T-Mobile, Truphone: disconnected over VOIP

Startup's struggles to establish a mobile VOIP service reflects tensions in the cellphone sector

A U.K. startup specializing in offering Internet telephone service via certain Nokia Wi-Fi enabled cellphones is making few friends with mobile operators, signalling tension ahead in the high stakes mobile phone industry.

Software Cellular Network, which operates under the name Truphone, has clashed with T-Mobile UK over termination fees, resulting in some calls from Truphone customers not being connected by the mobile phone operator, Truphone CEO James Tagg said Tuesday.

The row with T-Mobile follows a confrontation in April with O2 (UK) and Orange Personal Communications Services over both operators' decision to lock the VOIP (voice over Internet Protocol) function featured in Nokia's new N95 phone.

Truphone's struggles to establish a VOIP service to compete with mobile operators' cash-cow circuit-switched voice service reflect the tension in the mobile phone sector as the disruptive Internet technology gains momentum.

Analysts agree. There's a "big fear of mobile VOIP ripping away large chunks" of operators' ARPU (average revenue per user), said Pete Cunningham, an analyst with Canalys.com. "Voice is the largest contributor to their ARPU."

T-Mobile is not accepting calls from Truphone customers using a new range of telephone numbers until the two companies can agree to fees, according to T-Mobile spokesman Simon Marks.

Operators charge each other fees to complete calls on their networks. Calls to mobile phone networks in Europe cost more because operators charge a higher fee to receive calls on their networks. The fees are intended largely to help operators recoup their investments in building and operating networks.

T-Mobile argues that Truphone hasn't built a network and consequently shouldn't be allowed to charge much, if anything, to terminate calls on its network.

Truphone offers a software-based communications service that allows users with dual-mode Nokia cellular and Wi-Fi phones running its application to make and receive inexpensive VOIP calls whenever they are within reach of a wireless network. Calls made to Truphone customers outside a Wi-Fi zone are automatically routed to their cell phones and billed by their mobile operator.

To access the Truphone service, customers must access a Wi-Fi network, which may require paying a fee.

Truphone's Tagg admits the company has low operating costs, employing a staff of around 30.

"Termination rates are meant to reflect the costs of making calls," Marks said. "We don't believe that Truphone's costs are reflected in their termination rates. Their actual operating costs are near zero. They're trying to use high termination fees to make a profit."

Tagg, on the other hand, argues that no other carrier except for T-Mobile has required Truphone to negotiate termination fees, which are regulated in the U.K. for calls on 2G (second-generation) networks. Carriers publish their termination prices for 3G (third-generation) networks.

"This isn't how the industry works," he said, referring to T-Mobile's demand to negotiate termination fees. "Truphone is a disruptive technology -- it's a threat, and they're scared."

T-Mobile initially blocked VOIP service over its handsets but has since supported it. Unlike Vodafone and Orange, the U.K. subsidiary of German telco Deutsche Telekom doesn't block customers from installing and using mobile VOIP services such as Fring on its phones, according to Marks. "We're fully supportive of VOIP service."

Although Vodafone continues to terminate Truphone calls on its mobile network and pay the VOIP operator to complete Vodafone calls on its Wi-Fi network, the U.K. mobile phone operator isn't rushing into VOIP.

In an earlier statement, the company said it believes that VOIP over mobile is not yet a mature service and doesn't have guaranteed quality of service.

Vodafone is reluctant to talk about VOIP over mobile networks.

Analyst Cunningham agrees with quality of service concerns but argues that all mobile operators will nevertheless have to embrace VOIP because, he said, "it isn't going away."

He expects many operators to lower their voice tariffs to make them competitive with VOIP and also offer high-speed mobile and/or wireless broadband services as part of a multiservice strategy to lock them into one billing relationship.