The freedom for telcos to disconnect suspected fraudsters was challenged recently, when the High Court of South Africa ordered MTN to reconnect SIMs known to be used for the grey routing of traffic. This was a blow to network operator MTN South Africa, who disconnected SIMs purchased by Saicom, a comms provider which describes its services as ‘cloud-based’. MTN argued its SIMs were being used for illegal bypass. The judge decided this allegation was not proven, and that the SIMs must be reconnected immediately to prevent further harm to Saicom’s business.
Saicom acquired MTN SIMs via a couple of intermediary organizations, the Post Paid Company (PPC) and Autopage. Much of the legal decision revolved around the extent of MTN’s obligations to Saicom, and whether there had been a violation of the MTN contract term which stipulated an intermediary…
…shall not use or knowingly allow others to use the network for any improper, immoral or unlawful purposes.
There was some doubt over who knew what was going on. Whilst MTN will not have known about the customers of the intermediaries, part of Saicom’s case rested on assurances that Autopage promised to ‘unsuspend’ the SIMs. As such, Saicom must have been aware that MTN wanted to block at least some SIMs. However, Saicom continued to pay Autopage in the belief that Autopage would use its relationship with MTN to keep the SIMs active. Though the involvement of the intermediaries will have complicated MTN’s anti-fraud efforts, the judge concluded the legal argument was ultimately between MTN and Saicom, on the basis that only MTN can decide if a SIM is disconnected or not.
Put simply, the judge decided that MTN were not entitled to disconnect the SIMs because they had not shown what law, contract term, or policy had been broken by Saicom. In particular, the judge’s decision raised serious questions about how courts should distinguish between grey routing that is legal and international bypass which is illegal.
MTN argued that Saicom was engaged in grey routing, but the judge was unwilling to accept this as equivalent to showing Saicom had illegally bypassed traffic. Saicom used the SIMs as part of a route which terminated the traffic in other African countries, not in South Africa itself. As a consequence, the judge did not accept that South African law was being broken by the way Saicom routed traffic.
The judgment suggests the relevant South African laws were written in a naive way that assumes an operator cannot be the victim of bypass if the bypassed traffic is not terminated in the country where it operates. This kind of loophole may cause headaches for international groups. The network they run in one country may be used as part of a scheme to avoid termination fees on another network they run in a different country. However, a judgment like this implies that the two networks must be run as if they cannot share knowledge of how one is being used to enable the defrauding of the other.
MTN Group currently has plenty of headaches, after MTN Nigeria received a USD5bn regulatory fine. Ironically, that fine was for not disconnecting SIMs they should have disconnected. Apart from Commsrisk, the rest of the media has missed this important story about Saicom’s legal victory. If schemes to bypass traffic between African countries are deemed legal, they will also pose a serious threat to the profitability of MTN Group.
Whilst MTN presented themselves as the victims of bypass, this case also has the potential to damage their reputation for fair and honest business dealings. MTN South Africa claimed that Saicom’s use of the SIMs would degrade the service experienced by ordinary customers. Saicom countered by arguing MTN South Africa had consciously supplied them with services that were designed to avoid fees levied by other networks. One of Saicom’s key arguments was that their use of the SIMs did not affect the quality of service enjoyed by ordinary customers because the SIMs were connected to base stations…
…built for Saicom by MTN when MTN was encouraging least cost routing companies to bypass Telkom interconnects.
Telkom used to be the monopoly operator in South Africa.
The judge accepted Saicom’s argument that disconnecting the SIMs had caused them losses of ZAR750,000 (USD54,000) per day. As a result, and because no wrongdoing by Saicom had been established, the judge agreed that the contract with MTN should still be enforced, and that the SIMs should be reconnected without delay.
However, this was unlikely to be the end of the legal battle. Whilst an urgent decision was required because of Saicom’s losses, the judge effectively admitted that a court of law was not the best place to explore the boundaries between legal grey routing and illegal bypass. The court order was hence given on an interim basis, pending a decision by either party to refer the dispute to the The Independent Communications Authority of South Africa (ICASA), the South African comms regulator.
The judge set a deadline of 21 days to refer the case to ICASA; if no party does so within that time, the court’s decision becomes final. MTN South Africa has obvious reasons to take their arguments to ICASA, but at date of writing there has been no formal announcement that ICASA have been engaged. The High Court’s judgment was delivered on October 15th, meaning the 21-day deadline will expire soon. Commsrisk will post an update if and when this case is referred to ICASA.
This article was made possible when a friendly source passed a copy of the High Court’s decision to Commsrisk, and we are grateful for their help. A pdf copy of the full judgment can be downloaded from here.