On 14 September 2017 Ofcom, the UK communications industry regulator, adopted new statutory guidelines (Penalty Guidelines) on how it would assess and determine the penalties (fines) payable by regulated communications companies who breach their obligations under the Communications Act 2003 (Act). The revised guidelines follow Ofcom’s June 2017 adoption of new guidelines for enforcement in regulatory investigations (Enforcement Guidelines) and procedures for investigating breaches of competition related conditions in Broadcasting Act licences (Broadcasting Investigation Procedures).
Although on their face the changes to the guidelines seem relatively minor, when considered against the background of (i) Ofcom’s increasingly pro-active enforcement policy; and (ii) the increased difficulty of challenging Ofcom’s decisions, following the 20 July 2017 change in the standard of review of decisions on appeal from an ‘on the merits‘ review to ‘judicial review principles‘, we expect the changes to make it easier for Ofcom to take action against regulated communications companies and more difficult for those companies to defend and appeal Ofcom’s decisions. As a net result, regulated communications companies need to take Ofcom enforcement action more seriously. Those companies are now financially incentivised to engage early with Ofcom and consider early settlement to secure a settlement discount, especially as they will find it more difficult to challenge Ofcom’s decisions on appeal.
New Penalty Guidelines, Enforcement Guidelines and Broadcasting Investigation Procedures
The new Penalty Guidelines reiterate the general guidance of the prior guidelines, but in addition now provide for discounts where a regulated body enters into a voluntary settlement with Ofcom.
The general guidance is: “Ofcom will consider all the circumstances of the case in the round in order to determine the appropriate and proportionate amount of any penalty. The central objective of imposing a penalty is deterrence. The amount of any penalty must be sufficient to ensure that it will act as an effective incentive to compliance, having regard to the seriousness of the infringement. Ofcom will have regard to the size and turnover of the regulated body when considering the deterrent effect of any penalty.
The factors taken into account in each case will vary, depending on what is relevant. Some examples of potentially relevant factors are:
- The seriousness and duration of the contravention;
- The degree of harm, whether actual or potential, caused by the contravention, including any increased cost incurred by consumers or other market participants;
- Any gain (financial or otherwise) made by the regulated body in breach (or any connected body) as a result of the contravention;
- Whether in all the circumstances appropriate steps had been taken by the regulated body to prevent the contravention;
- The extent to which the contravention occurred deliberately or recklessly, including the extent to which senior management knew, or ought to have known, that a contravention was occurring or would occur;
- Whether the contravention in question continued, or timely and effective steps were taken to end it, once the regulated body became aware of it;
- Any steps taken for remedying the consequences of the contravention;
- Whether the regulated body in breach has a history of contraventions (repeated contraventions may lead to significantly increased penalties); and
- The extent to which the regulated body in breach has cooperated with our investigation.“
The new settlement discount provisions are: “The discount will be considered on a case-by-case basis. We normally expect this discount to be:
- up to 30% where a successful settlement process is commenced before the provisional breach notification is issued;
- up to 20% where a successful settlement process is commenced after the provisional breach notification is issued but prior to written representations being received; or
- up to 10% where a successful settlement process is commenced after the provisional breach notification is issued and after written representations are received.”
Change in the standard of review of Ofcom’s decisions
Section 87 of the Digital Economy Act 2017 provides that appeals against specified decisions made by Ofcom after 20 July 2017 are to be determined ‘by reference to the grounds of appeal set out in the notice of appeal, by applying the same principles as would be applied by a court on an application for judicial review‘ as opposed to ‘on their merits‘.
This reverses the change from ‘judicial review‘ to ‘on the merits‘ appeals implemented by the Communications Act 2003. The original change was ostensibly made to implement the requirements of the EU Telecoms regulatory framework, however following a significant rise in the number of appeals against Ofcom decisions following the change, the government has changed its mind about what the European framework requires and explained in its notes to the bill that:
The government believes that the existing ‘on the merits’ standard of review is overly burdensome.
A 2013 analysis by the Department for Business, Innovation & Skills found that the average length of an appeal to the CAT reviewed ‘on the merits’ was 11 months. The high costs of continuing litigation and subsequent delays in the regulatory regime can hinder effective regulation that must be able to keep pace with technological advances in the sector. The CAT itself has stressed ‘an appeal before the Tribunal is not a de novo hearing’ (BT v Ofcom  CAT 6). The government therefore wishes to ensure that this is clearer in legislation. A judicial review standard will ensure that appellants can still challenge Ofcom’s decisions, but litigants will no longer be able to seek complete reappraisals of Ofcom’s fair decision making.”