Poor broadband satisfaction shows need for regulated compensation

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The accusation comes from BT's Chief Executive of Consumer Business, John Petter, who told a meeting of industry figures that, while BT, Virgin Media and Sky have agreed the terms of a voluntary compensation scheme, TalkTalk have declined to participate.

According to TalkTalk sources, the disagreement stems from a debate over whether a voluntary compensation regime is preferable to a formal one set by Ofcom. BT claim that the voluntary regime would be superior, since it would give providers greater incentive to compete with each other over who can provide the most generous compensation.

However, in light of Ofcom's recently published "Comparing Service Quality" report and its call for the broadband industry to "up its game" on customer satisfaction, it's unlikely that voluntary codes and incentives on their own are enough to ensure an adequate level of compensation.

Voluntary and involuntary

For the moment, neither a voluntary nor a mandated system of automatic compensation is quite in place, with Ofcom still conducting their investigation into the possibility of a formal framework.

That said, BT had already planned to independently begin rolling out their own automatic compensation from this year, although they haven't outlined what exactly it would involve.

It's possible that it might be similar to Virgin Media's own compensation system, which provides customers with credit on their bills in the event they suffer unacceptable delays and losses of service.

It's this kind of voluntary compensation that BT, Sky and Virgin Media are conceivably working on delivering, with the important watchword being "flexibility," particularly the kind of flexibility to provide compensation in the form they prefer.

At the moment, Ofcom's preferred form of compensation would see providers paying customers the following cash penalties:

Source: Ofcom

Such fixed fines are presumably something ISPs are keen to avoid, if only because Ofcom themselves have calculated that it would result in an extra £185 million being paid out in compensation every year.

TalkTalk's refusal

This is why they've teamed up in order to devise a voluntary code of conduct, hoping to satisfy Ofcom on the one hand and lower potential costs to themselves on the other.

While the details of this code haven't been made public, it's possible that they may see ISPs offering discounts or special deals to their customers, perhaps in the manner that British Gas outlined in February.

Unfortunately, it would seem that TalkTalk aren't playing ball, however, with Mr Petter reported as saying the following at an industry gathering:

"There's one provider that's resisting this, it's TalkTalk. If there's anyone here from TalkTalk, please come on board and back the code of practice please."

TalkTalk aren't commenting on this singling out. That said, inside sources cited by the Daily Telegraph have noted that they're happy to pay automatic compensation, so long as the framework is set down by Ofcom.

Incentives and customer service

This stance puts them at loggerheads with the other big ISPs and particularly with BT, whose John Petter claimed that a top-down compensation system would mean that providers do only the bare minimum.

He said, "If you have a mandated, regulated solution it's going to be a minimum effectively. The incentives for providers to differentiate and go beyond that minimum is diminished."

While this is a plausible proposition in theory, the current state of the broadband market would suggest that incentives for providers to differentiate themselves wouldn't materialise very effectively in practice.

That's because, when it comes to customer satisfaction and complaints, they already have plenty of incentive for distinguishing themselves, yet it seems as though they're routinely failing to do so.

This is what Ofcom's "Comparing Service Quality" report revealed. It found that, at 13%, more people are dissatisfied with their broadband service than with their mobile or landline service, while only 56% of all customers who made complaints were happy with how these were handled.

It also noted that some ISPs had deliberately reduced their service levels last year, with Sky and TalkTalk both deciding to move from a one working day repair option to a two working day option.

Worse still, Ofcom's Chief Executive, Sharon White, said that the likes of BT "dominate the list of worst-rated companies for customer service - behind even banks".

Because of such a consistent failure to provide a thoroughly satisfying service - despite the apparent incentives of being able out-compete rivals - it becomes unlikely that leaving automatic compensation to the broadband market itself will bring the best possible results for the customer.

As such, TalkTalk should probably be thanked for seeming to dig in their heels, and for ensuring that Ofcom have little choice but to impose a binding framework on providers.