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5 Mar 2008 : Column 426WH—continued

The mobile network operators could have acknowledged that they were aware of what some retailers were doing in pursuing unsustainable business models. They also could have acknowledged that they themselves were sitting on a mountain of contracts worth up to
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£50 million, and they could have said something to their customers to the effect of, “We would like to help you.” They have said that they will consider any representations that customers make “on their merits”, but they deny any responsibility whatsoever for the shambles that has occurred.

I should make it clear that I not only recognise that the mobile telecommunications industry makes a valuable contribution to the UK economy but know that there are mobile phone retailers who will not offer cashback deals, because they know how flawed the business model for such deals is and they are prepared to forgo business rather than adopt a business model that could place their customers in difficulty if they themselves went bust. Many retailers, including some small family firms, contacted me when this furore arose over Dial a Mobile. They wanted it to be known that there are retailers who will not touch cashback deals, but they also wanted the general public to know that the mobile network operators, despite their protestations of innocence, are fully aware of the unsustainable business models being operated and pushed by them on to some retailers, and they are quite happy to turn a blind eye as long as the customers keep getting connected to their networks.

Following the representations that I have received, I have developed a great respect for those reputable retailers who have been prepared to say, “I’m not going to con my customers, even if I lose business.” Such dealers deserve respect; they are the sort of people Ofcom should be talking to and encouraging, and I very much hope that it will talk to some of them as part of its review.

I have endeavoured to set out the background to this sorry saga, which has impacted on a large number of my constituents and on many other people around the country. Ofcom should have been much more rigorous and should have drawn up a code of practice that gave customers far greater protection, instead of letting the mobile network operators run rings around it.

It is still not too late for the big five to make a gesture towards their customers, and I do not have in mind the two-fingered gesture that they seem to be making at the moment. Before Christmas, I had a meeting with the parliamentary representatives of the big five, where I suggested—it was the season of good will—that they at least tear up the alleged contracts of people who had not even signed a contract or received the cashback promised by the retailers. I said that the operators could keep the rest and that they were making a fortune, but I suggested that they could at least tear up the alleged contracts of people who had signed nothing. In retrospect, I acknowledge that I was naive to think that fat cats would give up even a drop of their milk, and, sadly, that proved to be the case.

I suspect that the Minister will say that he has sympathy for the many people who are suffering, but that this is a matter for Ofcom, and he is of course right, because it is the regulator. However, he, with parliamentary approval, is responsible for setting the parameters within which the regulator operates, and I hope that he will be prepared to raise a number of matters with Ofcom.


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First, if the regulator was so concerned about slamming and cashbacks because of the number of complaints that it received each month, why did it take until July 2007 to ask the mobile network operators to come up with a voluntary agreement? Secondly, why did it think that a voluntary code was acceptable, only to state that it was flawed and needed reviewing seven months later?

Thirdly, I hope that the Minister will emphasise to the regulator that cashback schemes should be scrapped, as even some mobile network operators, such as 3, now suggest they should be. If such schemes are allowed to continue, operators must insist that all retailers who sell mobile phone contracts must get customers to sign and forward contracts to them. Most importantly, I hope that the Minister will emphasise that the mobile network operators must be made responsible for underwriting cashback offers made by retailers who are pushing their goods.

I hope that the Minister will also ask Ofcom proactively to engage with the European Commission, which, as I said, is unhappy about the relationship between the regulator and the mobile network operators. I hope that he will instruct Ofcom to make known its yearly contributions from the operators, rather than allowing it to hide behind the cloak of commercial confidentiality.

Finally, I very much hope that, as a result of this debate, the mobile network industry will soon be properly regulated by a vigilant regulator that protects the customer from the dodgy business practices and rampant greed that have, I regret to say, characterised the industry over the past few years.

10.4 am

Mr. Richard Benyon (Newbury) (Con): It is a pleasure to be under your watchful eye today, Mr. Benton.

Let me start by saying where I come from on this issue. My constituency contains the world headquarters of Vodafone, of which I am a great admirer. The company has a very good corporate responsibility record, and there is a scarcely a school, arts body, sporting institution or voluntary organisation in the area that has not received funds or help from it. Although I am great admirer of Vodafone as a business, that is not to say that I come to the House as a mouthpiece for it or, indeed, any of the other network operators. In fact, I consider myself a challenging friend, and I have at times raised issues that would be of particular interest to the hon. Member for Birmingham, Sparkbrook and Small Heath (Mr. Godsiff).

I have great respect for the hon. Gentleman, who has been a worthy campaigner for his constituents, many of whom are on low incomes and who have undoubtedly suffered extremely badly as a result of some dodgy dealings by Dial a Mobile. That said, he and I probably look at business issues from different ends of the telescope, and I will seek in my few remarks to add a tone of caution as we perhaps move towards a new regulatory framework for the industry.

I recently saw early-day motion 696, which is in the hon. Gentleman’s name, but one phrase leaped out and caused me such concern that I was unable to sign it. Speaking of cashback deals, the hon. Gentleman said that he believed


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That is a sweeping statement. There are five major network providers, and I have not had time to speak to them all since I heard that this debate had been called. However, I have spoken to Vodafone, which takes great exception to the hon. Gentleman’s assertion.

We must recognise that mobile phones are now cheaper and more reliable, that they cover much more of the British isles and that they do more—we can access the internet with them, and they have all sorts of other uses. Many of those advances in technology and provision have been achieved through competition. The marketplace is highly competitive, which is a good thing because it has given a lot of people on low incomes access to mobile communications and transformed their lives. I entirely concede, however, that that has resulted in some pretty dodgy dealing, as in all highly competitive marketplaces.

In seeking to sift out the bad guys, however, we need to look at the actions of the independent dealers. As we seek to secure value for money and consumer rights for our constituents, we should ensure that our fire is directed at the real culprits, and it is open to debate whether the networks are complicit. In fairness, the hon. Gentleman made a good case, and some network providers may have encouraged activities among independent dealers that might, in the wrong hands, be open to question. However, we are certainly not talking about all network companies and we should all be careful about the words that we use.

The hon. Gentleman referred to the mobile networks’ self-regulatory code. I have read the code, which I believe was a genuine attempt by the networks to do what they could to set out the principles governing the behaviour of independent dealers. However, anti-competition rules limit the extent to which operators can restrict independent dealers’ freedom to set out their own deals. In other industries, such as the airline industry, we have seen how a cartel of large companies can set prices and establish business models in an entirely illegal way, and they pay a heavy price for that. It is not in our interests for network providers to behave in that way; indeed, they should not and would not want to do so. In attacking them, however, the hon. Gentleman might be taking them down a route that is illegal under the EU’s very strict competition rules.

The Independent Mobile Phone Dealers Association does not think that the code is enough or that it will work. If that is the case, perhaps Ofcom should look at the statutory regulations of the independent dealers. The independents have been offering the deals that have caused consumer harm. People close to me often tease me for my financial caution. The only cashback deal that I would take is the one that put cash in my hand at the time that I was purchasing the contract. Even then, I would question who was getting the money back at another time in another way. I have always been dubious about such arrangements and of snake oil salesmen who may, from time to time, try to sell me things beyond the area of telecommunications. Any cashback deal is surely an area for question.

Lorely Burt (Solihull) (LD): I commend the hon. Gentleman’s caution. It is very true that if something looks too good to be true, then it usually is too good to be true. However, the hon. Member for Birmingham,
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Sparkbrook and Small Heath (Mr. Godsiff) has described people who do not have the same commendable financial acumen that the hon. Gentleman has. Does he not feel—and I am asking an open question—that there should be some form of protection for such individuals?

Mr. Benyon: I think that there should be. Indeed, there is already a considerable amount of protection. It is a question of balance. How far should Parliament and the regulator go to hold the consumer’s hand throughout the whole process? The hon. Member for Birmingham, Sparkbrook and Small Heath rightly mentioned the clarity of contracts and the implications of the so-called small print. However, there is a point at which one has to say “caveat emptor”. I recognise that some people find it hard to read the small print. For example, they might have literacy problems or a shortness of attention span. Certain dealers and businesses across the whole commercial sector can take advantage of such people. However, it is very difficult to legislate for everybody. We have to recognise that if we go too far in one direction, we could achieve something that is much more damaging.

I am interested in the Independent Mobile Phone Dealers Association, which has an impressive website. I recommend that hon. Members look at it. However, it is hard to tell from that website how many members it has and what percentage of the independent dealers it represents. My understanding is that it has yet to have a formal meeting with the networks to discuss this matter, which seems extraordinary. I know that communications are a two-way street, but this matter seems to call for an urgent meeting between this organisation and the networks.

I welcome—and we should all welcome—any attempt by an industry or a commercial sector to police itself and to set standards. I hope that that is what the IMPDA will do. It is the rogues in the sector who are blighting the whole industry and blackening the name of telecommunications sales across the board, but we and the IMPDA should be careful what we wish for. If we go too far down a regulatory route, it could result in fewer dealers, less choice and a higher cost to people on low incomes for whom mobile telecommunications are increasingly important.

Let me give hon. Members an analogy related to the Financial Services Authority. A large number of independent financial advisers operated in an able and capable way, giving advice to individuals on a one-to-one basis. They went to people’s homes and talked about pensions, life insurance and so on. They provided a very good service. Among them, however, were some rogues who were involved in some very bad cases of mis-selling. The FSA went in very hard and has regulated that industry to within an inch of its life. Now, the only people who can provide the kind of financial services that are wanted are the large operators. Those small one-to-one, one-man-band financial advisers come to our surgeries and tell us how the FSA has ruined their business. I worry that if we go down the wrong regulatory route, it could work in a similar way in the mobile telecommunications sector.

Regulation is good if it is pitched right and targeted at where the problem lies. I suggest to the hon. Gentleman that his attack on the networks is slightly missing the target. The real rogues exist among the
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independent dealers, the vast majority of whom are entirely honest—and many want nothing to do with cashback deals—and provide a good service. Nevertheless, that is where the problem lies. The networks undoubtedly have a role to play in ensuring that the rogues are not buying into them.

Mr. Godsiff: The hon. Gentleman said that he has looked at the voluntary code of practice, which was drawn up by the mobile network operators. If he looks at that code, he will see that the operators say very clearly that they will come down very hard on the sort of rogues that he is referring to. But they will not do so because, as letter after letter from reputable retailers says, they are quite happy to turn a blind eye all the time that those rogues get connected up to their networks.

Mr. Benyon: If you will forgive me, Mr. Benton, that is a simplistic view. Undoubtedly, such people sign up to the networks; that is their only means of operation. I have spoken to one company and it is not the case that it is encouraging them in any way that it can. Strict competition rules prevent companies from imposing on the dealers a business model that is too prescriptive.

In conclusion, regulation, if it is done correctly—not as it has been done by the Financial Services Authority in financial services—is the way forward. Otherwise, the perfect will become the enemy of the good and many people on low incomes will suffer a higher cost for their telecommunications provision.

10.18 am

Lorely Burt (Solihull) (LD): I congratulate the hon. Member for Birmingham, Sparkbrook and Small Heath (Mr. Godsiff) on securing the debate. He has raised the lid on a particularly unsavoury can of worms, and I am sure that hon. Members will have been quite shocked by some of his stories. I appreciate the points made by the hon. Member for Newbury (Mr. Benyon) in relation to how far regulation should go. It is true to say that if something looks too good to be true, it probably is.

The question that we should consider is how far one should go to protect the gullible. Gullible people are not only those on low incomes who may or may not have the opportunity to read the small print in the first place, but ordinary people such as myself. Two members of my family have taken out cashback contracts, so I have personal experience of this. One of those family members is an organised person. He arranged his cashback through a reputable retailer and gets his money back. I am a disorganised person and often realise to my cost and chagrin that I have forgotten the relevant date, and that that date has gone by. Deals under which claims must be made on, for example, the third, ninth and 10th month—if the day falls on a Monday and it is not raining—are not sensible.

The problem is that even organised and sensible people who enter into contracts with their eyes open will find that sometimes it is virtually impossible to get their money back, and that cannot be right. I understand that, under the deal offered by Dial a
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Mobile, individuals were paid back the whole of their £35 monthly rental. Customers would have been given an agreed number of free calls and texts, but of course there is no such thing as a free lunch. The company’s business model obviously miscalculated the number of people who would claim back that cash, and that smacks of being disingenuous. Operating a business model that relies on people not claiming what they are entitled to is an inappropriate way in which to carry out any form of business dealings.

The hon. Member for Birmingham, Sparkbrook and Small Heath talked about the role of mobile operators. Certainly, Orange and T-Mobile insist on the honouring of contracts even when the middleman has gone, which is a fact that we should publish to make consumers aware of the pitfalls of contracts into which they might consider entering. The Mobile Broadband Group has mounted a defence of the situation. It says that the activities of less than 10 per cent. of dealers have been complained about, which it seems to think is highly commendable. As I see it, it means that we have a core of disreputable organisations. I agree with the hon. Member for Newbury that some of the larger retailers operate entirely honourably, but I do not think that it is a good thing that 10 per cent. of retailers are being complained about.

Ironically, the Mobile Broadband Group says that the voluntary code of practice is not voluntary for the dealers, but forms part of their contract with mobile operators. So there is one rule for operators, for which the code is voluntary, and another for dealers, for which it is compulsory. It says that there are no more complaints about mobile companies than about fixed-telephony ones, which apparently now have a smaller client base and are formally regulated. However, that again suggests that there is a nub or niche of businesses operating inappropriately, which raises the question of whether some form of formal regulation would be appropriate to rid the market of those who bring everybody else into disrepute.

Has the Mobile Broadband Group cleaned up its act? It claims so by pointing to the introduction of the voluntary code On examples coming to light, it says, “Well, it takes some time to flush through existing contracts,” which might be the case. However, I have concerns, particularly in light of the comments of the hon. Member for Birmingham, Sparkbrook and Small Heath about the lack of clarity from Ofcom itself on how long we should wait for that process to take place. Of most concern is the fact that the Mobile Broadband Group will not take responsibility for the actions of its dealers. It still claims to have a contractual relationship with people whom it has never met, even though the middleman—the dealer—has gone out of the equation. It also claims to be considering the matter on a case-by-case basis. I am not a lawyer, but I am dubious about whether that is appropriate, given that whole classes of individuals have clearly been affected.

The concept of what is going on in the market has a peculiar odour to it, which would not be the case if there was a straightforward deal from which everybody could benefit. Ofcom is considering whether regulation is needed, but perhaps we should wait and see whether the problem will flush through, as the Mobile Broadband Group claims that it will. In the meantime, mobile operators should take their fair share of the
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flack and publicity and be made to appreciate that they cannot just enforce what legally might be contractual arrangements with users without considering the consequences of people’s caution over, and annoyance with, the practices that they operate.


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