Premium text may get ditched to foil scammers

1 Apr 2005

Perceived regulatory failure, customer churn and soaring levels of complaints over premium SMS services are pushing mobile operators to consider abandoning the services altogether, has learned.

It emerged this week at a Wireless Wednesday mobile marketing seminar in Dublin that Vodafone was on the verge of closing down its premium messaging business – estimated to be worth £400m sterling a year – because it feared the effects of increasing rates of premium SMS scamming.

Operators in the UK are discovering that the inability of consumers to unsubscribe from premium SMS services such as ringtones and text-to-win competitions are having an adverse affect whereby discouraged consumers ultimately ditch their old number for a new mobile phone account.

Premium SMS works in a similar fashion to the 1800 premium-rate number business insofar as customers pay higher-than-average costs for their text messages if they reply to competitions or sign up for ringtone updates or adult content. However, the mobile sector recently has been dogged by problems surrounding ambiguous opt-out clauses contained in contracts for services customers sign up for. When consumers wish to opt out of a service they discover they are eating up valuable call credit that in turn goes to the errant firm providing the premium SMS service – be it a competition or ringtone service – and when they ring up to opt out they are being held on a premium rate number for long periods of time.

The growing phenomenon of scamming and spamming by text message has exasperated the problem. Last year, UK watchdog the Independent Committee for the Supervision of Standards of Telephone Information Services levied fines of £500k sterling to six companies found to have been sending out SMS spam. In some scams users would receive messages telling them they have won a prize and would be given a number to call. The number would turn out to be a premium rate number with no prize at the end.

In Ireland, however, a more prevalent form of scamming coming mostly from overseas has unfortunately been targeting children with ringtone and game offers that locks them into a contract difficult to opt out of. In the Dáil recently, Labour TD Mary Upton highlighted a German-owned website called Jamster that was selling ringtones, logos and games and attracting young people’s interest through glossy advertisements in magazines bought by children and teenagers.

Upton highlighted the story of a 10-year-old boy who was given a Christmas present of a new phone with €60 credit. Having seen a glossy advertisement the boy joined the Jamster Club unaware he was agreeing to a contract. The subscriber fee was €8 and €1.65 was charged for every text message received. recently spoke to a father of an 11-year-old boy and nine-year-old girl who are both finding their call credit being decimated after signing up for ringtones, games and logos that they hear about either in the playground or through the media.

“In my boy’s case he saw an ad on Nickelodeon for a service called RingtoneKing and it has been next to impossible for him to unsubscribe. For every €10 in call credit we pay for, between €6 and €8 is taken because he receives these messages,” the concerned parent claimed.

According to John O’Shea, chief executive of Irish mobile software firm Zamano, who was speaking at the event: “Premium text messaging is forecast to grow 80pc in Ireland in 2005. In the UK it is forecast to grow 60pc. Of this market approximately 25pc of revenues come from adult content. While adult services are not available in Ireland trials are expected to take place in July for adult services in the Irish market using short codes. It is predicted that the adult premium SMS market in Ireland will grow at the same rate as that of the UK.

“Vodafone in recent weeks were on the verge of closing down its £400m sterling a year premium SMS business because voice and data services are worth billions and it doesn’t want to risk churn.”

O’Shea said that while scamming has been far more prevalent in the UK market than it has in Ireland, Irish people are less likely to fall prey to scams in their own market and instead are far more at risk from overseas scammers. “In the UK, where the market has been saturated by scammers, less than half of 1pc of people respond to these messages. However, in Ireland 10pc of people will respond to an unsolicited message because they trust the medium. The only reason why there are few actual scammers in the Irish marketplace is because Ireland is a small economy and potential scammers would be afraid that they would get caught out.”

O’Shea argued that although the premium SMS market in Ireland is regulated by RegTel, an initial code of practice needs to be revisited and the introduction of a ‘stop-all’ code – recently introduced in the UK – for consumers who wish to opt out of a contract should be explored.

Eoghan Patton, partnership manager at O2 Ireland, described the concern felt by operators. “The key is to make it easy for people to opt out. The mobile phone industry is suffering because of services that people cant’ get out of easily. Operator lines are getting flooded and it certainly could influence churn.

“In the first code of conduct for this sector there was no reference to the word ‘stop’. In the UK this has begun to be promoted vigorously.

“There is a lot that the industry can do in the long term. For one thing, we need to promote and regulate for the use of the ‘stop’ keyword that enables people to opt out of premium SMS contracts,” Patton said.

By John Kennedy