Simbox Bypass Finally Made Illegal by UK Supreme Court Ruling

Is it against the law to use simboxes to avoid network termination fees? Most countries answered this question long ago by passing laws that explicitly prohibited GSM gateways being used to bypass charges levied by operators. In contrast, the UK’s Supreme Court has only recently ended the debate in the UK following a tortuous process that involved multiple appeals after the government was defeated in lower courts. So how did the UK government and its communications regulator, Ofcom, manage to waste many years and lots of taxpayer’s money on a matter that most countries find straightforward?

To understand the benefit of formulating simple rules to manage communications services, we should begin by looking at the specific question which was appealed to the UK Supreme Court.

Can the Secretary of State direct the Office of Communications (Ofcom) not to introduce regulations exempting certain wireless telegraphy equipment from a licensing requirement on national security grounds?

You know somebody has made a mess of things when the only way out is to task expensive lawyers to address a double negative like not introducing an exemption from certain rules. And you can tell decision-makers have lost the plot if they can only handle a genuine issue relating to how telcos charge for the services they provide by transposing it into a threat to national security.

Two decades ago, a company called VIP Communications was just one of the businesses that realized it could make money by terminating calls on a wholesale basis using GSM gateways containing SIMs on retail tariffs. Nobody really believes they were trying to undermine national security. Everybody could see they were making money by offering cheaper calls by bypassing termination fees. That was why their SIMs had already been blocked by telcos who identified the anomalous nature of the traffic they carried, leading VIP Communications to enter administration in 2005 and to the ultimate liquidation of the company in 2010. But even when a business collapses there is still the prospect of blaming somebody else and obtaining compensation via a court of law. If it was unlawful to block the SIMs then that could potentially prompt a sizable financial settlement.

The true nature of VIP Communications’ business was alluded to by the Supreme Court.

GSM gateways are telecommunications equipment containing one or more SIM cards, as used in mobile phones. They enable phone calls and text messages from landlines to be routed directly on to mobile networks, taking advantage of lower mobile call charges. They have been widely used by businesses and public bodies to reduce their telephone bills.

Simboxes are radio transmitters, and the construction and use of any radio transmitter leads to questions about whether there is a need to limit use to prevent interference to others. The responsibility for licensing radio devices of this type fell to Ofcom. This allowed the UK regulator to fudge the economic and contractual issues surrounding the use of simboxes whilst refusing to license simboxes in practice, contributing to the collapse of VIP Communications. However, Ofcom’s contrived opinion about the safe use of radio devices became less tenable over time, not least because of the influence of the evolving European Union laws that applied to the UK prior to Brexit. That was why Ofcom reached the typically daft conclusion that, contrary to the legal and regulatory determinations of most other countries, they intended to make simbox bypass effectively legal in 2017 by exempting simboxes from the need to be licensed. Ofcom is also supposedly responsible for fostering a regulatory environment conducive to investment in networks, but their decision ignored the negative impact on infrastructure investment, or the extent to which it contradicted their own history of meddling in the setting of wholesale termination rates.

Recognizing the stupidity of Ofcom’s decision, the UK government quickly intervened using the one justification that overrides all others: national security. An argument about termination fees would have been politically inconvenient for the government, as lazier journalists would inevitably have parroted arguments presented by VIP Communications and others that focus on using simboxes to lower the cost of services to businesses and consumers. None would have applied any thought to why termination fees are useful in general, although they are not applied to consumer tariffs. Termination fees recognize that investing in the infrastructure used at the termination of a call is also valuable, even if it is generally better for the caller to pay for calls instead of making the recipient contribute towards to the cost.

The government used the pretext of national security to insist that Ofcom must continue to be responsible for issuing individual licenses of simboxes, whilst knowing Ofcom would never issue any in practice. This required the government to portray simboxes as a threat to security because calls handled by simboxes cannot be traced. If tracing was the only consideration then they could have simply mandated that simbox operators retain logs of calls in order to support call tracing. The government was paradoxically claiming that the regulator showed a lack of competence in the realm of national security by proposing to do away with licensing for simboxes, whilst simultaneously demanding the regulator remained responsible for decisions about which individual businesses are fit to operate simboxes. The government’s ruse seemed bulletproof until the legal inheritors of VIP Communications raised one important objection: it did not seem that the relevant laws contained any provision permitting the government to give licensing instructions to Ofcom.

The extent to which the government’s legal powers were in doubt can be measured by the number of times they lost in court. In 2019, the government lost in the High Court (as covered by Commsrisk here). The government’s appeal to the Appeals Court was lost the following year (as covered by Commsrisk here). But thanks to the bottomless supply of money that comes from taxpayers’ pockets, the government could afford to keep paying lawyers to fight over the correct interpretation of ineptly-written laws, and they hence filed one final appeal, to the Supreme Court.

The Supreme Court decision, which was reached on March 8, concluded that the government did have the power to intervene on the grounds of national security. Nothing would be accomplished by my arguing with their interpretation of the law. But it is worth noting that Britain’s government can have all sorts of powers they may exercise on the grounds of security but where their real motivation has nothing to do with security. VIP Communications did not break any law about calls being traceable. Sumboxes are not allowed because of the exercise of licensing powers that relate specifically to radio transmitters, although lots of other technologies that have nothing to do with radio transmissions could also make calls untraceable. And it is ironic that the same government which challenged Ofcom’s lack of competence at factoring security into licensing decisions has since increased the extent to which Ofcom is now responsible for security.

People who believe governments and regulators consistently protect the public from harm should be made to occasionally read some of their most badly-written laws, orders and regulations. The authorities have legitimate reasons to decide if businesses should have a legal right to resell any kind of comms service, or whether there are sound economic reasons for applying different kinds of charges to retail and wholesale customers. These matters are so essential to modern communications that most countries have addressed them with minimal fuss. The UK’s authorities have fudged their responses over the course of two decades, and a string of legal contests only brought the debate to an end by ignoring the economic issues and focusing on the sideshow of national security instead.

The UK Supreme Court judgment in this case can be found here.

Eric Priezkalns
Eric Priezkalns
Eric is the Editor of Commsrisk. Look here for more about the history of Commsrisk and the role played by Eric.

Eric is also the Chief Executive of the Risk & Assurance Group (RAG), a global association of professionals working in risk management and business assurance for communications providers.

Previously Eric was Director of Risk Management for Qatar Telecom and he has worked with Cable & Wireless, T‑Mobile, Sky, Worldcom and other telcos. He was lead author of Revenue Assurance: Expert Opinions for Communications Providers, published by CRC Press. He is a qualified chartered accountant, with degrees in information systems, and in mathematics and philosophy.