Court of Appeal clears the way for huge GSM gateway compensation claims

The government overreached its authority in telling Ofcom to make GSM gateways illegal, says CoA

A long legal battle that has been fought between airtime providers and the government over the use of GSM gateways reached a milestone last month when the Court of Appeal ruled the government had acted outside its legal powers when banning them.

Six telecoms companies were put out of business nearly 21 years ago when they were ordered to cease operating GSM gateways.

The companies were Floe Telecom, Recall Support Services, EasyAir, Packet Media, VIP Communications and Edge Telecommunications. They launched an action against the Department for Culture, Media & Sport (DCMS), attempting to reclaim damages of £413 million.

Tony Weston, founder and managing director of the O2 service provider EasyAir, which was supplying SIMs to the GSM gateway providers said: “This case has been a real David and Goliath battle involving many civil servants, various secretaries of state and Ofcom, as well as the UK network operators.”

The Court of Appeal verdict now leaves the way clear to remove the final obstacle to claims for compensation.

VIP Communications was represented to the Court of Appeal by its Joint Liquidator, Jeremy Frost of Frost Group Limited, who said: “This case represents a window on a potential opportunity for a settlement of millions.”

GSM gateways are black boxes containing multiple SIMs for one or more mobile networks.

The technology worked by using a mixture of UK- based and foreign telephone numbers to make the calls cheaper.

Phone calls and text messages from landlines were routed directly on to mobile networks.

Commercial deployment of GSM gateways were used either as a commercial single-user gateway or they could be set up to be used by many users within a single company.

After representations from the networks, the government then decided the gateways compromised national security and ordered that Ofcom should mandate that they could not be used without a licence.

The High Court then said this move was an overreach and was therefore illegal. Last month, the Court of Appeal then dismissed an appeal by the government (and Home Office permanent secretary) against this prior High Court ruling.

In a topical twist, it seems that Sir Philip Rutman, the ex-Home Office permanent secretary who resigned after alleged bullying by Priti Patel, was a prime mover and shaker in this case, according to IT and enterprise technology news site The Register.

Weston said Rutnam’s involvement has sparked questions, given that he went on from Ofcom to become permanent secretary at the Home Office.

Misery

“The court’s decision dismisses the Home Office appeal,” said Frost. “And the strongly worded judgment refers to the original ‘Recall and Others’ case, and states the judge’s conclusion was incorrect.

“Not only were these previously successful businesses ruined, the human cost and misery has been incalculable. There is now an opportunity for a settlement and for those remaining to move on.”

Seven years ago, Lady Justice Rose heard from counsel for the six firms that there was “very little evidence” the government had taken EU law into consideration when making its 1999 decision, as EU rules state that member states cannot restrict the use of telecoms equipment unless it causes harmful interference.

The firms’ lawyers argued that UK laws passed in 1999 breached these rules by prohibiting the use of commercial GSM gateways.

At the time, their counsel told the judge: “This is a story about a number of thriving businesses that were utterly destroyed by a decision which was in breach of EU law.

“The government, astonishingly, did not consider EU law when it decided to ban GSM gateways. The 1999 regulations were designed for cordless phones and short-range devices, but ended up applying to gateways.

“There is no evidence to suggest any thought was given to why this happened at all. We believe the intention was never to include COMUGS [commercial multi-user gateways] and that any prohibition was made accidentally.”

Ofcom

At the time the GSM gateways were active, Ofcom was called the Radiocommunications Agency (RA). Extracts from emails sent by that agency to operators in 2002 and read out in court stated that Ofcom did not believe GSM gateways caused harmful interference.

One email asked operators whether they felt it would be in the public interest to prosecute GSM gateway operators “given there seems to be no interference caused”.

Later that year, the RA began a consultation into whether GSM gateways should actually be legalised, as they caused “little or no interference”. But the RA was dissuaded from legalising the gateways by the mobile network operators, which were concerned about the financial implications this would have on their business.

The Court was shown a presentation by Vodafone outlining the financial impact of legalising GSM gateways even though they were good for consumer choice.

But the government then complained that national security would be threatened by the continued use of gateways. This was because a call routed through a GSM gateway doesn’t send the location and caller ID data to the network. Instead, it just records the number and location of the SIM card in the gateway box.

Weston says the ruling against the Home Office may cause further problems for the government and Ofcom, but added: “Given the Home Office’s dogged determination to substantiate blocking the use of this cost-saving technology whatever the cost, I don’t think this will be as rapidly resolved as some hope.”

Litigation 

Frost Group Limited’s Jeremy Frost called the outcome “a 15-year boxing match between the heaviest of heavyweights and the smallest of flyweights”.

“The rules have been constantly amended by governing bodies in an attempt to delay victory every time another of the pillars of their argument were removed,” he said, warning of potential further litigation.

“This has come too late for many, and the judgment will do little to repair years spent on bail, incarceration and financial ruin meted out to so many entrepreneurs and innovators.

He went on to add: “I am hopeful that we can now bring these issues to a speedy conclusion, but suspect further expensive litigation will be required.”