Cashback – Government Debate

Last week saw a debate between MPs regarding cashback, companies that have gone bust, and what to do about it in the future, leading to a request that the Networks meet with the IMPDA.
Mr Roger Godsiff MP led the debate and accused the networks of not only encouraging cashback deals, but also of being uninterested:

"The five mobile network operators are happy to encourage retailers to use business models such as the 40 per cent. redemption rate, which everyone knows is unsustainable.

The network operators are not interested in whether a retailer goes bust and cannot honour his obligations, because there will always be another one prepared to chance his arm to get business. Once the retailer has linked the customer up to the mobile network operator, the customer is, to use a fishing expression, hooked and netted. If the customer tries to escape, the mobile network operators send in the barristers and bailiffs."

Godsiff was unimpressed with Ofcom’s response when he approached the regulator:

"In a letter to me dated 23 October 2007, Ofcom said it wants:

   “to find a permanent fix to these problems.”

Although I welcome Ofcom’s review of the voluntary agreement, that will not help the hundreds of thousands of people, including the 90,000 customers of Dial a Mobile, who are being pursued by the mobile network operators. Indeed Ofcom has already made it clear that the voluntary code of July 2007 is inadequate and has failed, and that Ofcom itself does not have the powers to compel the mobile network operators to tear up Dial a Mobile contracts.

The regulator sent me a very blunt e-mail in November, in which he said:

      “Mr. Godsiff, in answer to your questions as to whether I have got any powers, as Dial a Mobile has gone out of business there are no Dial a Mobile contracts to tear up.”

This is the regulator, Ofcom, talking. The e-mail continues:

      “The problem is, rather, that the Dial a Mobile contracts were supposed to give money to customers to part compensate for the money customers were paying to the mobile operators. Now that Dial a Mobile has gone out of business, customers are often having to pay the full amounts to honour airtime contracts with mobile operators, even though they are no longer in receipt of cash-back payments from the retailer who sold the contract to them.”

So here is Ofcom, the regulator, saying, “I am powerless. I know what the mobile network operators are doing and I cannot do anything about it.”

I would like to pose some questions. First, why did it take Ofcom until July 2007 to announce a voluntary code of practice, drawn up by the mobile network operators, which it now admits is inadequate? Secondly, why has Ofcom now acknowledged that it has no powers to force the mobile network operators to underwrite the unsustainable business models that they are encouraging retailers to adopt?"

Richard Benyon MP encouraged further investigation:

"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.

I have read the [mobile networks’ self-regulatory code] 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…

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."

Benyon went on to praise the IMPDA:

"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."

Benyon’s call for an urgent meeting has encouraged the IMPDA to write a public letter to the UK networks proposing such:

Following on from a Parliamentary debate at Westminster on 5th March 2008, it has been proposed by Richard Benyon MP (Newbury), that the IMPDA (Independent Mobile Phone Dealers Association) and the Network Operators should urgently have a meeting to discuss the cashback situation and other matters relating to the industry.  This is something many independent dealers have been requesting for quite some time.  We recognise that as resellers in an industry which is vital to the UK’s national interest, we have a duty to the public. It’s part of the collective responsibility we share with Networks, Distributors and Manufacturers.  The IMPDA has requested meetings with the network operators several times, but following the damage done to our industry by recent cases of mis-selling and unpaid cashback claims, the spotlight is firmly on us, and so it is time to grasp the initiative.
With all this in mind, we propose an urgent meeting between the IMPDA, Network Operators & Distributors. The aim is to develop a structured relationship between these important industry players so that we may better serve the public interest.  I urge you to give this request the utmost priority, and look forward to your urgent response.
Chris Caudle
Chairman IMPDA

For the full transcript of the debate – click here

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