Kogan's complex telco tussle

Kogan Mobile has landed the first blow against its telco wholesaler, ispONE, setting up what could potentially be a messy legal battle.

The online retailer turned telco, has won an injunction that will stop ispONE from interfering – and disconnecting – customers from its service. And it’s now looking to have ispONE fulfil the rest of its contract and supply it with enough micro and nano SIMs to sustain its business.

Final adjudication on that point is going to be tough for the Victorian Supreme Court; looking at the whole picture, it’s hard to see who really is to blame.

Consumers are angry at Kogan, because it seems he has overpromised and under delivered. When customers order a plan with “unlimited” services they expect unlimited services. Kogan Mobile’s already feeling the wrath of excommunicated customers and has started offering them compensation in the form of $50 vouchers for his online store.

Meanwhile, Kogan is equally livid at ispONE for disconnecting high-use customers without its permission. And then, the wider telco industry is furious at Kogan for dragging the virtual telco industry’s name though the mud after years of trying to redeem its image. ispONE is yet to comment.

And perhaps some of the blame could even be pinned on Telstra, as its existing arrangement with ispONE, may have forced its hand in cutting off Kogan’s users.

A curious dynamic

The whole situation hints at the rather curious – and not widely talked about - dynamic between MVNO’s and wholesalers.

Spats between the two aren’t uncommon, but we usually don’t hear much about them given that most of the jousting is about ironing out contractual disagreements.

The high profile nature of Kogan’s mobile woes has dragged this case into the spotlight, but telecommunications consultant and analyst Tony Simmons says that this won’t make any difference as to how it’s sorted out – the judge will pour over the contracts and determine who is in the right.

“In my mind, this is contract issue, with some cowboy behaviour somewhere along the line, and someone overreaching and now being pulled back into line, but it is all contract,” Simmons says.

But a simple contract reading might not lead to a resolution. As Simmons explains, Telstra’s involvement in the matter complicates things.

“Telstra and any other originating wholesaler will have a pretty tight contract and this will set out what ispONE can and can't do and what is a breach of contract,” Simmons says.

“So ispONE may be cancelling the services so that they are not in breach with Telstra, but they may not have the right with Kogan to cancel these services.”

“The sad part is, there are consumers who are the innocent bystanders in this who are having their services cancelled and they may or may not be doing anything in breach of their terms and conditions.”

False expectations

The fact that consumers are getting burned by this mess has raised the ire of Damien Kay, the CEO of wholesale telco provider Telcoinabox. He says that this high profile situation could damage the credibility of the telco industry, and lays the blame purely at the feet of Ruslan Kogan.

“I worry about entrants like Kogan into the industry… [He’s] giving the punters out there an un-realistic understanding of what the real price of producing service is,” Kay says.

“Who wears this risk? Customers get burned and telco becomes a dirty word again.”

“We spent, three, four, five years after [the collapse of] One.Tel, building the industry image up and then idiots like this go and destroy it again.”

Kay believes that there wouldn’t have been a problem if Kogan had set reasonable bundles for a fair price.

“The whole supply chain has to be profitable. If it is not profitable, it will eventually go under,” he says.

His points about pricing and the profitability of the entire supply chain will no doubt be revisited as more companies look to the MVNO space as viable add-on business. Pricing will be a key factor in how these emerging players compete in this crowded market.

Win or lose, Kogan’s situation will also spur debate in the MVNO market. It will also be interesting to see whether the regulator - the Australia Media and Communications Authority – gets involved in the matter.

As far as the entire industry’s reputation is concerned, many will be hoping Kogan’s current situation will serve as example for future players on the perils of being a virtual telco.

(Additonal reporting: Supartim Adhikari)