Telecoms giant BT has received its largest fine ever from the industry watchdog Ofcom after investigations revealed that the communications provider had seriously breached rules regarding how it regulated other providers of internet services.
BT was fined £42 million, and this may only be the tip of the iceberg, as the company may need to find up to another £300 million to pay out in compensation to other providers.
The fine is the largest ever imposed by Ofcom. BT received the fine after failing to pay compensation following delays over installing broadband. An investigation discovered that Openreach, then a subsidiary of BT, had not fulfilled the terms of its contract to pay the full amount of compensation owed when ethernet broadband was not delivered to deadline. This took place between January of 2013 until December of 2014.
Openreach, which is responsible for most of the call handling systems and infrastructure in the UK, acknowledged the results of the investigation and made a full apology.
Most providers in the UK, whether offering mobile and office based telephony solutions, VOIP systems or business systems, use infrastructure owned by Openreach to operate their services. Other providers have an agreement with BT to use the infrastructure, and part of that agreement is that Openreach has to maintain the infrastructure and keep all connections up to date. If this does not happen, then Openreach is liable to be penalised for any failures or delays.
Gavin Patterson, the chief executive of BT, said that the examination of Openreach business practices had found that Openreach was failing to reach the appropriate standards in serving their customers in communications provision.
The Ofcom penalty includes a discount of £18 million - or 30 percent - in return for BT owning up to its liabilities and undertaking to pay full compensation to the customers affected.
Industry analysts said that BT appeared to be going through a rough patch, after there was a scandal over accounting in Italy, and the telecoms provider has now been forced to separate Openreach from the rest of the business. The agreement to separate Openreach from the rest of BT was made with regulators in March this year.
Clive Selley, the chief at Openreach who started there in February 2016, said that improvements had already been made. He acknowledged that errors had occurred, but said that the company was committed to making sure the same errors would not be made again in the future.
BT was also given another penalty of £300,000 for not providing complete and accurate information, as required in accordance with the Communications Act of 2003. Although BT did not agree with all the conclusions from the investigation, the company accepted them in order to resolve issues and move forward.
The accounting problems in Italy were already set to slice up to £500 million from BT’s cash flow for the year. Add another £342 million to that figure from the latest penalty, and you have an amount that could affect the dividend paid out to shareholders. In addition to this, BT has net debt and its pension shortfall stands at more than £9.5 billion. The pension situation is to be reviewed later this year, and more money may be needed to address this.