Software Cellular Network Ltd v T-Mobile (UK) Ltd

(Hearing date: Wednesday 11 th July 2007)

APPROVED JUDGMENT

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Introduction

This case concerns the provision of mobile telephone services. The Applicant's trading name is Truphone. The Respondent (“T-Mobile”) is a major name in the sector.

Truphone wishes to launch a new mobile telephone service using technology known as Voice over Internet Protocol (“VoIP”) technology. The service is designed for customers who will already have a telephone service from a service provider, but enables those customers to route calls over the internet. This gives the potential to reduce costs.

To use the Truphone service customers will each need an additional telephone number. Truphone has been allocated the required telephone numbers by the Office of Communications (“Ofcom”). It is open about its desire to compete with T-Mobile, among others, on the retail mobile telephone market.

There are a number of Mobile Network Operators (“MNOs”) in the United Kingdom, and T-Mobile is one of them. If customers of Truphone are to be able to receive calls on their Truphone number from those using the network of an MNO the MNO must first “activate” the Truphone numbers.

With one exception, all MNOs in the United Kingdom have activated Truphone's numbers. The one exception is T-Mobile. T-Mobile has, by contrast, activated numbers allocated to other communications providers.

Truphone says that T-Mobile's refusal to activate Truphone numbers amounts to an unlawful abuse by T-Mobile of a dominant market position without objective justification. Interim orders requiring T-Mobile to activate Truphone numbers is sought as a matter of urgency. Without those orders, says Truphone, it cannot launch the new service, and time of launch is of the essence in the market for services using VoIP technology.

With the considerable assistance of Counsel I was able to hear oral argument within Wednesday of last week. That oral argument has been complemented by reasonably detailed written submissions prepared by Counsel before the hearing.

It is a feature of the way in which mobile telephone services work across different networks that several services are involved. These include the services of access, origination and termination. For present purposes the services of access and origination can be treated as providing a person with the ability to access a network and to originate a call from it. The service of termination can be treated as allowing a call to be terminated on another network, namely that used by the person receiving the call.

Charges are made for these services. Although activation will involve access and origination, one result that must be confronted is that requiring T-Mobile to activate Truphone numbers in order that Truphone customers can receive calls to their Truphone number from a T-Mobile subscriber will involve T-Mobile purchasing termination services for calls thus made.

Truphone and T-Mobile do not agree on the rates that should be charged for those services. Ofcom is to be asked by Truphone to determine the appropriate rates. For the present, however, Truphone are prepared to proceed with the rates put forward by T-Mobile. For the present this resolves what T-Mobile described, in a letter dated 13 June 2007, as the principal point of difference between itself and Truphone.

In any consideration of the commercial impact of the interim orders sought, it is material that T-Mobile at that point declared itself “willing … to negotiate a commercial arrangement with Truphone” (with rates being the principal point of difference) and, subject to contract, ready (if rates could be accepted) to “proceed to open Truphone's numbers on its [T-Mobile's] systems immediately”.

The proposed new service

The Chief Executive Officer and co-founder of Truphone is Mr James Tagg. In a witness statement made on 3 July, Mr Tagg summarises the history and current state of development of the service as follows (at paragraphs 5, 6 and 44):

“The Truphone technology has been in development since 2000. It is the subject of 5 international patent applications, [and has won] industry awards in the telecoms sector. Truphone has invested significant time and expense in developing this technology. … The financial community showed its faith in our technology by making Truphone Europe's largest A round venture capital investment of 2006. … Our survival depends on our ability properly to launch our product and to do so as early as possible, given that other parties are developing similar products. …

Given the rate of technological development, time is of the essence to us. …

Truphone is currently in the Beta stage of its launch phase which involves only providing the service to a select group of customers and not opening the service to the general public. … we have been ready to move to the next step, a formal launch of the service to the general public, since 12 June 2007 but we are being prevented from doing so because of T-Mobile. …

It is imperative that Truphone be permitted to launch immediately otherwise we would lose our key advantage in being one of the first VoIP services available to customers in the telecommunications sector. Unless T-Mobile routes our numbers and permits Truphone to launch then others will take the market including T-Mobile which have themselves invested in VoIP services. … We have already lost some 6 weeks in trying to negotiate with T-Mobile (negotiation being very much encouraged as a matter of course by Ofcom) ….”

The Court has evidence from Truphone that since 26 February 2007 all MNOs have been able to interconnect with Truphone via BT. By 11 May 2007 each MNO in the UK, with the exception of T-Mobile, had activated Truphone's number range on their network, using (it was confirmed to me) interconnection via BT. Mr Tagg offers the vignette of what happened with one MNO: “Orange for example, when asked why our numbers had not been routed, apologised and had the numbers routing within 48 hours”.

The way the technology works, from a customer viewpoint, is summarised as follows by Mr Tagg (at paragraph 4 of his witness statement):

“Truphone … uses [VoIP] technology to allow consumers to make low cost phone calls, using a new type of mobile phone that has just been released onto the market. Calls are made on these new handsets using the Internet to carry the call. Truphone's main way to make these calls is by connecting the phone to a Wireless –“Wi-Fi”… access point … These Wi-Fi points are themselves connected to the Internet which in turn is connected to Truphone's servers situated in London Docklands. From these servers Truphone either connects directly to another Truphone customer or, if the recipient of the call is not another Truphone customer, places a traditional telephone call into the Public Switched Telephone Network (“PSTN”) either to a fixed line or to a Mobile phone. If you wish to make a call to, or return a call from, a Truphone user you would do this in just the same way that you would make a call to any other mobile network.”

A serious issue to be tried ?

Section 18(1) of the Competition Act 1988 (“the Act”) provides, in part and so far as is material, that “any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom”.

Truphone's case is that the relevant market is “the provision of services by T-Mobile to its customers on the T-Mobile network, and the indirect provision of services to a Communications Provider which requires that T-Mobile's customers should be able to access its network.”

T-Mobile on the other hand describes as the closest recognisable economically meaningful market the UK mobile telephone market or the call origination market in the UK. Of that market, T-Mobile considers that its market share is a little higher than 22% but well below 30%. For T-Mobile, Mr Pickford argues, drawing on O'Donoghue and Padilla, The Law and Economics of Article 82 EC, (2006) at page 115, that “market shares below 30% are … extremely unlikely to create dominance”. Mr Pickford also refers to a passage in Whish on Competition Law, 5 ^th edition (2003), at page 48 in support of the proposition that no finding of dominance in an Article 82 case has ever been made materially below the 40% threshold.

There are, necessarily, limits to the legal argument and economic evidence available to me at this interim stage in proceedings. T-Mobile has adduced a witness statement from an expert economist, Dr Mike Walker, and points to the current absence of expert evidence tendered by Truphone. Dr Walker expresses the following opinion (at paragraphs 20 and 24 of his witness statement):

“… there is a very close substitute available for the product offered by Truphone; calling a Truphone customer on their MNO/MVNO number is a very close substitute for calling a Truphone customer on their Truphone number. This means that these two products should be considered as part of the same relevant market because if one significantly raised the price for one service, consumers would simply swap to the other. The...