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Ofcom launches investigation of calling card giant Lycatel

Complaints trigger inquiry into whether company has infringed consumer laws

The communications watchdog has launched an investigation into whether the UK's largest seller of pre-paid international calling cards has broken consumer protection laws.

Ofcom launched the inquiry yesterday following complaints to its advisory team and Consumer Direct. The decision to start an investigation also followed discussions with the Trading Standards Offices, which said it had received complaints.

The regulator is to study whether Lycatel Distribution "has breached any relevant consumer protection legislation". It will also scrutinise the company's advertising practices, with pre-paid cards marketed as a way for customers to save money on international calls. The cards are usually aimed at the UK's immigrant population.

If the regulator finds the company has infringed its rules, it could demand a fine of up to 10 per cent of its revenues. If it has broken contract or consumer laws, Lycatel could be taken to court. This could include if the company is found to have overcharged its customers, offered less minutes than advertised or introduced unfair terms and conditions.

Beyond investigating potential infringements to consumer protection law, Ofcom is to examine if Lycatel is complying with obligations to publish "clear and up to date information about its prices and terms and conditions".

Lycatel , which was set up in London in 2003, is one of the largest international calling card sellers in the world. The group offers pre-paid telephone cards and mobile services and has over nine million customers "within expatriate and ethic global niche segments that want to make low cost international calls". The privately owned group also launched a SIM-only pay-as-you-go services in 2006.

Lycatel said it currently completes over 2.9 million voice calls globally every day. A spokesman for Lycatel said yesterday that the group was to get in touch with Ofcom "to deal with their concerns". Beyond assuring its customers that "it remains committed to providing great quality and value," the company declined to say much else.

Prepaid calling calls are generally sold in denominations of £5, £10 and £20, with customers dialling an access number and typing in the pin printed on the back of the card.

This is not the first time Ofcom has investigated the market. The regulator launched an investigation into the entire market in December 2003, and said yesterday it "took action to ensure a number of firms improved the way they advertised their charges and terms and conditions".

The regulator feared at the time that customers were being overcharged, and investigated how far the full range of call charges and terms of conditions were communicated to customers. The investigation was design to improve the quality of information available. Lycatel was not understood to be among those named in the original investigation, although three rivals were named. The European Calling Card Services Association presented evidence at the time that nearly half of all cheap rate international calling cards sold in the UK contained "fraudulent elements, such as premature expiration".