TalkTalk and its Tiscali UK subsidiary have been fined �3m for incorrectly billing more than 65,000 customers for services they had not received.
The largest fine regulator Ofcom has given to a telecoms firm, it follows an investigation into the two businesses that started in July 2010 as a result of more than 1,000 complaints.
Ofcom said the fine reflected "the seriousness" of their actions.
TalkTalk said it was "disappointed at the scale of the fine".
The company, which bought Tiscali UK in 2009, blamed the billing errors on the amalgamation of the Tiscali UK business.
It has since paid more than �2.5m in refunds and goodwill payments to affected customers.
As a result of this action, and other measures by TalkTalk to rectify the problems, Ofcom said the fine was less than otherwise might have been the case.
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End Quote Dido Harding TalkTalk chief exectuiveOfcom receives three times fewer calls about TalkTalk than they did at the height of the Tiscali integration"
In its ruling, Ofcom said TalkTalk and Tiscali UK wrongly issued bills to 62,000 customers, in particular those who had closed accounts, between 1 January and 1 November 2010.
Ofcom said it contacted both businesses in November 2010, setting them a deadline of 2 December 2010 to "take steps to sort out their billing problems".
However, while it said TalkTalk and Tiscali UK "did take some important steps to comply with the rules", almost 3,000 more of their customers were still incorrectly billed between 2 December 2010 and 4 March 2011.
TalkTalk chief executive Dido Harding said: "Last year I recognised that we needed to invest in our systems, processes and customer services �and we are making significant progress.
"Ofcom receives three times fewer calls about TalkTalk than they did at the height of the Tiscali integration, and our five million customers are more loyal and more satisfied than they were 12 months ago."
In April this year, Ofcom said that TalkTalk was the most complained about telecoms firm for landline and broadband services.
TalkTalk phased out the Tiscali UK brand in 2010, switching users to services offered under its own name.
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