Another day, another consultation:

http://www.ofcom.org.uk/consult/condocs/prs_scope/

Summary

1.1 Premium Rate Services (‘PRS’) offer a convenient way to buy and enjoy products spontaneously. They typically offer some form of content that is charged to a customer’s phone bill or pre-pay account. Most PRS are for ‘impulse’ purchases and can be characterised by a relatively low expenditure. PRS are a simple means of purchasing a service because consumers can, for example, make the purchase using their telephone or mobile handset and need not provide any further authentication information. This makes PRS a good payment mechanism for buying relatively low expenditure content services or for participating in competitions or voting.

1.2 Consumers value PRS because of the simplicity of the payment mechanism and the attractiveness of the services that can be purchased using this method. However, some of the characteristics that make PRS so convenient for consumers can also give rise to consumer harm. As a result, it has always been recognised that separate provision should be made for the regulation of PRS. The current rules in place to regulate PRS are based on the definition of PRS in section 120 of the Communications Act 2003. The services are regulated by PhonepayPlus on a day-to-day basis, with Ofcom retaining overall responsibility for PRS.

1.3 However, the market for PRS has been the subject of significant change over the last ten years. We believe the three main relevant changes are:

i.An increase in mobile phone usage, which has led to a strong increase in mobile PRS usage, and in mobile PRS related complaints;
ii.An increase in the number of communication providers and number ranges on which PRS are being offered which has led to a more complex and fragmented market for consumers; and
iii.A lack of clarity in the market as to which services are captured by PRS regulation.
1.4 As a result of these changes, we need to ensure the current PRS regulatory regime meets the needs of consumers, affords an appropriate level of consumer protection and, at the same time, supports an innovative and changing PRS industry. This is the primary purpose of this PRS Scope Review, as defined in the Terms of Reference published in December 2006.

1.5 Based on analysis of the characteristics of PRS and an assessment of the evidence, we consider that in the absence of effective regulation:

i.Consumers may find themselves unable to make an informed decision prior to the purchase of a PRS;
ii.Consumers may be dissuaded from seeking redress when things do go wrong, and may lack an effective means of doing so; and
iii.Consumers may be exposed to offensive or inappropriate content.
1.6 It is vital that regulation is adaptable to changes in the market and the development of new services. By developing an analytical framework for examining PRS, we are able to look at the current regulatory framework and determine, taking into account responses to this consultation, whether it remains appropriate to new services as they emerge. We have applied the framework to a number of established and ‘new’ PRS to understand the extent to which they display those features that can give rise to potential consumer harm and, where available, we examine the evidence of real consumer harm. We use this analysis to examine whether the current regulatory framework requires modification; and whether self-regulatory initiatives might be an option for those services and in what circumstances this may be appropriate.

1.7 Our analysis of the evidence against the characteristics set out in this review suggests there are gaps in the regulatory framework that may need to be addressed, particularly in respect of price transparency, complaints procedures and empowering PRS suppliers to act responsibly. Based on evidence from market research and independent studies in respect of the types of consumer harm identified we propose the following specific actions:

Target area Options
1. Facilitating consumers to make informed decisions a. Carry out a study into the implications of introducing pre-call announcements for PRS;

b. Require every PRS advertisement to contain, in addition to the BT price, the maximum price that may be charged by a communications provider, including the name of that provider.

2. Facilitating effective consumer redress a. PhonepayPlus to expand their number checker so that consumers can more easily identify the service provider for services for which they have been charged;

b. PhonepayPlus to carry out an analysis of the benefits of requiring PRS service providers and information providers to adopt a formal complaints procedure.

3. Empowering PRS suppliers to act responsibly a. PhonepayPlus to introduce a registration scheme / reputational database in order for parties in the PRS supply chain to find out information about potential and current partners down the PRS supply chain;

b. Carry out an analysis of the market for call barring facilities in order to assess the availability and functionality of call barring.

1.8 We are inviting comments on the analytical framework and on the options we suggest by 24 July 2009