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Last Updated: Thursday, 25 October 2007, 15:51 GMT 16:51 UK
The great phone swindle
By Jason Gwynne
BBC Money Programme

There's hardly anyone in the country that hasn't been pestered by cold callers trying to sell new contracts for gas, electricity or phone accounts.

Person making a phone call
Some companies deliberately mislead customers

It's nearly always a nuisance but if you fall for the spiel, it could also leave you out of pocket.

Hundreds of thousands of people have been cheated into changing their accounts from one provider to another by unscrupulous sales teams, often ending up far worse off.

The problem can be found in both the fixed-line and mobile sectors of the telecoms industry.

In some instances, fraudsters switch people without their knowledge or consent. At other times, they trick people into opting for new contracts by lying about the supposed benefits on offer.

Carpenter Steve Game took a call from a saleswoman who said she was working for BT billing agents. She offered him half-price line rental and cheap calls.

Reassured that he was dealing with a big, reliable brand name like BT, Steve expressed interest in the deal.

The next thing he knew, he was contracted, without his consent, to a new phone provider called Lo-Rate.

Externality makes aggressive telemarketing cheaper for companies
Open University

But its saleswoman had failed to mention that the half-price line rental was for one year only, the contract was for five years, there was a connection charge on every call and the firm could change the terms and conditions at any time.

The company was not acting on behalf of BT at all.

Damning evidence

When he tried to get out of the contract, Lo-Rate cut him off and demanded nearly 1,000 to release his line back, so he could reconnect to BT - his old provider.

Steve said: "I was being blackmailed." And Steve was not alone.

BT Tower, London
Unscrupulous firms may claim to be acting for BT

Complaints poured into Hertfordshire Trading Standards about Lo-Rate's dishonest sales tactics. It raided Lo-Rate's premises and confiscated damning evidence of false sales calls.

Trading Standards officers took Lo-Rate to court, where it was fined 44,000.

The telecoms regulator, Ofcom, then mounted its own investigation and fined Lo-Rate a further 130,000.

But why do firms believe they can get away with sharp sales practices?

It all started when the government introduced competition into gas and electricity markets in the late 1990s to drive prices down.

Energy companies fought with each other to win new customers - and as the battle wore on, the tactics became dirtier.

In 2002, it was revealed that commission-hungry sales staff working for London Electricity drummed up new customers by forging their signatures and switching them without their knowledge or consent. It became known as "slamming".

Money Programme research shows more than a million people think they've been tricked into new contracts for gas and electricity supplies and nearly half a million people have been tricked into new contracts for fixed line telecoms.

Complaints to BT about mis-selling and "slamming" by phone firms are running at around 8,000 a month.

Too good to be true

How has Ofcom tackled the problem? In May 2005, it introduced a mandatory code of conduct for telecom providers, with penalties for failure to comply.

To date, Lo-Rate Telecoms is the only company to be penalised.

In an official review into the problem in May 2007, Ofcom conceded that its own verbal contracts system - introduced to make switching suppliers easier for consumers - also "gives rise to increased potential for irresponsible sales and marketing activity".

Ofcom HQ, London
Ofcom is trying to tackle the problem of "slamming"

There's recently been an initiative to put in place a voluntary code of practice by the network operators to stop "slamming" in mobiles.

Ofcom says this is going to be good for consumers, but if the code does not work, it is ready to act. So how can you protect yourself from phone fraud?

Anthony Ball, from price comparison website OneCompare.com, has this advice.

"If anyone rings you up out of the blue offering you a better deal on your telephone, gas or your electricity," he says, "and actively trying to sell you something like that, it's not going to be the best deal.

"And in a lot of cases, it's going to be a con as well." In short, be sceptical about offers that sound too good to be true - in case they are.

The Money Programme: The Great Phone Swindle, BBC Two, Friday, 26 October at 1900.

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