Although this blog started with something of a musical theme, todays post has got nothing to do with the Sound of Music. Instead, on my recent visit to Jakarta I discovered that the Indonesian telecoms industry has got a problem with premium rate telephone numbers – put simply, in the absence of any regulation the system has been abused to such an extent that regulators intervened to reset all subscriptions, whilst a number of individuals are under criminal investigation. This regulatory intervention has had a financial impact on the market players. To spare blushes, this is an anonymised extract from a recent US securities filing by one of the market players:
“[X] which operates our cellular phone services, derived substantial revenues from premium SMS services in previous years. These services include the delivery of music and ringtones, smartphone wallpapers and other graphics, voting in contests and polls and content including horoscopes, Qur’an quotes and news alerts. In 2011, the Indonesia Telecommunication Regulatory Body (ITRB) asked telecommunications companies to deactivate premium SMS services and give users a notice of the deactivations with the option to resubscribe. These companies were also asked to cease promoting premium SMS services until further notice, summarize premium SMS service charges for users and return amounts deducted from them for premium SMS services, and report weekly to ITRB regarding action taken. The ITRB based its action on complaints from consumers that they were charged for services for which they were not aware they had or inadvertently subscribed and from which they had substantial difficulty unsubscribing. Other consumers complained that charges were unclear and difficult to monitor, particularly consumers of prepaid services. The ITRB has clarified that it does not intend to prohibit premium SMS services but to effectively reset such services and give consumers the option to deregister from these. MoCI has expressed support for the ITRB’s action. The disruption to [X]’s premium SMS services due to the ITRB’s action has resulted in a substantial reduction of our revenues from these services. Similar action by the ITRB or MoCI in the future may likewise reduce or restrict the growth of [X]’s revenues from these services or other related or new products. The ITRB or MoCI may also take more aggressive action that may lead to disruptions in the delivery of [X]’s products or fines or other administrative sanctions. Any of these factors may materially and adversely affect our results of operations and financial condition.”
The operators have not been sitting on their hands and have been taking steps to increase customer trust, including the introduction of double opt-in, customer education and a regulator sponsored call centre to take complaints. However, based on my conversations (and recent financial statements), operators revenues from mobile value added services are still down, and continued uncertainty is inhibiting future growth.
Looking at this situation reminded me of the circumstances that led to the formation of the UK premium rate self-regulatory body – the Independent Committee for Standards in Telephone Information Services (or ICSTIS, now PhonePayPlus). Although PhonePayPlus now has a statutory basis it started off life as a private sector self-regulatory initiative that policed the premium rate industry through contract.
At the time it was set up, the players in the UK telecoms market – BT, Vodafone and Mercury realised two things:
The premium rate business was great margin business for them; and
It was a business which attracted smaller more entrepreneurial players with a more ‘relaxed’ attitude towards compliance than the network operators and was susceptible to scam and fraud.
The committee operated by very quickly investigating and ruling on end-user complaints and enforced sanctions by requiring the network operators to withhold payment (by way of fine) from service providers. Whilst the rules have become ever more complex over time, I do wonder whether a similar arrangement could help the operators in Indonesia put in place arrangements that will allow the regulator to remove its current draconian sanctions?