Ofcom shifts on definitions in implementing the European Electronic Communications Code

Written on 13 Aug 2020

Telecoms industry feedback prompts regulator to significantly change proposals for defining categories of business and for the scope of annual information on best tariffs.

In July, Ofcom, the UK's communications regulator, issued a consultation changing its proposals on how different categories of business customers will be defined and the types of service that annual best tariff notifications will apply in its implementation of Directive (EU) 2018/1972 establishing the European Electronic Communications Code (EECC) into the General Conditions.

The changes to business customer definitions proposed by Ofcom represent a significant shift from the original proposals set out in its December 2019 consultation. They demonstrate a willingness by the regulator to listen to the responses it received from business-to-business communications providers.

Ofcom has provided three suggested options for the business customer definitions. Even if communications service providers broadly agree with the proposed definitions, we believe that they should consider responding to the consultation by the deadline of 11 September 2020.

Ofcom consultation

Ofcom set out its proposals to implement the EECC in a number of consultations, including its "Helping consumers get better deals" consultation in May 2019 and "Fair treatment and easier switching for broadband and mobile customers" consultation in December 2019.

Following feedback to these earlier consultations, Ofcom set out further proposals on 24 July 2020 that addressed two issues:

  • the scope of its annual best tariff information rules (which have been law in the UK since 15 February 2020); and
  • revised definitions for the following categories of business customers: "microenterprise" and "small enterprise" customers, and not-for-profit organisations.

Best tariff information

In its May 2019 consultation, Ofcom confirmed that communications service providers would be required to send annual notifications following the expiry of a fixed-term contract to all customers telling them the best tariffs available to them.

Following industry feedback, Ofcom is now proposing that annual best tariff information would only be required to be sent to customers who were initially tied into a minimum contract period that has since expired. This means that the vast majority of pre-pay mobile customers (which includes pay as you go) will be excluded under Ofcom's new proposals, and providers will not be required to send the annual best tariff information to such customers.

Business customer definitions

Ofcom's General Conditions, the rule book by which communications providers must provide their services, splits customers into different categories based on whether they are a consumer or a business. Business customers are then further categorised based on their size. Different requirements, mostly related to information transparency and contract requirements, apply to a varying degree depending on the category of customer.

The EECC included similar, but different, customer categories to the existing General Conditions, but the EECC itself does not provide definitions for them. The EECC instead referred to definitions set out in a non-binding European Commission Recommendation (2003/361/EC) concerning the definition of micro, small and medium-sized enterprises, which Ofcom had proposed to adopt in its December 2019 proposals.

This has been a controversial issue for communications providers as it was extending consumer-friendly end-user rights beyond the current 10 employee threshold for a small business to potentially much larger businesses and all not-for-profit organisations. Ofcom received a number of responses that the proposed definitions, which used headcount and financial thresholds as two metrics on a sliding scale from 10 individuals and £1.7 million annual turnover for microenterprises to 49 individuals and £8.8 million annual turnover for small enterprises and no headcount or financial limit for not for profit organisations were too broad.

Respondents argued that larger businesses and organisations did not require the same level of protection as consumers or genuinely small businesses but would benefit under the proposed definitions.

The new proposals put forward by Ofcom in the July 2020 consultation, defines both microenterprises and small enterprises as a customer (who carries on an undertaking) for which no more than 10 individuals work (whether as employees or volunteers or otherwise) and is not a communications provider itself. One of the arguments raised in the consultation was that customers would find it odd and suspicious if they were asked about their revenue by their communications service provider. Noticeably, the financial threshold has been removed completely and this would be retaining the existing position under the General Conditions.

While Ofcom has set out its primary proposal for the definition of small enterprise, it is also seeking responses on two alternative proposals, which include retaining a higher headcount threshold of either up to 49 individuals or an alternative number somewhere between 10 and 49 individuals.

For not-for-profit organisations, the lack of headcount or financial threshold raised concerns with communications service providers that organisations such as central and local governments, as well as large charities, would be within the scope and receive the same level of protection as a residential customer that would not be appropriate to their relative bargaining strength.

The new proposals by Ofcom define a not-for-profit customer as an organisation for which no more than 10 individuals work (employee, volunteers or otherwise) and which applies the whole of its net income for charitable or public purposes and is prohibited from directly or indirectly distributing among its member any part of its assets – bringing consistency with the small business definition.

Ofcom has invited responses to its consultation, which closes on 11 September 2020, and will publish its final decisions in autumn 2020.

Next steps

Both the government and Ofcom have recognised that the Covid-19 pandemic has caused significant challenges for the communications industry. Ofcom published a statement on its website on 7 May 2020 confirming that it would allow the industry at least 12 months from the date of the publication of its statement in autumn 2020 to implement the most onerous measures that the EECC changes bring in. We expect any changes that result from the government's deprioritising of over-the-top services will also set out this consultation response from Ofcom.

Restricting the number of customers that benefit from the level of protection that is required for consumer and residential customers is likely to be seen as a positive move by organisations and the industry. Communications service providers should consider the impact that Ofcom's proposed changes to the definitions of microenterprise, small enterprise and not-for-profit organisations will have on their organisations and submit a response to Ofcom's consultation.

Ofcom will consider both supportive responses and those that challenge its proposals. Given the potentially positive impact that these proposals will have for communications service providers, all communications service providers should consider submitting a supportive response to Ofcom. Full details of the consultation and how to response are available on Ofcom's website.