Ofcom said that it is to examine whether Bulldog, which has more than 50,000 customers, has breached its service regulations by issuing bills to customers for services that they did not receive. It is also investigating whether the operator failed to have in place a sufficiently robust service for dealing with customer complaints.

The move, which could result in Bulldog being fined up to £1.1 million — 10 per cent of its turnover — is a blow to Cable & Wireless, which sees Bulldog as central to its strategy. With falling prices and intense competition in the corporate calls market, C&W is keen to cash in on the high-speed internet services sector and to go head to head with BT in competing for customers.

Since acquiring Bulldog for £19 million in May last year, C&W has invested millions of pounds in building up and marketing the service. It has already installed its equipment in 400 of BT’s exchanges and plans to double that number by autumn of next year to cover more than half of Britain.

Bulldog has sought to distinguish itself with a fast, cheap internet offering. However, after launching and heavily marketing an 8 megabit-per- second broadband and phone service this summer, it is understood that the company was simply unable to cope with the demand.

The service has suffered software glitches and customers have complained about delays in their service being connected and about a lack of help to deal with their problems.

C&W acknowledged that it has had problems with billing and that some customers had been billed twice, but it said that outstanding customer complaints now stood at “a fraction of 1 per cent” of the total Bulldog customer base.

It denied that its complaints procedure was in breach of any regulations.

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