Ofcom has fined TalkTalk and Tiscali £3 million after the broadband providers incorrectly billed tens of thousands of consumers for services they had not received.
The media regulator opened an investigation in July 2010 following complaints from over 1,000 consumers.
Ofcom found that both companies had wrongly issued bills to consumers, in particular those who had closed their accounts, between January 1st and November 1st 2010.
The firms were issued with a legally-binding notification in November 2010 and set a deadline of December 2nd 2010 to sort out their billing problems.
However, while changes were made to the firms' customer records management systems, 3,000 customers were incorrectly billed between December 2nd 2010 and March 4th 2011.
Ofcom said it had issued a £3 million penalty to reflect the seriousness of the breach and to act as a deterrent to TalkTalk, Tiscali and other telecoms companies.
Under existing rules, Ofcom is able to fine companies which breach telecoms rules up to ten per cent of their relevant turnover.
However, the regulator said the penalty was lower than the maximum fine, because the broadband providers had taken action to comply with the rules and remedy the harm caused to customers.
Since last year, TalkTalk and Tiscali have paid over £2.5 million in refunds and goodwill payments to more than 65,000 affected consumers.
TalkTalk acquired Tiscali in 2009 for a reported sum of £236 million, however the firm has experienced difficulties securing the custom of many of the firm's former customers.
Integration issues between the two broadband providers and technical problems have blighted customer service in recent times.
As such, TalkTalk shed 38,000 subscribers during the second quarter of 2011, causing revenue to drop to £423 million.
However, the firm's Chief Executive Dido Harding expressed hope for the future, claiming that a renewed focus on customer service would pay dividends in the coming months.