Staff Reporter

FITEs main aim is to challenge the new VAT rules that hold traders jointly accountable for missing trader fraud. Last month more than 250 traders pledged 1000 each to help form FITE.

FITE organiser Frazer Holmes a director at Barnard Atkins VAT Services is warning that too many traders arent sticking to their word.

The victory of Customs & Excise against Bond House Systems seemed to take the wind out of the action of many dealers. From the discussions Ive had a lot of traders have decided to cease all trading for the moment or simply get out of the industry. Others have said to me that they will hang fire for a while to see what others do said Holmes.

Sitting around and waiting for others to do something is the surest way for nothing to happen. It is a very frustrating time he said.

Holmes said that despite the initial pledges of around 250 traders FITE currently has 80 members but needs at least another 10 to make the Federation viable.

The deadline for the end of the VAT consultation period is June 10. By that time we have to state our position. We also have to put a framework for the Federation in order. We have certain setting-up costs. We have to put a constitution in place and elect board members. These things arent done for free.

He added: It is all very good having 500 traders put their hands up in a packed meeting. But it has to move on from there. (Cont P2)

Holmes remains determined to ensure that some sort of anti-Customs group is set up however.

In terms of how much money must be raised it is all very subjective. If we have around 90 or so traders we can still go ahead with the Federation. Considering how many traders are quitting the business 90 would still represent a significant proportion of the industry Holmes added.

Internet handset trading company Auxtel based in the Channel Islands has taken its website off-air as a direct result of the new law.

Auxtels website trading (Cont P2) facility offered anonymity to both buyers and sellers – but this meant that neither buyers nor sellers could check each others VAT credentials nor could they question the origin of the stock they traded.

Auxtel is just a facilitator of the transaction and not the owner of the stock.

Thus buyers and sellers cannot meet Customs & Excise directives by making the relevant checks on Auxtel alone.

Under new VAT directives companies must be able to prove to Customs & Excise that they have made proper checks on companies they trade with up and down the supply chain in the event that a carousel fraud is found to have taken place.

Auxtel is reviewing whether it can continue to offer anonymous trading and whether there is a future for the business in the current climate.

Auxtel director Carl Stanley said:

We have just had another meeting with the solicitors and our backers.

It looks like we are going to have to totally re-engineer the site to take account of the new VAT approach.

We have to take the site off-air in the next week to stop any more transactions going through.

It may well be that we are not ever able to relaunch the service depending on what happens over the next few months.

T-Mobile has also introduced a new downward price plan migration policy that prevents customers changing to a lower pay-monthly price plan within the first six months of their contract.

The network no longer accepts handset returns from consumers unless the equipment is faulty. Yet business customers are being offered an extended 30-day period to return handsets and the chance to cancel contracts if they are not happy with the service.

T-Mobile has been operating a no-return policy on upgrade handsets for some time.

It is the first network to scrap its 14-day customer service guarantee policy for consumers on new connections.

T-Mobile explained why the change was being made in its monthly Connect bulletin to dealers and distributors: The bulletin instructs dealers on how to respond to customers who find the handsets do not work where they want them to saying:

The customer should be reminded that T-Mobile offer 99.4 per cent coverage of the UK population. The product that they have purchased is a mobile and they will therefore be able to use the service on the move across the UK.

Rival networks are monitoring the situation but currently say that they have no plans to ditch their own customer satisfaction policies.

T-Mobile told Mobile News its 30-day guarantee was introduced at a time when customers required a concrete guarantee of network quality and coverage.

This is no longer necessary. Naturally customers retain their full statutory rights as far as the product is concerned. Business customers retain the longer guarantee period. Business customers generally have more sophisticated requirements and these are not always apparent at point of purchase.

We are also conscious that it sometimes takes business customers several days to distribute handsets to the employees that will be using them hence the longer timescales permitted.

The scrapping of the 14-day promise changes has brought a mixed reaction from the industry.

One distributor who declined to be named claimed T-Mobile was sidelining its core business in the pursuit of business customers.

T-Mobile is not making life easy for dealers and distributors. It is throwing the baby out with the bath water he said.

In its rush to sign up SME customers T-Mobile is not taking due care of consumers and its dealers. The SME market is alluring but its very competitive. All the networks are chasing that business. T-Mobile is creating more obstacles for dealers and is chasing the business market to the detriment of its core channel partners.

Dealer Scott Allison of Glasgow-based Freedom Mobiles said the move was ridiculous and reckoned it would hinder T-Mobile connections.

I cant believe T-Mobile is doing this. This is a huge backward step. People wont want to commit to the service without the 14-day guarantee because all the other networks offer it. It sounds like it doesnt want more consumer business.

T-Mobile appears to have lost the plot. In Scotland T-Mobiles coverage is worse than any other network. Its ridiculous that it has scrapped the 14-day policy.

He predicted that consumers wouldnt take the risk of buying its service because they wouldnt be able to return the handset if coverage was worse than expected.

Although Sprint Communications MD Paul Leonard backed the move he questioned the mixed messages coming from T-Mobile.

I can see the reason for doing this he said. T-Mobile handles enormous amounts of 14-day kit from customers who simply change their minds. It is a big cost.

However he conceded that consumers might feel otherwise.

Im not sure how customers will respond because they feel they are entitled to return something they are unhappy with. And the fact that T-Mobile is offering business customers a 30-day return period is inconsistent. Its refreshing that a network is taking this bullish approach but it should apply the same rules to consumers and business customers.

The network is saying it doesnt want us to connect consumers. It wants us to connect high-ARPU business customers and drive consumers through its own stores.

What T-Mobile should remember is that we have a choice of other networks we can sell. The balance of power lies with retailers. If terms and conditions are not favourable people will do what is best for their business.

This was the assurance given by Tony Walker head of fiscal fraud policy for HM Customs and Excise (law enforcement).

Speaking exclusively to Mobile News Walker denied that the new VAT regime which makes all parties to a deal liable for missing VAT was aimed at driving smaller businesses out of the market thereby giving Customs fewer and larger businesses to deal with which are much easier to monitor.

There is absolutely no truth in that whatsoever. Size of business has nothing to do with any kind of fraud. Its how honest you are and how legitimate you are that counts he said.

This legislation was certainly not cobbled together. It has been put together after much thought. The key will be in its application.

We want to make sure we get the views of legitimate businesses so that it attacks the people it is supposed to attack.

Before we apply the law we will consider carefully if it is right to proceed using the new legislation.

We will do that in every case said Walker.

(full interview P18).

The case was brought by Bond House Systems Limited which was protesting disallowance of a VAT repayment for May 2002. Customs claimed the VAT claim was based on transactions not amounting to economic activity.

Customs contended the goods were repeatedly traded within a group of companies without being sold to an end user Thus it was argued there was no true economic purpose to the transactions.

Customs further contended that the transactions formed part of a carousel or missing trader scam although Bond House Systems was not alleged to be a knowing participant.

Customs argued the repayment claim being made by the company was invalid as the sums it was reclaiming were not VAT.

The Tribunal accepted both the legal and evidential (Cont P2) issues and Customs won on 26 of the 27 evidential points and was awarded costs.

A Customs spokesperson said:

This decision confirms Customs entitlement to deny repayment claims where the transactions do not amount to economic activity.

The tribunal agreed that Customs was right to disallow the majority of a repayment claim where a chain of transactions had occurred which did not in reality involve taxable supplies.

This is a useful precedent for any future cases and in particular in cases involving computer chips and mobile telephones.

The new service is called Active and offers users a selection of downloads ringtones screensavers and entertainment services. The network described it as a new fun colourful simple way to access a great range of O2 services and unsurprisingly the icon-based service looks very similar to Vodafones live! and T-Mobiles T-Zone services.

According to Driver the services are the most intuitive on the market and he claimed that if (Cont P2) dealers can demonstrate the services to customers they will see a rise in their ongoing commission and retention rates.

There is no additional charge for the Active service with MMS ringtones games and WAP browsing all remaining at their existing prices. As part of the June 1 launch new O2 customers will receive 25 free MMS messages one free colour game one free ringtone one free MMS alert and one MMS download all to be used within the first month.

Supporting the launch of the services has been a massive training programme with high street multiples as well as the independent channel receiving training on the new services.The network has also tried to ensure all dealers have demonstration SIM cards and handsets.

The Active service will be available across five handsets on launch. These are Nokias 3510i 3650 and 7650 Samsungs V200 and Motorolas T720. The Active settings for the first four handsets can be configured through the O2 website while the Motorola needs manual configuration.

Ring tones will cost up to 1.50 to download. Games are between 1.50 and 2.50. WAP access comes out of inclusive minutes then 10p a minute . MMS images will cost up to 1.50 to download.

In addition all handsets that come through the O2 distribution centre will be pre-configured to run the services. Driver says O2 will be aiming to ensure that all new MMS handsets that are launched after June 1 will be pre-configured to feature Active while new settings will be created for existing MMS handsets.

Any O2 customer who already has one of the five handsets but doesnt have access to the Internet can go to the store where it was bought or to any O2 store to have it configured.

Driver continued: The aim of the training is that staff members can configure and demonstrate the services available. We will be running more training courses as and when they are needed but our team have been flat out for the past three weeks and we are confident we have reached a large percentage of the channel. The aim is to encourage dealers to download the site and show customers how to use the services.

We have seen that customers will use the services. It is just a matter of removing the barriers that currently exist. If there is any complexity in the services then people are put off. We hope to address that.

There are bound to be similarities between our services and the ones out on the market because there is a great demand for things like gossip and ringtones. But we will be offering slightly different content. Our games will be different and of course we will have Big Brother-related services. More importantly we will be doing it in a way that is the most straightforward.

Active will be backed by a significant television print and poster campaign as well as point of sale material in stores.

The devices were set for shipping when the fault was discovered. The rest of the batch was then tested to ensure it didnt suffer from the same fault before being shipped out.

Several dealers say they suffered delays in orders of P800s. Orange Direct told customers there (Cont P2) had been software problems and that the phones had been recalled. But an Orange spokesperson said there had been no such problems and that there had been no delay in the distribution of the handsets.

Orange did admit that there had been a problem with the adult content home page but that the network had sorted it out.

Orange operates an extensive quality assurance process to ensure that all handsets are thoroughly tested before they are sent out to retail channels. During one of the standard checks the Web browser on a small number of P800 phones incorrectly linked through to a web page featuring adult content when the Orange Homepage was selected. The issue was specific to two phones in one batch of handsets. The problem was identified and resolved before handsets were sent to customers. The issue did not affect availability.

The spokesperson couldnt comment on whether this had been a deliberate mistake made by an Orange employee.

We are in litigation with O2 over several breaches of contract said One Mobile general business manager Alexandra Smith.

We served notice to produce strict certified accounts in court last Friday which O2 ignored. We are now pressing ahead with further legal action.

Smith claims O2 has failed to provide One Mobile with invoices and call billing data dating back to December 2001.

We were granted a limited O2 service provider licence under an arrangement where O2 billed customers on behalf of us. We were to receive payments for connecting customers to the O2 networks and ongoing call revenue on the basis of customer call spend.

Smith says O2 made payments but never sent any paperwork to explain what they related to.

We have been chasing O2 for 18 months trying to get them to send us the correct paperwork as set out in our service provider agreement. In the last two months O2 slowed down payments claiming we owed them money.

We dont dispute this but we cant agree with it without seeing the paperwork. O2 is supposed to provide us with the call billing data on the fifth day of the month. We have never seen it. O2 has used bullying tactics against us. We have evidence to prove O2 is telling our customers that we are going out of business claims Smith.

She says One Mobile has emails and other paperwork to prove it has been chasing O2 for months for its customer accounts.

We are not going out of business. We intend to fight O2 right down to the wire. We have made Oftel aware of O2s actions said Smith.

Vodafone caused the collapse of Glasgow distributor The Wright Distribution because it mistakenly sent messages to Wrights customers that the company had gone bust.

So says a liquidators report into the collapse of Wright with 92000 debts. Liquidator William Duncan & Co stated:

The following reasons for the liquidation of their company were provided by the directors. Increased competition from other phone companies Loss of customers as a result of errors by Vodafone.

Apparently Vodafone had some months ago sent a message to all customers of Wright Distribution Company Ltd advising that the company had ceased trading.

Mr (Ian) Wright immediately contacted Vodafone and they sent a second message retracting the first. Mr Wright advised that by the time customers had received the second message the damage had been done and many had secured alternative contracts. Mr Wright claims to have had continual problems with Vodafone and tried unsuccessfully to remedy this.

European Telecom was the biggest industry creditor losing 6531. Other creditors included Fone Logistics Unique Distribution Vanguard Data Select Vodafone Connect and Phone Fit.

Vodafone declined to comment.

But although Vodafone is trumpeting the new price plans as putting the customer at the centre there are several stealthy price hikes.

For example Vodafone customers who have used up their free minutes will now pay a minimum call charge of 5p up from 1p even if their call only lasts a split-second.

Currently Vodafone only charges 1p minimum the same as O2. T-Mobile charges 2p minimum.

The new plans will apply to new customers and any current Vodafone customers who want to change their calling plan. Current Vodafone tariffs will not be available to new customers.

Existing tariffs such as Vodafone 200 and Leisure 500 go replaced by Anytime Daytime or Evening and Weekend packages. The customer chooses the number of minutes and their package determines the time of day the free minutes can be used.

The cost of the tariff determines the number of free minutes they get. The Evening and Weekend choice only offers 300 minutes for 20.

Anytime and Daytime customers can choose bundles of up to 1000 minutes. Anytime starts at 15 for 30 minutes rising to 75 for 1000 minutes. Daytime prices range from 14 for basic line rental to 50 for 1000 minutes.

The prices of text picture and data depends on the tariff selected. Users can purchase extra add-on bundles for either 3 9 or 18 to pay for their texting data and picture messaging. But users get a free (Cont P2) allowance worth 2 a month for data calls excluding text messages.

Calls to other networks on Anytime and Daytime are included in the free minutes. Changes from one price plan to another are free.

Vodafone has promised dealers will get full training on the new tariffs.

Vodafone claims the new price plans are the result of significant investment in customer research. It says the new plans will make dealers sales migration and customer service processes easier.

It looks as if Vodafones introduction of a 5p minimum call charge is an attempt to significantly increase its revenue. It is doing so in a quiet way in the hope people wont notice said an independent dealer from the south coast who declined to be named.

If the other networks dont follow Vodafone could have a real problem. What it is planning is completely alien to our industry. Even fixed-line operators generally dont levy a minimum call charge. This is a back-door price increase which may well backfire on it especially if the other networks dont play ball. Theres no sign that rivals are set to introduce anything similar. It might be sophisticated from an accountants point of view. But it will have a negative impact on dealers and customers.

The impact may well be designed to be soft because customers can stay with their existing tariff until they change. The problem for us is we review all of our customers every three months. We invariably recommend a more appropriate tariff. It will be difficult to recommend this new plan to our customers when it is disadvantageous.

Digital Phone Company area manager Dominic Guys main concern was business users. He is particularly interested in what will happen to users on existing tariffs of more than 1000 minutes.

We have raised concerns about this. It might be that Vodafone keeps the existing tariffs in place for the high user he said.

The Daytime tariff will be welcomed by the business community. They often complain about staff using free minutes outside the working day. With Daytime businesses can relax. They will know that if staff use their phones outside working hours they will be paying for the personal calls.

MoCo Cell Link managing director Ian Robinson predicts that the new tariff will encourage customers to spend more.

Our experience with Orange shows that a system which charges slightly more but includes extra free minutes guarantees us a higher commission than selling a cheaper package without free minutes and relying on the customer making more calls for us to get commission.

Hassan Khan a former Custom & Excise senior lawyer now at law firm Baker & McKenzies said:

This legislation might not be compatible with European law. European VAT directives entitle you to input tax refund. The new UK measures say Customs can now refuse to pay an input tax refund if it suspects you of dealing knowingly with a missing trader.

Under the new laws a company will have to prove it made all possible checks on the missing trader including checking the validity of a VAT number before paying VAT.

The new laws hinge on whether companies know or have reasonable grounds to suspect that VAT might go missing based on the purchase price of goods.

The new measures introduced to tackle the problems of VAT fraud centre around evidence of input tax deduction joint and several liability and extended security powers.

The effect is that companies will be forced to make more (Cont P2) thorough checks on businesses they trade with or face the prospect of becoming jointly liable for any unpaid or missing VAT.

Confusion over new laws to tackle missing trader VAT fraud has dramatically slowed handset trading said some distributors. Phones International head of distribution John McFarnon and European Telecom finance director Jim Mann agreed that trading had slowed down since the introduction of new measures by Customs on April 10.

There has been a slowdown in handset trading confirmed McFarnon.

The new measures are confusing. People are holding back to try and understand the new laws and how it will affect them. If you are buying directly from a manufacturer then the new laws shouldnt be a problem. Outside that the new laws are unclear.

Mann said European Telecom had not been directly affected but said that he had also noticed a slowdown in handset trading.

(full story P28)