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.

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 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.

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).

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.

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.

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.

The company cannot yet be named for legal reasons.

Trading standards officers seized counterfeit Nokia mobile phone batteries chargers and housings after being tipped off by private investigation agency Intecap which is employed by Nokia to track down and prosecute counterfeiters.

The raid described by trading standards officers as one of the first of its kind involving mobile phone accessories may well be one of the first of many as Nokia battles to put the counterfeiters out of business.

Nokia says it is doing all it can to protect consumers and the trade from counterfeit goods which often turn out to be dangerous to consumers.

Nokia spokesperson Mark Squires said:

We acted after receiving numerous complaints from the trade. These were pure counterfeit goods. Some of the products are potentially (Cont P2) dangerous to consumers. These products are bad for consumers and the trade. Some of the chargers and batteries we have seen can be hazardous because they are not built and tested to UK and European standards.

Nokias legal advisers London law firm Willoughby & Partners said most of the seized goods have been positively identified as being counterfeit. The law firm added that trading standards might be in a position to prosecute the Nottingham wholesaler within a few months. Willoughbys Jeremy Newman told Mobile News:

We have been able to formally examine the samples and confirm that the majority of them are counterfeit.

Counterfeit mobile phone accessories is a growing problem according to trading standards officers who claim some 25000 counterfeit mobile accessories were seized in the past two months alone. Newman said Nokia would not deal lightly with companies that distribute unsafe counterfeit goods.

We have a zero tolerance approach to companies that distribute products that have the potential to cause injury such as batteries and chargers he added.

Trading standards officers in Nottingham were pleased with the raid and remain confident of prosecuting the company involved. Nottingham Trading Standards team leader Steve Riggot said:

Once we have confirmed the goods are counterfeit we will have evidence to allow us to interview the company over the alleged offences.

Riggot said the maximum penalty for selling counterfeit goods under the trademark acts of 1994 is 10 years imprisonment.

He added that distributors and retailers along the supply chain could face similar penalties if caught.

Anybody selling items knowingly or unknowingly could face a similar visit from trading standards and face the same repercussions. We want to send out a message that anyone distributing or selling counterfeit goods is committing serious criminal offences.

This is the first time we have seized counterfeit mobile phone accessories. It wont be the last. Mobile phone accessories is a growing market. We will be seeing more raids and prosecutions warned Riggott.

Nokia investigation firm Intecap warned retailers to steer clear of cheap mobile accessories. Howard Cottrell the MD of Intecaps London office told Mobile News:

We were alerted to the presence of these goods by their very low market price. We purchased some test samples analysed them and then contacted trading standards once we had enough evidence to prove they were counterfeit. The best way to avoid counterfeit goods is to buy direct from manufacturers and their authorised agents.

Jayne Harper a regional sales manager at the operators Northampton offices was accused of forging invoices for hospitality events at various times last year.

Harpers deception was discovered in July 2002 and after a lengthy investigation she was dismissed. Police then charged her with 15 charges of fraud on November 18.

Harper appeared at Northampton Magistrates Court earlier this year and pleaded guilty to all 15 charges.

Last week she returned to court for sentencing where she received the four-and-a-half-year term.

The sentencing was a satisfactory outcome and illustrates that we take the issue of fraud very seriously said an O2 spokesperson.

This was a sophisticated fraud and we co-operated fully with the police to enable them to bring about a successful prosecution. This followed a thorough internal investigation to gather the necessary evidence for the trial.

Such fraud is extremely rare and we have a range of processes in place to ensure this is the case.

Since this case arose however we have conducted a thorough review of our existing processes and introduced further fraud prevention measures.

A combined appeal by two traders Fulcrum and Optigen to demand that Customs re-pay them 23 million in VAT failed when a tribunal chairman backed Customs argument that companies may not re-claim VAT on goods purchased if the goods were part of a carousel fraud.

The tribunal chairman Dr John F Avery Jones ruled Customs was right to withhold Fulcrums and Optigens VAT refunds. He said certain transactions carried out by the two firms had formed part of a missing trader fraud even though they have not been implicated of any wrong-doing.

Customs last year disallowed some of their VAT refund claims.

The two companies appealed against Customs decision on the basis of the law that they were innocent until proven guilty.

The two trading companies challenged Customs policy to withhold VAT refunds where a fraud has taken place elsewhere in the supply chain.

The tribunal accepted that Optigen and Fulcrum did not know that any of their transactions were part of a carousel fraud but their appeal was still rejected on a point of law.

Dr Jones said he had found the case difficult. He had come to an unexpected conclusion and had changed his mind several times before reaching a final decision.

My conclusion is that the commissioners are right in saying the appellants transactions are outside the scope of VAT as not being economic activities. There is no principle of European VAT law that prevents that result he ruled.

Optigen and Fulcrum were given leave to appeal but Fulcrum went into voluntary liquidation earlier this year and would not comment on whether it would appeal. Sources close to the company have hinted it will do so.

Tax specialist firm WJB Chiltern says the decision strengthens Customs powers following its earlier victory against Bond House (Cont P2) (Mobile News May 19).

WJB Chiltern VAT specialist and former Customs investigator Don Mavin said:

This decision reinforces the Bond House case. The difference this time was that the case was not clouded by any of the facts.

This was just a straightforward legal argument. It means that Customs doesnt have to find you guilty of any wrongdoing to withhold input tax.

Customs can withhold input tax as long as there has been a missing trader fraud. It gives Customs a tremendous amount of power.

Around 400 dealers and traders met in Manchester last month to form an association to try and challenge the latest VAT anti-fraud regime. Common consent is that the EU court will regard the measures as unfair in two years.