systems.”

3.58 The “clean up” prior to the migration of Tiscali customers to the TalkTalk customer records management system was, the TalkTalk Group said, so that only Tiscali customers still receiving services from it migrate to the TalkTalk customer records management system. That migration, the TalkTalk Group indicated, was a key step for complying with GC11.1. Both the “clean up” and the migration were linked to one of the root-causes of the contravention of GC11.1: the unfitness of Tiscali’s customer records management and billing systems.

3.59 However, the 30 November Representations indicate that, whilst almost complete as of 30 November, the data “clean up” would not be completed by 2 December 2010 and the Tiscali migration “... will not be completed until February 2011.” Neither is it evident, as we say above, that the TalkTalk Group has at any time “expedited” or accelerated these steps, despite its long-held knowledge (as set out above) of the difficulties the Tiscali records and billing system was causing in relation to GC11.1 and/or Ofcom’s service of the s94 Notification. Indeed, it indicated in its representations on the Provisional Notification that it had not expedited or accelerated such steps because it could not (without adverse consequences).

3.60 We also return to the point, in the same vein, that it is also not satisfactorily clear why necessary steps were not in any event taken earlier. We again have regard to the following.

3.61 Any complexity and need to take steps in a certain order notwithstanding, TalkTalk Group took over Tiscali in July 2009. Its response to the First Information Request in September 2010 made clear it had known since at least April 2010 that issues relating to the TalkTalk and Tiscali systems was a cause of customers being billed for services not provided (i.e. non-compliance with GC11.1).43 We re-iterate that not completing the “clean up” and “migration” steps until February means a root cause of the TalkTalk Group’s difficulties in relation to GC11.1 will have remained in place for around 18 months since TalkTalk’s acquisition of Tiscali and for 13 months since the start of the TalkTalk Group’s notified contravention of GC11.1. And, it was always open to the TalkTalk Group to take other steps for complying with GC11.1. That it did not (and even if it could not have taken necessary steps earlier, as its representations in response to the Provisional Notification indicate),is a matter for which it is responsible (and liable).

“Billing safety net”

3.62 The TalkTalk Group described the “billing safety net,” as designed to “... to check invoices against live network accounts,” and enable the TalkTalk Group to identify customers at risk of receiving a bill for services not provided to them. It would, it appears to Ofcom, be a part of a customer records management system that stops End-Users from being billed for services that are not provided to them (and accordingly to be part of the steps Ofcom indicated in the s94 Notification that we would expect to be included in those the TalkTalk Group took for complying with GC11.1).

3.63 A mechanism having the effect of the “billing safety net” that the TalkTalk Group indicated is, in Ofcom’s view, crucial to ensuring compliance with GC11.1. And, to be an essential feature of any billing system (at least in the sense that GC11.1 requires systems to achieve the same effect).

3.64 However, the TalkTalk Group stated in the 30 November Representations that work began on this in only November 2010 and the first phase of it would not be “rolled out” until the end of December 2010. This is so notwithstanding earlier problems with its customer records management system causing End-Users (including TalkTalk customers) to be billed for services not provided. The TalkTalk Group further stated that the “billing safety net” would require enhancements and significant further data reconciliation work which would take place in January and February 2011.

3.65 In Ofcom’s view, this is a key step for complying with GC11.1 that was not taken by TalkTalk Group by 2 December. It is not clear why TalkTalk Group did not expedite and take sooner what appears to be a critical step for complying with the Condition, at least for TalkTalk customers already on the relevant customer records

43 Annex 2 Section 94 Notification, first information request issued to TalkTalk Group on 11 August 2010. 68

management system (and even if it could not benefit Tiscali customers until their migration to the new system).

“New leavers process” and “new customer problem resolution process”

3.66 The TalkTalk Group’s plans for a new, “simplified and enhanced “I want to leave TalkTalk” process,” for the steps that the TalkTalk Group will take when a customer wants to switch to another Communications Provider, goes in part to the following steps that Ofcom indicated in the s94 Notification we would expect to be included in those steps the TalkTalk Group took for complying with GC11:

“… implementing and maintaining a reporting system that monitors the disconnection process ....;” and

“implementing training documentation and briefings for the TalkTalk Group contact centre staff, including detailed training relating to the process involved to correctly disconnect customer accounts when requested by the customer.”

Likewise, the planned “simplified and enhanced customer problem resolution process which will capture, manage and resolve complaints by customers who believe something has gone wrong when they wish to leave us.”

3.67 Ofcom acknowledges these were positive steps the TalkTalk Group began taking in October 2010, before we served the s94 Notification. Nonetheless, its statements in the 30 November Representations that the processes would be “documented” by 29 November 2010 and implemented in December and January and February 2011, indicate these were further steps for complying with GC11.1 not taken by 2 December 2010.

Software fixes

3.68 Ofcom acknowledges that the TalkTalk Group said it had since August 2010 (before service of the s94 Notification) prioritised “… five specific groups of software bug fixes and logic gaps in our systems” that had contributed to End-Users receiving bills for cancelled services (not provided to them). However, it is clear from their inclusion in the section of the representations setting out steps for complying with GC11.1 that the TalkTalk Group would take by 3 March 2011, that these are further steps for complying not taken by 2 December 2010 (a point confirmed by what the TalkTalk Group said in the Second Information Response about software bugs – see section 2 above).

Staff training

3.69 The staff training it outlined in the 30 November Representations goes to the following step that Ofcom indicated in the s94 Notification we would expect to be included in those the TalkTalk Group took for complying with GC11:

“….implementing training documentation and briefings for the TalkTalk Group contact centre staff, including detailed training relating to the process involved to correctly disconnect customer accounts when requested by the customer.”

3.70 In the 30 November representations, the TalkTalk Group said it anticipated that implementing new processes, including training its employees, would take three months (from 30 November). So, this step for complying with GC11.1 had not been taken by 2 December 2010.

Other matters

3.71 This view – that Ofcom is satisfied the TalkTalk Group had not by 2 December 2010 taken all the appropriate steps for complying with GC11.1 – is also re-inforced by other statements the TalkTalk Group made in the 30 November Representations, some of which we have already cited elsewhere in this document. For example:

a) “We have purposely chosen simply not to accept the Deadline in some false hope that matters will be remedied by such date when we know this will not be the case;”

b) “… the steps we have explained below will mean we can comply with the Notification from the Proposed Deadline [3 March 2011]…;” and

c) “…the positive actions set out above will be in place by the Proposed Deadline … we are confident that these will result from that date in TalkTalk Group being both compliant with GC11.1....”

The TalkTalk Group’s response to the Second Information Request

3.72 As to the second of the points in paragraph 3.53 above, the TalkTalk Group’s response to the Second Information Request also provides evidence that it had failed to take appropriate steps for complying with GC11.1 by 2 December 2010.

3.73 For example, it stated, with respect to its migration of Tiscali customers to the TalkTalk Group’s customer records management system, that, “Tiscali migration is going to plan with 467,000 customers out of 1 million successfully migrated during December 2010. We are on track to finish migration by January and February 2011.”

3.74 Similarly, in relation to software bug fixing, it stated that it had, “.... so far identified 34 root causes for the software bugs, to date 9 had been fixed and 11 are due to be fixed in a new software release on 6 February 2011. The remainder are under analysis or considered a lower priority.”

3.75 In addition, as we note above, the Second Information Request required the TalkTalk Group to provide its customer records in respect of 40 customers (End-Users) who had complained to Ofcom between 3 and 30 December about being billed by the TalkTalk Group for services not provided to them (services the customers (End-

Users) said they had cancelled). The TalkTalk Group’s response stated that 8 of these customers (End-Users) had been so billed after 2 December 2010 (and Ofcom’s analysis of the TalkTalk Group’s response identified one further customer (End-User) in which this was the case).

The TalkTalk Group’s response to the Third Information Request

3.76 As to the third of the points in paragraph 3.53 above, the TalkTalk Group’s response to the Third Information Request disclosed from its customer records:

a) that after 2 December 2010 it had sent bills for services not provided to 42 of the 132 customers (End-Users) who had complained to the OAT and about whom the Information Request required information; and

b) between 2 December 2010 and 4 March 2011 the TalkTalk Group had rendered bills for services not provided to 2,928 End-Users (in particular, for services they had cancelled).

3.77 Ofcom’s is satisfied that the TalkTalk Group’s rendering of bills to these numbers of End-Users44 in the period immediately after 2 December 2010 for services not provided to them shows that it had not taken all the appropriate steps for complying with GC11.1 by that date.

Steps for remedying the notified contravention of GC11.1

3.78 As to the steps the TalkTalk Group took for remedying the consequences of its notified contravention of GC11.1, the following sets out more detail of Ofcom’s analysis.

3.79 The s94 Notification indicated steps Ofcom considered appropriate for the TalkTalk Group to take to remedy the consequences of its notified contravention. These are set out in full in section 2 above, but included:

a) establishing a specialist team to resolve End-Users’ complaints about bills for services not provided;

b) identifying all affected End-Users and contacting them about remedies;

c) suspending further billing of, and stopping any debt collection activity in relation to, affected End-Users;

d) providing refunds;

e) taking steps to repair any affected End-Users’ wrongly damaged credit ratings;

44 acknowledging that the groups may overlap, perhaps completely

f) withdrawing from any related legal proceedings and paying affected End-Users’ costs; and

g) making payments to affected End-Users in respect of any annoyance, inconvenience or anxiety to which they had been put.

30 November Representations

3.80 As indicated above, the 30 November Representations said the TalkTalk Group:

a) had provided bill credits to 61,719 affected End-Users (19,840 TalkTalk customers and 41,879 Tiscali customers), of which £1.3 million was paid in actual refunds to 22,000 of those End-Users;

b) was making goodwill payments to affected End-Users who had suffered from inconvenience and annoyance;

c) ceased debt collection action in relation to Tiscali customers, from 29 November 2010;

d) had not sent any information to credit reference agencies nor obtained any court judgements against any affected End-Users; and

e) had set up a dedicated customer complaints team to deal with complaints about being billed for cancelled services.

The TalkTalk Group’s response to the Second Information Request

3.81 Again as previously acknowledged, the TalkTalk Group’s response to the Second Information Request:

a) re-iterated that it had by 2 December 2010 identified 61,719 affected End-Users, sent bills for services not provided between 1 January and 1 November 2010, and remedied the consequences of doing so for each by making billing credits and/or repayments, together with goodwill payments;

b) stated that after 2 December it had identified 336 additional End-Users who were sent bills for services not provided between 1 January and 1 November 2010, and that it had remedied the consequences of doing so in all those cases by 24 January 2011;

c) provided information indicating that in respect of only three of the 56 End-Users who were the subject of the Request did the TalkTalk Group fail to remedy the consequences of a contravention of GC11.1 by 2 December 2010; and

d) stated that as at 20 January 2011 it had refunded £1,408,836 and made goodwill payments of £1,041,441 to affected End-Users.

Conclusions

3.82 On the bases set out, Ofcom’s view is that the TalkTalk Group had by 2 December 2010 taken the appropriate steps for remedying the consequences of its notified contravention of GC11.1.

3.83 The TalkTalk Group is, nonetheless, liable to the service of a notification under section 95 of the 2003 Act. On the bases also set out above, it has not, in Ofcom’s view, taken all the appropriate steps for complying with GC11.1 by 2 December 2010. Accordingly, it has not taken all the steps appropriate for complying with GC11.1 and remedying the consequences of its notified contravention.

Decision on whether to serve a section 95 notification

3.84 Ofcom’s decision, however, is that we should not in this case serve on the TalkTalk Group a notification under section 95 of the 2003 Act. That is so notwithstanding that, as set out in this document, the TalkTalk Group has failed to take material steps to comply with a relevant General Condition following the issue of a notification under section 94 of the 2003 Act.

3.85 A notification under section 95 would impose one or both of the following requirements on the TalkTalk Group:

a) to take such steps for complying with GC11.1 as may be specified in the notification; and/or

b) to take such steps for remedying the consequences of its notified contravention as may be so specified.45

3.86 Ofcom’s view is that a failure like TalkTalk Group’s to take steps by a deadline for complying with GC11.1 might well, in other cases, make the service of a section 95 notification an appropriate and proportionate action. That is, one which would compel the taking of specific material steps, to ensure the relevant condition is complied with and End-Users’ interests protected and furthered.

3.87 However, we have taken account of the steps the TalkTalk Group outlined in the 30 November Representations, such as its plans and timetable for:

a) Tiscali data cleansing and the migration of Tiscali customers to the TalkTalk customer records management system;

b) the introduction of the “billing safety net;”

c) the introduction of a “new leavers process;” and

d) software fixes.

45 Section 95(2). 73

Likewise, of what the TalkTalk Group said in its responses to the various Information Requests and in its representations in response to the Provisional Notification. In particular, as to the latter, to its concession that Ofcom should impose a penalty under section 96 rather than serve a section 95 notification.

3.88 Having done so, our decision is that serving such a notification in this case would not be proportionate nor targeted at a case in which that action is needed, and would be a bigger regulatory intervention that is required in this case. It would likely specify the same or very similar steps for complying with GC11.1 as indicated in the s94 Notification. And, the TalkTalk Group has set out a plan for its specific steps for complying with GC11.1 which it should by now have taken.

3.89 So, there is no need, at this stage, for Ofcom, to compel by way of a notification under section 95, the taking of specific steps for complying with GC11.1. Our decision to that effect would not, of course, preclude Ofcom from taking any further action against the TalkTalk Group in respect of GC11.1, including under section 95, should that be appropriate (for example, if the steps the TalkTalk Group has said it will take are not taken or are ineffective).

3.90 In making this decision, Ofcom has also considered previous cases in which we have issued notifications under section 95. Our view is that these differ from the facts in the current case in a number of regards.

3.91 Firstly, in our investigation into Telephonics,46 Telephonics did not engage with Ofcom following the issue of the notification under section 94. It made no representations on the notification and provided no evidence that it had taken steps for complying with the relevant General Condition or remedy the consequences of its contravention. Ofcom therefore considered it appropriate to compel the taking by Telephonics of specific steps for compliance and remedy. The same applied in Ofcom’s investigation into Continental Telecom.47

3.92 Secondly, in our investigation into Just Telecomms,48 in which Ofcom issued a notification under section 95 and imposed a penalty under section 96, we found that Just Telecomms had delayed taking any substantial steps to remedy the consequences of its notified contravention of a General Condition. This included failing to take active steps to identify consumers who had been harmed by the contravention.

Further enforcement action: imposing a penalty under section 96 of the 2003 Act

3.93 The following is Ofcom’s consideration of whether any further enforcement action should involve imposing on the TalkTalk Group a penalty under section 96 of the 2003 Act. Ofcom’s decision is that we should do so. The reasons are as follows.

46 http://stakeholders.ofcom.org.uk/enforcement/competition-bulletins/closed-cases/all-closed-cases/cw_01028/ 47 http://stakeholders.ofcom.org.uk/enforcement/competition-bulletins/cases-in-compliance/cw_01043/ 48 http://stakeholders.ofcom.org.uk/enforcement/competition-bulletins/closed-cases/all-closed-cases/cw_857/ 74

3.94 The 2003 Act’s requirements for imposing a penalty under section 96 are very similar to those for serving a notification under section 95.

3.95 Ofcom must have served a notification under section 94 on the relevant Communications Provider. As set out several times in this document, we served the s94 Notification on the TalkTalk Group on 2 November 2010.

3.96 We must have allowed the notified provider the opportunity of making representations about the matters notified and the time allowed for making them must have passed. We did, and it has, as set out elsewhere in this document.

3.97 The notified provider must have failed, during the period allowed, to take the steps Ofcom consider appropriate for complying with the notified condition and for remedying the consequences of the notified contravention of that condition. Again on the bases set out above in relation to section 95 of the 2003 Act, whilst it took the appropriate steps for remedying the consequences of the notified contravention of GC11.1, the TalkTalk Group did not take all the steps appropriate for complying with GC11.1 by 2 December 2010. It is therefore liable to the imposition of a penalty under section 96.

3.98 Moreover, Ofcom’s decision is that we should impose a penalty on the TalkTalk Group.

3.99 We set out in paragraphs 3.22 – 3.46, Ofcom’s decision that we should take further enforcement action in this matter. In paragraphs 3.84 – 3.92, we explained our decision that this should not include a notification under section 95 of the 2003 Act. Our further decision is that, unlike in relation to a section 95 notification, the imposition of a penalty in this case would be a step that would both:

a) help to secure Ofcom’s objective of furthering the interests of citizens and consumer by helping to foster widespread compliance with legislation and regulatory rules; and

b) be proportionate and targeted at a case in which that action is needed.

3.100 In particular, on the bases set out in paragraphs 3.22 – 3.46 and 3.53 – 3.77, the TalkTalk Group has, we re-iterate, failed in a serious way to take material steps to comply with a General Condition designed to protect End-Users and consumers. It has done so having been in contravention of that Condition in a serious way for a long period.

3.101 Our decision is that, as a result, it is necessary and appropriate to impose a penalty on the TalkTalk Group for the following purposes. That is, in line with the purposes of a penalty set out above, to:

a) impose on the TalkTalk Group an appropriate and proportionate punishment (penalty) for wrongful conduct that reflects the seriousness of its contravention of GC11.1 and its culpability in that contravention; and

b) give the TalkTalk Group, and other Communications Providers, sufficient incentive to comply with the General Conditions and deterrent to non-compliance,

so as to protect End-Users’ interests and further those of citizens and consumers. Our decision is that that is so whether or not we also serve a notification under section 95 of the 2003 Act (indeed, even where, as in this case, our decision is that it would not be appropriate to compel the taking of specific steps by way of such a notification).

3.102 Ofcom’s view is that it would undermine the General Conditions regime if we do not take such action given, as we refer to elsewhere in this document:

a) the size and duration of the TalkTalk Group’s contravention of GC11.1;

b) its long-standing knowledge of that contravention;

c) the time it took for complying with the Condition; and

d) the further time it required for doing so.

Rather than provide the appropriate incentive for compliance with the General Conditions regime, we would appear to condone a provider being in such contravention of a Condition designed to protect End-Users in these circumstances.

3.103 Accordingly, we have decided that imposing a penalty on the TalkTalk Group is no more than is necessary to secure compliance with the regulatory rules contained in the General Conditions, in order to further the interests of citizens and consumers.

Section 4 4 Determination of the amount of penalty

4.1 The following section of this document sets out Ofcom’s determination of the amount of the penalty imposed on the TalkTalk Group. It explains why we consider that penalty to be appropriate and proportionate to the contravention in respect of which it is imposed. Likewise, the regard we have had in reaching that view to:

a) the representations the TalkTalk Group has made to us;

b) steps taken by the TalkTalk Group towards complying with GC11.1;

c) steps taken by the TalkTalk Group for remedying the consequences of its notified contravention of that Condition; and

d) the published Ofcom penalty guidelines

The legal framework and correct approach

4.2 The applicable legal framework is set out in detail in section 2 of this document, as it was in the Provisional Notification.

4.3 Ofcom put forward in the Provisional Notification our view that the effect of sections 96 and 97 of the 2003 Act is that Ofcom may impose a penalty on the TalkTalk Group in this case for its continuing contravention of GC11.1 between 1 January and 1 November 2010. Or, more particularly, on each of TalkTalk and Tiscali for their continuing contravention of that Condition between those dates. The amount of any penalty imposed on each must be what Ofcom determines is appropriate in respect of each and proportionate to the contravention by each.

4.4 In its representations in response, the TalkTalk Group made the considerable submissions described in section 2 of this document, to these main effects:

a) the proper meaning of sections 96 and 97 of the 2003 Act, our penalty guidelines and the law generally is that Ofcom may only impose a penalty in this case for the contravention by the TalkTalk Group of GC11.1 in respect of 2,928 End- Users after 2 December 2010, not in respect of 62,055 End-Users to whom the TalkTalk Group sent bills between 1 January and 1 November 2010 (and “…the 62k should not be used as an aggravating factor when calculating the penalty amount stated in the Notification…”);

b) Ofcom must in any penalty reflect only the TalkTalk Group’s culpability for contravening GC11.1 in respect of 2,928 End-Users after 2 December 2010 and determine a penalty having deterrent effect based on that number and that period (“The level of seriousness and culpability in TalkTalk’s case was only in respect

of the 3k. Therefore proportionality and deterrence should only be based around this …”); and

c) the TalkTalk Group’s contravention of GC11.1 in respect of 62,055 End-Users between 1 January and 1 November 2010 is only a starting point in assessing the steps the TalkTalk Group took for complying with GC11.1 and remedying the consequences of its earlier, notified contravention by 2 December 2010 and in assessing its culpability after that date.

4.5 The TalkTalk Group relied upon what it said was the correct reading of sections 96 and 97 of the 2003 Act and the correct application of the principles it quoted from the CAT’s judgment in Kier, set out above. As likewise set out, it concluded on these bases:

“Once it is accepted that it is the level of seriousness and culpability after the remedy period (ie the 3k) that should form the basis of the calculation, the consequence is that Ofcom’s preliminary proposed penalty of £4.33 million by reference to the 62k including deterrence, has to be significantly reduced.”

4.6 Having considered all of the TalkTalk Group’s representations, Ofcom remains of the view that sections 96 and 97 of the 2003 Act provide for us to impose a penalty on TalkTalk and Tiscali for their continuing contravention of GC11.1 between 1 January and 1 November 2010 notified to them in the s94 Notification, in respect of 62,055 End-Users. The amount of any penalty imposed on each must be what Ofcom determines is appropriate in respect of each and proportionate to that contravention by each.

4.7 Ofcom agrees that the seriousness of that contravention and the TalkTalk Group’s (TalkTalk’s and Tiscali’s) culpability in it are relevant to the determination of the penalty for that contravention (in addition to the objective of achieving a deterrent effect). The same applies to the steps the TalkTalk Group took by 2 December 2010 towards complying with GC11.1 and for remedying the consequences of its notified contravention, and to the level of its compliance with the Condition after that date.

4.8 But, what each of those matters is relevant to is this: the calculation of the penalty for the continuing contravention of GC11.1 between 1 January and 1 November 2010 that Ofcom notified to the TalkTalk Group in the s94 Notification, in respect of 62,055 End-Users. For example, in this case the steps the TalkTalk Group took by 2 December 2010 towards complying with GC11.1, and for remedying the consequences of its notified contravention, are relevant as factors tending to mitigate the amount of the penalty. The penalty, nonetheless, is in respect of the period (and size) of the notified contravention. This is the effect of sections 96 and 97 of the 2003 Act.

4.9 Those sections are part of a set of provisions in the 2003 Act concerned with the enforcement of relevant conditions, including General Conditions. That set includes in particular for present purposes, sections 94 – 97. They are about the substantive contravention, and the enforcement, of those conditions. 78

4.10 Most particularly, those provisions are about the contravention of a condition that Ofcom notifies to a Communications Provider under section 94 and enforcement action in relation to that contravention. A notified Communications Provider is given an opportunity to comply with the relevant condition and remedy the consequences of the contravention notified to it. But, if the Communications Provider fails to take that opportunity, it can be subject to further action under 95 and/or 96 for the contravention notified to it under section 94.

4.11 That liability to further action is so, even if the Communications Provider has taken some steps towards complying with the relevant condition and for remedying the consequences of its notified contravention. The way those steps are relevant is that, under section 97(2) of the 2003 Act, they must be taken into account in the determination of any penalty for that contravention. For example, in appropriate cases going to the Communications Provider’s credit and in mitigation of the penalty.

4.12 By contrast, under the provisions of the 2003 Act as they applied before 26 May 2011, and as they apply in this case, if the Communications Provider both complies with the relevant condition and remedies the consequences of its notified contravention, Ofcom has no power to take further action under sections 95 and 96. This is so even if Ofcom might otherwise have considered that the contravention warranted a penalty notwithstanding the steps the Provider took for compliance and remedy. The power to penalise in such circumstances is one which Ofcom has only in respect of the contravention of conditions after 26 May 2011.

4.13 The following demonstrates the position as it applied before 26 May 2011, and applies in the present case.

4.14 Section 94(1) provides that Ofcom may serve a notification under that section where we have reasonable grounds to believe a person is contravening, or has contravened, a condition. Section 94(2) says that such notification is one which sets out the determination Ofcom has made and, “…. specifies the condition and contravention in respect of which that determination has been made.” That sub- section, together with section 94(3), provides that the notification must also specify the period during which the person notified has an opportunity for:

“(a) making representations about the matters notified;

(b) complying with notified conditions of which he remains in contravention; and

4.15 Section 94(8) provides that a notification may be given in respect of more than one contravention or, if it is given in respect of a continuing contravention, may be given in respect of any period during which the contravention has continued. Section 94(9) provides for the circumstances in which Ofcom may serve further notifications in respect of the contravention of a condition that has already been the subject of a notification. It is to the effect, amongst others, that, if Ofcom wants to take action against a continuing contravention that carries on after the period to which the first 79

notification relates, we may serve a subsequent notification in relation to that later period.49

4.16 These provisions start the process which can lead to an enforcement notification under section and/or the imposition of a penalty under section 96. What they indicate is that that process is concerned with the contravention of a condition that is notified to the relevant Communications Provider.

4.17 Section 95 then applies where a notified provider has been given a notification under section 94, the opportunity of making representations about the matters notified and the period allowed for making the representations has expired. Section 95(2) provides that Ofcom may give the notified provider an enforcement notification (under section 95) if we are satisfied that provider has (our emphasis):

“(a) ... in one or more of the respects notified, been in contravention of a condition specified in the notification under section 94; and

(b) .....not, during the period allowed under that section, taken all such steps as they consider appropriate—

(i) for complying with that condition; and

(ii) for remedying the consequences of the notified contravention of that condition.”

4.18 Section 95(3) goes on that an enforcement notification under section 95 is a notification which imposes one or both of the following requirements on the notified provider:

“(a) a requirement to take such steps for complying with the notified condition as may be specified in the notification;

(b) a requirement to take such steps for remedying the consequences of the notified contravention as may be so specified.”

4.19 Section 96 of the 2003 Act, meanwhile, provides, as its heading in the Act indicates, for “Penalties for contravention of conditions.” Section 96(1) says that section 96 applies in the same circumstances as section 95(1) provides in respect of section 95. Section 96(2) provides that Ofcom may impose a penalty on the notified provider if it (again, our emphasis):

“(a) has, in one or more of the respects notified, been in contravention of a condition specified in the notification under section 94; and

49 “(9) Where a notification under this section has been given to a person in respect of a contravention of a condition, OFCOM may give a further notification in respect of the same contravention of that condition if, and only if— … (b) the contravention is a continuing contravention and the subsequent notification is in respect of so much of a period as falls after a period to which the earlier notification relates; …”

(b) has not, during the period allowed under that section, taken the steps OFCOM consider appropriate—

(i) for complying with the notified condition; and

(ii) for remedying the consequences of the notified contravention of that condition.”

4.20 Sections 96(3) and (4) then provide that (once more, our emphasis):

“(3) Where a notification under section 94 relates to more than one contravention, a separate penalty may be imposed in respect of each contravention.

(4) Where such a notification relates to a continuing contravention, no more than one penalty may be imposed in respect of the period of contravention specified in the notification.”

4.21 What both sections 95 and 96 do is to continue the process under which a Communications Provider is subject to Ofcom action for the contravention of a condition. What both further indicate is that that continued process is concerned with action relating to the contravention of a condition that was notified to the relevant Communications Provider in a notification under section 94.

4.22 In particular, that the provider notified under section 94 may be subject to further action in respect of the contravention notified to it if it has not taken appropriate steps for compliance and remedy in respect of that contravention. The failure to take those steps gives Ofcom the power to take that action – the failure is a pre-condition of the power50 – but the action is for the notified contravention, not the failure to take the steps.

4.23 Sections 96(3) and (4) are a particular illustration of the point. They indicate that a penalty imposed under section 96 may be, and is if Ofcom so decides, imposed in respect of the contravention specified in the section 94 notification. Of particular relevance to the present case, section 96(4) makes clear that, for a continuing contravention specified in a section 94 notification, a penalty51 may be, and is if Ofcom so decides, “.... imposed in respect of the period of contravention specified in the notification.” We note that, in the skeleton argument to its oral representations, the TalkTalk Group said of section 96(4), “Literal interpretation means only one fine can be levied in respect of the period stated.” We agree.

4.24 If, by contrast, those provisions, or section 96 generally, were concerned with the imposition of a penalty for failure to take steps in response to a notification under section 94, they, or it, could have said so. They do not.

50 Under the 2003 Act as it applies to contraventions occurring before 26 May 2011 51 And we agree with the TalkTalk Group that the sub-section means only one penalty may be so imposed

4.25 Following on from section 96, section 97 provides for the determination of the amount of a penalty. That is, following on from that previous section, for the amount of a penalty for the contravention of the condition notified to the Communications Provider under section 94.

4.26 Section 97(1) provides, amongst other things, that any penalty Ofcom determine to impose must be (again, our emphasis), “..... proportionate to the contravention in respect of which it is imposed.” What the determination is concerned with is the proportionality of the penalty in relation to the contravention of the condition which, as the preceding sections make clear, is that which has been notified to the Communications Provider under section 94. It is not the proportionality of the penalty to the failure to take steps for compliance and remedy in response to the section 94 notification. If that was what the provision meant, it would have said so.

4.27 Where those steps are relevant is under section 97(2). It provides that, in making “that determination” of the penalty that is, amongst other things, proportionate to the contravention in respect of which it is imposed, Ofcom must have regard, amongst other things, to (once more, our emphasis):

“…. (b) any steps taken by [a Communications Provider] towards complying with the conditions contraventions of which have been notified to him under section 94; and

4.28 In Ofcom’s view these provisions indicate the following. The principal concern of section 97 (and section 97(1), in particular) is the determination of a penalty for the contravention of the condition notified under section 94. A factor in that determination is the steps the relevant Communications Provider took for complying and remedying as set out.

4.29 So, Ofcom must have regard to that factor in the overall exercise of determining the penalty for the notified contravention. But, that factor (those steps) does not define the position by reference to which the penalty is determined. The penalty is not, for example, a penalty for the extent to which the Communications Provider remains non-compliant with the relevant condition after the period it is given to take steps for complying. It is a penalty for the original, notified contravention, in the determination of which the extent of the steps taken is a relevant factor.

4.30 Those provisions – which refer, for example, to determining the penalty having regard to the steps taken towards complying with the conditions contraventions of which have been notified to a Communications Provider under section 94 – make little, or less, sense if this is not so. If they were meant to be to some other effect – for example, that any penalty must reflect only the position after any relevant steps have been taken – the provisions could and would have been structured differently and said so.

4.31 To complete the picture, section 97(5) which defines the “relevant period” for the purposes of the determination of a penalty under section 96 does so by saying:

““relevant period”, in relation to a contravention by a person of a condition set under section 45, means—

(a) except in a case falling within paragraph (b) or (c), the period of one year ending with the 31st March next before the time when notification of the contravention was given under section 94;

(b) in the case of a person who at that time has been carrying on that business for a period of less than a year, the period, ending with that time, during which he has been carrying it on; and

(c) in the case of a person who at that time has ceased to carry on that business, the period of one year ending with the time when he ceased to carry it on.”

These provisions, and the words emphasised by Ofcom, are consistent with the penalty being imposed in respect of the contravention of a condition notified to a Communications Provider under section 94.

4.32 The overall effect of these provisions, and of sections 96 and 97 in particular, therefore, in Ofcom’s view is this. Section 94 provides for a notification to a Communications Provider of contravention of a condition in what is, in a sense, the “charge sheet” put to that Provider. The Provider has the chance to put matters right – a ‘second chance’ - by complying with the notified condition and remedying the consequences of the notified contravention of it. If it does so within the time it is given, it is not liable to further Ofcom action.52 If it does not - does not take the second chance given to it - it is liable to such action, including a penalty, for the contravention notified to it under section 94. The steps it took towards taking that second chance are relevant to determining the scope of that action – including the amount of a penalty – but that does not change what the further action, including the penalty, is for: the contravention notified under section 94.

4.33 As to the representations the TalkTalk Group made about culpability and its relevance to the proper interpretation of these provisions and the determination of a penalty under sections 96 and 97, in light of the CAT’s judgment in Kier, Ofcom’s considerations are these.

4.34 Ofcom agrees that, as the CAT said in paragraph 175 of its judgment, “….. it is a cardinal principle that the ultimate penalty imposed must satisfy the requirements of proportionality.” Ofcom likewise agrees that, “Whilst deterrence is a relevant consideration when assessing proportionality, so equally is the culpability of the offender/seriousness of the offence. If these two considerations pull in different directions then a fair balance should be sought. But the culpability consideration

52 In cases where the relevant contravention occurred before 26 May 2011, and unlike in cases where it occurred after that date

must not be lost to view, and it may well impose some limit on the extent of any increase based purely on deterrence.”

4.35 Accordingly, we have further considered whether Ofcom has achieved the necessary fair balance between these factors in determining the penalty. Having done so, we have amended our position, as set out in this document.

4.36 We do not agree, however, that what the CAT said in the relevant paragraph means, as the TalkTalk Group contended (our emphasis):

“....the fine should not only be proportionate and act as a deterrent but should also be based on our culpability after the remedy period. In this regard we refer to the underlined words “so equally.”

Given our significant improvement after the 2 December 2010 (we were 95% better) the fine should be calculated accordingly without the 62k being used as an aggravating factor.”

4.37 We agree the penalty must be proportionate and have a deterrent effect, and must also reflect the TalkTalk Group’s culpability in the contravention for which the penalty is imposed. But, that does not mean its culpability in the position after the period it was given under the s94 notification for compliance and remedy.

4.38 The Kier case concerned how a penalty should be determined (and is relevant here to an extent, notwithstanding that it concerned penalties for breaches of competition law under the Competition Act 1998). It was not about what a penalty is for, still less what a penalty imposed under section 96 of the 2003 Act is for.

4.39 Such a penalty is for (or in respect of) the contravention of a condition notified to the Communications Provider as set out above. What the Kier judgment demonstrates, to the extent it is relevant, is that the amount of a penalty for that contravention, must be proportionate to the contravention and have a deterrent effect, but must also reflect the penalised party’s culpability in, and the seriousness of, that contravention.

4.40 What all this means in relation to the TalkTalk Group is that Ofcom may impose on each of TalkTalk and Tiscali a penalty in respect of the contravention notified to each in the s94 Notification. That is, a penalty for the continuing contravention by each of GC11.1 between 1 January and 1 November 2010, in respect of 62,055 End-Users. But, in the determination of those penalties Ofcom must have regard, amongst other things, to the steps both took by 2 December 2010.

4.41 In this case, this will be a penalty that reflects, amongst other things, the size, seriousness and duration of the continuing contravention (including that the TalkTalk Group remained non-compliant with GC11.1 for some time even after 2 December 2010, after the s94 Notification was issued to it and it was given a further month to comply), as set out in this document. Each of these are points that go to the TalkTalk Group’s culpability for the relevant contravention. It will also be a penalty that gives the TalkTalk Group credit for the steps it did take by 2 December 2010 for remedying

the consequences of the contravention of GC11.1 notified to it in the s94 Notification and towards complying with GC11.1, as likewise set out.

4.42 In reaching this view we have also considered the TalkTalk Group’s representations that both:

a) Ofcom’s penalty guidelines; and

b) the need for a consistent approach,

require that any penalty be imposed in respect of the position after the period given by the s94 Notification for compliance and remedy, rather than in respect of the contravention notified in that document.

4.43 In these regards, and as set out above, the TalkTalk Group’s representations relied upon this statement in the penalty guidelines, “The amount of any penalty must be sufficient to ensure that it will act as an effective incentive to compliance, having regard to the seriousness of the infringement.”

4.44 As similarly set out, it also said in order to demonstrate its contention of inconsistency in Ofcom’s approach:

“One of the best ways to illustrate that this approach [Ofcom’s approach in the Provisional Notification] is incorrect is to refer to the scene setting we explained at the start of these representations and look at how Ofcom would have calculated the fine if the culpability/seriousness was materially worse after 2 December ...... Ofcom would surely wish to calculate any fine and the level of deterrence by reference to such worse position.”

4.45 As indicated, the TalkTalk Group’s submission was that without acting inconsistently - “without cherry picking” - Ofcom’s approach would mean that we could only consider the size of the contravention in the period covered by the notification under section 94. Had the contravention got bigger after the period for complying and remedying given under that notification we could not, on our approach, take that worsening of the position into account. By contrast, the TalkTalk Group said its interpretation of the relevant provisions – requiring any penalty to be imposed in respect of the position after the period given by the s94 Notification for compliance and remedy - would enable Ofcom to take that deterioration of the position into account, in a consistent way.

4.46 Drawing these points together, it said:

“Any reference to scale has to be to the level of seriousness after the remedy period and not before. Not only is this what the law and Penalty Guidelines provide, but this also produces a consistent approach whether the seriousness is better or worse after the remedy period.”

4.47 Ofcom does not agree with these submissions. We agree the penalty guidelines’ reference to the seriousness of the infringement means Ofcom should consider not 85

only the relationship between any penalty and its deterrent effect, but also the seriousness of the infringement for which it is imposed and the relevant Communications Provider’s culpability for that infringement. But, that does not change what the relevant infringement is. In this case, as set out above, the contravention of GC11.1 notified to the TalkTalk Group in the s94 Notification. The penalty guidelines simply provide that one factor in the assessment of the penalty for that infringement is its seriousness.

4.48 As to the contention about consistency, Ofcom considers that hypothetical considerations provide only limited assistance. The real focus is on the penalty that may be imposed in the actual case under consideration. But, Ofcom’s approach in cases like those in the TalkTalk Group’s hypotheses – where a Communications Provider was in greater contravention of a condition after the period for compliance and remedy than at the time of service of a section 94 notification - would likely be along the following lines.

4.49 Ofcom would consider, in accordance with section 97(2) of the 2003 Act, the extent to which the deterioration in the position is evidence that the Communications Provider had taken no steps towards complying with the conditions whose contravention was notified to it under section 94 and/or no steps for remedying the consequences of those contraventions. We would consider the extent to which any such failure was a factor tending to increase the penalty for the contravention notified under section 94. For example, by exacerbating its effects. This was the approach Ofcom took in the Telephonics and Just Telecomms cases referred to in the TalkTalk Group’s representations (see below).

4.50 We would also consider whether the continued contravention beyond the period covered by the original section 94 notification required its own separate action. If we decided it did, we would serve a further section 94 notification, covering the later period and which might in turn lead to its own enforcement action, including possibly a further penalty under section 96, in accordance with section 94(9) of the 2003 Act (see above).

4.51 This approach would be consistent with Ofcom’s view of the relevant provisions of the 2003 Act and produce a consistent approach between cases.

Turnovers for relevant business

4.52 The maximum amount of any penalty Ofcom may impose on each of TalkTalk and Tiscali is ten per cent of their turnover of their relevant business (as described in section 2 of this document) for the period between 1 April 2009 and 31 March 2010. That is the “relevant period” as defined in section 97(5) of the 2003 Act given that the s94 Notification was issued to both on 1 November 2010. The following sets out Ofcom’s consideration of that turnover and the maximum penalty Ofcom may impose, as well as of the TalkTalk Group’s representations on Ofcom’s determination of the penalty by reference to that turnover.

4.53 As to, first, the identification of the relevant turnover and the maximum amount of a penalty, in the Second Information Request issued to it on 10 January 2011,53 Ofcom required the TalkTalk Group to provide details of the turnover of TalkTalk and Tiscali’s relevant business for the period 1 April 2009 to 31 March 2010.

4.54 In the TalkTalk Group’s response,54 it provided figures for the total turnovers for relevant business for each of TalkTalk and Tiscali as follows. It also provided information about the turnover of other companies that are part of the wider TalkTalk group of companies, but that latter information is not part of TalkTalk’s and Tiscali’s turnovers for relevant business.

TalkTalk

4.55 In respect of TalkTalk, the TalkTalk Group said its total turnover for relevant business in the relevant period was £500,680,000. That figure corresponds with that in its statutory accounts for the relevant period.

4.56 The TalkTalk Group sought to exclude from that figure £[] which it described as “internal” and £[] which it said was turnover in respect of “AOL branded” customers, so that its turnover for relevant business for the relevant period was £[]. Ofcom wrote further to the TalkTalk Group about both of these excluded sums on 7 June 2011.

4.57 As to the turnover excluded as “internal,” we said it appears to Ofcom that this should only properly be excluded from the turnover figure if:

a) it is not turnover of TalkTalk’s – TalkTalk Telecom Limited’s - “relevant business” for the relevant period; or

b) TalkTalk’s relevant business consists of two or more undertakings that each prepare accounts and the sum is turnover resulting from the supply of goods, or the provision of services, between those undertakings.

4.58 As to the latter point, we had in mind that the turnover might fall within the exclusion from “relevant business” in paragraph 3 of the Schedule to The Electronic Communications (Networks and Services) (Penalties) (Rules for Calculation of Turnover) Order 2003 (the “2003 Order”) which says:

“When a notified provider's relevant business consists of two or more undertakings that each prepare accounts then the turnover shall be calculated by adding together the turnover of each, save that no account shall be taken of any turnover resulting from the supply of goods or the provision of services between them.”

4.59 Our view was that the figure would, however, fall within TalkTalk’s “relevant business” if it is turnover resulting from the provision of an electronic communications network and/or an electronic communications service to other companies, with

53 Annex 7-the Second Information Request, 10 January 2011. 54 Annex 8-TalkTalk Group’s response of 20 January 2011. 87

separate legal personality, who are also subsidiaries of TalkTalk Telecom Group Plc and who each prepare their own accounts.

4.60 In its letter of response of 10 June,55 the TalkTalk Group said the £[]relates to services TalkTalk provides to other subsidiaries of TalkTalk Telecom Group Plc. It said:

a) TalkTalk “…recruits customers on behalf of other group companies and in effect manages such customers on behalf of such group companies;”

b) for example, it provides customer services for such companies and is paid by them for doing so; and

c) this turnover is not, therefore, turnover for “relevant business” and/or is within the exclusion from such business in paragraph 3 to the Schedule to the 2003 Order, “…being the provision of services between two or more undertakings of the same group.”

The TalkTalk Group submitted that, on these bases, the sum is correctly excluded from its turnover for “relevant business.”

4.61 Ofcom requested further clarification from the TalkTalk Group regarding this point, in particular specification of what the £[] related to. The TalkTalk Group informed Ofcom that the £[] related to a reimbursement to TalkTalk by TalkTalk UK Communication Services Limited and TalkTalk Direct Limited for costs that TalkTalk incurred on their behalf. The costs related to the costs of running a central call centre, customer acquisition and marketing, IT and some costs relating to managing the relevant network. On the basis of this additional information, Ofcom is treating this amount as excluded from the relevant business turnover for the relevant period.

4.62 As to the turnover purportedly excluded as being in respect of “AOL branded” customers, Ofcom said we are concerned with TalkTalk’s – that is, TalkTalk Telecom Limited’s - turnover for its “relevant business.” So, if services provided to customers under the “AOL brand” generate turnover for TalkTalk Telecom Limited’s “relevant business” it must be included in that company’s turnover for such business. In its response of 10 June, the TalkTalk Group agreed that the £[] was part of TalkTalk’s turnover for relevant business in the relevant period.

4.63 Accordingly, Ofcom is treating as the turnover of TalkTalk’s relevant business for the relevant period of 1 April 2009 to 31 March 2010, £[]. Ofcom may impose a penalty on TalkTalk of a maximum of ten per cent of that figure, £[].

Tiscali

55 Annex 13-TalkTalk Group’s response dated 10 June 2011 to Ofcom’s letter dated 7 June 2011 requesting clarification on points relating to the turnover of TalkTalk’s and Tiscali’s relevant business in the relevant period.

4.64 The TalkTalk Group told Ofcom Tiscali’s total turnover for relevant business in the relevant period was £403,810,000. That figure corresponds with that in its statutory accounts for the relevant period.

4.65 It sought to exclude from that figure:

a) £[]which it described as “6 months on Tiscali pre-ownership;”

b) £[]which it said was “Portal” turnover (turnover that “relates to our online portals/websites and is predominantly generated by advertising and revenue share from online content”); and

c) £[]in respect of “our Internet Protocol TV product being subscriptions and on- demand content and subscription revenue.”

This, the TalkTalk Group said, meant Tiscali’s turnover for relevant business for the relevant period was £[].

4.66 Ofcom wrote further to the TalkTalk Group about the first and third of these excluded sums on 7 June 2011.

4.67 As to the first, we said the sum excluded appeared to us to represent a pro-rating of the six of the 15 months covered by Tiscali’s relevant statutory accounts prior to the company’s acquisition by TalkTalk. We said our calculation of the pro-rated figure to be excluded, on that basis, is £[].

4.68 The TalkTalk Group responded for Tiscali on 10 June that Tiscali’s revenues had materially declined during the period covered by the relevant statutory accounts and that the pro-rating of the turnover reflected this. On this basis, Ofcom agrees to treat £[]as excluded from the relevant business turnover for the relevant period.

4.69 As to the third of the purportedly excluded sums, Ofcom questioned whether some of the television-related turnover would be turnover for the provision of an electronic communications service, as such services are defined in section 32(2) of the 2003 Act.56 We asked that the TalkTalk Group explain:

a) what part of this turnover in respect of the television service was turnover for an electronic communications service; and

b) what part was not.

4.70 The TalkTalk Group responded for Tiscali that the relevant revenue was only in respect of a “content service,” which services are defined in section 32(7) of the 2003 Act and fall outside of the definition of an electronic communications service in

56 as, “…a service consisting in, or having as its principal feature, the conveyance by means of an electronic communications network of signals, except in so far as it is a content service.”

section 32(2) of the 2003 Act. On that basis, Ofcom agrees to treat the relevant sum as excluded from Tiscali’s relevant business turnover for the relevant period.

4.71 Accordingly, Ofcom agrees to treat the turnover of Tiscali’s relevant business for the relevant period of 1 April 2009 to 31 March 2010 as £[]. Ofcom may impose a penalty on TalkTalk of a maximum of ten per cent of that figure, £[].

4.72 In the Provisional Notification Ofcom proposed to impose on each of TalkTalk and Tiscali a penalty of []% of their turnover for relevant business for the relevant period: £2,179,440 for TalkTalk and £2,160,560 for Tiscali, giving a total of £4,340,000 for the TalkTalk Group. In response, the TalkTalk Group made the representations set out above, to the principal effects that:

a) the 2003 Act does not require a penalty to be a percentage of turnover;

b) Ofcom need only determine an appropriate and proportionate penalty based on culpability and deterrence and ensure it does not exceed the cap of 10% of turnover; and

c) Ofcom’s view, “ …seems to be this – well you’re at 10%; there needs to be some linear, almost, calculation down from 10% and the fine at the end of the day needs to be expressed as a percentage of turnover.”

In connection with the approach it contended Ofcom had taken, the TalkTalk Group said, as previously indicated, “I don’t know whether that’s hindering or not the calculation.”

4.73 Ofcom has considered these representations. We agree the legislation does not require us to determine a penalty as a percentage of turnover. We are required only to determine an appropriate and proportionate penalty, having regard to the matters set out in section 97 of the 2003 Act and our penalty guidelines, which is lower than 10% of the relevant turnover. Nevertheless, we consider the turnover and its relationship to a penalty to be relevant in the following way.

4.74 Ofcom’s penalty guidelines provide that Ofcom will make an ‘in the round’ assessment of all the factors relevant to the determination of a penalty, rather than applying a mechanistic or formulaic approach. So, as set out in the Provisional Notification, Ofcom took a preliminary view of the amount of the penalty to be imposed based on first a qualitative assessment of the relevant factors. Then, having done so, we made a preliminary quantitative assessment of the penalty based on those factors.

4.75 But, even in that approach, the assessment must begin somewhere. We therefore took the size and seriousness of the TalkTalk Group’s contravention as the first factor to consider. We considered where, on the scale of size and seriousness, the contravention might sit and where, accordingly, it might sit on the scale of possible penalties (taking into account that the biggest and most serious contravention could not attract a penalty of more than 10% of turnover).

4.76 That consideration led Ofcom to take the preliminary view that the size and seriousness of the contravention suggested a penalty towards the lower end of the scale, in the region of [] – [] % of the relevant turnover. We then considered all the other relevant factors to take a preliminary, in the round, view as to the amount of the penalty.

4.77 That preliminary penalty was expressed as both a percentage of turnover and a monetary figure. But, Ofcom did not take the approach outlined in order intentionally to determine a penalty that must be expressed as a percentage of turnover and/or one that was intentionally inflated by the approach taken.

4.78 Rather, it was an approach that led us to a preliminary view of the amount of a penalty we considered appropriate and proportionate to the contravention in respect of which it was imposed, bearing in mind all the factors set out extensively in the Provisional Notification. We note, in this regard, that in its representations the TalkTalk Group did not feel able to contend that Ofcom’s approach had wrongly inflated the proposed penalty (as it said of the approach, “I don’t know whether that’s hindering or not the calculation.”).

4.79 In any event, in determining the final penalty Ofcom has sought neither to determine the penalty as a percentage of turnover nor to take an approach that wrongly inflates that penalty. We have retained the in the round, qualitative and quantitative, assessment, of all the relevant factors, described above. We have used the size and seriousness to suggest broadly where on the relevant scale the penalty might sit and what that penalty would be in monetary terms. We have considered in the round the effect on that, in monetary terms, of all the other relevant factors, to produce a penalty, in those terms, we determine to be appropriate and proportionate to the contravention in respect of which it was imposed, taking into account all the required considerations. We have also “taken a step back” to consider that appropriateness and proportionality as a whole. This approach and its outcome are described in detail below.

The penalty guidelines and relevant factors

4.80 The particular factors we have considered in our determination of the penalty, including those set out in our penalty guidelines and others, are set out below. In considering them, we have had regard where relevant to representations the TalkTalk Group has made to us and the steps it has taken towards complying with GC11.1 and for remedying the consequences of its notified contravention. To the extent those factors and considerations apply equally to both companies in the TalkTalk Group we have considered them together. To the extent we think they apply differently to TalkTalk and Tiscali, we have said so.

4.81 The particular factors we have considered are:

a) that “The central objective of imposing a penalty is deterrence. The amount of any penalty must be sufficient to ensure that it will act as an effective incentive to compliance, having regard to the seriousness of the infringement,” but must also, 91

as the TalkTalk Group submitted and as Ofcom agrees, reflect the seriousness of the TalkTalk Group’s contravention of GC11.1 and its culpability in that contravention;

b) the following which appear to us to be relevant in this case in determining an appropriate penalty, that secures the objectives and purposes referred to, and is proportionate to the contravention in respect of which it is imposed:

i) the size and seriousness of the TalkTalk Group’s contravention of GC11.1;

ii) the degree of harm, actual or potential, caused by that contravention;

iii) any gain (financial or otherwise) made by the TalkTalk Group as a result of the contravention;

iv) the duration of the contravention;

v) whether in all the circumstances the TalkTalk Group took appropriate steps to prevent the contravention;

vi) the extent to which the contravention occurred intentionally or recklessly, including the extent to which senior management knew, or ought to have known, it was occurring or would occur;

vii) whether the contravention in question continued, or timely and effective steps were taken to end it, once the TalkTalk Group became aware of it;

viii) the steps the TalkTalk Group has taken towards complying with GC11.1;

ix) the steps the TalkTalk Group has taken for remedying the consequences of its notified contravention of GC11.1;

x) whether the TalkTalk Group has a history of contraventions; and

xi) the extent to which the level of penalty is proportionate, taking into account the TalkTalk Group’s size and turnover.

We have also had regard to precedents set by previous cases, and to the need for transparency in applying our penalty guidelines, particularly as regards the weighting of the factors considered in making our determination. Likewise to the level of cooperation the TalkTalk Group has given to Ofcom’s investigation.

Deterrence

4.82 As set out in section 3 of this document, General Conditions like GC11.1 are consumer protection rules in the electronic communications sector designed to protect consumers and End-Users of electronic communications services. In the particular case of GC11.1, it is designed to ensure that the charges made to

consumers for PECS - which can be complex and which End-Users are not necessarily in a position to verify, unlike Communications Providers – are accurate.

4.83 This is important for protecting individual consumers’ interests in their relationships with their Communications Providers. It is also important in ensuring End-Users’ confidence in the accuracy of Communications Providers’ charges generally. Failure to comply with GC11.1 can result in End-Users being overcharged for PECS in individual cases. It can also undermine consumers’ confidence generally that they are being billed correctly for PECS. Both may inhibit the take up of such services and, by doing so, undermine the industry as a whole.

4.84 These matters relate to the interests of citizens and consumers. It is likewise in those interests that, where GC11.1 is contravened, the condition is backed up by effective enforcement action by Ofcom in appropriate cases, so as to ensure it is complied with.

4.85 In this case, and as we also set out in section 3, our view is that the TalkTalk Group has failed in a serious way to take material steps to comply with GC11.1, having been in contravention of it in a serious way for a long period and having failed to come into compliance with it even in the further period allowed under the s94 Notification. As a result, our decision is that it is necessary and appropriate to impose a penalty that will help provide the TalkTalk Group, and other providers, with sufficient incentive to comply with the condition and sufficient deterrent to non- compliance. This is so as to protect End-Users’ interests and further those of citizens and consumers.

4.86 This is one key consideration in our determination of the appropriate amount of any penalty. Another, particularly in light of the requirement of proportionality and the representations the TalkTalk Group made, is the need for the penalty to reflect the seriousness of its contravention of GC11.1 and its culpability in that contravention. Ofcom is mindful of the need to strike a fair balance between those considerations. What Ofcom has taken these considerations to mean is the following.

4.87 There must be a relationship between the size and seriousness of the TalkTalk Group’s contravention57 and the amount of the penalty. But, that is not necessarily a linear relationship. Some factors weigh more heavily than others in Ofcom’s determination, as set out in this document. And, for the purposes of deterrence, the penalty may include an element on top of the penalty that would apply based only on the seriousness of, and culpability in, the relevant contravention.

4.88 These points are so in order that:

57 In terms, for example, of the number of End-Users involved, the amounts wrongly charged and refunded to them, the duration of the contravention and the harm caused.

a) the penalty both appropriately and proportionately penalises the TalkTalk Group’s contravention notified to it in the s94 Notification (even if it is one that, as in the present case, has been partly remedied58); and

b) creates an appropriate and proportionate deterrent effect for both the TalkTalk Group and other Communications Providers.

4.89 As to the latter, for example, to create an appropriate deterrent to a Communications Provider (including the TalkTalk Group) in circumstances like those in this case. That is, where the Communications Provider contravenes a General Condition designed to protect consumers’ and End-Users’ interests and takes some, but fails to take all, appropriate steps for complying with that Condition when given chance to do so.

4.90 In such circumstances, it is appropriate for Ofcom to impose a penalty that deters Communications Providers (including the TalkTalk Group) from such contravention. And, deters them from any notion that it is sufficient to take some such steps for complying with the Condition within the time allowed and others later (whilst still taking sufficient account in line with section 97(2) of the 2003 Act of the steps the Communications Provider took towards complying).

4.91 This is so as to ensure the General Condition is complied with at all times, rather than Communications Providers taking the view that such Conditions need not be complied with at least until the period for doing so allowed under section 94 of the 2003 Act or even after that. But, at the same time, striking a balance that recognises that the more steps a Communications Provider takes for complying, the better. This is all to protect End-Users’ interests and further those of citizens and consumers.

4.92 The further factors that are relevant to that determination, and to the proportionality of the penalty to the TalkTalk Group’s contravention of GC11.1 for which it is imposed, are as follows.

Size and seriousness of the TalkTalk Group’s contravention of GC11.1

4.93 The TalkTalk Group’s contravention of GC11.1 for which Ofcom may impose a penalty is its contravention of that condition between 1 January and 1 November 2010. That involved issuing bills in that period to 62,055 End-Users to whom it had not provided relevant services. In itself, that this is a large and serious contravention of GC11.1, to which a significant degree of culpability attaches.

4.94 More specifically:

a) TalkTalk issued bills to at least 19,840 of these 62,055 End-Users, for total sums, reckoned from the amount of bill credits and refunds it paid to them, of at least £1,268,594.19;59 and

58 The steps towards which Ofcom takes into account as set out in this document

b) Tiscali issued bills to at least 41,879 of these 62,055 End-Users, for total sums, reckoned from the amount of bill credits and refunds paid to them, of at least £499,939.95.60

Although the numbers of End-Users and the amounts of the bills involved are different, the significant numbers and amounts in both cases mean the contravention is, in each, properly characterised as large and serious.

4.95 In reaching that view, we have taken into account that, in the representations it included with its responses to the Second and Third Information Requests, the TalkTalk Group said:

a) “We do not believe any financial penalty is currently warranted on the facts applicable to us;”

b) “….. any proportionate fine would have to be so low that it would be insignificant;” and

c) “….. for any penalty to be appropriate and proportionate, it would have to be so low as not to have any material affect [sic].”

4.96 Likewise the representations the TalkTalk Group made in response to the Provisional Notification about:

a) Ofcom’s inability to determine the penalty by reference to the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End-Users;

b) the requirement, for which the TalkTalk Group contended, that Ofcom must determine the penalty by reference to the period after 2 December 2010 and the TalkTalk Group’s contravention of GC11.1 in respect of 2,928 End-Users thereafter; and

c) the need for the penalty to reflect the TalkTalk Group’s culpability in the contravention in b).

4.97 For the reasons we have previously set out, we do not agree with the representations in paragraph 4.96, save that we agree culpability is a relevant consideration (in determining the penalty for the contravention described in paragraph 4.96(a). Neither, on the bases that the relevant contravention of GC11.1 involved 62,055 End- Users over a 10-month period, and was still not remedied even after the period allowed for doing so under the s94 Notification, do we agree with the statements in

59 Plus whatever amount was credited and refunded to those of the 336 affected End-Users in whose cases the consequences of the TalkTalk Group’s notified contravention of GC11.1 was remedied after 2 December 2010 who were (former) TalkTalk customers. 60 Plus whatever amount was credited and refunded to those of the 336 affected End-Users in whose cases the consequences of the TalkTalk Group’s notified contravention of GC11.1 was remedied after 2 December 2010 who were (former) Tiscali customers. 95

paragraph 4.95. The relevant contravention was large and serious and warrants substantially more than a token penalty.

Systemic nature

4.98 In the Provisional Notification Ofcom set out our preliminary view that the TalkTalk Group’s contravention of GC11.1 was “systematic.” As we indicated in, for example, paragraphs 3.29, 3.30 and 4.37 of that document, we meant by that description that the contravention arose out of the inadequacies of the TalkTalk Group’s customer records management systems – which required a fundamental overhaul - rather than isolated incidents.

4.99 We have considered what the TalkTalk Group said in its representation in response that Ofcom was:

“……. incorrect to describe our contravention as being purposefully methodical or regular or following a fixed plan or in any other way systematic as that word may be regularly defined.”

4.100 We agree, on the bases set out in this document, that the TalkTalk Group’s contravention of GC11.1 did not occur because it was following a purposeful method or a fixed plan to contravene that condition. That is not, however, what we sought to convey (nor said) in the Provisional Notification.

4.101 Rather, we maintain the view set out in the Provisional Notification, taking into account the statements and admissions it made in these regards in its various representations, as set out in sections 2 and 3 of this document, that the TalkTalk Group’s contravention of GC11.1 was a deep-rooted one arising out of the inadequacies of its customer records management systems. The TalkTalk Group did not challenge this view in its representations on the Provisional Notification. The contravention was, if not “systematic,” then “systemic.”

4.102 In our view, the systemic nature of the failings that led to the contravention adds to its seriousness and significance. As we indicated in section 3 above, Communications Providers’ compliance with GC11.1 is a fundamental and ongoing obligation. Doing so is within each providers own control and responsibility (in this case notwithstanding TalkTalk’s acquisition of the Tiscali business – see below) and it should have processes for compliance as part of the ordinary course of its business.

4.103 Again, we note the TalkTalk Group acknowledged as much in its case when it said in the 30 November Representations:

“We have never in our responses to Ofcom’s investigation in this matter nor subsequently sought to dispute that TalkTalk Group is in breach of GC11.1….. We also do not deny the fact that TalkTalk Group is ultimately responsible for the current situation nor do we in any way suggest that the problems are outside our control.”

4.104 Yet, having acquired Tiscali in July 2009 and, in its words in the 30 November Representations, having at that time, “...inherited billing and provisioning systems which are simply not fit for purpose,” and which are the predominant “... issues giving rise to our contravention of GC11.1,” the TalkTalk Group will not have had an effective system for complying with GC11.1 between that time in 2009 and 1 November 2010 (the date of the s94 Notification) (a point to which we return further below).

4.105 The seriousness of this systemic failing is further illustrated, in our view, by this point. One of its fundamental solutions, the migration of Tiscali customers to the TalkTalk Group customer records management system, “.... will not be completed until February 2011.” Likewise another: the implementation of the “billing safety net.” That is, around 18 months after the TalkTalk Group acquired Tiscali, four months after the serving of the s94 Notification and three months after the deadline set for taking steps for complying with the GC.

4.106 On its face, this particular factor would seem to add more to the seriousness and significance of the contravention of GC11.1 by Tiscali. However, we note that there were also failings in the TalkTalk customer records management system which led to the contravention of GC11.1 in respect of 19,840 TalkTalk End-Users.

Mitigation

4.107 We also take account, however, of what the TalkTalk Group said in its various representations about the relative numbers of End-Users to whom it issued bills for services not provided.

4.108 It did so, generally, in relation to sub-categories of affected End-Users. For example, to illustrate the relatively small number of affected End-Users (336) in respect of whom the notified contravention of GC11.1 was remedied only after 2 December 2010. The TalkTalk Group highlighted that this 336 was only 0.5% of the total number of affected End-Users and 0.008% of the TalkTalk Group’s total customer base.

4.109 Nonetheless, this sort of representation links to the following point Ofcom has taken into account.

4.110 That is, in order more fully to consider the size and seriousness of the TalkTalk Group’s notified contravention of GC11.1, it is necessary to consider its relative size. As set out in section 2 above, the purpose of the Fourth Information Request was to obtain information so Ofcom could gauge this size.

4.111 There may have been other methods Ofcom could have considered, and which may have produced, different, perhaps larger, measures of the relative size of the relevant contravention. However, in reaching the views in this document, Ofcom has considered these three measures of that contravention:

a) its size as a proportion of the size it might have been; and

b) the proportion of the total bills issued by the TalkTalk Group to End-Users in the relevant period represented by bills issued in contravention of GC11.1; and

c) the value of those bills as a proportion of the turnovers of TalkTalk’s and Tiscali’s relevant business in the period between 1 April 2009 and 31 March 2010.

4.112 The Fourth Information Request required the TalkTalk Group to provide information about the first two of these measures.

4.113 As to the first measure, it required the TalkTalk Group to state, in respect of the 62,055 affected End-Users, the earliest date on which any of those End-Users ceased to receive services from the TalkTalk Group. And, how many End-Users in total, in the period since that date, ceased to receive from the Group services of the kinds that had been received by the affected End-Users.

4.114 The aim was to obtain some indication of the total pool of former customers of the TalkTalk Group who could have been affected by its notified contravention of GC11.1. And, how large the contravention was compared to how large it could have been.

4.115 In response, the TalkTalk Group said the relevant date was 11 September 2007. It said that, since that date, []End-Users ceased to receive relevant services from the TalkTalk Group (i.e. disconnected or transferred away).61

4.116 So, 62,055 of a total pool of [], or []% of, End-Users who ceased to receive services from the TalkTalk Group in the period from September 2007 were affected by its contravention of GC11.1 between 1 January and 1 November 2010.

4.117 As to the second measure, the Fourth Information Request required the TalkTalk Group to state the total number of End-Users to whom, between 1 January and 1 November 2010, it issued bills62 for services of the kinds that had been received by the affected End-Users. In its response the TalkTalk Group said the relevant number was [].63

4.118 So, in the relevant period, the TalkTalk Group contravened GC11.1 in respect of []% of the total number of End-Users to whom it issued bills.

4.119 As to the third measure, the information provided by the TalkTalk Group suggests the following:

a) the value of the bills issued by TalkTalk in contravention of GC11.1 between 1 January and 1 November 2010 (£1,268,594.19) is equivalent to [] per cent of its turnover for relevant business between 1 April 2009 and March 2010; and

61 Response to Fourth Information Request dated 3 May 2011 62 Whether in contravention of GC11.1 or not, and including the 62,055 affected End-Users 63 Response to Fourth Information Request dated 3 May 2011 98

b) the value of the bills issued by Tiscali in the same contravention between 1 January and 1 November 2010 (£499,939.95) is equivalent to [] per cent of its turnover for relevant business between 1 April 2009 and March 2010.

4.120 Ofcom acknowledges that the two periods considered in the previous paragraph do not coincide. But, the latter reflects the period in respect of which turnover figures are available and which the 2003 Act says are relevant for penalty purposes. And, those periods allow one measure of the relative size of the contravention to be assessed.

4.121 Ofcom takes account of these measures of the relative size of the TalkTalk Group’s notified contravention of GC11.1. We consider the first two most relevant, the first most of all, because they compare relevant pools of End-Users. Our view is that these measures place a limit on the size of the contravention, but that its size is nonetheless not insignificant.

4.122 Our further view is that any penalty imposed on the TalkTalk Group should bear some relationship to the absolute size and seriousness of the relevant contravention, but also to (and be limited by) its relative size. Having considered what the TalkTalk Group said in its representations about seriousness and culpability, we consider that that relationship is not necessarily a linear one, however.

4.123 That is to say, for example, not necessarily one that says that, if 4.5% of potentially affected End-Users were sent bills in contravention of GC11.1, or the amounts billed in contravention of GC11.1 were 1% of the total amounts billed, that would indicate a penalty amount equating to something in the range of either 4.5% or 1% of the turnovers for relevant business. Nor, similarly, one that says, to give another example, if the TalkTalk Group made refunds and goodwill payments in the order of £2.5 - £3 million, that is what the penalty should be.

4.124 Again, there should be some relationship between those matters and the penalty. But, it is, as previously indicated, necessary for Ofcom to consider an appropriate and proportionate penalty, that takes into account seriousness and culpability and may include an element for deterrence.

Degree of harm caused by the contravention

4.125 Ofcom considers that, contrary to the TalkTalk Group’s representation on the point,64 the relevant consideration in terms of harm is that caused by the TalkTalk Group’s contravention of GC11.1 between 1 January and 1 November 2010 notified to it in the s94 Notification, in respect of 62,055 End-Users. Once more, the reasons why that contravention is relevant are set out above. The consideration of the harm follows the contravention.

4.126 Ofcom further considers that the numbers of End-Users affected by the TalkTalk Group’s notified contravention, and the value of the bills issued to them, indicates a

64 “Similarly the degree of harm, you have to take into account that we’ve gone from 62 to 3k.”

degree of consumer harm. That is, harm to the individual End-Users receiving demands for payment when none is owed.

4.127 Our view is that that harm is heightened by the fact these End-Users have no element of responsibility for, or control over, the process by which they came to be billed for services not provided to them. Those End-Users had cancelled their services. The bills they were sent were generated entirely by flaws in the TalkTalk Group’s customer records management system (rather than, for example, being bills erroneously reckoned for services the End-Users had actually received).

4.128 Ofcom also considers that, whilst difficult precisely to quantify, some End-Users, at least, receiving bills (in some cases, several) for cancelled services would be likely to have suffered stress and frustration, as well as having to spend time seeking to resolve matters where none should have been necessary.

4.129 That would likely be particularly so (and serious in the cases in b) and c)) in:

a) cases in which the TalkTalk Group failed to resolve the End-User’s complaint quickly and/or failed repeatedly to do so; 65

b) cases in which payments of bills for services not provided were taken directly from affected End-Users’ bank accounts by direct debit, in which a series of bills and/or “reminder for payment” and final demand letters were issued and/or in which the TalkTalk Group instructed debt collection agencies to obtain payment from affected end-users;66 and

c) individual cases where the sums billed were significantly higher than the average sum for which affected End-Users were billed for services not provided (see below).67

4.130 Ofcom also takes the view that the amount of consumer harm is increased by the fact that, as the TalkTalk Group stated in its response to the Fourth Information Request, debt collection action was taken against 5,253 of the 62,055 affected End-Users, including referral to a debt collection agency. That is 8.5% of those End-Users, who would be subject to what is likely to have been the considerable additional stress of steps being taken for the collection of debts (when none were owed). The harm in these cases, at least, would have been serious.

4.131 As to the further measure of this harm, Ofcom also has regard to the following. Whilst it is also a positive remedial step for which it should receive appropriate credit

65 See, for examples, Annex 2, Section 94 Notification, page 20-21. Mr [] (Tiscali), Mr [ ] (Tiscali), Mrs [] (TalkTalk). 66 See for examples, Mr [], Mr [] , Mr[], in the TalkTalk Group’s Response to First Information Request (“CRM Spreadsheet”), and Annex 2, Section 94 Notification, page 20-22 (in particular, re Mr [](Tiscali), Mr [](TalkTalk), Mrs [](TalkTalk)). 67 Examples are cited in the s94 Notification, including one in which a (former) Tiscali customer was billed £609.97 for services not provided, and paid this amount (see See Annex 2, TalkTalk Group’s response to the First Information Request, Customer Records Spreadsheet, regarding Mrs[]). 100

(see below), the fact the TalkTalk Group made goodwill payments totalling £1,041,441 to the 62,055 End-Users affected by its notified contravention of GC11.1 is indicative of some acknowledgement by the TalkTalk Group of the harm its contravention had caused those End-Users. Ofcom’s view is that it indicates the harm was by no means insignificant.

Mitigation

4.132 We, nonetheless, acknowledge that the level of harm is mitigated by the following points, some of which the TalkTalk Group made in the 30 November Representations and in representations accompanying its responses to various Information Requests.

4.133 First, based on the numbers of affected End-Users and the total amounts credited and refunded to them, the average amount for which affected End-Users were billed in contravention of GC11.1 was:

a) for TalkTalk End-Users, approximately £64.00; and

b) for Tiscali End-Users was approximately £12.00.68

Ofcom considers that the levying of any sum that is undue and unjustified is significant, especially where, in the former case at least, it is equivalent to three to four months’ subscription to a TalkTalk broadband service.69 Nonetheless, we acknowledge that these amounts, the latter especially, are not very large amounts.

4.134 Second, that the TalkTalk Group took steps not to refer “any formerly branded Tiscali customers (regardless of whether they have left us or not)” to debt collection agencies after 29 November 2010, and stop any activities by debt collection agencies already underway by that date. Likewise, in relation to relevant TalkTalk customers, as of the date of the response to the Second Information Request. And, that only 1,506 of the cases in which affected End-Users were subject to debt collection went beyond the first of three stages of such action, and no cases were referred to credit reference agencies nor subject to legal action to recover debts.

4.135 In light of all these considerations, Ofcom’s view is that the degree of harm arising out of the TalkTalk Group’s notified contravention of GC11.1 was of some significance. That is true in respect of both TalkTalk and Tiscali, notwithstanding that the former’s contravention involved fewer affected End-Users but bills of a higher average value and the latter’s more affected End-Users and bills of a lower average value. There are, however, limits to that significance. The amount of any penalty should, in our view, reflect both these points.

68 TalkTalk: £1,268,594.19/19,840 affected end-users; Tiscali: £988,023.64/41,879 affected end-users. The resulting averages are approximate values as we do not have breakdown in respect of the remaining 336 end- users. 69 For example, the TalkTalk Group’s current “TalkTalk Essentials” package which includes broadband and fixed line services for £6.50 a month, plus line rental of £12.60.

101

Any gain (financial or otherwise) made by the TalkTalk Group as a result of the contravention

4.136 Ofcom notes that the TalkTalk Group ultimately made no gain from its notified contravention of GC11.1.

4.137 Rather, it re-credited and, where relevant re-paid, the sums of around £1.75 million for which it issued bills in contravention of GC11.1 in the relevant period, as set out elsewhere in this document. It said in this respect, in representations included in its response to the Second Information Request,70 that:

“…we feel it is also important for Ofcom to note that TalkTalk Group has not made any gain from the contravention for the periods both before and after 2 December 2010. Any harm or increased cost to consumers had been fully remedied and no other market participants have been affected.”

In its representations responding to the Provisional Notification it repeated the point about its lack of gain.

4.138 Ofcom’s view is that the fact the TalkTalk Group – both TalkTalk and Tiscali - ultimately made no gain should be taken into account as a mitigating factor in setting the level of any penalty in the case of both companies.

The duration of the contravention

4.139 The TalkTalk Group’s notified contravention of GC11.1, by issuing bills to End-Users for services not provided to them, carried on from 1 January 2010 until the date of the s94 Notification (1 November 2010) (and was continuing as at that latter date). It also continued beyond 2 December 2010, despite the TalkTalk Group being given a further month, from the issue of the s94 Notification until that date, for complying with the Condition.

4.140 We have noted that, in its response to the First Information request the TalkTalk Group stated, “The system and process issues that have caused these customer complaints have been temporary in nature.” We do not agree with that description, at least in as far as it applies to the duration of the notified contravention.

4.141 Our view is that the ten month period (at least) for which it continued is, in itself, a substantial duration for a systemic contravention of a rule designed to protect End- Users. It is a very significant factor in determining the amount of any penalty imposed on the TalkTalk Group (in respect of both companies).

4.142 Having considered the TalkTalk Group’s representations about its culpability and the position after the period allowed to it for compliance and remedy, we also consider this. The duration of the contravention is made more serious, and carries more

70 Annex 8, page 7-TalkTalk Group’s response to the Second Information Request. 102

weight, in the circumstances of this case because of the further month the TalkTalk Group was given, until 2 December 2010 – a second chance – for complying with GC11.1 and avoiding a penalty. Still it failed to do so and the contravention went on for at least another month on top of the previous 10. This meant the TalkTalk Group added yet greater duration to a contravention that was already long-running and where it had already had a very long opportunity to comply with the Condition but not done so. The duration of the contravention is also exacerbated by the following factors.

Whether in all the circumstances the TalkTalk Group took appropriate steps to prevent the contravention of GC11.1

4.143 Ofcom’s view is that both companies in the TalkTalk Group failed in material respects to take appropriate steps to prevent their notified contravention of GC11.1. This adds significantly to the amount of any penalty.

4.144 As we have indicated elsewhere in this document, Ofcom’s views are that Communications Providers’ compliance with GC11.1 is a fundamental and ongoing obligation. That compliance is within their own control and responsibility. They must have processes for compliance as part of the ordinary course of their business. We indicate above how the TalkTalk Group acknowledged as much in the 30 November Representations.

4.145 We have similarly referred to the TalkTalk Group’s acknowledgment that on acquiring Tiscali in July 2009 it, “...inherited billing and provisioning systems which are simply not fit for purpose,” which are the predominant “...issues giving rise to our contravention of GC11.1.” Likewise, to its other statements and admissions about the systemic root causes of its contravention of GC11.1 and its knowledge of them.

4.146 For example, at the meeting with Ofcom in April 2010, referred to in section 2 above, the TalkTalk Group accepted that it was experiencing some difficulties with its billing and customer records management system, and that it was aware of problems as far back as April 2009. At the same meeting, the TalkTalk Group informed Ofcom that the root causes of its non-compliance included its migration of the Tiscali customer base to the TalkTalk customer records management system; software bugs in TalkTalk’s customer records management system; and problems with training in relation to its internal processes for customers wishing to transfer to other providers.71

4.147 What, in Ofcom’s view, points like these indicate is that the TalkTalk Group should and could (given its knowledge of the problems and their causes, and the time over which it was aware of them and had the opportunity to do so) have taken appropriate steps to prevent the notified contravention of GC11.1 from occurring. There were eight months between its awareness of difficulties with its billing and customer

71 See Annex 2, s94 Notification for the meeting note of 27 April 2010, TalkTalk Group’s response to the First Information Request and Annex 6 of this document for TalkTalk Group’s 30 November Representations. 103

records management system and the start of the notified contravention, and at least five between the acquisition of Tiscali and that time.

4.148 However, none of the steps the TalkTalk Group has said in its various representations are necessary for complying with GC11.1, such as the migration of Tiscali customers to the TalkTalk Group customer records management system, fixing software bugs, implementing the “billing safety net” and training relevant staff, were taken in those periods. Nor were any other steps it was open to the TalkTalk Group to take to ensure it did not issue bills for services it had not provided.

4.149 To illustrate further, and again as set out elsewhere in this document, the TalkTalk Group has long been aware of the flaws in the Tiscali customer records management system, and of the need to migrate Tiscali customers to the TalkTalk Group customer records management system. As well as telling Ofcom so at the April 2010 meeting and in the 30 November Representations, the TalkTalk Group said in its response to the First Information Request that issues relating to the Tiscali system were a cause of customers being billed for services not provided (i.e. non-compliance with GC11.1). However, it was not until December 2010 that the TalkTalk Group migrated the majority of Tiscali customers to the TalkTalk Group customer records management system and that migration was not completed until February 2011.

4.150 Similarly, the TalkTalk Group’s responses to various Information Requests (going back to the First Information Request in September 2010) showed that a cause of End-Users being billed for services not provided (cancelled services) was multiple software defects in the TalkTalk customer records management system. The TalkTalk Group’s response to the Second Information Request in January 2011, however, indicated that only nine of 34 identified root causes for the software bugs had been fixed by that time. These software fixes, which went towards ensuring bills were issued correctly, should have been carried out earlier to prevent the contravention from occurring (or continuing).

4.151 Along the same lines, the “billing safety net,” that the TalkTalk Group said it was implementing, was not to be “rolled out” until the end of December 2010. And, work on new processes for customers leaving the TalkTalk Group’s service and for customer problem resolution did not begin until October 2010, and staff training in them would not occur until December 2010 and January and February 2011.

4.152 In Ofcom’s view, these are steps and mechanisms that are key means for complying with GC11.1. That the TalkTalk Group failed to take them (or to do so effectively), or other appropriate steps for preventing its notified contravention of that Condition, is evidenced by the scale of that contravention between 1 January and 1 November 2010. Their absence or ineffectiveness before 1 January 2010 demonstrates the TalkTalk Group’s failure to take appropriate steps to prevent its notified contravention of GC11.1. Ofcom considers this to be an aggravating factor in this case, applying to both companies in the Group.

4.153 In reaching this view, Ofcom has considered the TalkTalk Group’s representations about the acquisition of Tiscali. In particular, that: 104

a) it was “…only…permitted to carry out limited due diligence…;”

b) “[ Redacted confidential details] …” and

c) “[ Redacted confidential details] .”

4.154 Ofcom does not consider that these representations change the position. Each of TalkTalk and Tiscali are responsible for the bills they issue to End-Users: for the systems used and for ensuring the bills do not make charges for services not provided. They are likewise responsible if those systems are flawed and bills are issued in contravention of GC11.1. In the time available to it before the notified contravention began, between April 2009 and January 2010, it had the opportunity and should have ensured it was only issuing bills to End-Users in compliance with GC11.1, preventing the notified contravention, whether by migrating customers to the TalkTalk customer records management system or by other means (including as interim arrangements pending such migration).72 That it did not do so is its responsibility.

4.155 To any extent that the contractual, or other arrangements, the wider TalkTalk group made in connection with its acquisition of Tiscali made it more difficult for it to do so then that, too, is TalkTalk and Tiscali’s responsibility. It does not change their liability in relation to GC11.1. Again we have regard to what the TalkTalk Group said in the 30 November Representations about its control over and responsibility for the matters comprising the relevant contravention.

The extent to which the contravention occurred intentionally or recklessly, including the extent to which senior management knew, or ought to have known, that a contravention was occurring or would occur

4.156 In its response to the First Information Request in September 2010, the TalkTalk Group said, “None of the causes [of the contravention of GC11.1] are intentional nor through a failure to exercise due care and skill.” Ofcom agrees there is no basis for any suggestion that the notified contravention occurred out of any specific intention on the TalkTalk Group’s part to obtain revenue for services not provided. That is, with any deliberate and dishonest intent to make End-Users pay for services it has not provided to them.

4.157 We nonetheless said in the Provisional Notification that, in our preliminary view, the TalkTalk Group’s contravention of GC11.1 “…comes at least close to recklessness in the following sense” (we did not, as the TalkTalk Group said in its representations, take the view it had been reckless). We said so on the grounds that, as set out in the Provisional Notification, and summarised as follows, members of the TalkTalk Group’s senior management were aware of the contravention and it continued for some time after they were so aware. We said that attaches some significant culpability to the TalkTalk Group.

72 and even more certainly it should have done so by 2 December 2010 (and which, had it done so, it would not now be subject to a penalty)

105

4.158 In response, the TalkTalk Group made the representations outlined in section 2 of this document. It denied recklessness in any legal sense, and submitted that in August 2010 it had begun its project for securing compliance with GC11.1 and could not have secured that compliance more quickly without being reckless and causing more consumer harm.

4.159 To the extent that the strict legal definition of recklessness means being aware of risk in a course of action and deciding to take that course ignoring the risk, or paying no heed to whether any such risk exists, we agree the TalkTalk Group’s notified contravention of GC11.1 was not reckless. Or, at least, it was not reckless from August 2010 onwards. But, again, we note that we did not describe the contravention as “reckless.”

4.160 We nevertheless maintain the views, having considered the TalkTalk Group’s representations on recklessness, that:

a) members of the TalkTalk Group’s senior management were aware of the relevant contravention of GC11.1;

b) it continued for some time after they were so aware;

c) for at least a significant part of the time they were so aware, the TalkTalk Group did not take the matter sufficiently seriously and take enough care to ensure it was complying with GC11.1; and

d) significant responsibility and culpability attaches to the TalkTalk Group as a result.

4.161 So, for example, Ofcom raised our concerns regarding the TalkTalk Group’s compliance with GC11.1 by email to the TalkTalk Group’s Head of Telecoms Regulation, [] in April 2010. We also met with [], [] (Director of Billing) and [] (Senior Operations Manager) on 27 April 2010 to discuss the matter.

4.162 It was at this April meeting that the TalkTalk Group told Ofcom that it was aware of billing-related problems as far back as April 2009. It seemingly clearly was aware of difficulties relating to compliance with GC11.1 at the time of that meeting (and its response to the First Information Request in September 2010, provided to Ofcom by [], indicated it had known since at least April 2010 that issues relating to the Tiscali system were a cause of customers being billed for services not provided).

4.163 Ofcom also met with [], [] and [] on two subsequent occasions at meetings on 27 May and 6 July 2010. At these meetings Ofcom reiterated our concerns about complaints the OAT was receiving about the TalkTalk Group’s compliance with GC11.1, including that if complaint numbers did not decrease Ofcom would have to consider more formal action.73

73 Annex 2, s94 Notification, file note of meeting of 27 May and 6 July 2010. 106

4.164 In addition to this, on a weekly basis since the first week of May 2010, Ofcom passed to [] and [] (the TalkTalk Group’s Commercial Operations Director) details of complaints received by the OAT which alleged that the TalkTalk Group had billed customers for services not provided.

4.165 Further, following the issue of the s94 Notification, the TalkTalk Group’s Chief Executive Officer and its General Counsel met with Ofcom. At this meeting, both accepted that the TalkTalk Group had “…. more than fair warning of this [Ofcom’s investigation] in the three months’ prior engagement [between Ofcom and TalkTalk Group]”.74

4.166 Moreover, in its oral representations on the Provisional Notification, the TalkTalk Group conceded that, in light of Ofcom drawing to its attention issues relating to the contravention of GC11.1:

“… we cannot avoid the fact that in the spring of 2010, we probably collectively as an organisation weren’t listening as strongly as we should have done.”

4.167 We agree these latter points are not direct evidence the two very senior management figures referred to were aware of the notified contravention whilst it was occurring. Nor are they an admission that the TalkTalk Group did not take the contravention seriously at any time before the issue of the s94 Notification. But, considered in light of the preceding paragraphs, they indicate:

a) an acceptance on the TalkTalk Group’s part that it was aware, at a senior level, of the contravention at the relevant time; and

b) that knowledge notwithstanding it did not take the matter sufficiently seriously and address it effectively for some time (and did not begin to do so, its other representations suggest, at least until August 2010).

4.168 Against these points, we have considered the TalkTalk Group’s representations that it:

a) “absolutely disagree[d] with the contention that we didn’t take it [the contravention of GC11.1] seriously prior to November 2010;”

b) “categorically disagreed” it, “…only took ineffective steps [to address the contravention] prior to 1 November 2010;”

c) had started its project for securing compliance with GC11.1 in August 2010 (improving its compliance in line with the timescale it had indicated to Ofcom);

d) could not accelerate the integration of Tiscali customers into the TalkTalk business, including their migration onto the TalkTalk customer records management system, without being producing more harm; and

74 Annex 3-file note of meeting between Ofcom and TalkTalk Group on 9 November 2010. 107

e) was therefore not reckless.

4.169 These representations notwithstanding, the foregoing points demonstrate that the TalkTalk Group operated its businesses, and in particular its billing systems, in a way that, with the knowledge of senior figures within its management, resulted in a long- standing and serious contravention of GC11.1. That contravention resulted in it issuing bills to 62,055 End-Users over 10 months between 1 January and 1 November 2010 for services not provided to them.

4.170 That contravention occurred despite the knowledge referred to, and even when Ofcom was drawing the matter specifically to the TalkTalk Group’s attention and giving it the opportunity to comply and remedy the matter without formal enforcement action. And, it went on even if the TalkTalk Group began to take the matter more seriously and to take more effective steps to put matters right from August 2010.

4.171 In Ofcom’s view, these points, together with the concessions the TalkTalk Group has made, provide room within which it is more than reasonable for us to infer the following. That is, the TalkTalk Group did not take its contravention of GC11.1 sufficiently seriously, and demonstrate enough care to comply with that Condition, for a considerable time, perhaps going back as far as April 2009, at least until August 2010.

4.172 We agree that may not amount to “recklessness” in a legal sense, and we agree the penalty should not include an increased element for such recklessness. But, it is a serious matter that should nonetheless be reflected as an aggravating factor in the penalty imposed on the TalkTalk Group (as far as both companies in it are concerned).

4.173 As to the effectiveness or otherwise of the steps the TalkTalk Group took towards complying with GC11.1 once it became of its contravention, we return to those in the sections immediately below.

Whether the contravention continued, or timely and effective steps were taken to end it, once the TalkTalk Group became aware of it

4.174 Ofcom also takes the views that:

a) the TalkTalk Group did not take timely steps that were effective in bringing it into compliance with GC11.1 (or remedying the consequences of its contravention) once it became aware of its contravention of that Condition; and

b) this is another factor adding to the amount of any penalty imposed on the TalkTalk Group; but

c) that exacerbation is mitigated by certain steps the TalkTalk Group began to take prior to 2 December 2010.

4.175 We have noted in a number of places above that Ofcom made the TalkTalk Group aware in April 2010 of our concerns that it was contravening GC11.1. At the April 108

2010 meeting, those that took place in May and July 2010 and in its response to the First Information Request in September 2010, the TalkTalk Group outlined steps it said it had taken to address the relevant billing problems. These included:

a) identifying, resolving and remedying a problem relating to Migration Authorisation Codes (“MACs” 75) that in April 2010 it suggested was linked to approximately 75% of the complaints by (former) Tiscali customers;

b) identifying problems with the migration of customers to the TalkTalk billing and customer records management system, and bugs in that system, which were causing some former customers to be billed for services they no longer receive;

c) in January and February 2010 allocating around 400,000 problematic accounts to various “pots” and thereafter working on the various “fixes” needed for each;

d) in March 2010, introducing a system fix to Tiscali’s billing system;

e) in mid-May 2010, introducing a software fix to the new billing and customer records management system, which it expected to resolve approximately 50% of the GC11.1-related problem;

f) suspending debt collection activity relating to, and the crediting of, End-Users’ account in cases where the TalkTalk Group accepted it had made a billing error; and

g) introducing, “…an enhancement to our normal cease and billing processes which will ensure that all customers who have ceased service with either TalkTalk or Tiscali will not be billed for any services after that point in time.”

4.176 We have considered the TalkTalk Group’s representations in response to the Provisional Notification in paragraph 4.168 above, about the steps towards complying with GC11.1 that it began to take from August 2010 in particular. We agree, as we go on to consider further below, that these steps appear to have brought the TalkTalk Group closer to compliance with GC11.1.

4.177 Notwithstanding those steps, however, it appears clear to Ofcom that the TalkTalk Group had taken only wholly ineffective steps for complying with GC11.1 prior to August 2010. The steps it took even after that date were not wholly effective. Complaints continued to be made to the OAT alleging contravention of GC11.1 throughout 2010. And, as Ofcom determined in the s94 Notification, the TalkTalk Group’s contravention of that Condition continued until, indeed was continuing as at, 1 November 2010.

4.178 Moreover, the TalkTalk Group continued to contravene GC11.1 after the 2 December 2010 deadline set by the s94 Notification, despite the steps the TalkTalk Group told Ofcom it began taking in August 2010. That is, as we say elsewhere, demonstrated by the 2,928 End-Users to whom, in its response to the Third Information Request,

75 A MAC is a 17-19 character unique identifier code which is generated by a customer’s current internet service provider to facilitate the transfer of that customer to another internet service provider of their choosing.

109

the TalkTalk Group said it issued bills for services not provided after that date. That, despite the steps the TalkTalk Group has taken towards compliance, is a significant continued contravention of GC11.1.

4.179 This point about inefficacy is demonstrated by the admission the TalkTalk Group made in its oral representations on the Provisional Notification, about the steps for complying it took by 2 December:

“Well obviously we can’t sit here and say they were completely effective because obviously the situation continued. However, they were not completely ineffective.”

In addition, and once more as set out elsewhere in this document, the TalkTalk Group has said that steps necessary for complying with GC11.1 were not (to be) completed until February and March 2011.

4.180 We re-iterate that this is made all the more serious by the fact that, by virtue of the s94 Notification, the TalkTalk Group was given an additional month, to 2 December 2010, for complying with GC11.1, after it was made formally aware of Ofcom’s determination of its contravention of GC11.1. Again, this represented a second chance for complying which, if the TalkTalk Group took it, would mean it could not be penalised for its earlier contravention of the Condition, despite its size and seriousness.76 But which, equally, it was made expressly clear to the TalkTalk Group in the s94 Notification, could lead to further enforcement action, including a financial penalty, if the chance was not taken.

4.181 We have also considered in this connection the representations the TalkTalk Group made about:

a) the acquisition of Tiscali;

b) the consequences in terms of GC11.1 of that acquisition;

c) its inability to accelerate the TalkTalk and Tiscali integration measures it said are necessary for compliance with GC11.1; and

d) its inability to be compliant with that Condition by 2 December 2010.

4.182 Again, none of these matters, in Ofcom’s view, relieve the TalkTalk Group with responsibility for complying with GC11.1 nor of liability in terms of penalty for failing to do so. The fact it could not comply with the Condition by 2 December 2010, 19 months after it was first aware (in April 2009) of problems with its billing system, and 16 months or so after the Tiscali acquisition (in July 2009), both:

a) indicates the extent of the contravention; and

76 Under the provisions of the 2003 Act as they apply to contraventions of conditions before 26 May 2011, unlike those after that date (see above).

110

b) is a matter for which the TalkTalk Group is responsible.

4.183 Once again, to the extent that the contractual or other arrangements it made in connection with the acquisition of Tiscali hinder its compliance that, too, is a matter for which it is responsible. That includes being responsible for any inability to accelerate the TalkTalk and Tiscali integration programme without, as it submitted, causing consumer harm or other consequential problems.

4.184 Similarly, its failure to take other measures for complying with the Condition is also a matter for which it is responsible. For example, it was open to the TalkTalk Group to take any other steps necessary to prevent the issuing of bills to End-Users for services not provided to them. It could have done so pending completion of the steps like the TalkTalk and Tiscali integration which it said would result in compliance with GC11.1. That it did not do so, and whether it chose not do so or could not do so, whether for financial, technical or other reasons, is again its responsibility.

4.185 Each of these points therefore demonstrates, in Ofcom’s view, that the TalkTalk Group did not take timely and effective steps for complying with GC11.1 once it became aware that it could be in contravention of that Condition, nor by 2 December 2010 once formally notified it was in contravention. These are matters which go to increase the penalty to be imposed on the TalkTalk Group.

4.186 The extent to which they do so is mitigated both by:

a) the TalkTalk Group’s candour about the extent of its contravention of GC11.1 and of the steps required for its compliance with that Condition; and

b) the fact it took some steps towards complying with GC11.1 from August 2010 and reduced the extent of its contravention by (and after) 2 December.

Both are to the TalkTalk Group’s credit and, to some extent, mitigate the penalty that, in all the circumstances of this matter, Ofcom would otherwise impose on it. But, to be clear, they do not justify its contravention of the Condition nor mean that the steps it took were effective in the sense required (within the time frame they should have been). Nor do they free it from responsibility for those matters. We describe below the mitigating effect on the penalty of the steps the TalkTalk Group has taken towards complying with GC11.1 and for remedying the consequences of its notified contravention of that Condition.

Steps the TalkTalk Group has taken towards complying with GC11.1

4.187 In the Provisional Notification Ofcom set out that, despite the above, and our (then) preliminary view that the TalkTalk Group had not, by 2 December 2010, taken the appropriate steps for complying with GC11.1, we acknowledged that the TalkTalk Group had by that date taken some important steps towards complying with GC11.1. Those steps are summarised again below.

111

4.188 Ofcom’s preliminary view was that the taking of these steps does not outweigh the significance of the failure to take all the appropriate steps for complying by the 2 December deadline. But, those steps nonetheless have some importance and, as a result of them, we proposed that any penalty Ofcom imposed on the TalkTalk Group should be lower than it otherwise might be.

4.189 First, as set out in its 30 November Representations, and as we outline above, the TalkTalk Group had taken certain steps towards complying with GC11.1 by 2 December 2010:

a) engaging external consultants independently to review the TalkTalk Group’s “systems architecture and processes;” and

b) identifying a large number of categories of customers at risk of being billed for services not provided to them, and suppressing billing and collections for 61,719 such customers to whom bills had been issued between 1 January and 1 November 2010 for services not provided to them (19,840 of them former TalkTalk customers and 41,879 former Tiscali customers).

4.190 Second, the 30 November Representations also demonstrate that the TalkTalk Group had in place a plan for further steps aimed at complying with GC11.1 before or by 3 March 2011 (and some of which it had started taking before 2 December 2010). These steps, again as outlined above and in its response to the Second Information Request were:

a) the migration of Tiscali customers to the TalkTalk customer records management system;

b) the “rolling out” of a new “simplified and enhanced end-to-end “I want to leave TalkTalk” process,” the work on which the TalkTalk Group said had begun in October 2010;

c) simultaneously “rolling out” a new customer problem resolution process designed to “...capture, manage and resolve complaints by customers who believe something has gone wrong when leaving” the TalkTalk Group, the work on which the TalkTalk Group said had also begun in October 2010;

d) the “clean-up” of Tiscali customer data, which the TalkTalk Group said was almost complete on 30 November 2010, prior to the migration of Tiscali customers to the TalkTalk customer records management system;

e) building and implementing the “billing safety net,” work on which began in November 2010; and

f) the prioritising (having done so since August 2010) of five specific groups of “software bug fixes and logic gaps” in its systems that had contributed to customers being billed for cancelled services.

112

4.191 As to the measure of any credit the TalkTalk Group should get for these steps, and its reflection in any penalty we may impose, we said our (preliminary) consideration was as follows.

4.192 Most of these steps had not been taken or completed by 2 December 2010. So, we were not minded to agree with the representation the TalkTalk Group made in its response to the Third Information Request that , “…we were complaint with GC11.1, within accepted tolerance thresholds, by 2 December 2010.” On the contrary, we set out in the Provisional Notification the view that the TalkTalk Group had not by that time taken the appropriate steps for complying with GC11.1.

4.193 We also said we had considered the TalkTalk Group’s representation in the same response that the steps it had taken over the previous 6 – 8 months had a “dramatic impact” on its compliance with GC11.1. We noted that the contravention of GC11.1 in respect of 62,055 End-Users in 10 months between 1 January and 1 November 2010 had, in effect, improved to a contravention in respect of 2,928 in three months between 2 December 2010 and 4 March 2011. And that, whilst the OAT had continued to receive consumer complaints about bills for services not provided, the number had generally fallen across the period between November 2010 and June 201177 (though they still averaged 26 per week78, and reached a high of 57 for the week of 28 February to 4 March 2011). This fall was especially so since April 2011, and in May 2011 there were 74 such complaints (compared to 118 between 6 and 31 December 2010 and 128 between 3 and 28 January 2011).

4.194 So, our (preliminary) view was that the steps the TalkTalk Group took, and planned to take, towards complying with GC11.1 are significant, and that any penalty we impose should reflect that.

4.195 Further, Ofcom considered that any such credit should be afforded equally to TalkTalk and Tiscali. Some of the steps taken, or to be taken, such as the migration of Tiscali customers to the TalkTalk customer records management system, relate mainly to Tiscali. Others, however, such as the “billing safety net,” new processes and software fixes, relate at least as much to TalkTalk.

4.196 We have considered this point further in light of the representations the TalkTalk Group made in response to the Provisional Notification. In particular, those to the effects that:

a) Ofcom may only impose a penalty in this case for the contravention by the TalkTalk Group of GC11.1 in respect of 2,928 End-Users after the period allowed for compliance and remedy under the s94 Notification (after 2 December 2010);

b) Ofcom must in any penalty reflect only the TalkTalk Group’s culpability for contravening the Condition in respect of those 2,928 End-Users after 2

77 Particularly in relation to Tiscali. 78 Complaints averaged over the period from the week beginning 6 December 2010, to the week beginning 6 June 2011. 113

December 2010 and determine a penalty having deterrent effect based on that number and that period;

c) the TalkTalk Group’s contravention of GC11.1 in respect of 62,055 End-Users between 1 January and 1 November 2010 is only a starting point in assessing the steps the TalkTalk Group took for complying with GC11.1 and remedying the consequences of its earlier contravention by 2 December 2010 and in assessing its culpability after that date; and

d) in light of the steps it had taken by 2 December towards complying with GC11.1 and for remedying the consequences of its notified contravention, it was in a “95% better” position by that date with regard to GC11.1 than between 1 January and 1 November 2010.

4.197 Ofcom does not, for the reasons previously given, agree with the representations in sub-paragraphs a) and b) immediately above. Nor, it follows, with that in sub- paragraph c). We have, however, re-considered whether our preliminary view took sufficient account, in line with section 97(2) of the 2003 Act, of the steps the TalkTalk Group has taken towards complying with GC11.1.

4.198 Having done so, our decision is that we had not in our preliminary view taken sufficient account of those steps. Our reasons are as follows.

4.199 We do not consider that there is necessarily a linear relationship between the steps a Communications Provider, such as the TalkTalk Group in this case, has taken and the mitigating effect on the amount of a penalty. For example, that if a Communications Provider has improved its position by 95% the penalty should be reduced by 95%.

4.200 This is because Communications Providers, like the TalkTalk Group in this case, must comply with the General Conditions, like GC11.1 here, at all times. As we have said, a notification issued under section 94 of the 2003 Act gives such a Communications Provider a second chance to comply. If it fails to take that chance, it is penalised for the contravention notified to it in the section 94 document, 79 having had this further chance to comply with the Condition and the further opportunity to avoid a penalty altogether, but spurning it. The penalty should penalise that contravention, albeit giving some credit for any steps the Communications Provider has subsequently taken. The penalty would not do so were it only imposed in respect of the position after the period allowed under the section 94 notification.

4.201 Similarly, a penalty should have a deterrent effect. To do so, a penalty may include an element for the purposes of deterrence, as set out above, on top of the penalty that would apply based only on the seriousness of, and culpability in, the contravention notified under section 94. That is again to deter that contravention and to secure compliance with the General Conditions, not simply part-compliance after a

79 Again, under the provisions of the 2003 Act as they apply to a contravention, like that in the present case, occurring before 26 May 2011

114

period allowed under a section 94 notification. Again, that deterrence would not necessarily be secured if the penalty reflected only the position after that period.

4.202 Ofcom accepts to some extent, however, the force of some of the representations the TalkTalk Group made about how seriously it has taken compliance with GC11.1 since August 2010 and the steps it has taken since then to secure compliance. We accept these are important steps which have been taken and secured improved compliance with GC11.1, as reflected in the contravention in respect of a smaller number of End-Users after 2 December (albeit that that contravention remained significant).

4.203 That puts the TalkTalk Group in a better position than had its contravention of GC11.1 continued at the level between 1 January and 1 November 2010. The penalty should properly recognise that, to indicate to the TalkTalk Group, and other Communications Providers, the value in taking steps towards complying, (whilst still imposing a penalty that reflects the seriousness of, and the TalkTalk Group’s culpability in, the notified contravention, which deters such contravention and deters the failure to take complete and fully effective steps to comply).

4.204 Accordingly, we have re-appraised how we have struck the balance between these various factors. The effect of our doing so on the quantification of the penalty is set out below.

Steps taken by the TalkTalk Group to remedy the consequences of its contravention

4.205 On the bases the TalkTalk Group set out in the 30 November Representations and its responses to the Second and Third Information Requests, and as we say in this document, Ofcom considers the TalkTalk Group took substantial, and appropriate, steps to remedy the consequences of its notified contravention of GC11.1 by 2 December 2010.

4.206 To re-iterate, these included, in particular:

a) the crediting or refunding of at least £1,768,534.14 to 62,055 affected End-Users (£1,268,594.19 to 19,840 former TalkTalk customers and £499,939.95 to 41,879 former Tiscali customers), including additional credits necessary in some cases to ensure that no such End-User’s account showed a debit balance, and of which £1.3 million was paid in actual repayments to 22,000 customers (£988,023.64 to former TalkTalk customers and £316,540.16 to former Tiscali customers);

b) the making of goodwill payments to those affected End-Users of £1,041,441;

c) establishing a dedicated customer complaint team to which affected customers could refer complaints about bills for services not provided; and

d) steps it took relating to the cessation of debt collection activity (as previously described).

115

4.207 Ofcom again considers that any credit for taking these steps should be afforded equally to TalkTalk and Tiscali. Steps were taken by, or on behalf of, each to remedy the consequences of their contravention of GC11.1.

4.208 Ofcom’s view as to the measure of any such credit is this. Remedying the consequences of its notified contravention of GC11.1 is one of two obligations the TalkTalk Group had on receipt of the s94 Notification, the other being to take steps for complying with that Condition. Ofcom’s view is that taking appropriate steps for the former means any penalty should be reduced by around half from what it might otherwise have been, (as set out below).

Whether the TalkTalk Group has a history of contraventions

4.209 The TalkTalk Group does not have a history of notification of contraventions of the General Conditions.80 Accordingly, this is not an aggravating factor in this case that Ofcom considers should be reflected in an increased penalty.

Co-operation with Ofcom’s investigation

4.210 Ofcom’s penalty guidelines say, “Ofcom may increase the penalty where the regulated body in breach has failed to cooperate fully with our investigation.” We have considered the possible impact on any penalty of the cooperation the TalkTalk Group gave to Ofcom’s investigation in this matter. We have taken account of two points in particular.

4.211 On the one hand, in the representations it included in its response to the Second Information Request on 20 January 2011, the TalkTalk Group said information it had provided, “…shows that we were compliant with GC11.1, within acceptable thresholds, by 2 December 2010.” It made a similar submission about some of the information included in its response to the Third Information Request on 15 March 2011, saying that information, “…shows that we were compliant with GC11.1, within acceptable thresholds, by 2 December 2010.”

4.212 Both these representations appear at least to have been inaccurate statements to include in response to a statutory information notice, the former in particular. That is, other information the TalkTalk Group provided in its response to the Third Information Request disclosed this: rather than being compliant with GC11.1 as of 2 December 2011, it had, between that date and 4 March 2011, issued bills to 2,928 End-Users for services not provided to them.

4.213 A point such as this could have been considered a serious aggravating factor in the reckoning of any penalty. On the other hand, however, Ofcom acknowledges that, in general, the TalkTalk Group has provided full cooperation with Ofcom’s investigation of this matter. It has generally provided candid responses to the Information Requests and been clear in its admissions about the shortcomings of its billing and

80 Other companies in the same, wider Talk Talk Group of companies have, however, been subject to such notifications.

116

customer records management systems and its consequent contravention of GC11.1. This candour is to its credit and might otherwise have had a greater mitigating effect on the penalty. As it is in this case, it has a counter-balancing effect on the inaccurate information provided.

4.214 Accordingly, taking both these matters together, Ofcom does not consider there has been a lack of cooperation that might serve as an aggravating factor in this matter and to increase the amount of any penalty we impose.

Precedents set by previous cases

4.215 Our Penalty Guidelines also indicate that we will, in determining a penalty, have regard to any relevant precedents set by previous cases, but may depart from them depending on the facts and the context of each case. We have considered them here, and the representations the TalkTalk Group made about them, as follows. For the reasons we set out, we do not consider the cases provide relevant precedents that affect our determination of the penalty to be imposed on the TalkTalk Group.

4.216 There are no previous cases in which Ofcom has set penalties in respect of contraventions of GC11.1. However, there are precedents in which we have imposed a penalty for contraventions of other General Conditions, namely GC1.2 in the Telephonics case81 and GC14.3 in the Just Telecomms case.82

4.217 Both cases provide an indication of the factors that were taken account into account when determining the amount of the penalty. However, they concerned different General Conditions and there were factors present in each that are significantly different to those in the present case. Accordingly, the penalties in those cases, set in each at the maximum ten per cent of turnover, are to be distinguished from the penalty we impose on the TalkTalk Group (which is significantly lower) on the following bases.

4.218 First, both cases involved either an intentional and planned practice of deceiving customers (in the Just Telecomms case) or actively and knowingly preventing customers from transferring to other providers (in the Telephonics case). And further, in the Telephonics case, engaging in additional aggravating behaviour. This included refusing to inform customers of their contract anniversary date, to prevent them giving effective notice in order to transfer to other providers, and imposing early termination charges when notice of termination had been given under the contract.

4.219 By contrast, we have already indicated our view that the TalkTalk Group’s contravention of GC11.1 involved internal process or systems failures. Whilst serious for that reason, it was not the result of a specific intention to charge customers for cancelled services.

81 See: http://stakeholders.ofcom.org.uk/enforcement/competition-bulletins/closed-cases/all-closed- cases/CW_998/ 82 See: http://stakeholders.ofcom.org.uk/enforcement/competition-bulletins/closed-cases/all-closed- cases/cw_857/ 117

4.220 Second, in the Just Telecomms case and the Telephonics case, the providers’ behaviour had the effect of frustrating the competitive process. In the case of Telephonics by seeking to retain customers that it would not otherwise have retained, and preventing them from switching providers, at the expense of those competing providers who are abiding by regulatory requirements. And, in the Just Telecoms case, attracting customers by deceiving them and entering them in to long minimum contract terms, preventing them from transferring to providers who were compliant with sales and marketing rules.

4.221 In the present case it is not apparent to Ofcom that the TalkTalk Group’s issuing of bills to End-Users for services not provided had any specific anti-competitive ramifications (for example, preventing customers from switching providers).

4.222 Third, Telephonics took no steps for complying with the relevant General Condition or to remedy the consequences of its contravention and Just Telecomms took only minimal and insufficient steps (and only then belatedly, once Ofcom issued a draft enforcement and penalty notice).

4.223 Again by way of distinction, as set out in this document, the TalkTalk Group had taken significant and appropriate steps to remedy the consequences of its notified contravention of GC11.1 by the 2 December 2010 deadline. It also took some important steps towards complying with the Condition by that time, and has continued to take such steps. TalkTalk Group has also generally co-operated with Ofcom in our investigation (see above), unlike Telephonics and Just Telecomms.

4.224 Finally, both Telephonics’ and Just Telecomms’ senior management were not only involved in the contravening behaviour, but actively encouraged it. As considered above, whilst the TalkTalk Group’s senior management were aware of its contravening behaviour, they were taking steps to address what they considered root causes, albeit ineffectively for some time. There is no evidence to suggest they were encouraging it.

4.225 In its representations on the Provisional Notification the TalkTalk Group indicated its agreement with the foregoing. But, it also made the representations set out in section 2 of this document to the effect that, in the Telephonics and Just Telecomms cases, Ofcom had adopted the approach to determination of a penalty for which the TalkTalk Group contended.

4.226 That is, the TalkTalk Group said, paragraphs 1.16, 4.19, 4.20, 6.93, 6.94, 6.103 and 6.104 of the Telephonics Notification “clearly show” the following. Namely, that Ofcom used as the basis for calculating the penalty the level of seriousness and culpability attaching to Telephonics’ position after the period allowed to it under the section 94 notification for complying with the relevant General Condition and remedying the consequences of its notified contravention.

4.227 It made the same contention in relation to the Just Telecomms Notification. It said that document’s paragraphs 7, 9, 16, 20, 112, 113 and 155 are non-exhaustive examples of how that document demonstrates Ofcom’s approach that: 118

“…it is the level of seriousness/culpability after the remedy period and not that in the original notification which should be used as the determining factor when calculating the level of penalty amount and deterrence.”

4.228 These contentions are incorrect. What the paragraphs of the Telephonics and Just Telecomms Notifications referred to, and other paragraphs of those documents, show is this. Ofcom took an approach that was consistent with the Ofcom penalty guidelines that applied at the relevant time and is consistent with the approach Ofcom is taking in the present case.

4.229 So, we imposed on Telephonics a penalty in respect of the contravention that had been notified to it in the notification issued under section 94 of the 2003 Act. In line with our penalty guidelines that then applied, Ofcom considered Telephonics’ failure to take steps for complying with the relevant General Condition and remedying the consequences of its notified contravention during the period allowed under the section 94 notification as an aggravating factor in the determination of that penalty.83

4.230 Ofcom did not take the approach the TalkTalk Group contends of determining a penalty for the position that applied after that period. That is clear from, for example, paragraphs 6.39, 6.70 – 6.72, 6.81 – 6.86, 6.93, 6.94, 6.103 and 6.104 of the Telephonics Notification.

4.231 With regard to the Just Telecomms Notification, the TalkTalk Group’s representations fail to recognise the distinction between:

a) the conditions that must be met, and therefore the assessment Ofcom must make, before we may take further enforcement action under sections 95 and/or 96 of the 2003 Act, having served a notification under section 94; and

b) the contravention in respect of which that action is taken once those conditions are met.

In other words, between the jurisdiction to take further action and what that action, in particular a financial penalty under section 96 (as the relevant section in the TalkTalk Group’s case), is for.

4.232 So, in the Just Telecomms case, we served on it a notification under section 94. That said, amongst other things, Ofcom had reasonable grounds for believing it had contravened GC 14.3 in nine respects.

4.233 Having given Just Telecomms one month to make representations and to remedy the consequences of those notified contraventions (and a shorter period for complying with the Condition where it continued to be in contravention), Ofcom determined that:

83 The relevant penalty guidelines are available at http://www.ofcom.org.uk/about/policies-and- guidelines/superseded-guidelines/. These referred, amongst the “Factors tending to lead to an increase in the level of any penalty, to, “Continuation of the contravention after either becoming aware of the contravention or being notified of a contravention by Ofcom.” 119

a) we were satisfied that Just Telecomms had contravened GC 14.3 in three of the respects notified; and

b) Just Telecomms had failed to remedy the consequences of the contravention(s) notified in those three respects.

4.234 Accordingly, we had the power (the jurisdiction) to issue to Just Telecomms an enforcement notification under section 95 and/or to impose on it a penalty under section 96, and we decided to do so. That is the assessment, the analysis and the decision reflected in, for example, paragraphs 7, 9, 16 and 20 of the Just Telecomms Notification (and in paragraphs 35 – 93, 95 – 153 and 169 of that document). We could only have made that assessment, and taken those steps, after the period allowed for compliance and remedy under section 94: that is the jurisdictional test.

4.235 But, what all those paragraphs, and paragraphs 167 – 209 of the Just Telecomms Notification, also show is this. The contravention of GC 14.3 in respect of, or for, which further enforcement action was taken against Just Telecomms in that case was that set out in the relevant section 94 notification.

4.236 With regard to section 96 specifically, the position was this. Ofcom established that we had jurisdiction to impose a penalty by reference to the relevant period for compliance and remedy under the section 94 notification. Having done so, we imposed a penalty for the aspects of the contravention of GC 14.3 set out in the section 94 notification that we were satisfied had occurred (as confirmed in the Just Telecomms Notification).

4.237 Put another way, Ofcom had the power to impose the penalty because of the failure to remedy the consequences of the notified contravention of GC 14.3. But, the penalty was not for (in respect of) that failure. The penalty was for the contravention of GC 14.3 notified under section 94 (in the three relevant respects).

4.238 Particular examples of paragraphs of the Just Telecomms Notification that demonstrate this point84 are as follows:

a) paragraph 169 shows the overall approach Ofcom took;

b) paragraphs 183 – 187, about the seriousness of the relevant contravention, make clear that what was relevant, and the subject of the penalty (what it was for), was the contravention covered by the relevant aspects of the section 94 notification;85

c) paragraph 193, about the duration of the contravention in respect of which the contravention was imposed, shows the penalty was for a period covered by the section 94 notification, not for the position as at the end of the period allowed under that notification for compliance and remedy; and

84 Without prejudice to the demonstration of the points by the Just Telecomms Notification generally 85 Put another way, the subject of the penalty was not the seriousness of the failure to remedy the consequences of that contravention

120

d) paragraphs 205 and 206 demonstrate how Ofcom gave Just Telecomms credit, in mitigation of the penalty we imposed on it, for such steps as it had taken towards complying with GC 14.3 and remedying the consequences of its notified contravention.

Each of these points is consistent with precisely the approach Ofcom is taking in relation to the TalkTalk Group in the present case.

4.239 We do agree, as the TalkTalk Group said in its representations, and as we set out elsewhere in this document, that Ofcom’s approach in the Just Telecomms case reflects that, had Just Telecomms complied with GC 14.3 and remedied the consequences of its notified contravention in the time allowed under section 94, Ofcom could not have imposed a penalty on it. As we also indicate elsewhere, the same applies to the TalkTalk Group. But, that is consistent with, and does not change, the position that,86 if a Communications Provider does not comply and remedy in time, Ofcom can impose a penalty in respect of the contravention notified under section 94.

Broadcasting sanctions

4.240 Pursuant to the 2003 Act, the Broadcasting Acts and the Broadcasting Code (“the Code”), Ofcom has the power to impose sanctions on broadcasters for deliberate, serious or repeated breaches of the Code. The Code sets out rules and guidance for broadcasters in relation to television and radio which cover standards in programming, sponsorship, fairness and privacy. One of the sanctions Ofcom can impose is a financial penalty.

4.241 We referred in the Provisional Notification to significant penalties that have been imposed in relation to breaches of the Code. We said, however, that the broadcasting cases concern different conduct and provisions of the 2003 Act, as well as other Acts. Our preliminary view, therefore, was that they do not provide relevant precedents for the present case. In response the TalkTalk Group referred to one such broadcasting case, involving GMTV, as one of four cases the penalties in which Ofcom should use a “sense check” for the penalty to be imposed on the Group. We return to this below.

Persistent mis-use penalties

4.242 Under section 128 of the 2003 Act, Ofcom has taken action against companies for persistently mis-using an electronic communications network or service, most notably in relation to the making of silent or abandoned calls.87 Under section 130 of the 2003 Act Ofcom has imposed penalties for mis-use in respect of nine companies

86 Under the provisions of the 2003 Act as they apply in this case 87 ‘Silent calls’ occur when automated calling systems used by call centres dial too many numbers for the call centre agents to manage. As such, when you answer the telephone you may hear nothing because the calling system has terminated the call. ‘Abandoned calls’ happen for the same reason but in this instance an information message is played telling you who the call came from. 121

since June 2006.88 The maximum penalty amount that can be imposed under section 130 was £50,000 until it was increased, on 1 February 2011, to £2 million.

4.243 The persistent mis-use cases concern different conduct and different provisions of the 2003 Act. In addition, to date no penalties have been imposed since the introduction of the increased penalty amount. On these bases, the cases concerning persistent misuse do not provide relevant precedents in the present case.

Other penalties

4.244 As indicated above, the TalkTalk Group’s representations on the Provisional Notification drew “Ofcom’s attention to recent fines imposed by other Regulators and Ofcom itself in order to provide a ‘sense check’ given the level of seriousness and culpability in TalkTalk’s case”. These were:

a) The Gas and Electricity Markets Authority’s proposal to impose a £1 million penalty on British Gas (1 July 2011);

b) The Gas and Electricity Markets Authority’s proposal to impose a £2.5 million penalty on British Gas (27 July 2011);

c) the £3 million fine imposed on Network Rail by St Albans Crown Court (13 May 2011); and

d) the £2 million penalty imposed on GMTV by Ofcom (26 September 2007).

4.245 Ofcom is aware of penalties other regulators have proposed and/or imposed in cases falling under their jurisdictions (by way, for example, of our membership of cross- regulator groups) and we seek to maintain an up to date general knowledge of those penalties. We have considered the representations and the cases referred to. We take the view that these cases provide at most only limited value to Ofcom in determining the penalty to be imposed on the TalkTalk Group. The reasons include the immediately following general reasons and those more specific reasons relating to each case that we set out thereafter.

4.246 What those reasons really go to is this point. What is key is not what Ofcom can second-guess about cases we do not and cannot know much about. It is that Ofcom uses its judgment to determine an appropriate and proportionate penalty in the present case, based on all the relevant considerations and the evidence before us.

4.247 So, as to the first of the general reasons, each of the penalties or fines (including the penalty imposed by Ofcom on GMTV) were imposed under different statutory regimes. In each there are different provisions, duties and considerations, and different sanctions for contravention of the relevant rules.

4.248 Second, in the first three cases, the sanctions were imposed in industries outside Ofcom’s jurisdiction and knowledge. The regulator and/or court in those cases would

88 See http://www.ofcom.org.uk/bulletins/comp_bull_index/comp_bull_ocases/open_all/cw_905/ 122

have been in a position to assess the evidence and relevant considerations in those cases and to exercise their powers and judgment. Ofcom is not and cannot, and cannot therefore take any real view on the implications of those cases for that we are now considering.

4.249 To illustrate these points, we note that The Gas and Electricity Markets Authority’s notice of its proposal to impose a £2.5 million penalty on British Gas, dated 27 July 2011, sets out in generalised terms:

a) the background to that case, including the powers under which the Authority operates, the rules applicable to British Gas and the investigation the Authority carried out;

b) that British Gas made representations;

c) the findings the Authority made;

d) factors the Authority considered in setting the proposed penalty, including the possibility British Gas’s contravention caused some consumer harm; and

e) the proposed amount of the penalty.

4.250 The notice does not enable Ofcom to know, for example:

a) the full extent of the representations made, and other information provided, to the Authority by British Gas;

b) the full extent of the Authority’s considerations, both of the representations and of its powers and duties, and how it considers it should make its judgments and exercise its discretion in light thereof;

c) with any degree of specificity, the harm British Gas’s conduct caused to consumers in the gas and electricity markets (an area of Ofgem’s, not Ofcom’s, expertise); and

d) the gravity and seriousness of British Gas’s contravention of the relevant rules.

4.251 As to the latter two points, for example, we note that the notice refers to:

a) “It is likely that the incomplete information deterred some customers from seeking redress in this way….” (paragraph 3.3);

b) “The Authority considers that some customers would have suffered inconvenience and incurred additional time and costs when they had to repeat their complaint to British Gas as a result of British Gas’ failure to record complaints properly and if they had not understood the nature of the Energy Ombudsman service…” (paragraph 3.5)

123

c) “British Gas may have derived benefit from fewer customers referring their case to the Ombudsman. This could have saved a referral fee and potentially a further financial payout to a customer whose complaint had not been satisfactorily resolved by British Gas. Ofgem does not consider this potential benefit trivial….” (paragraph 3.6); and

d) “It is reasonable to assume that some domestic and micro-business customers will have suffered harm or inconvenience or incurred additional costs purely as a result of not having their repeat complaint to British Gas clearly linked to their original complaint if they got in touch after 28 days...” (paragraph 4.4).

4.252 It may well be the Authority is in a position to take a more specific view as to, or at least to have greater confidence in its judgment of, the harm to consumers arising out of British Gas’s contravention and of the weight it should attach to that harm in the context of consumers in the gas and electricity markets. Whether that is so or not, Ofcom is not in such a position and nor, therefore, to draw much comparative value from the case.

4.253 By contrast, in the present case, Ofcom is acting in an area of our expertise. We know the extent of our powers and duties, the evidence and the representations the TalkTalk Group has made. We likewise know the number of consumers affected by the TalkTalk Group’s contravention of GC11.1 and, with a degree of specificity, the extent to which they were affected and the degree of harm.

4.254 We are, therefore, in a position to make our own judgment, based on our powers and duties, and the evidence we know about, to determine an appropriate and proportionate penalty for the TalkTalk Group’s notified contravention of GC11.1 in this case. This is the key consideration.

4.255 There also appear to Ofcom to be more specific reasons why the value of these other cases, in determining the penalty to be imposed on the TalkTalk Group, is limited. These are as follows.

4.256 Looking first at the British Gas cases, these are both proposed penalties, subject to further representations by both the company and others. The relevant Authority has not made final decisions about any penalty.

4.257 In addition, the first of the cases relates to British Gas’s misreporting of the amount of electricity supplied under the Government’s Renewables Obligation. This resulted in other market participants suffering an aggregate loss of £2.8 million over a seven- year period. It does not appear, unlike the TalkTalk Group’s, to be a case in which the contravention directly affected a large number of consumers in a serious way.

4.258 British Gas’s contravention in the second case, meanwhile, whilst the position is not known to Ofcom from the relevant Authority’s notice, may not have directly affected a large number of consumers in the way the TalkTalk Group’s did in the present case.

124

4.259 That is, the Authority found that BG had breached certain rules relating to handling consumer complaints.89 In particular, a rule relating to recording complaints upon receipt, which it breached by closing complaints 28 days after receipt. And, a rule requiring it to tell consumers about a redress scheme if complaints cannot be resolved within a specific timeframe.

4.260 Accordingly, it may be that only a more limited group of consumers who made complaints, which were not resolved, and which they would have sought to revive after 28 days and/or to pursue through a redress scheme, were affected by the contravention. Rather than, for example, a contravention having an actual effect on all BG’s consumer customers. (Again, however, Ofcom is no position to say what the effect was, unlike in the TalkTalk Group’s case, nor accordingly to draw a comparison of real value).

4.261 As to Network Rail’s conviction and the fine the court imposed on it, Ofcom agrees the level of seriousness is, in one sense, “in no way comparable” to that in the present case. But, that is part of the fact the cases in a broader sense are in no way comparable.

4.262 So, one of the cases involved the conviction of a company for criminal offences in which seven people died and in which, for example, Ofcom does not know what the relevant law is, what the evidence was, what points if any were made in Network Rail’s defence and in mitigation and what sentencing considerations the court took into account. The other involved the contravention of a rule designed to protect consumers and which caused them financial harm, where Ofcom is familiar with the rule, the evidence and the size and seriousness of the contravention. Ofcom does not see that any real comparison can be made between the cases.

4.263 Turning to the penalty Ofcom imposed on GMTV, this related to breaches of Ofcom’s Broadcasting Code and the Independent Television Committee Programme Code 2002 between August 2003 and February 2007. It provides limited value in the determination of the penalty now to be imposed on the TalkTalk Group because the comparison between that penalty and GMTV’s is not a like for like one. And, in any event, because the greater seriousness of GMTV’s contravention was reflected in the penalty imposed on it under the rules that applied to it.

4.264 The GMTV penalty was imposed under the Broadcasting Act 1990 (“the 1990 Act”). Section 41 of the 1990 Act provides Ofcom with the power to impose a financial penalty on a Channel 3 television licence holder of up to a maximum of 5% of its qualifying revenue in respect of breaches occurring after the end of 2003. For breaches prior to that, the maximum penalty was 3% of such revenue, provided no financial penalty has previously been imposed on the licensee (as in that case).

89 As well as another rule in the case of micro-business customers.

125

Such qualifying revenue is calculated in a different way to turnover for relevant business for the purposes of section 97 of the 2003 Act.90

4.265 Accordingly, in that case, Ofcom applied the different statutory regime for the applicable penalty. We did so by reference to the penalty guidelines that then applied (and which are no longer applicable, having been replaced by those which apply in the TalkTalk Group’s case).91 These provided for Ofcom to determine a “starting point” for the calculation of a penalty based, amongst other things, on the seriousness of the relevant contravention.

4.266 Ofcom did so. We regarded the breach as very serious. We therefore determined a significant starting figure for the penalty, considered as a % of the maximum amount of qualifying revenue in that case. That is, towards the top end of the scale of qualifying revenue. Ofcom then adjusted that figure, taking account of any aggravating and mitigating factors. That resulted in a penalty that took into account the applicable penalty regime in that case, and which is a different penalty to that we determine should be imposed on the TalkTalk Group under the applicable regime in the present case.

4.267 In the present case, the penalty to be imposed on the TalkTalk Group, under the 2003 Act regime, is determined in the “in the round” assessment Ofcom has made under our now applicable penalty guidelines. As part of that assessment, we have considered the lower level of seriousness of the TalkTalk Group’s contravention compared to GMTV’s and its consequent different place on the scale of relevant penalties. Likewise, its place in the overall assessment of an appropriate and proportionate penalty, as both punishment and deterrent, for the TalkTalk Group’s contravention of a General Condition under the 2003 Act.

4.268 In any event, none of these more specific reasons take away from the principal point about these other penalties. To re-iterate that, what is key is not what happened in cases in other areas, that Ofcom knows little about and/or involve significant differences to the present. It is that Ofcom uses its judgment to determine an appropriate and proportionate penalty, taking into account all the required considerations, to be imposed on the TalkTalk Group in this case.

Ofcom’s determination of the penalty amount

4.269 The penalty Ofcom imposes on the TalkTalk Group in light of the above is as follows.

4.270 The penalty must be appropriate and proportionate to the contravention in respect of which it is imposed. Ofcom’s objectives in setting a penalty are:

90 See Ofcom “Qualifying Revenue and Multiplex Revenue: Statement of Principles And Administrative Arrangements under the Broadcasting Act 1990, the Broadcasting Act 1996 and the Communications Act 2003” (Fifth Edition) Laid before Parliament 16 December 2004 91 Again, see http://www.ofcom.org.uk/about/policies-and-guidelines/superseded-guidelines/

126

a) to impose an appropriate and proportionate sanction that reflects the seriousness of the TalkTalk Group’s contravention of GC11.1 and its culpability in that contravention; and

b) deterrence to contravention of the General Conditions, and GC11.1 in particular, (and securing compliance with them, and it).

An appropriate penalty would be one that secures these objectives (doing so in a proportionate way). We have set out above the particular factors relevant to those requirements.

4.271 In particular, the contravention of GC11.1 by both companies in the TalkTalk Group was large (in absolute terms), systemic and serious. This would tend to suggest that it is necessary and appropriate for Ofcom to impose a penalty reflecting a serious contravention, giving both companies in the TalkTalk Group, and other Communications Providers, the appropriate incentive for complying with the General Conditions, and GC11.1 in particular. The amount, however, should also reflect the more limited relative size of both companies’ contraventions, and the limits to the harm it caused.

4.272 Ofcom’s view is that, on their own, these factors would suggest a penalty towards the lower end of the relevant scale, bearing in mind, for example, the most heinous contravention of the General Conditions could not attract a penalty of more than 10 per cent of relevant turnover for the relevant period. That is, in the region indicated by a penalty equating to []% of relevant turnover for the relevant period. That would give a penalty in the range of £2,179,440 – 4,358,880 for TalkTalk and £2,160,560 - £4,321,120 for Tiscali and a total of £4,340,000 - £8,640,000 for the TalkTalk Group.

4.273 Ofcom considers that that the size and seriousness of the contravention might have been greater, and those figures higher, had the TalkTalk Group not begun to take steps from August 2010 for complying with GC11.1, not promptly remedied the consequences of the notified contravention once the s94 Notification been served and had the contravention continued to the same extent after 2 December 2010. That is, Ofcom would have considered whether each of those things exacerbated the effects and the seriousness of the contravention. We might have determined that they should be reflected in a higher, perhaps significantly higher, penalty. But, in the circumstances as they are, the figures referred to would be sufficient to reflect the size and seriousness of the contravention, but also its limits, and to provide the appropriate deterrent effect to contraventions of the regulatory rules (of the size and nature in the present case, in particular).

4.274 We also consider, however, on the bases set out above, that there are aggravating factors to be reflected in the penalty. In particular, the long duration of the relevant contravention, the TalkTalk Group’s failure to prevent it occurring (and continuing), its continuation with the knowledge of the TalkTalk Group’s senior management and the ineffective steps the TalkTalk Group took to stop it (at least before August 2010 and which were not wholly effective by 2 December 2010, with the result that it continued 127

to contravene the Condition to a significant extent – involving 2,928 End-Users – even after that date).

4.275 Each of these aggravating factors we consider would, in the absence of mitigating factors, add to the penalty. They would tend to take it towards the top of the ranges indicated above.

4.276 But, credit should also be given to the TalkTalk Group for the following. It took substantial and appropriate steps to remedy the consequences of its notified contravention by the deadline given to it (meaning it ultimately made no gain from its contravention). It also took some important steps towards complying with GC11.1 and had a plan for taking further steps (though we give less weight to the latter given their belated nature).

4.277 As to the quantifiable effect of the steps the TalkTalk Group took to remedy the consequences of the relevant contravention by the relevant date and as a result made no ultimate gain from its contravention, Ofcom has determined that the penalty we might otherwise apply should be reduced by 50% to reflect these. Put another way, the penalty would otherwise have been at least twice the amount Ofcom has determined had the remedial steps not been taken. This 50% reduction is for three reasons, as follows.

4.278 First, for simplicity’s and clarity’s sakes. Second because, as we say above, the TalkTalk Group had to do two things in their entirety by 2 December 2010 to avoid liability for a penalty. It had done one of them. Third, on the basis that this is without prejudice to our view that there is no direct linear relationship between the steps taken and the amount of a penalty. We take that into account in considering the effect on the amount of the penalty of the steps the TalkTalk Group took, and had not taken, by 2 December towards complying with GC11.1

4.279 As to the quantifiable effect of the steps the TalkTalk Group took, and had not taken, towards complying with GC11.1, Ofcom has decided the following.

4.280 We have decided the TalkTalk Group should, in effect, be given credit of 50% for the steps it took for remedying the consequences of its notified contravention of GC11.1. That being so, were we to give the TalkTalk Group no more credit for its steps towards complying with GC11.1, we could be characterised as giving it no credit at all for those steps. That does not seem to us to be appropriate in light of the important steps it did take, which took it closer to compliance with the Condition, and the representations it made about them, as set out earlier in this document.

4.281 One way the position might be characterised is to say, as the TalkTalk Group has done, the following. Namely, that an improvement from a contravention of GC11.1 in respect of 62,055 End-Users to one in respect of 2,928 of them, means the steps it took towards complying with that Condition made it around 95% better. Another is to say that an improvement from a contravention in respect of an average of around 6,000 End-Users a month in 2010 to around 1,000 a month between December 2010 and March 2011 is an improvement of around 83%. 128

4.282 Ofcom does not, however, consider that the penalty should be reduced by another 95%, or even 83%. It is a serious matter that, even after the further month’s opportunity for doing so, the TalkTalk Group was not complying with GC11.1. Its long running systemic failure to comply with GC11.1 continued for longer still. It is responsible and liable for that. And, the extent to which it was continuing to contravene the Condition, in respect of 2,928 End-Users in around 3 months, was significant.

4.283 Further, as set out above, that penalty is in respect of, and should reflect the seriousness of, and the TalkTalk Group’s culpability in, its contravention of GC11.1 over 10 months in 2010 notified to it in the s94 Notification, in respect of 62,055 End- Users. And, it should be a penalty that deters contravention of the General Conditions, GC11.1 in particular, by the TalkTalk Group and other Communications Providers. Likewise, the idea that it is sufficient to take some, but not all, the steps appropriate for compliance when given chance to do so by virtue of a section 94 notification.

4.284 Each of these matters limits the credit the TalkTalk Group should receive for the steps it took. But, the penalty should, nonetheless, properly recognise that those steps were taken. Its efforts placed it in a better position than continued complete non-compliance with GC11.1. The penalty should indicate to the TalkTalk Group, and other Communications Providers, some value in taking steps towards complying, even where they fall short.

4.285 Given these points, Ofcom considers that the penalty that might otherwise apply should be further reduced by a figure in the region of a further 10 - 15% (from the original amount). That, in Ofcom’s judgment, is a significant sum. It duly recognises the steps the TalkTalk Group took. At the same time, our judgment is that it would not reduce the penalty below a level that reflects the seriousness of the contravention being penalised and has a deterrent effect of the kind described.

4.286 Considering all these factors in the round, Ofcom has determined to impose on TalkTalk a penalty of £1,524,728 and on Tiscali a penalty £1,512,392, giving a total of £3,037,120 for the TalkTalk Group. These represent the upper end of the ranges of the figures set out in paragraph 4.272 above less, in each, 65% to reflect the steps the TalkTalk Group took towards compliance and for remedy. They are considerably less than the turnovers for relevant business in the relevant period. Indeed, they would in each case be less than []% of turnover for relevant business in the relevant period. There is no question of their breaching the statutory maximum penalty.

4.287 Those are penalties that we determine are appropriate. They reflect both the size and seriousness of both companies’ contraventions of GC11.1, and the relevant aggravating factors, all of which go to their culpability for those contraventions. They provide the TalkTalk Group, and other providers, with the appropriate indication of the way we apply the General Conditions, and GC11.1 in particular. They indicate to them the kind of factors we consider in action for contravention, the penalty we may impose and the steps they should take for complying with the relevant rules. The 129

penalties do, therefore, help incentivise compliance and secure our objective of deterrence.

4.288 The penalties are also proportionate to the contravention for which they are imposed. They reflect each of the size and seriousness of the contravention, the relevant aggravating factors and the relevant mitigating factors, each of which again go to the extent of TalkTalk’s and Tiscali’s culpability for their contravention.

4.289 They would similarly be proportionate, in terms of their deterrent effect in particular, having regard to both TalkTalk’s and Tiscali’s sizes and relevant turnovers. That is, reflecting the resources both should be able to employ for complying with GC11.1, and providing the appropriate incentive, in terms of their turnovers and other indicators of their size and financial position, for complying with the General Conditions. In other words, adequate (but not excessive) to have the deterrent effect sought because they penalise the TalkTalk Group enough to moderate its behaviour and secure regulatory compliance.

4.290 In making that determination, we have taken a step back and asked ourselves whether in all the circumstances penalties at the relevant levels would be necessary and proportionate in order both to be an appropriate penalty for TalkTalk’s and Tiscali’s specific contravention of the General Conditions and to deter them, and other providers, from further contraventions of that kind (and others). In doing so, we have sought to carry out a cross-check by reference to other indicators of TalkTalk’s and Tiscali’s sizes and financial positions.

4.291 We have also considered whether the penalty we are imposing will carry sufficient deterrent effect, or should be increased to have that effect. Likewise, whether the element of deterrence we have provided for – in limiting the credit we give to the TalkTalk Group for the steps it took towards complying with GC11.1 – is necessary or results in a disproportionate penalty that includes an amount on top of that appropriate and sufficient to penalise and deter.

4.292 We have taken into account that the TalkTalk Group has, it indicated in its responses to Information Requests, between 4.2 and [] million residential customers for fixed voice and/or broadband services,92 around 1 million of whom are Tiscali customers.93 Likewise, that between 1 April 2009 and 31 March 2010 the TalkTalk Group had a market share in the broadband sector of between [] and []% (and around []% for TalkTalk and []% for Tiscali, prior to the acquisition of Tiscali). This made them the second or third biggest broadband provider at different times in that period. In the fixed voice sector in the same period, the TalkTalk Group had the third largest

92 The TalkTalk Group’s responses to the First and Third Information Requests referred to a residential customer base of 4.2 million whereas its response to the Fourth Information Request stated that it sent bills to [] end- users within their residential businesses. 93 The TalkTalk Group’s response to the Second Information Request refers to the migration of 1 million Tiscali customers to the TalkTalk customer records management system.

130

market share, of around [] – []% (depending on whether the share is determined by reference to share of revenue, calls or lines).

4.293 As to other relevant financial measures, TalkTalk’s total turnover for that year was £500,680,000. Tiscali’s for the fifteen month period of its relevant accounts was £403,810,000. As previously outlined, the figures Ofcom has treated as turnover for the relevant businesses were £[] for TalkTalk and £[] for Tiscali.

4.294 We have no reason to think that, in this case, this turnover is not a relevant indicator of their size in the markets for the services relevant to GC11.1. Whilst they will have wholesale network costs, they are not businesses through which revenue due to third parties simply passes (as is the case, for example, with a recruitment agency, through which workers’ wages are passed). It appears to us that this turnover is a relevant measure of the TalkTalk Group’s size in the context of our determination of appropriate and proportionate penalties.

4.295 We have noted that according to their statutory accounts, TalkTalk made an operating loss of £37.4 million and Tiscali an operating loss of £31.5 million. We also note, however, that the statutory accounts of TalkTalk Telecom Group Plc, TalkTalk’s and Tiscali’s parent company, show it made an operating profit of £151 million, with a profit margin of around 9%, in that year.

4.296 Accordingly, our view is that these factors indicate that, notwithstanding their operating losses, each of TalkTalk and Tiscali are very large Communications Providers with substantial and continuing presences in the fixed voice and broadband sectors in the UK. Our further view is that any penalties imposed must not only mark the seriousness of their contravention of GC11.1 but also be sufficient, consistently with principles of appropriateness, justice and proportionality, to minimise the risk of their contravening in a similar way in future. Likewise, to alert other providers to the importance of avoiding such conduct.

4.297 Considering these factors, Ofcom’s decision is that the penalties we are imposing are, amongst other things, sufficient to have the sort of deterrent effect sought. That is, big enough to deter contraventions of the General Conditions of the size and seriousness of that in this matter (and other contraventions). There is no need to add to the penalties any additional amount for deterrence purposes.

4.298 They are not, however, excessive for doing so. That is, not bigger than is necessary to act as a penalty that is an appropriate and sufficient deterrent. We have also considered this in the following ways.

4.299 First, by considering what the level of the penalty would be if Ofcom had adopted a more direct, linear relationship between the steps the TalkTalk Group took towards complying with GC11.1 and the amount of the penalty. In particular, if we had reduced the penalty by a further 83-95% to reflect those steps (from the figure produced by the 50% discount for the remedial steps taken). That would have produced a penalty for TalkTalk in the range of £108, 972 - £370, 505, and for Tiscali in the range of £108,028 - £367,295. 131

4.300 In Ofcom’s judgment, those figures would plainly represent inadequate penalties to have the legitimate deterrent effect sought (as well as being too low to be appropriate and proportionate to the contravention in respect of which they would be imposed, in terms of the seriousness of the relevant contravention and the TalkTalk Group’s culpability). They would represent only a fraction of the amount the TalkTalk Group had billed End-Users in contravention of GC11.1.

4.301 Second, by considering that the penalties we are imposing represent, in both TalkTalk’s and Tiscali’s case, approximately []% of their turnover for relevant business in the relevant period. Ofcom considers it a reasonable judgment that smaller penalties for a contravention like that in this matter, which left intact more than []% of turnover for relevant business (and between 99.6 and 99.7% of total turnover), and represented less than 23% of their parent company’s operating profit, would, for providers of the size of TalkTalk and Tiscali, significantly risk providing inadequate deterrent to such a contravention. Likewise, by virtue of the indication that contraventions are liable to met with inadequate penalties, to other providers and for other contraventions. Equally again, however, we take the view, considering, for example, the profit levels stated, that a larger penalty would not be necessary to have that effect.

4.302 Accordingly, Ofcom has determined to impose on TalkTalk the penalty of £1,524,728 and on Tiscali, the penalty of £1,512,392. Each must pay the penalty imposed on it to Ofcom no later than 30 days after the giving of this Notification.

132

Section 5 5 List of Annexes

Annex 1 Ofcom Penalty Guidelines, published 13 June 2011

Annex 2 Section 94 Notification issued to the TalkTalk Group on 1 November 2010

Annex 3 File note of Ofcom meeting with the Chief Executive Officer and General Counsel of the TalkTalk Group on 9 November 2010

Annex 4 Draft representations submitted by the TalkTalk Group to Ofcom on 22 November 2010

Annex 5 Letter from Ofcom to the TalkTalk Group, 26 November 2010

Annex 6 Final representations submitted by the TalkTalk Group to Ofcom on 30 November 2010

Annex 7 Second information request issued by Ofcom on 10 January 2011, to the TalkTalk Group

Annex 8 The TalkTalk Group’s response of 20 January 2011 to the second information request

Annex 9 Third information request issued by Ofcom on 4 March 2011, to the TalkTalk Group

Annex 10 The TalkTalk Group’s response of 15 March 2011, to the third information request

Annex 11 Fourth information request issued by Ofcom on 19 April 2011, to the TalkTalk Group

Annex 12 The TalkTalk Group response of 3 May 2011, to the fourth information request

Annex 13 Letter from Ofcom to the TalkTalk Group dated 7 June 2011, and the TalkTalk Group’s response to this letter dated 10 June 2011

Annex 14 Provisional notification of a possible penalty on the TalkTalk Group, 4 July 2011

Annex 15 The TalkTalk Group’s skeleton summary of its representations for the oral hearing on 14 July 2011

133

Annex 16 Transcript of the hearing for the TalkTalk Group’s oral representations on 14 July 2011

Annex 17 The TalkTalk Group’s written representations (29 July 2011) on the provisional notification of a possible penalty issued to it on 4 July 2011

Annex 18 The TalkTalk Group’s written representations on the Just Telecomms case, 9 August 2011

134