How do you solve a premium rate number problem like Indonesia’s?

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:

  1. The premium rate business was great margin business for them; and
  2. 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?

Premium rate regulation extended across the value chain from 1 September 2011

News item topics are like buses – nothing happens for weeks or months, then everything happens at once. Following yesterday’s publication of the Phonepayplus annual plan and a market study, today Ofcom approved Phonepayplus’ 12th edition of its Code of Practice, which will become effective from 1 September 2011.

For those not familiar with UK premium rate regulation, Phonepayplus is a slightly odd organisation. At a very top level it regulates the content and marketing of premium rate services. It started life in the 1980s as a self-regulatory organisation (ICSTIS) which was only given statutory backing in 2003. When operating as a self-regulatory body it could only operate through network operator applied sanctions – in essence withholding of money or ceasing service provision. Over time Phonepayplus has increasingly applied regulation directly, and one of the key changes from September is to continue that trend by directly applying the new Code to those providing or marketing premium rate services, whilst extending existing network operator due diligence requirements (which in theory should already pass down the value through contractual mechanisms) directly to various intermediaries not currently directly covered.

The new Code will also extend the scope of registration requirements, streamline certain investigation and sanction processes, and require PRS service providers to have effective complaints procedures and take measures to minimise ‘bill shock’.

Phonepayplus publishes market trends report and 2011/12 plan

Phonepayplus, the UK’s premium rate services regulator, has today published:

Report on Emerging Trends in the Premium Rate Services Market

Phonepayplus commissioned the report from Analysys Mason and deals with services which are billed via a consumer’s telephone bill.

The report splits the premium rate services market into various market categories and segments including:

  • information (directory inquiries and general information);
  • calling services (e.g. reverse charge or international call routing);
  • entertainment (adult, competitions and quizzes, voting and participation TV/radio, flirt/chat/date, gambling and lotteries, games, astrology/tarot/psychic, other); 
  • personalisation and gifts (mobile personalisation such as ringtones and graphics, virtual gifts); and
  • payments (charity donations, payments for non-phone based content and services).

The report estimates the market size at £816 million with entertainment the largest category worth £428 million, driven by growth in gambling, participation TV, and flirt / chat lines segments, with other categories and segments flat or declining.

Outside the growth segments, the report identifies a number of factors which are contributing to revenue stagnation or decline:

  • service delivery becoming platform agnostic, so users need not use their phones to access content or services;
  • greater availability of free information and content both user generated content and ad-funded content;
  • greater internet access as smartphone penetration increases;
  • migration of services and interaction to social networks which premium rate services do not currently integrate well with;
  • increasing diversity of payment methods:  a topic covered in detail elsewhere on this blog, but lower transaction costs in other payment methods is driving migration away from premium rate services as a payment method.

The largest single segment is directory inquiries, worth an estimated £206 million which was the second most frequently used service segment (after competitions and quizzes). Adult services remain a significant revenue generator at £129 million, but are used by a relatively small group of (presumably more frequent) consumers.

TV or radio advert calls to action were the biggest demand generators, followed by web advertising. App stores, QR codes and social networks are new, relatively small, but growing discovery methods.

Issues important to consumers include:

  • accurate price information;  and
  • user privacy.

Phonepayplus plan and budget 2010/11

The annual plan sets out Phonepayplus’ priorities for the year. These include:

  • successful implementation of new Code of Practice and industry Registration Scheme;
  • supporting implementation of the results of Ofcom’s Non-Geographic Number Review;
  • launching improved ‘Number Checker’ consumer information service;
  • developing guidance in emerging areas such as in-app billing; virtual currency and PRS on social networks;
  • reviewing success of 0871/2/3 regulation and measures brough in following 2009 mobile review; and
  • driving internal efficiencies.