Britain’s biggest mobile network, O2, is co-operating with the Serious Fraud Office over allegations of bribery, in an investigation that threatens to confirm long-standing suspicions of widespread corruption.
The ongoing investigation was triggered after a management shake-up in 2017, The Sunday Telegraph can reveal.
Industry sources said it relates to allegations that O2 executives were involved in the payment of kickbacks with customers.
Rumours that the Serious Fraud Office (SFO) was looking into mobile network sales practices have swirled ever since O2’s management shake-up. The network has been forced to tacitly confirm the investigation following its merger with the broadband provider Virgin Media.
The £31bn tie-up created a rival to BT with ownership of both a mobile network and a broadband infrastructure. With more than 34m connections, including Giffgaff and Sky Mobile customers, O2 is Britain’s biggest network ahead of BT’s mobile arm EE.
In a quarterly financial statement required by the heavy bond debt imposed as part of the merger with Virgin, it said: “O2 has been addressing a request for disclosure made by governmental authorities which is related to possible violations of anti-bribery laws and regulations.
“O2 continues to co-operate with the governmental authorities investigating this matter which is still ongoing.”
The company said it had recorded an accrual in its 2019 account on the basis of its estimate of the potential outcome of the investigation. It added that it was unable to provide more details of the financial impact, as would normally be required by accounting rules, because “the directors believe that further disclosure will be seriously prejudicial to future developments on this matter”.
O2’s management shake-up in 2017 came at a time when the major mobile networks were reshaping their sales channels, including by reducing their reliance on third-party retailers in favour of selling direct to consumers and businesses.
At the same time, O2 was establishing a handset financing arm that meant its practices were under scrutiny from the Financial Conduct Authority as it sought a lending licence.
The disclosure of an SFO investigation is likely to spark concern across the mobile industry. As the industry expanded rapidly over two decades, claims of kickbacks on major deals including holidays, cars and cash were commonly discussed.
A source at one of O2’s rivals said: “It was absolutely rife. This was the Wild West and there was so much money to be made as the industry was booming.”
It was not clear this weekend whether the SFO’s investigation of bribery allegations might extend to O2 rivals EE and Vodafone.
Regardless, it increases scrutiny on the industry’s sales culture at a sensitive time. In 2014, the retailer Phones 4U, then owned by the private equity firm BC Partners but founded by the entrepreneur John Caudwell, collapsed after its suppliers cut ties one by one.
Phones 4U’s administrator is pursuing a £1bn damages claim against O2, EE and Vodafone, alleging they colluded to force the retailer out of business. O2 is viewed as especially under scrutiny due to allegations heard by the High Court that Ronan Dunne, its chief executive at the time, attempted to co-ordinate the withdrawal. All the networks deny any wrongdoing in relation to Phones 4U.
A spokesman for Virgin Media O2 said: “We would not comment on these matters.”
A spokesman for the SFO said it could neither confirm nor deny interest.