O2 loses mobile termination charge appeal against Ofcom

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O2 today lost its appeal against Ofcom, as the Competition Appeal Tribunal says the regulator handled itself correctly when dealing with a dispute about call termination rates

Telefónica UK (O2) has lost its appeal against Ofcom’s handling of a dispute between major UK operators over how they set prices for terminating calls on their networks.

The case dates back to 2007, when Ofcom decided that O2, Vodafone, Three and Everything Everywhere (now EE) should be regulated so that so-called ‘mobile termination rates’ (MCT) were capped. The regulator decided on a cap that was not a fixed ceiling, but a maximum average figure over a year, meaning operators could levy their charges.

This led to three of the four major mobile companies exploiting the cap and engaging in a practice called ‘flip-flopping’ where Vodafone, Three and EE levied their charges in a way that increased O2’s costs. For example, the three operators calculated which months had the most weekends and increased weekend rates for those months.

Ofcom has since put a fixed cap on charges to prevent them being too high for individual months.

The regulator also decided not to penalise Vodafone and Three for levying their charges in October 2010 – the decision for which O2 took the regulator to court.

O2 claimed in its appeal that Ofcom made five mistakes in its decision in favour of Vodafone and Three, including failing to consider whether the charges were “fair and reasonable”.

O2 also said: “Ofcom had no adequate evidential basis to conclude that Vodafone and H3G [Three] had complied with the SMP [Significant Market Power] regime.”

Today the Competition Appeal Tribunal (CAT) dismissed O2’s appeal. Its judgment says: “Ofcom had given consideration to the question of whether the October 2010 charges were fair and reasonable in the light of all of its regulatory duties and objectives.”

The CAT ruled: “There was no error in law on Ofcom’s part in giving predominant weight to Vodafone’s and H3G’s putative compliance with the significant market power (“SMP”) regime, and in the absence of any error of law the weight to be attached to relevant factors was a matter for Ofcom alone.”

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