John Gaffney
Beauchamps LLP, Dublin
j.gaffney@beauchamps.ie

In a recent significant judgment with wide-ranging implications for electronic communications service (ECS) providers, the High Court of Ireland has clarified the legal framework governing consumer switching under the Universal Service Regulations.^[1] The case, brought by the Commission for Communications Regulation (otherwise known as ComReg) against Virgin Media Ireland Ltd, was the first of its kind under Regulation 31, which empowers the High Court to declare non-compliance with the obligations imposed on communication providers by the European Communities (Electronic Communications Networks and Services) (Universal Service and Users’ Rights) Regulations 2011 (the ‘Universal Service Regulations’).^[2]

Background

ComReg alleged that Virgin Media had failed to comply with Regulation 25(6)(b) of the Universal Service Regulations, which requires that conditions and procedures for contract termination must not act as a disincentive for consumers wishing to change service providers.

ComReg identified two primary breaches of the Universal Service Regulations, as follows:

• Virgin Media’s cancellation process involved customer service agents engaging in ‘save activity’ aimed at persuading customers to stay, often without offering an option for immediate cancellation; and
• Virgin Media’s imposition of a 30-day notice period for contract termination outside the minimum contractual term, which ComReg contended constituted a further disincentive to switching.

ComReg sought declaratory relief and directions from the High Court compelling Virgin Media to remedy its alleged non-compliance with the Universal Service Regulations.

Procedural and evidential issues

The case raised important questions about the legal test applicable under Regulation 31 of the Universal Service Regulations.

ComReg initially argued that the Court should defer to its findings unless vitiated by ‘manifest error’, drawing parallels with the administrative review standards seen in Rye Investments Ltd v Competition Authority [2009] IEHC 140. However, this argument was ultimately abandoned. The Court affirmed that, because ComReg had initiated the proceedings itself and was not appealing a prior binding determination, the standard applicable was the ordinary civil burden of proof on the balance of probabilities. Nonetheless, ComReg maintained that deference should be shown to its expert opinion, given the technical nature of the regulatory regime.

While the Court accepted that expert views could inform its assessment, it held that the regulator must still prove its case by presenting objective and reliable evidence.

The meaning of conditions, procedures and disincentives in Regulation 25(6)(b)

A central aspect of the judgment involved the interpretation of Regulation 25(6)(b) of the Universal Service Regulations, which, as noted earlier, requires that conditions and procedures for contract termination must not act as a disincentive for consumers wishing to change service providers. In this respect, the Court drew on the UK Competition Appeal Tribunal’s (CAT) decision in Virgin Media Ltd v Ofcom.^[3]

The Court held that:

• ‘conditions’ includes contractual terms, such as pricing and notice periods;
• ‘procedures’ encompass the practical steps a consumer must take to terminate a contract, in other words, ‘the hoops that must be jumped through’; and
• a ‘disincentive’ includes anything that makes switching ‘less likely’, not just something that actively prevents it.

In the latter respect, the Court endorsed the CAT’s approach that a disincentive could be constituted by added hassle, effort or cost. It held that an objective, measurable impact on consumer behaviour is necessary to prove that a condition or procedure acts as a disincentive.

The assessment of Virgin Media’s conduct

The evidence showed that in regard to 95 per cent of cancellation requests, Virgin Media required customers to speak to an agent and, in the vast majority of cases, customers were not given an option to bypass retention efforts. The Court agreed with ComReg’s submission that an unsolicited and unavoidable retention effort could constitute a disincentive, especially if not aligned with customer preferences.

Virgin Media also imposed a 30-day notice period for contract termination outside the minimum contractual term. In this regard, the Court held that even though it was a contractual term, it could still amount to a disincentive under the Regulation. Importantly, the fact that a customer had agreed to the term did not shield it from scrutiny under Regulation 25(6)(b) of the Universal Service Regulations.

The High Court order

The High Court ordered Virgin Media to comply with its obligations to ensure that its conditions and procedures for contract termination do not act as a disincentive to customers changing service provider to include by, among other things, amending its agent training materials and associated documents as follows:

(a) to remove all instructions and statements to the effect that agents are required, encouraged or expected to engage in save activity where it is not welcomed by the customer or where it is clear that the customer is intent on cancelling;

(b) to include the following instructions to agents:

1. a customer’s wish to cancel should be given effect as soon as the customer makes his or her intention clear. This also applies in circumstances where it is clear that the customer does not welcome save activity;

2. the above instruction does not preclude an agent asking a customer why the customer wishes to cancel and, if the customer identifies a particular issue, the agent is not prohibited from seeking to address that issue, so long as the agent does not persist in that activity after it becomes clear that the customer is minded to proceed with the cancellation;

3. where customers are not prepared to discuss why they want to leave, the agent should move immediately to perform the cancellation; and

(c) to make clear that no financial incentive for successful save activity is payable by Virgin Media to its agents where save activity is engaged in contrary to the instructions referred to above.

No order was made in respect of the implementation of a 30-day notice period by Virgin Media under the Universal Service Regulations.

Conclusion

This landmark decision by the Irish High Court underscores the obligations on ECS providers to maintain switching procedures that are fair and transparent. ComReg states that it will update its regulatory guidance and expects ECS providers to take account of this guidance when ensuring compliance.^[4]