Selling your customer base under the TCP Code

The TCP Code touches most aspects of telco business, but few service providers have considered its role and impact if they sell their business. When it comes to cashing in on your hard-earned customer base, the Code is more than a little important.

The situation we'll consider here is a straightforward sale of the customer contracts.

Due diligence

When a savvy buyer assesses the value of your customer base, regulatory issues are almost always a factor. Previously the proxy for regulatory competence was a telco's TIO account. That will remain an important health indicator, but thorough due diligence will now extend to how well a would-be business vendor can demonstrate TCP Code compliance.

Code non-compliance can taint a sale. For instance, failure to give a Critical Information Summary when required creates enormous risk if there's a subsequent falling out with the customer.

Records handover

A provider that buys a customer contract remains liable to provide the customer with historical billing information, going back as far as six years, on request. If a person takes the benefit of a contract by 'assignment' (which is the more usual legal name for a 'transfer') they are said to 'stand in the shoes' of the assignor (transferor). In that situation, a customer can say to the provider that bought their contract, 'As far as I am concerned, you and the previous provider are one and the same, so please give me my account details for the last three years, even though you only took over the business a few months ago.'

So buyers will be keen to ensure you hold all the right data, and that you hand it over to them under the sale contract.

The sale process

Here's how the TCP Code deals with customer transfers. It's really important to understand it when you come to sell your customer contracts.

The Code puts customer transfers in two 'baskets'. Very broadly, the first basket is churns that you win by telemarketing or other sales channels. Basically, these transfers take place on a case by case basis, one at a time. We'll call this basket 'individual customer transfers'.

The second basket is where you acquire a whole customer base, by buying someone else's customers. We'll call this basket 'customer base transfers'.

Here's the overall scheme

For individual customer transfers, there are a whole series of rules including (very importantly) that you get individual customer consent. That's to make sure that the customer isn't being 'slammed'. But the important things to understand are that for this kind of transfer lots of rules apply, and they are imposed on the provider who acquires the customer.

When it comes to customer base transfers, there's a much simpler set of rules that apply not to the acquiring provider (buyer) but to the seller.

And here's the crunch

If the seller follows the rules that apply to them in the case of a customer base transfer, the TCP Code excuses the buyer from most of the longer, more difficult list that applies to individual customer sales. BUT THAT'S ONLY IF THE SELLER FOLLOWS THE RULES THAT APPLY TO IT. If the seller doesn't follow its rules, the buyer is NOT excused from the longer, more difficult list of requirements. For instance, the buyer has to seek the individual consent of each customer to their contract being included in the sale. That, no doubt, would be a nightmare.

The lesson

A buyer of a telco customer base will be concerned to ensure that there's no 'rust under the hood' resulting from Code non-compliance. And they'll want to be confident that they are being given all the records and data required for them to 'stand in the shoes' of the seller after the sale is completed. And they'll be very careful to ensure that the seller accurately understands and carries out their sale responsibilities under the TCP Code, so that the buyer is excused from the much more difficult 'individual customer transfer' rules.

Important note

As we have explained in another article, a drafting error in the TCP Code means that this section of the Code doesn't say what it was meant to say. The above article proceeds on the assumption that the Code will be amended to repair this mistake and/or that the regulators will enforce it based on its intended meaning instead of what it actually says. If this assumption is wrong, there are serious adverse consequences for telco business sales.

How Cooper Mills can help

We're experienced in business sales generally, and particularly in telco sale transactions, So we bring expert industry knowledge to these deals.

That includes helping buyers to undertake effective legal and regulatory due diligence, including for the TCP Code and Competition and Consumer Act.

For sellers, we can help get a business in the best possible TCP Code shape in anticipation of a sale, and we can help minimise the contractual risk of compliance shortcomings.


About Peter Moon

A telco lawyer with a truckload of experience
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