Telefonica fails in bid to claw back 'flip-flop' 2010 termination charges

Only clean player got taken to the cleaners - that's OK

The Essential Guide to IT Transformation

Ofcom acted properly when setting mobile termination rates - the money one operator must cough to another for terminating a call on its network - the Competition Appeal Tribunal has ruled. The UK's second-largest telco, Telefonica/O2, had appealed to the tribunal over Ofcom's ruling in a dispute between the big Blighty-side mobe players.

O2 was the only one of the four major mobile companies which ended up losing out after it failed to exploit a loophole in the cap on mobile termination rates which contributed so much to all the other firms' coffers. It seems that Ofcom decided on a cap that was a "maximum average", meaning operators could flip-flop their charges.

O2, the operating brand of Telefonica UK, has failed to convince the Competition Appeal Tribunal that Ofcom was at fault for failing to redress the losses it incurred by playing to the spirit, rather than the letter, of termination rate rules while the other operators had noticed that quirks of the calendar provided the opportunity to squeeze the competition, and squeeze it hard.

The dispute goes back to 2007, but the critical year was 2010 when Ofcom mandated average termination rates calculated over a month, rather than specific rates - allowing Vodafone and Three to bump up their rate by more than 40 times and obliging O2 to pay it.

The termination rate is the money paid to operator B, by operator A, when its customers call customers of operator B. Operator B can't be trusted to set that rate as it could ask for something stupid to drive out competition, so these days Ofcom mandates an exact rate for each operator: but back in 2010 the rate was averaged over the month, based on last year's call numbers.

And therein lies the problem. Call numbers for evenings and daytimes are consistent, but October 2010 had one fewer weekend than the previous year, resulting in fewer calls during that month's weekends and thus enabling Vodafone and Three to jack up their interconnect rate proportionally:

Termination rates

Check out the weekend rate on that. Full transcript is available, but very dull

This practice, known as "flip flopping", wasn't disputed, and the operators were all obliged to pay each other the higher rate with the notable (and noble?) exception of Telefonica O2 as the CAT judgement explains:

"For reasons which were not explained to us, Telefónica alone of the four national [operators] in the UK decided to eschew the practice of flip-flopping."

But none of what happened was illegal, so Ofcom had no obligation to investigate as the Tribunal concludes:

"The whole point of flip-flopping was that it represented an attempt to exploit the existing charge control, not to breach it; and it was in our view an entirely reasonable assumption, in the absence of positive evidence to the contrary, that Vodafone and H3G would have taken good care to ensure that the disputed charges complied with the letter of the charge control."

So Ofcom was right not to investigate and Telefonica's appeal failed.

The average-rate loophole was firmly closed last year when Ofcom mandated a descending rate which will bottom out at .7 of a penny per minute come 2015, at which time we can kick off the whole debate again. ®

Boost IT visibility and business value

More from The Register

next story
Scotland's BIG question: Will independence cost me my broadband?
They can take our lives, but they'll never take our SPECTRUM
iWallet: No BONKING PLEASE, we're Apple
BLE-ding iPhones, not NFC bonkers, will drive trend - marketeers
Trying to sell your house? It'd better have KILLER mobile coverage
More NB than transport links to next-gen buyers - study
Auntie remains MYSTIFIED by that weekend BBC iPlayer and website outage
Still doing 'forensics' on the caching layer – Beeb digi wonk
Speak your brains on SIGNAL-FREE mobile comms firm here
Is goTenna tech a goer? Time to grill CEO, CTO
NBN Co adds apartments to FTTP rollout
Commercial trial locations to go live in September
prev story


Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Backing up Big Data
Solving backup challenges and “protect everything from everywhere,” as we move into the era of big data management and the adoption of BYOD.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Why and how to choose the right cloud vendor
The benefits of cloud-based storage in your processes. Eliminate onsite, disk-based backup and archiving in favor of cloud-based data protection.