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Saturday, July 14, 2007

Truphone & T-Mobile: Interconnect Battle

Basically, T-Mobile will not allow its customers to call Truphone customers because T-Mobile believes that Truphone is asking far too much money to connect the calls. Truphone and T-Mobile can’t seem to reach an agreement and therefore Truphone is seeking an court injunction. The decision should be delivered on Monday.

Truphone is asking the court to:
  • force T-Mobile to connect the calls;
  • do so via BT’s network; and
  • include the calls within T-Mobile’s bundle.
T-Mobile is forced by OFCOM to allow every 3rd party to connect to its network and make calls to its customers if the 3rd party so desires. This is because T-Mobile is deemed to have SMP (Significant Market Power) on termination of calls to its network and furthermore OFCOM regulates the blended day, evening and weekend rate.

It is important to differentiate between termination and origination calls: in the case of origination, T-Mobile is not deemed to have SMP. Therefore, Truphone customers can make calls to T-Mobile customers and they do so via the BT Wholesale network at the rates below:
  • T-Mobile to BT Wholesale – 8.146p/min
  • BT Wholesale to Truphone - 8.7138p/min (category fm3)
  • Truphone to Customer – 15p/min (ex-VAT)
For simplicity I am just quoting the daytime rate. It is worth noting that Truphone charges 15p/minute for weekend calls while T-Mobile wholesales the calls at 4p/minute. If T-Mobile is forced by the court to connect calls to the Truphone network using the method proposed by Truphone then T-Mobile will be forced to pay BT Wholesale 9.6282p/min for daytime calls.

In my opinion, the Truphone court request for T-Mobile to include the calls within the T-Mobile bundle is patent nonsense. T-Mobile, or any operator, must be permitted to include whatever it wants within its own bundle and charge whatever it likes for services. Truphone is not forced by anyone to charge a fee for its on-net calls and is free to determine its own pricing model.

BT itself includes all these new WiFi based companies in a new category of tariff (Fixed to WiFi) and the Truphone number range is in the "fw3" category. BT Retail charges ex-VAT 11.84p for calls to Truphone numbers and 13.06p to T-Mobile numbers despite BT Wholesale rates for T-Mobile being cheaper and much, much larger volumes than calls to Truphone numbers. Also, BT Retail offers for bundles of Mobile minutes do not include Truphone calls specifically and fixed to wifi calls in general. This is not just BT, TalkTalk have a seperate tariff for "fw3" calls.

I also think the argument that T-Mobile must connect via BT’s network is weak. T-Mobile would never interconnect with, for instance, Vodafone via BT Wholesale – they would interconnect directly and save the BT Wholesale margin. In certain circumstances T-Mobile would connect to companies via BT Wholesale, but only because the cost of negotiating and providing a physical link does not make a direct link economic. It is basically T-Mobile’s decision.

The real question is whether T-Mobile should be forced to connect calls to the Truphone network. I actually think that they should be forced to do so, but I don’t think that Telecommunications law currently states that they must and I certainly don’t think that T-Mobile should be forced to accept any price determined by Truphone and BT Wholesale.

I’m unsure how the current deadlock situation could be resolved, but it would probably involve some sort of arbitration proceedings. From the skeleton legal arguments put forward by both parties, there appears to a wide difference of opinion as to who did what when and what the current state of negotiation is.

I’m also unsure of why Truphone did not go down the OFCOM route. In fact the T-Mobile skeleton states:
…T-Mobile notes whilst OFCOM has the power to grant interim relief (and Truphone’s legal advisers are specialists in telecommunications, well aware of the powers of OFCOM). Truphone is silent on whether it has approached OFCOM for relief…
This hints that either Truphone have approached OFCOM already and been rejected or is reluctant to do so, because OFCOM will reject them.

Truphone states in its skeleton that the real reason T-Mobile is refusing to interconnect is that:
Truphone offers a new and innovative VoIP product which would provide fresh competition in the retail mobile market and benefit customers through its low cost services. Truphone seeks to compete with T-Mobile, amongst others, on the retail market.
Personally, I’m all in favour of new services and price arbitration; however I can’t see Truphone gaining an injunction in this round of arguments in court. I can see T-Mobile offering interconnect agreement but at rates that will do serious damage to the Truphone business model, which I guess has been the T-Mobile’s strategy all along. Ultimately, I would guess that T-Mobile would prefer a scenario where Truphone’s customers are charging a monthly fee to make up for the loss in interconnect “profits”

Truphone have a lot further hurdles to overcome once the interconnect argument is solved. The first of which is the recent OMTP ruling, which ironically Truphone will require OFCOMs assistance to solve.

T-Mobiles legal skeleton is here and the Truphone legal skeleton is here. Hat Tip: The Register.