Uk Phone-paid Services

Report for PhonepayPlus

UK Phone-paid services market: current conditions and future trends

December 2008 13434-424

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Contents 1

Executive summary

1

2

Introduction

3

3 3.1 3.2

Current market for phone-paid services 5 Nearly 50% of consumers have made use of phone-paid services in the past six months 5 Mobile continues to grow in popularity compared to fixed for accessing phone-paid services 15 Although the phone-paid services market is in decline, some service types, means of access and payment mechanisms are faring better than others 23

3.3

4 4.1 4.2 4.3 5 5.1

Marketing and promotion of phone-paid services 24 Most consumers read advertising about phone-paid services, but only a minority of them believe this to be accurate and informative 24 Although stakeholders felt the current state of marketing was adequate, they recognised the importance of price transparency in advertised content 30 There is room for improvement in the marketing of phone-paid services 35

5.3

Public perception of phone-paid services 36 More accurate pricing information could help to improve public trust, which is currently low in more than half of consumers 36 Bad publicity and price transparency were the two issues that most concerned stakeholders in relation to trust and consumer harm 45 There is significant scope for improving levels of trust in phone-paid services 47

6 6.1 6.2

Size of the phone-paid services market in 2008 The market for phone-paid services has contracted by 15% between 2007 and 2008 The modelling methodology cross-referenced data from multiple sources

7 7.1 7.2 7.3 7.4

Trends in the market for 0871 services 51 Overview 51 Complex migration issues are affecting the 0871 market 53 Operators, NTS vendors, service providers and end users remain concerned about regulatory uncertainties 54 Stakeholders are concerned about the public perception of 0871 and related ranges 55

8 8.1 8.2

Predicted growth and penetration of new products and services There is limited scope for innovation in fixed line services Providers are exploring opportunities around interactive TV

5.2

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48 48 50

57 57 57

8.3 8.4 8.5

9 9.1 9.2 9.3 9.4

In relation to mobile services, SMS-based information services and mobile video have potential for growth in the next 12 months 58 Payforit has potential for further growth, as mobile Internet browsing grows in popularity and initial issues with Payforit are resolved 59 Growth in new phone-paid services and payment mechanisms will be centred around mobile in the next 12 months 61 Outlook for phone-paid services in the next 12 months 62 The phone-paid services market will continue to decline in the next 12 months 62 Most premium rate service categories will see declining revenues in the next 12 months 64 Fixed-line premium-rate voice will continue its decline, while the outlook for other services is more positive 67 Improvements in price transparency and efforts to reduce problems with incorrect billing/overcharging could significantly improve consumer perceptions of the phone-paid industry in the next 12 months 68

Annex A: Details of industry interviews Annex B: Details of consumer survey Annex C: Examples of published out-payment rates

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UK Phone-paid services market: current conditions and future trends

Confidentiality Notice: This document and the information contained herein are strictly private and confidential, and are solely for the use of PhonepayPlus Copyright © 2008. The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished.

Analysys Mason Limited St Giles Court 24 Castle Street Cambridge CB3 0AJ UK Tel: +44 (0)1223 460600 Fax: +44 (0)1223 460866 [email protected] www.analysysmason.com

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1 Executive summary This report describes and analyses current and emerging trends in the phone-paid services market. It has been written by Analysys Mason on behalf of PhonepayPlus. It builds on a baseline of previous work commissioned by PhonepayPlus, and covers not only the current market and its evolution over the past 12 months, but also the outlook for the market in the next 12 months. The work draws upon a 3000-consumer survey on usage and perceptions of phone-paid services, as well as on in-depth interviews with 25 companies from across the phone-paid industry. In the past six months, nearly half of consumers reported having used phone-paid services and, although mobile premium-rate services have fared better than fixed, the overall market has shrunk. In revenue terms, we estimate that the phone-paid market had contracted by 15% from an estimated GBP1080 million in 2007 to GBP920 million in 2008. This trend is set to continue in 2009 driven by the following. •

Declining interest and threats from alternative access mechanisms in what is a mature market. Lack of interest is the principal reason why more people are not using phone-paid services and, together with alternatives and falling disposable incomes, is a key factor explaining why a significant proportion of existing users plan to discontinue their use of phone-paid services. Across the industry as a whole, the level of innovation is low (particularly in fixed), which limits the potential for developing more interesting services. The best prospects come from mobile video and the greater range of services that can easily be supplied via 3.5G-enabled handsets with larger screens and increasing ease of use. However, the penetration of mobile Internet will pose a growing threat over the next year, as its usage reaches the mass market. Mobile content/information and directory enquiry services are most vulnerable to this alternative mechanism.

•

Falling disposable incomes. Phone-paid services are discretionary and thus vulnerable to declining disposable incomes and weak consumer confidence. However, some services, including gambling, tarot/horoscopes and adult content, have a small, but committed user base, and will therefore be less sensitive to economic conditions. Competition/voting lines and TV quiz-show services, which may otherwise be starting to recover after voting scandals are highly income sensitive, so the downturn in the economy will impact heavily upon their potential recovery towards normal levels.

Mobile voice and video short codes could potentially give a boost to the industry by improving price transparency, now they are available on all mobile networks. Of all payment mechanisms, these are likely to see the strongest growth over the next year. While usage of Payforit has grown, its overall take-up levels have remained low. It is likely to continue to grow next year, particularly if public awareness increases and mobile broadband becomes more widespread. The use of 09x numbers is set to continue its decline (with faster decline possible due to voice short codes and deteriorating economic conditions), although premium-rate SMS will fare reasonably well despite some potential negative impact from mobile broadband towards the end of the year.

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Improvement of public perceptions of phone-paid services could have an appreciable effect on revenue and is, therefore, a key way to improve the outlook for the industry. On average, more than half of consumers say they have no trust at all or low trust in any given phone-paid service, and for most phone-paid services, between 15% and 25% of those not using the service state that lack of trust is one of the reasons for this. Accuracy of pricing information is the key factor that consumers most frequently say will help to improve trust. This ties in with industry opinion that improving price transparency is key. Meanwhile, the very high level of complaints about billing and overcharging reported by survey respondents provides further evidence that this is an area where significant improvement is needed; in this as in the previous study on 0871, stakeholders reported a considerable effect of the mobile surcharge leading consumers to complain about overcharging to (or about) the service or information provider. In relation to issues of trust overall, a small number of rogue information providers currently are damaging the industry and causing consumer harm. The Ofcom consumer protection lists should help, although some industry stakeholders advocate a full licensing system in order to prevent these companies from getting access to premium-rate numbers in the first place. Over half of consumers read advertising about phone-paid services, including those who do not currently use them. TV advertising is the most important type of advertising for the majority of phone-paid services, particularly directory enquiries. However, Web-based advertising is more important for some services, particularly mobile content/information services. Stakeholders are keen to advertise more extensively on mobile Internet sites, although prices and availability are currently a barrier. Mirroring the lack of trust in phone-paid services overall, for a given phonepaid service only 15% of consumers on average found advertising to be accurate and informative, and 46% of customers were likely to say that the advertising was misleading, poorly described or lacking contact details. At the level of individual services, directory enquiries is used by the greatest proportion of the public, followed by premium rate competition/voting lines and TV quiz-show services. Directory enquiries is one of the few services that has fared reasonably well in terms of usage levels, together with adult content, MMS, gambling and some types of mobile entertainment. Although the sharpest drop-off in TV quiz show revenue, relative to that in 2006, was seen in 2007, this market is still suffering in 2008 and survey data suggests usage has not yet started to recover from the same period last year.

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2 Introduction This report builds on previous work commissioned by PhonepayPlus, and covers both the current market and its evolution over the past 12 months as well as the outlook for the market in the next 12 months. It provides a broad overview of trends and drivers across the phone-paid market as a whole, as well as more detailed information about individual phone-paid service market sectors. Its purpose is to assist with planning and policy-making at PhonepayPlus, and to provide insight into the current situation and future development of the phone-paid market for existing and prospective industry participants. In order to evaluate the market, Analysys Mason has conducted an extensive programme of primary and secondary research. This includes: •

In-depth interviews with 25 companies in the phone-paid sector. These included executives from across the value chain, including mobile operators, fixed operators, service providers and information providers (including content producers).

•

A consumer survey, comprising a nationally representative survey of 3000 consumers (conducted through GMI, Inc). This survey captured information from both adults and the youth segment (the 11–17 age group).

•

Internal desk research covering Analysys Mason’s relevant in-house materials, as well as previous research conducted on behalf of PhonepayPlus.

•

External desk research to support the primary research with consumers and stakeholders, with the aim of capturing further information on industry developments.

The data gathered from these four strands of research has been cross-referenced and comprehensively analysed to produce a balanced and thoroughly grounded picture of the current state of the industry and its outlook for the next 12 months. The remainder of this report is structured as follows: •

Chapter 3 begins by capturing the current market situation for phone-paid services as a whole, before exploring usage levels by service type, payment mechanism and access mechanism (fixed and mobile).

•

Chapter 4 examines marketing of phone-paid services, with perspectives from both consumers and industry stakeholders.

•

Chapter 5 looks at issues relating to trust and consumer harm.

•

Chapter 6 is an analysis of the current size of the phone-paid services market, split by service category.

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UK Phone-paid services market: current conditions and future trends | 4

•

Chapter 7 briefly covers trends in the 0871 market

•

In chapter 8, the new services and technologies are explored.

•

The final chapter draws conclusions about the outlook for the market in the next 12 months.

The report includes several annexes containing supplementary material: •

Annex A provides further details about the Industry interviews.

•

Annex B provides further details of the consumer survey undertaken.

•

Annex C contains tables showing example outpayments to information providers for selected white-label phone-paid services.

Note on terminology: throughout this report we have used the term ‘phone-paid services’ rather than ‘premium rate services’. Exceptions to this are where a stakeholder has referred to premium rate services and we have quoted them verbatim, or when we have used the term premium rate services in our consumer questionnaire as this terminology is more widely understood amongst the general public. We have also referred to premium rate numbers rather than phone-paid numbers in line with common usage. Abbreviations used: ASA: Advertising Standards Authority CLI: caller line identification DTI/BERR: UK Department for Business, Enterprise & Regulatory Reform, formerly the Department of Trade and Industry PRS: premium rate services DSL (or ADSL): digital subscriber line. The technology used to deliver most broadband connections WBC: ‘Wholesale Broadband Connect’, BT’s term for their Bitstream ADSL2+ access product that can provide speeds of up to 24Mbit/s

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3 Current market for phone-paid services In the past 12 months, the phone-paid market has declined in size due to competition from alternative media and the effect that TV voting scandals have had on consumer confidence. Mobile has continued to grow in popularity, compared to fixed, for accessing phone-paid services, and, of all phone-paid services, directory enquiries, and adult entertainment have fared amongst the best. Meanwhile, competition/voting lines and participation TV continue to suffer in light of the scandals that have affected TV voting. Payforit has yet to be widely used, and there are new opportunities for voice and video short codes now that these can be used on all mobile networks. The rest of this chapter explores some of these issues in more detail and is structured as follows: •

The first section examines current usage patterns and their development over the past 12 months, drawing principally on data from the consumer survey, but also capturing relevant insights from stakeholder interviews. It covers:

– overall usage of phone-paid services – usage by service category – usage by payment mechanism. •

The second section draws principally on stakeholder interviews and explores the growing popularity of mobile relative to fixed for accessing phone-paid services. This includes a comparison of current payment mechanisms and pricing structures in mobile and fixed, and comparison of value chain structure for the two access types.

•

The final section in this chapter highlights the key attributes of the current phone-paid services market and its development over the past 12 months, drawing on both stakeholder and consumer survey data in order to present a balanced perspective.

3.1 Nearly 50% of consumers have made use of phone-paid services in the past six months Data from the consumer survey on phone-paid usage, undertaken in September 2008, revealed that 48% of respondents had made use of phone-paid services at some point in the previous six months. This is higher than the percentage of consumers who reported using phone-paid services in last year’s phone-paid consumer survey. 1 This result should be interpreted in light of the fact that none of the industry stakeholders interviewed for this study reported that the size of the premium-rate market had increased over the past year (their opinions ranged from feeling that the market was 1

The 2007 phone-paid survey was part of the research conducted for the Phone-Paid Service: Today and Tomorrow report by Fathom Partners on behalf of PhonepayPlus. Results of the 2007 and 2008 survey on adoption of phone-paid services should not be considered exactly comparable, as the questions were not identical between years. Furthermore, the 2008 survey incorporated the 11–17 age-group, whereas the 2007 survey did not.

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UK Phone-paid services market: current conditions and future trends | 6

around the same size or slightly smaller, to comparing the shrinkage of the phone-paid service over the past year to the ‘Wall Street crash’). The main reason cited by consumers for not using phone-paid services was lack of interest; on average a little over 60% of non-users cited this as an important reason for not using a named phone-paid service. Price was the next most-frequently cited reason, followed by lack of trust and bad publicity (see Figure 3.1). 70%

Proportion of respondents

60% 50% 40% 30% 20% 10% 0% No interest in this service

Figure 3.1:

Too expensive

Do not trust this service

Bad publicity

Don't know

Of respondents who had not used a given phone-paid service, proportion who said the listed reason was an important factor [Source: Analysys Mason, 2008]

Base: respondents who have not used the listed phone-paid service in the past 6 months (n is between 95 and 549, depending on the listed phone-paid service). Question: For each service that you have not used, please indicate all the factor(s) you consider important. Note: the chart above shows the average result across all phone-paid services, with an equal weighting given to each.

3.1.1 Variations in usage levels exist between age groups, genders and socio-economic groups Usage of phone-paid services varies significantly between age groups. The 18–34 age group is most likely to use phone-paid services, with 63% reporting use of phone-paid services in the last six months compared, with 47% of 11–17 year olds, 48% of 35–54 year olds and just 34% of those over 55 (see Figure 3.2).

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70%

Proportion of respondents

60% 50% 40% 30% 20% 10% 0% 11-17

Figure 3.2:

18-34

35-54

55+

Proportion of respondents who had used phone-paid services in the past six months [Source: Analysys Mason, 2008]

Base: all respondents (n=3002). Question: Have you used any of these listed phone-paid services in the last six months?

2

Users in the 18–34 category make use of the largest number of phone-paid services, at approximately 1.8 services per respondent (see Figure 3.3). Usage of services per user is summarised below. The 55+ age group uses the fewest services per respondent, by some margin.

2

Listed phone-paid services were: Calls to directory enquiries (e.g. 118118) for a telephone number, Premium-rate services (09x) – any, Premium-rate services: tarot or horoscope, Premium-rate services: adult voice; recorded or live services, Premium-rate services: adult video or photos, Premium-rate services: gambling – all types, Premium-rate SMS services: news or text alert subscription services, Premium SMS services ringtone or full-track music downloads, Premium MMS services e.g. photos or video clips, Game downloads to mobile and premium rate mobile Internet gaming, Premium-rate calls to competition or voting lines, Premium-rate calls to TV quiz shows, Premium-rate SMS texts to competition or voting lines, Premium-rate SMS texts to TV quiz shows, Use of the interactive TV ‘Red-button’ for chargeable services such as voting or to purchase goods that are billed to your telephone account, Use of a billing-based mobile payment service, e.g. Payforit, which charges purchases to your phone bill or phone credit (as opposed to your bank or credit card account).

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2.0 1.8

Services per respondent

1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 11-17

Figure 3.3:

18-34

35-54

55+

Number of different phone-paid services used per respondent [Source: Analysys Mason, 2008]

Base: all respondents (n = 3002). Question: Have you used any of these [listed phone-paid services] in the last six months? Notes: services per respondent was calculated by taking the sum of the people in each group reporting use of each listed phone-paid service and dividing this by the total number of respondents in that age group. This chart is for indicative purposes only and does not take account of listed services that may overlap (e.g. 09x numbers and specific types of premium-rate call, or premium-rate MMS and adult photo/video services).

There are also differences according to socio-economic status, with the social group AB (managerial and professional) being most likely to have used a phone-paid service in the past six months, while those in social groups D and E (unskilled occupations and unemployed) are least likely to have used these services. There are few regional differences in the use of phone-paid services in terms of overall usage, although a marginally higher percentage of respondents from London have used phone-paid services in the last six months.

3.1.2 Directory enquiries is now the most widely used phone-paid service Figure 3.4 shows the proportion of survey respondents using each of the listed phone-paid services.

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Proportion of respondents

35% 30% 25% 20% 15% 10% 5%

Figure 3.4:

Other

Adult video/photos

Adult voice

Tarot/horoscope

Gambling

SMS: news or text alert Billing-based mobile payment

Premium MMS

SMS TV quiz shows SMS: music downloads

Mobile gaming

TV 'Red-Button'

Calls to TV quiz shows

(09x) - any

Directory enquiries (calls) Calls to comp'n/voting SMS to comp'n/voting

0%

Proportion of respondents using each of the listed phone-paid services [Source: Analysys Mason 2008]

Base: all respondents (n = 3002). Question: Have you used any of these [listed phone-paid services] in the last six months?

Calls to directory enquiries The proportion of people reporting use of directory enquiries in the past six months, at 31%, was by far the highest for the services detailed in the survey. This is an apparent increase in usage compared to the consumer survey of phone-paid usage conducted last year. 3 It is however important to take into account that the great majority of calls to directory enquiries are from business users 4 . Looking at the market for directory enquiries as a whole, one stakeholder reported that usage has increased (although this has been more than offset by falling prices). The ongoing demand for this service is despite the free services, such as yell.com, which allow the same functionality. The continuing success of directory services must, at least in part be attributed to their functionality and value to the consumer. Indeed, the key driver for ongoing business use is that business users who need to contact a firm or a customer want the information immediately, and are perhaps much more likely to be frequently calling people outside their local area [i.e. have no printed directory] or calling from mobile away from the office. One stakeholder is quoted as saying, “People will always want information pushed to them,” in reference to the numerous situations where a phone number is needed, but access to free services is unavailable. Falling prices may also help explain why these services have remained popular, together with promotional efforts, of which TV advertising is most important.

3

The percentage of respondents reporting use of directory enquiry services increased markedly from 14% in 2007 to 31% in 2008, but the wording used was not the same, so results should be treated with caution. Definition used in 2007: Information services including

4

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directory enquiries, advice/support. Definition used in 2008: Calls to directory enquiries (e.g. 118118) for a telephone number. Source of information: stakeholder interview.

UK Phone-paid services market: current conditions and future trends | 10

Use of directory services varies significantly between the age groups in this survey. Those in the 18–34 year-old group are most likely to use these services, with 43% of those questioned reporting they had used such services in the last six months. Despite falls in the price of directory enquiries, the majority (60%) of those not using the service cite ‘too expensive’ as a reason for not using the service. Lack of interest is cited by 40% of nonusers, and lack of trust or bad publicity is cited by less than 15%.

Premium rate calls or SMS to competition or voting lines Use of either premium rate calls or SMS to competition or voting lines was reported by 18% 5 , with use of competition/voting lines broadly flat across the age groups except the 55+ age group, who were substantially less likely to use these services. Lack of interest and price are most frequently cited as important reasons for not using the service. Of non-users, 20–25% cite bad publicity or lack of trust as an important reason (more than for most other services). In the 2007 survey, competition/voting line services had been used in the previous six months by a higher proportion of respondents than any other service, while in the 2008 survey, it was considerably less popular than directory enquiries. However, overall the proportion reporting use of competition or voting lines stayed the same, with 18% reporting use of these services in both the 2007 and 2008 surveys. 6

Premium rate calls or SMS to TV quiz shows Developments in the participation TV market have affected the premium rate services market as a whole. The widely reported scandals in this area have decreased trust in a number of areas and some stakeholders in relatively unrelated areas have reported the effect of this. A number of participation TV services have been shut down and job losses have been reported in this sector. Following the fines handed out to a number of high-profile players in this market, a number of services have been reinstated, but with more stringent regulatory conditions. Stakeholders questioned on development in this market have reported some recovery after the initial slump, but that it has been slow. One stakeholder estimated that the market for participation TV had shrunk to GBP80 million this year. As with competition/voting lines, the proportion of respondents using premium rate calls or SMS to TV quiz shows was similar in the 2007 and 2008 consumer surveys: approximately 12% of respondents reported using either premium rate SMS or calls to participation TV in the past

5

Note that the value of 18% for calls and SMS to competition or voting lines was calculated by summing the % values for the respective SMS and calls category, and then adjusting to remove double counts. This combined value is not illustrated in figure 3.4, which shows separate data for calls to competition or voting lines and SMS to competition or voting lines.

6

Definition used in 2007: Play a competition (e.g. submitting answer to a newspaper or TV competition or quiz by phone or text). Definition used in 2008: Premium-rate calls to competition or voting lines and Premium-rate SMS to competition or voting lines.

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6 months. 7 Use of participation TV services closely mirrors the use of competition services, with the 55+ age group being considerably less likely to participate. The reasons for non-use are also very similar to those for competition services.

Premium-rate game downloads to mobile and premium mobile Internet gaming Premium-rate mobile gaming appears to have increased in so far as the category for mobile gaming in 2008 had a higher proportion of reported users than the combined mobile entertainment category (including gaming) for 2007, although it is difficult to make a meaningful comparison, as the 11–17 age group was not included in the 2007 survey and this age group is most likely to be using these services (see Figure 3.5). There is a rapid drop off in older age groups, with less than 1% of 55+ year-old participants downloading premium rate mobile games. As with all other phone-paid services (except directory enquiries), lack of interest is the main reason for non-use, followed by price. 16%

proportion of respondents

14% 12% 10% 8% 6% 4% 2% 0% 11-17

18-34

35-54

55+

Age-group

Figure 3.5:

Proportion of respondents using premium rate game downloads to mobile and/or mobile Internet gaming [Source: Analysys Mason, 2008]

7

Definition used in 2007: Participate in a TV show (e.g. voting on a TV programme such as X-Factor, sending in comments or images to a TV show). Definition used in 2008: Premium-rate calls to TV quiz shows and Premium-rate SMS to TV quiz shows. Note that the overall figure combining calls and SMS was calculated by summing the % values for the respective SMS and calls category, and then adjusting to remove double counts. This combined value is not illustrated in figure 3.4, which shows separate data for calls to participation TV and SMS to participation TV.

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Ringtone or full-track music downloads paid for via premium-rate SMS Of respondents, 6% has used premium-rate SMS to download ringtones or for full-track music downloads. Premium-rate downloads are most heavily used by the youngest age group. Some stakeholders have reported that these services are in decline as consumers access free content via the fixed internet and ‘sideload’ these on to their handsets. Mobile broadband also allows for access to free services offering similar functionality.

Premium rate MMS (e.g. video clips, photos) Premium rate MMS is being used by 5.5% of respondents overall. It is markedly more popular with younger people, with around 10% of those in the under-35 age group using the services, compared to 4% in the 35–54 age group and 1% in the 55+ age group.

Premium rate SMS services: news or text alert subscription services 5% of people have used premium rate news or text alert subscription services in the past six months. As with other premium rate SMS services, competition from free services available on the mobile Internet is beginning to intensify. As 3G handsets are becoming more user friendly, mobile broadband coverage is improving and mobile broadband price levels have fallen notably, consumers can readily access news (e.g., from the BBC or Reuters) or similar information at no charge instead of paying for a subscription service.

Premium rate: gambling Gambling services represent a small percentage of phone-paid services. Survey data suggests usage has stayed the same, although some industry comment suggests that this has been one of few growth areas over the last year. 18–34 year olds are more likely to use these services than any other group. Alongside tarot/horoscope and adult services, more than 70% of non-users cite lack of interest as an important reason for non-use, and less than 35% cite price. In comparison, for other phone-paid services, there are typically around 50% to 60% of non-users who cite ‘lack of interest’ as an important factor and around 40% who cite ‘too expensive’ as a reason for non-use.

Premium rate tarot/ horoscope The younger two demographics use more of these services, with 3% and 4% of the 11–17 and 18–34 year-olds, respectively, using tarot and horoscopes. Compared to the 2007 survey, reported use overall has increased a little, from 0.6% to 2% respondents using the services in the past six

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months, which may partly reflect the inclusion of the 11–17 age group in the 2008 survey, but not the 2007 survey.

Adult services Consumer survey data suggest that use of adult services has increased over the past year. In the 2007 consumer survey, 1.0% of respondents reported using either premium rate chat/flirt/dating and meet-up services or adult entertainment (sexual content and chat lines etc.) in the past six months. In the 2008 consumer survey, 2.5% 8 of respondents reported use of either adult voice (recorded or live) or adult video/photos. More than one industry stakeholder expressed the view that adult premium rate services were declining as consumers moved to Web-based content and chat as an alternative. Another reported that chat and dating via premium rate channels were growing as they were less strongly regulated, but that adult entertainment was switching to non-regulated routes to market. These non-regulated routes include calls to geographic numbers, where the caller is then billed for the service via their credit or debit card. One stakeholder, however, said that they expected use of adult premium-rate services to increase if the recession deepened: “Adult has been holding up, it always does well – if money is tight, people stay in. An 18-30 single white male will reduce his clubbing and watch babe channels – the call costs are far cheaper than the clubbing costs”.

3.1.3 Services that are used by only a minority have a higher frequency of use among those that are using them While directory enquiry services are the most popular, being used by the highest proportion of people, their use is not frequent among those using the service (see Figure 3.6). This is also true of other popular services, including calls and SMS to competition or voting lines and calls to TV quiz shows. Meanwhile, services that are popular with a only minority of consumers, such as tarot/horoscopes, gambling and adult services, are the services with the highest frequency of use among users.

8

Note: this combined value is not illustrated in figure 3.4, which shows separate data for adult voice (recorded or live) and adult photos / video.

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Other Gambling Adult video/photos Tarot/horoscope Adult voice Premium MMS SMS TV quiz shows SMS: news or text alert SMS: music downloads Mobile gaming TV 'Red button' Billing based mobile payment (09x) - any SMS to competition/voting lines Calls to TV quiz shows Calls to competition/voting lines Calls to directory enquiries

1-5 times 6-10 times 11-30 times 31+ times

0%

Figure 3.6:

20%

40%

60%

80%

100%

Frequency of use of listed phone-paid services amongst existing users [Source: Analysys Mason, 2008]

Base: respondents using the listed service (n varies between 13 (other), 40 (adult video/photos) and 919 (directory enquiries), depending on the premium rate service). Question: How many times have you used such services in the last six months?

3.1.4 Premium rate SMS and phone calls remain dominant

SMS versus premium rate phone calls At least 40% of those who had used phone-paid services in the past six months had either used MMS or had used SMS for competition or TV voting, music downloading (including ringtones), news or information services. Calls were slightly more popular than SMS for premium rate competition/voting lines, with 13% of respondents reporting to use phone calls and 10% using SMS (with 5% having used both SMS and calls in the past six months). This difference may be related to the withdrawal of SMS voting by the main broadcasters due to issues of latency. For TV quiz shows, 9% of respondents used premium rate phone calls to take part, compared to only 6% who used SMS. Although calls were used by a higher proportion of people than SMS for TV quiz shows, SMS were used more frequently than calls amongst existing users (see figure 3.6). For competition and voting lines, there is little difference in frequency of use for calls and SMS. As with all services, the older age group was more comfortable using premium rate calls than SMS.

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One stakeholder commented that, “For any given competition, of all the responses, around 30% will be via the long 09x number and 70% will be via premium rate text…Overall, SMS volumes to these lines are not increasing in volume terms, just in comparison to 09x calls.” [mobile phonepaid services provider]. This view on the ratio of SMS to 09x calls does not correspond fully with the results in the consumer survey. This may be because the competitions this company runs have an above average propensity to generate text responses compared to the norm for this type of premium rate service.

Payforit and use of the interactive TV ‘red button’ for chargeable services such as voting or to purchase goods that are billed to your telephone account The red button is used in relatively equal measure by all groups except the 55+ group, with 8% of consumers overall reporting use of this mechanism. Other mobile payment services, including Payforit, are mainly used by 18–34 year-olds, with few members of other groups making use of these services; overall, 2.5% of consumers reported to a billing-based mobile payment service. Payforit has supposedly overcome some of the functionality issues that have hindered its growth so far, but one stakeholder reported a drop in revenue of 20% following the introduction of Payforit that was blamed largely on these difficulties. This drop reportedly happened on both occasions that the service was introduced, although changes made since then to the payment process while purchasing goods and services may have gone some way to rectifying this problem.

3.2 Mobile continues to grow in popularity compared to fixed for accessing phone-paid services It is widely agreed among the industry stakeholders surveyed that mobile is continuing to become more popular than fixed. Examples of stakeholder comments on this area include the following. “There has been a strong shift from fixed to mobile…Mobile will continue to rise, fixed will decline.” [Network operator and service provider] “Two years ago, the split in volume terms was 40% mobile, 60% fixed, now its 75% mobile, 25% fixed.” [service and content provider] “Demand for mobile-based services has increased.” [mobile phone-paid services provider] “At launch, incoming calls were around 62% fixed and 38% mobile; now it’s 50/50” [118118] In many cases, stakeholders expressed the opinion that a regulatory structure that better recognised the functional differences between fixed and mobile services would be greatly beneficial to the industry.

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The next section discusses differences in the characteristics of the market for phone-paid services for fixed and mobile and considers the implications of the growth of mobile relative to fixed as an access mechanism. Key areas covered are: • • •

Range and type of services that can be delivered Payment mechanism and pricing structure Value chain structure and pay outs.

3.2.1 A far greater range of services are available via mobile On fixed lines, phone-paid services are primarily live or recorded voice information or content such as help or advice lines, chat lines and adult entertainment, where the cost is usually dependent on charge band and duration. While mobiles can be, and are, used for exactly the same services as fixed lines, modern handsets are also capable of receiving, storing and displaying not only text, but also more complex visual content, such as images and video clips. Given that lack of interest is the principal reason for non-use, this greater variety of potential services creates opportunities in the phone-paid sector. A greater range of services also makes the mobile value chain more complex.

3.2.2 Mobile supports a greater range of payment mechanisms and pricing structures The charges for services delivered over a fixed line are simply added to the calling party’s phone bill. For mobile, payment mechanisms are far more varied, with the use of SMS text messages and of reverse SMS billing, and of mobile Internet-based platforms, such as Payforit.

Fixed line For live or recorded information and chat services, the cost is usually dependent only on the duration and charge band (rate per minute) of the call. Fixed charges are mainly used for voting, as for interactive TV programmes such as Big Brother, and, to a lesser extent, for non-interactive competitions. 9 For directory enquiries, the single biggest sector of phone-paid services, the scale of fees depends on how many numbers are requested, although some directory providers charge a connection fee and then charge per minute.

9

In simple votes of the yes/no type, there may be two separate numbers and placing the call to the appropriate number automatically registers the vote for a fixed charge. For multiple choice voting, the caller is connected to an IVR and enters their vote via the telephone number pad according to the IVR menu. Some competition lines use fixed-fee number ranges. Historically some content was delivered to mobiles via fixed rate 09x ranges prior to the introduction of short codes; subsequently this became highly uncompetitive because of the mobile surcharge on premium rate calls to 09x numbers.

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Mobile SMS billing offers a range of options markedly different from conventional fixed-line telephony to premium rate numbers. For example, the maximum charge rate for a call to an 09x number is 150ppm on a fixed line. SMS billing can (depending on the operator) offer both additional price points and higher levels of charge. For example, T-Mobile offers 20 mobile-originated price points from 10p to 500p, and about 30 mobile terminated price points between 10p and 1000p. Multiple reverse billing (e.g. 3 × 120p) rSMS messages can create further pricing flexibility, and enable higher-value charges than the maximum some operators allow for a single message. Reverse billing also allows content providers to offer automatically renewable subscription services, such as for regular content downloads or text messages of sports results or news alerts. Another example of the use of reverse billing is to levy a premium charge for a mobile call to a non-premium rate number, either a geographic (e.g. 01, 02) or non-geographic (e.g. 0870, 0845) number. The call charges are automatically billed by reverse SMS by the IVR system. Thus a caller from Orange, which bars all calls at rates above 60ppm by any customer, can call a 150ppm service and be billed by rSMS for 150p at the start of every minute. An example of this is MX telecom’s ‘SMS IVR’ billing system. 10 Common short codes are another option for mobile phone-paid billing. These five-digit numbers are jointly agreed between operators and allocated via the pool of aggregators, and provide to the user a transparent and simple way to access a range of services, including phone-paid. For premium services, these are generally more expensive to set up and rent than are 09x long numbers, but they are far more attractive to mobile users. The numbers are quickly entered and may even be memorised for frequently accessed services. The proportion of the operator revenue paid out to the aggregator/service provider is very similar to that for equivalent taiffs in fixed phone-paid services, although the amounts paid out to information providers by different service providers vary, as do set-up and monthly rental charges. Aggregators/service providers may apply different pay-out bands according to message volume or revenue, much as operators do in their payments to the aggregators. These points are illustrated in Annex C by selected tariff data from three different service providers. Common short codes for voice have been of limited use hitherto because O2 (with almost 25% of the market) had not implemented them. O2 finally implemented these at the end of September 2008. This may well hasten the shift of phone-paid voice traffic from fixed to mobile, because users will now be able, for example, to make a call to a 100ppm live voice service and be charged 100ppm, rather than 130ppm or 160ppm depending on their mobile service provider’s surcharge. Another key point is that common short codes can be used equally well for video as for voice, and this should act as a driver for the expansion of video-based phone-paid services, such as live video chat. Pay-out rates to service providers for video short code calls are not much less than or the same as those for voice calls apart from Orange which pays out around 76 p on a 150ppm video short code call. (Source: anonymous service provider).

10

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For more information, see http://www.mxtelecom.com/uk/ivr/smsivr.

UK Phone-paid services market: current conditions and future trends | 18

SMS billing is also employed on the mobile Internet, both for WAP push messages and for WAP page views. Operators have different codes of practice for these services; for example, T-Mobile does not allow WAP push messages to be sent over its network. Vodafone, 3 and O2 have made Payforit compulsory for all mobile Internet purchases by their customers. Because of a number of consumer-harm issues related to WAP push and/or WAP page views, premium SMS may have a more limited role in phone-paid services in the future. In addition to regulatory issues with services such as SMS IVR and the incidence of scams that depend especially on reverse SMS and WAP push, there are some operational problems with premium SMS. One service provider commented that, “SMS was never designed for payments. There is a lot of leakage; consumers view or download content even if they have insufficient credit, so the IP loses out. Payforit is much better in that respect.” [D2see]

3.2.3 The value chains differ between fixed and mobile both in their structures and in the revenue share arrangements. A basic model of the fixed value chain is presented in Figure 3.7. Three variants are shown: •

The terminating network operator (TNO) is also the service provider (SP) and NTS provider. Examples of this are BT Agile Media and Opal Media.

•

The service provider and NTS provider are the same company. An example of this is Square 1 Communications.

•

The service provider, NTS provider and the information/content provider (IP) are the same company; an example is StealthNET.

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Terminating network operator

The ONO pays out the 17.5% VAT

Service provider

Number translation service provider

TNO also service provider. Receives ONO ppm rate less ONO charge and transit charge. Shares revenue with IP

PRS user

Originating network operator

BT will charge user up to 150ppm; fixed altnets will charge a similar amount. Mobile operators add a surcharge of 15p or more.

Transit network

The transit operator is usually BT, but other large fixed operators perform this role. Transit charge is between 0.3 and 1ppm, depending on distance

Terminating network operator

Service provider

Number translation service provider

TNO receives ONO ppm rate less ONO charge and transit charge. Retains 2–4p. Shares revenue with service provider who shares revenue with IP

Terminating network operator

Service provider

Number translation service provider

TNO receives ONO ppm rate less ONO charge and transit charge. Retains 2–4p. Shares revenue with service provider who is also the IP

Figure 3.7:

Information provider

IP receives 0–92ppm

Information provider

IP receives 0–92ppm

Information provider

SP/NTS vendor/IP receives up to 92ppm

Basic model of fixed value chain for phone-paid services based on interviews with network operators, service providers and information providers [Source: Analysys Mason, 2008]

11

Originating operators (fixed networks) retain 2–4ppm. Additionally, they may charge the PRS user a call set-up fee and may impose a surcharge on the standard BT rate (these are dealt with in more detail in Section 4.2.2). These charges are not shared with other players in the value chain; only the value of the standard rate from a BT line (after deduction of the VAT) is used to calculate the revenue share. A terminating network operator typically will take 2–5% of the post-VAT fee. For example, on a 50ppm call (41.25ppm, excluding VAT) the margin would be about 5% (approximately 2ppm), for a usage of a few thousand minutes per month, whereas at 200 000 minutes per month the margin would be about 2% (0.85ppm). Revenue-share arrangements typically depend on call volume (minutes/month): the higher the volume, the greater the proportion of revenue that operators pass to the service provider, and from which the service provider pays the information provider. For fixed-fee calls, such as voting,

11

For a limited number of services, such as BT’s 118 500 directory enquiries line, the originating network operator might be the only player in the fixed value chain, but usually there are two or more companies involved, as illustrated. More complexity in the value chain can arise when companies such as the service provider and NTS vendor Square 1 Communications also supplies white-label content to information provider clients. Information/content providers may also sell pre-packaged content or managed services to third-party information/content providers. Candywall Ltd is an example of this. However, since the PhonepayPlus levy is imposed on the out-payments to service providers, this does not add complexity to the levy system.

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revenue share usually depends on the number of calls received. However, one content producer has introduced fixed-fee contracts for all its service provider partners in TV voting. Revenue share also varies with the charge band. For lower charge bands, such as 25ppm, the percentage paid out by the service provider is significantly lower than for higher bands, such as 150ppm. 12 Some service providers set a threshold below which no out-payment is made to the information provider. This can either be on the basis of minutes per month or in terms of specific revenue targets. Many service providers set one or more bands above the threshold where the percentage out-payment to the information provider rises as volumes or revenue increases. At high volumes or revenue, information providers can negotiate more favourable rates. On low-volume calls, some service providers might pay an information provider as little as 10ppm on a 100ppm call. “It depends on the information provider and the traffic. Broadcasters want a bigger pay-out. Small information providers with low traffic get least. Traffic volume is very important – for very high volumes the service provider might retain only 1ppm even on a 100ppm call. On a low-volume call they might take 10ppm from a 100ppm call. There are overheads and fixed costs in providing the service.” [Service provider and NTS vendor] Other factors include the types of service that a service provider supplies to an information provider. If the service provider operates an IVR, the out-payment will be lower than if the information provider has their own. Terminating network operators that are also service providers, such as BT Agile Media and Opal Media, offer these services to their clients. In such instances, the TNO might retain an additional 1–2 ppm; this charge depends partly on the complexity of the IVR responses required by the client. The out-payment to information/content providers can also vary because the cost of providing white-label services varies with the content. For example, for live services in which a service provider supplies call agents (often self-employed or bureau staff) on a white-label basis, call agents for some services may charge more than those for other services. Licence fees for recorded content may vary between rights owners, and for recordings by more or by less well known astrologers. Some examples of published rates are given in Annex C; these illustrate the variability of pay-out rates between service providers, between different charge bands and for different services.

3.2.4 Mobile value chain The mobile value chain is much more complex than that for fixed. This is primarily for four reasons. 12

Further pay-out rates for line-only numbers (i.e. no content or other service is provided), together with some comparative data for a range of EU and non-EU countries can be found on the Web site of the Cyprus-based premium-rate NTS vendor kwak Telecom: http://www.premium-rates.com/premium-rate-uk.htm)

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•

The range of services that can be supplied to a mobile phone is much greater than for fixed telephony. Additional content can include information as text messages, music, photographs or video, and most modern handsets can transmit as well as receive still or video images.

•

The special technical requirements for some services, especially video, create niches for additional specialist service providers between content providers and aggregators; for example, to optimise video clips for display on mobile handsets.

•

Because of the additional capabilities of SMS billing, the range of billing options is much greater than for fixed services. One feature likely to be of increasing importance is the use of short codes, now that these have been extended from text SMS to include voice and video calls from all five UK mobile network operators.

•

Mobile rates are not regulated and, because to charge a customer of a given operator the aggregator/service provider must use that operator’s billing system, each operator is essentially a monopoly as far as access to its customers is concerned.

An example mobile value chain – that for a premium SMS – is depicted in Figure 3.8. The MNOs pay out the 17.5% VAT

Vodafone

Vodafone pays out 94–99p

Example 1: Aggregator

MT: PRS user is billed 150p by rSMS

Orange

O2

Aggregator typically retains 2–4p

SP typically retains 2–4p

Example 2: Aggregator

Service provider

Information provider

3 pays out 91–96p

T-mobile pays out 93–98p

SP, IP and aggregator are all separate companies

IP receives up to about 90p

O2 pays out 101p for MT, 97p for MO

MO: PRS user pays 150p via a short code SMS

Information provider

Orange pays out 94–98p

PRS user 3

Service provider

Aggregator typically retains 2–4p

SP and IP are the same company

SP/IP receives up to about 94p

T-mobile Example 3: VM pays 30–40p to T-mobile

Virgin Mobile

Figure 3.8:

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Aggregator VM pays out 57–65% (revenuedependent)

Service provider

Aggregator/SP retains 2–8p

Simplified mobile value chain [Source: Analysys Mason, 2008]]

Information provider

IP receives up to about 90p

Aggregator and SP are the same company

UK Phone-paid services market: current conditions and future trends | 22

Notes on Figure 3.8: The example is for a GBP1.50 short code SMS. Voice is much more variable; depending on the mobile surcharge, this may be GBP0.15–1.00p extra on a nominal 150ppm call to a long number. Pay-out rates are those for low message volumes (under 5000 to under 25 000 messages/month, depending on the operator) and for 250 000 to 500 000 messages/month. At high volumes, operators tend to make bespoke agreements, although the cut-in point for these varies. Virgin Mobile’s out-payments are a sliding percentage of revenue, i.e. they do not depend on the number of messages. Virgin Mobile pays the service provider about 45% at monthly revenue of up to GBP15 000 and a maximum of 65% at monthly revenue over GBP80 000. Note that O2 pay-outs are different for MO and MT messages. As an MVNO, Virgin Mobile has to pay a proportion to T-Mobile; so the out-payments are generally lower than for network operators. The figures of 30–40p are estimates from third-party contributors (Virgin Mobile and T-Mobile do not publish this information). The pay-out rates to information providers are based on interview comments about the larger aggregators, which do not publish their rates (these are often bespoke, as they deal with the biggest clients). Smaller service providers may have less bargaining power with operators, or may simply be reselling shared short codes bought from large aggregators or service providers. Aggregators and/or service providers may set thresholds below which there is no outpayment to the IP; for example, Clickatell requires a minimum of 500 premium SMS messages/month before any outpayment is made.

In the mobile value chain, the network operators deal directly with a small number of large-sized aggregators, such as mBlox, Tanla Mobile and MX Telecom. The mobile operators prefer to deal with only a small number of players due to the technical issues of interfacing with five different networks. In contrast, in the fixed value chain, terminating operators interface directly with a large number of service providers / NTS vendors (and as mentioned previously in section 3.2.3, some TNOs are also SP/TNO themselves). In the mobile value chain, it is the aggregators who deal directly with the service providers. In total there are about 40-50 service providers and 400-500 information / content providers, covering fixed and mobile. A key difference between service providers/NTS vendors for fixed services and aggregators for mobile services is that aggregators have access to Short Messaging Service Centres. The SMSC is a software application that handles the processing, storing and sending of virtually all types of SMS message, and provides the interface between the mobile networks and external applications, such as that for a content download from an information provider. In a number of ways, the SMSC can be considered the equivalent of a switch in a fixed network, and indeed some mobile aggregators argue that because of this, possession of an SMSC makes them the equivalent of a fixed operator with a switch, such as Invomo. In the mobile value chain, those without access to SMSCs are often called ‘application providers’. One example is the specialist video service provider D2See. As in the fixed market, there is reselling by aggregators, service providers and content/information providers. The proportion of revenues that goes to the information provider is usually comparable for fixed and mobile services (see figure 3.7 and 3.8), assuming that the operator or service provider is not providing additional service or content. For example, a 150p message will provide 91-100p, depending on operator and volume compared with up to 92-94p from a fixed line (the exception being Virgin mobile – see ‘notes to figure 3.8’). However, the fees for set-up and number renewal, even for shared common short codes, are much higher than for fixed (09x) numbers.

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3.3 Although the phone-paid services market is in decline, some service types, means of access and payment mechanisms are faring better than others Although consumer survey results suggest that the number of people who have accessed phonepaid services over the past six months has increased, compared to the same period last year, the overall size of the phone-paid market has declined (evidence from stakeholders and out-payments data supports this). In order for the industry to limit further decline, it will be necessary to consider how to market more effectively, to improve trust and to consider new types of service and payment mechanism. The current situation with regard to marketing and trust are discussed in the following two chapters, while new services and payment mechanisms are the subject of Chapter 5. Of all the phone-paid services, directory enquiries and adult content appear to be faring best in terms of usage levels, although they both face a competitive threat from Web-based content and other free alternatives. Use of adult services has been bolstered by growth in adult video content accessed via mobile. Access to phone-paid services via mobile phones is growing in importance relative to access via fixed lines. This change is attributable to factors including the bigger range of services that can be offered via mobile, greater flexibility in pricing structures and payment mechanisms, and consumer preference for mobile phones, as they are often more convenient and are more discrete for accessing some types of content (e.g. adult content, gambling). Key issues inhibiting more rapid growth in the use of phone-paid services via mobile phones are that mobile prices for phonepaid services are not regulated and that premium rate SMS is vulnerable to scams and suffers from revenue leakage. Voice and video short codes are likely to become more widespread since O2 introduced them on its network (so that users on all mobile networks now have access to this facility) in September 2008. Voice and video short codes are likely to be popular with consumers, as prices are more transparent than those for calling 09x numbers and the codes are easier to remember. Although the views of stakeholders are mixed, consumer survey data suggests billing-based payment mechanisms, such as Payforit, have yet to make a significant impact on the market.

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4 Marketing and promotion of phone-paid services Although most service providers thought advertising of phone-paid services was adequate, only a minority of consumers consider advertising of phone-paid services to be accurate and informative. TV advertisements are the most significant marketing mechanism for phone-paid services overall, although Web advertising is more important for some phone-paid services (including premium rate music downloads, mobile gaming, gambling, tarot/horoscopes and premium rate MMS). This section covers, in turn, consumer and stakeholder perceptions of advertising, before arriving at a set of balanced conclusions about the marketing of phone-paid services.

4.1 Most consumers read advertising about phone-paid services, but only a minority of them believe this to be accurate and informative

4.1.1 Over half of consumers are reading advertisements about phone-paid services 61% of consumers reported that they read advertising material about phone-paid services and 17% read advertising about phone-paid services most of the time or always. As expected, existing users of phone-paid services are more likely to read advertising about phone-paid services (see Figure 4.1). Around 50% of non-users currently read advertisements for phone-paid services and 15% of this group read advertisements ‘most of the time’ or ‘always’. This indicates that a significant proportion of non-users have a degree of receptiveness to phone-paid services, but it also shows that these advertisements are not sufficiently compelling to lead individuals to start using phone-paid services.

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Non-user Not at all Sometimes Most of the time Always User

0%

20%

40%

60%

80%

100%

Proportion of respondents

Figure 4.1:

Frequency with which those who use phone-paid services and those who do not read advertising about phone-paid services [Source: Analysys Mason, 2008]

Base: all respondents ( n = 3002). Question: With regard to the advertising material that is used to provide further information about premium rate services (e.g. description of the service and call charge information)< how often do you read this information?

For adults, the frequency with which respondents read advertising about phone-paid services does not vary by age group: 18% of adults across all age groups read advertising ‘most of the time’ or ‘always’. In the 11–17 age group, only 15% read advertising about phone-paid services ‘most of the time’ or ‘always’. Women are more likely than men to read advertising about phone-paid services either ‘most of the time’ or ‘always’, although the differences between genders are not large.

4.1.2 TV advertisements are the most important type of advertising overall for phone-paid services Across most services, TV advertisements were one of the types of advertising most likely to have led respondents to use a given phone-paid service.

Directory enquiries Nearly 50% of all people using directory enquiry services cite TV adverts as leading them to the use of that service. The next most likely type of advertisement to have led respondents to use directory enquiries was newspaper advertisements: 8% of directory enquiry users reported that this advertising medium led them to use the service. Those selling directory enquiries reported that the

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main channels are TV, newspapers and on-street advertisements (e.g. bus shelters). In addition to these, the information provider Yell, was reported to be using telemarketing, mail-shots and the Internet (especially its own Web site) to advertise its directory enquiry service to businesses in particular as both users and existing or potential clients.

Adult voice Users of adult voice services were also most likely to cite TV advertisements as the source of information that led them to use the service (cited by 18% of respondents); other advertising mechanisms, including numbers advertised as part of TV programmes (an example of this for a non-adult service would be the Big Brother voting line), newspaper magazine advertisements, advertisements on Web sites and other promotional literature (e.g. leaflets), were also important (each cited by 11–14% of respondents). For adult video and pictures, promotional literature (e.g. leaflets), were most likely to be cited as the source of information leading respondents to use the service (cited by 21%), while TV advertisements remained important (cited by 19%). Among stakeholders, one adult content provider and white-label adult content service provider used the Internet almost exclusively for its marketing activities. Another used predominantly TV for its adult services, with some SMS and print advertisements in national and local press. A third company, involved in adult chat, used predominantly the Internet, with SMS messages to customers informing them of new product offers. A fourth company reported that 80% of its sales revenue now comes from spontaneously repeating customers or those responding to SMS messages. The remaining 20% of this company’s adult service business came from new users responding to the remaining newspaper and magazine advertisements, compared to 80% two years ago. It has reduced its advertising spend by 85% over the past one to two years. This company predicts increasing use of SMS direct marketing by players in the adult services market.

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Competitions, voting, participation TV and red-button services For calls and SMS to quiz shows or voting lines and red-button services, TV advertisements and numbers advertised during TV programmes were the two most commonly cited types of advertisement that led to use of these services, as shown in Figure 4.2.

30% Calls to TV quiz shows

25% 20%

TV 'Red-button'

15% 10%

Figure 4.2:

Advert on website

Other promotional literature, e.g. leaflets

SMS to competition/voting lines Newspaper/magazine advert

0% Number advertised as part of TV/radio programme

5%

Calls to competition/voting lines TV advert

Proportion of respondents

35%

(09x) - any SMS TV quiz shows

Proportion of users of the listed phone-paid service for whom the stated advertising mechanism led them to make use of a given phone-paid service [Source: Analysys Mason, 2008]

Base: users of the listed phone-paid service (n varies between 172 and 387, according to the number of users of the listed phone-paid service). Question: For each question, please indicate all of the sources of information that led you to call one or another number offering that service.

Mobile entertainment content, gambling and tarot/horoscopes Exceptions, for which advertisements on Web sites rather than TV are most likely to lead to use of a phone-paid service, are SMS music downloads (including ringtones), premium MMS and mobile gaming and gambling. For all of these services, newspaper advertisement were next most likely to have led to a purchase of phone-paid services (see Figure 4.3).

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25%

SMS: music downloads

20%

Mobile gaming

15%

Gambling

10%

Tarot/horoscope Premium MMS

5%

Figure 4.3:

Other promotional literature, e.g. leaflets

Number advertised as part of TV/radio programme

Newspaper/magazine advert

Advert on website

0% TV advert

Proportion of respondents

30%

Proportion of users of the listed phone-paid service for whom the stated advertising mechanism led them to make use of a given phone-paid service [Source: Analysys Mason, 2008]

Base: users of the listed phone-paid service (n varies between 69 and 201, according to the number of users of the listed phone-paid service). Question: For each question, please indicate all of the sources of information that led you to call one or another number offering that service.

Premium rate news and text alerts For premium rate SMS news and text alerts, newspaper advertisements are most likely to be cited as leading to use of these services (cited by 13% of SMS news or text alert users) followed by TV advertisements, numbers advertised in TV programmes and ‘other promotional literature’, such as leaflets (each cited by 10–11% of users).

4.1.3 Only a minority of consumers find advertising about phone-paid services to be accurate or reliable. There is very clearly room to improve on consumer perceptions of advertising across all phonepaid services, considering that, on average, 46% of consumers found advertising about a given phone-paid service to be misleading, poorly described or lacking in contact details. On average, 15% of respondents found advertising about a given phone-paid service to be fairly accurate and informative or very accurate and informative, while the rest did not know (see Figure 4.4).

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45%

Misleading

Proportion of respondents

40% 35%

Poorly described

30% Lacking contact details (nonpremium help line and/or address) Fairly accurate and informative

25% 20% 15%

Very accurate and informative

10% 5%

Don't know

0% Overall PRS

Figure 4.4:

Respondents’ views on advertising of phone-paid services [Source: Analysys Mason, 2008]

Base: all respondents (n = 3002). Question: For each of the following services indicate whether you consider that in general advertising and marketing material is appropriate and honest, or inadequate or misleading? Note: in order to produce an overall PRS result, the results for the individual listed premium rate services were averaged with an equal weighting given to each.

The principal complaint about advertising of phone-paid services was that it was misleading. Those in the 11–17 and 55+ age groups are more likely than others to find advertising and marketing of phone-paid services misleading. Those in the 35–54 age group are more likely than others to state that phone-paid services are poorly described. Those in the 18–34 age group are most likely to find that advertising/marketing on phone-paid services is lacking in contact details; this age group is also most likely to find advertising and marketing on phone-paid services accurate and informative. Those in the 55+ age group are less likely than others to find advertising and marketing on phone-paid services accurate and informative. Men are more likely than women to find advertising about phone-paid services to be poorly described (16% of men compared with 14% of women). Men are also more likely than women to find phone-paid advertising/marketing lacking in contact details (13% of men compared with 10% of women). There is little difference between genders in the proportion who find advertising to be accurate.

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4.1.4 Advertising about directory enquiries is far more likely than other phone-paid services to be considered accurate and informative

Calls to competition/voting Calls to directory enquiries

TV 'Red-button'

SMS: music downloads SMS: news or text alert SMS TV quiz shows Calls to TV quiz shows SMS to competition/voting

Premium MMS

Mobile gaming

Other

(09x) - any

Gambling

Tarot/horoscope

Adult voice

50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Adult video/photos

Proportion of respondents

As shown in Figure 4.5, over 40% of consumers considered advertising about directory enquiries to be either ‘fairly’ or ‘very’ accurate and informative. This compares to less than 20% for all other services. Advertising about calls or SMS to competition/voting lines or TV quiz shows is next most likely to be considered accurate and informative, with 15 to 20% of users reporting this to be the case.

Advertising is accurate and informative

Figure 4.5:

Proportion of respondents that regarded advertising for the listed service as either fairly accurate and informative or very accurate and informative [Source: Analysys Mason, 2008]

Base: all respondents (n = 3002). Question: for each of the following services indicate whether you consider that in general advertising and marketing material is appropriate and honest, or inadequate or misleading?

4.2 Although stakeholders felt the current state of marketing was adequate, they recognised the importance of price transparency in advertised content Many service providers thought that, in general, the current state of advertising and promotion was adequate. One content production company commented that it had seen, “nothing to complain about for months – free video clips are free, and so on.” However, one issue reported by stakeholders was that many consumers never read the terms and conditions, and some felt that there should be a change in the code requiring that all fees and charges additional to the PRS call charges should be displayed next to the call rates. This, for

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UK Phone-paid services market: current conditions and future trends | 31

example, would tend to eliminate the “very sharp practice” or “scam” of the non-returnable ‘joining’ or ‘administration’ fee, typically GBP10, for signing up deliberately or accidentally to a subscription service. Adult service providers believed that theirs was a segment with generally very good standards. In their view, this was partly due to close scrutiny by PhonepayPlus and others, but also to the efforts of the majority of service providers and content resellers. Some such companies now have terms and conditions that impose a contractual obligation on information provider clients to submit all advertising copy for approval and written consent before it can be published; one example is Call Republic Ltd (trading as Premium Rate Income). 13

4.2.1 The advertising of adult services raised specific issues Only one adult services provider company said that it had had advertisements declined frequently by newspapers. “Newspaper editors are sometimes very twitchy aboutPhonepayPlus; recently, one national paper told us we had to stop using the word ‘horny’ in ads.” Another adult services provider commented that, in general, companies like his were very careful about advertising; however, in his view PhonepayPlus was sometimes harsh in dealing with the occasional genuine mistake and no allowance was made for typos or for a newspaper employee setting the font size too small. An experienced service provider and NTS vendor raised concerns around some activities in relation to the use of SMS direct marketing for adult entertainment: “Some unscrupulous companies are publishing ads offering a free chat service – it is indeed free, but during the call the companies collect information on the caller – what their interests are, what job they do, their postcode, age, what car they drive, etc., which is very valuable information when matched with the mobile number[from caller line identification]. The callers to such ‘free chat’ numbers do not realise how much information they are giving away. It is possible to buy these databases over the Internet. The caller can then be sent an ordinary rate SMS giving details of various sexual entertainment services. These can be on a premium line, but more commonly require a credit or debit card holder to call a geographic number. “Even if they’re on a premium rate number, PhonepayPlus never knows about them because they don’t advertise; so there’s no control at all, and little protection for the consumer.” There is considerable potential for consumer harm, and not just via abuse of phone-paid services. The respondent believed that there should be a licensing scheme for companies selling such databases. That view was echoed by another experienced service provider, for similar reasons. It no longer actively promotes virtual chat services; a number of providers, “seem to operate these solely to 13

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See http://www.premiumrateincome.co.uk/terms_and_cond.php.

UK Phone-paid services market: current conditions and future trends | 32

generate databases of mobile numbers for direct marketing of other services – this is a different business model.” [Service provider and NTS vendor]. This respondent also believes that database creators and sellers should be required to have a licence and be registered. These ‘free chat’ offers may be disseminated by leaflet drops, so they would be virtually invisible throughout. One respondent commented that VoIP services posed a potential problem in this context, because a number of these operated as closed groups or clubs and would seem to fall outside of the regulations. “There are a lot of companies who would be happy to provide billing platforms for such services.” [Service provider and NTS vendor] A brief perusal of a small, random selection of Web sites offering UK mobile number databases along with (vaguely described) information on the phone owners was unsettling – there seemed to be no mention of whether these people had opted-in, nor consented to having this information sold to third parties. There may, therefore, be breaches of the Data Protection Act 1998 and/or of the Privacy and Electronic Communications EU Regulations 2003.

4.2.2 Very few information providers interviewed ran special promotions One provider of adult services said that it was, “very wary of falling foul of regulations”. Another said it did not need to run special promotions. A provider of adult chat and dating services said that it occasionally offered the free introductory use of a new service to existing customers. One information services provider occasionally runs time-limited SMS (not voice) promotions during which texting a specific keyword to a short code gives the caller a discount for an enquiry.

4.2.3 Business-to-business advertising mainly takes place via the Internet and trade journals For service providers and aggregators, the key advertising channel was the Internet, with some use of advertisements in trade journals, of which there are only 40–50 in the UK. There are even fewer network operators (especially in mobile) so their Web sites (and, doubtless, proactive sales to large end-user clients), together with industry journals, are the most important to them. For operators and service providers, word-of-mouth can also be an important factor, as in any other business sector. One point we observed concerning marketing was that companies selling white-label live or recorded voice entertainment services generally offer these on at least two and often three different tariffs. An identical service might be available on 60, 100 and 150ppm number ranges. While this offers the client company the choice between potentially low-margin, higher-volume calls and higher-margin, lower-volume call business models, it is an intriguing question as to how many users of these services realise that identical services are being supplied at such very different

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charge rates. Although this is not a cause of consumer harm, discovery of this fact would probably tend to increase dissatisfaction with and mistrust in phone-paid services.

4.2.4 There is currently more interest in mobile Internet advertising than in technologies such as 2D (QR) for advertising phone-paid services

Players are keen to advertise on mobile Internet Web sites, but prices are currently too high In the mobile sector, an issue was raised about the shortage of advertising space (‘inventory’) on mobile Internet Web sites, which has led to few opportunities to advertise, combined with high prices. “There is a shortage of mobile [advertising] inventory. We want banners on mobile Web sites, but these are all booked out, which leads to high prices especially on 3G-centric or adult-centric Web sites.” [D2See]

The problem of limited mobile Internet advertising space is not confined to the UK; for example, in an interview in Silicon.com in June 2008, Andrew Fisher, the CEO of Shazam, commented that the lack of inventory meant that advertising space cost three times more than on the fixed Internet. 14 Mr Fisher took the view that at this stage mobile (Internet) advertising was in a chicken-and-egg situation: advertisers did not want to risk allocating much budget to mobile, as usage was still quite low, so there was not a great incentive to increase the available space. “There’s not the installed base or the reach into the market for the advertiser to design a really large mass-market campaign.” This is an intriguing issue, since with the advent of flat-rate mobile broadband and the launch of highly capable handsets (like the iPhone, the G-phone and other smartphones with improved displays and QWERTY keypads) mobile Internet usage may grow significantly over the next few years, perhaps as the fixed Internet grew in its early years. With operators including Vodafone, O2 and 3 imposing the condition that all WAP transactions must be made via Payforit, the availability and affordability of advertising space for conventional PRS services may become a significant limiting factor in mobile PRS use.

Interest in 2D (QR) technology is currently quite limited Within the context of advertising, 2D (QR) technologies may appear on billboards, magazines, business cards, etc. Those interested in the service being advertised can scan the code with a 14

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See http://networks.silicon.com/silicon/networks/mobile/0,39024665,39243422-1,00.htm.

UK Phone-paid services market: current conditions and future trends | 34

camera phone, causing the phone’s browser to launch and redirect to the URL for the advertised service (as the URL information is stored in the QR code). Only two service/content providers expressed interest in 2D (or QR) codes. One adult services provider thought this was an interesting technology and was in discussion with a specialist company, but still had issues with screen resolution. He had observed that quite a number of ‘free chat’ offers incorporated 2D/QR codes. Another thought the technology interesting, but had no immediate plans to launch it.

4.2.5 Stakeholders felt that rebranding of ‘premium rate’ services to ‘phone-paid’ services would have little impact on how the industry was perceived A frequently expressed, and sometimes strongly held, view was that rebranding would make little or no difference. One respondent felt that the image of phone-paid services was so poor as a result of bad publicity that consumers would remain suspicious whatever was done. Another thought that the choice of name was very unhelpful, “PhonepayPlus was an awful choice; consumers just don’t get it.” Several contributors expressed concern about the largely negative tone of announcements by Ofcom and, especially, by PhonepayPlus. They felt that this gave consumers the impression that the industry in general was highly suspect, and did little to promote confidence. There was a lack of balance, in their view. One respondent believed that there was a need to put issues in context in press releases; for example, if mobile premium SMS complaints had risen to 7,000 - 8,000, how many messages were involved (as some complaints involved several messaged to one individual complainant), and what fraction these were of the total number of messages during the same period. Another said that there was a need to promote the useful aspects of phone-paid services, and several pointed out that only a minority of information providers cause harm. “The TV scandals created a PRS maelstrom, it was the straw that broke the camel’s back. They [the regulators] should be enthusing about PRS, not just regulating against it and highlighting bad practice and rip-offs by the minority. They need a rethink." [Service provider and NTS vendor].

Many contributors expressed views concerning price transparency. They felt that this was the paramount issue in both consumer lack of trust and consumer harm (the latter is discussed in more detail in Section 5.2 ). “A significant consumer issue is confusion on pricing. This has been increased, rather than reduced, by recent changes in number ranges and codes of practice. Consumers generally do not understand either the benefits or the costs of using PRS. Consumers will be suspicious whatever the industry does.” [118118]

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In this context (as well as in that of consumer harm), price transparency was repeatedly emphasised as the most important factor. A number of respondents raised the issue of the mobile surcharge on calls to 09x numbers and expressed frustration that the regulators had not acted. Another service provider commented on the prominent publicity about fines, and about the level of fines. He thought that PhonepayPlus should consider its role carefully. “A good sheepdog does not bite the sheep. Do 200k fines actually help? PhonepayPlus needs to look more at prevention and emphasise more policing the industry, rather than punishing it. Huge fines grab the headlines, but give consumers a negative impression of premium services.” [NTS vendor and service provider]

4.3 There is room for improvement in the marketing of phone-paid services Advertising of phone-paid services is reaching both users and non-users, although only a minority of consumers consider it to be accurate and informative. Both stakeholders and regulators therefore need to find ways to increase confidence in advertising and to make it more informative. Stakeholders feel that the regulators could do more to promote a positive image of phone-paid services. TV advertising is the main marketing mechanism for directory enquiries and most other phonepaid services, although Web-based advertisements are more likely to have attracted users to a number of predominantly mobile entertainment services.

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UK Phone-paid services market: current conditions and future trends | 36

5 Public perception of phone-paid services A lack of accurate pricing information/price transparency, and the impact of the recent TV scandals lie at the heart of problems surrounding public perception of phone-paid services. This chapter examines these and other issues, with a particular focus on consumer trust. It captures feedback from the consumer survey on issues relating to trust, and also stakeholder views on this important area. The first section of the chapter, which draws on results from the consumer survey, covers: • • • •

levels of consumer trust mistrust as a reason for non-use determinants of trust complaints and overcharging.

The second section of this chapter sets out stakeholder views on factors determining trust in phone-paid services amongst consumers. The final section considers consumer and stakeholder views together to produce a summary of key findings about the public perception of phone-paid services.

5.1 More accurate pricing information could help to improve public trust, which is currently low in more than half of consumers 5.1.1 Over 50% of consumers lack trust in phone-paid services, but fewer than 25% cited lack of trust as a reason for not using them Consumer survey findings suggest that more than 50% of the public lack trust in phone-paid services, and that less than 20% consider these services to be trusted or very trusted (see Figure 5.1). The 18–34 age group is most likely to have a medium or high level of trust in phonepaid services, followed by the 11–17 age-group.

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UK Phone-paid services market: current conditions and future trends | 37

Age group

55+

35-54 Low trust or not trusted at all Don't know Medium/very trusted

18-34

11-17

0%

20%

40%

60%

80%

100%

Proportion of respondents

Figure 5.1:

Respondents’ stated level of trust of phone-paid services [Source: Analysys Mason, 2008]

Base: all respondents (n = 3000) split into age-groups. Question: Here is a list of Premium Rate services, Please indicate which you do use, then indicate how trustworthy you consider each of these services (whether you use them or not) [not trusted at all, low trust, medium trust, very trusted]. Note: the chart above shows the average result across all premium rate services, with an equal weighting given to each.

Trust levels by service type As expected, non-users have a higher level of distrust in phone-paid services than users (see Figure 5.2). Amongst non-users, premium rate gambling, tarot/horoscope, adult services and SMS music download are least trusted. For users, adult voice, 09x and calls to competition/voting/TV quiz show lines are least trusted.

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UK Phone-paid services market: current conditions and future trends | 38

Proportion of respondents

80% 70% 60% 50% 40% 30% 20% 10%

User Figure 5.2:

Directory enquiries

Other

Premium MMS

Mobile gaming

TV 'Red-button'

SMS music download

Tarot/horoscope

Gambling

Adult video/photos

Calls to competition/voting Calls to TV quiz shows Billing-based mobile payment SMS to TV quiz shows SMS to competition/voting SMS news or text alert

(09x) - any

Adult voice

0%

Non-user

Proportion of user and non-user respondents stating the listed service is ‘low trust’ or ‘not trusted at all’ [Source: Analysys Mason, 2008]

Base: all respondents (n = 2789 to 2974, except for other category, where n=509) split into users and non-users. Question: Here is a list of Premium Rate services, Please indicate which you do use, then indicate how trustworthy you consider each of these services (whether you use them or not) [not trusted at all, low trust, medium trust, very trusted, don’t know]

As shown in Figure 5.3, there is an apparent relationship between trust and usage, although this does not of itself tell us whether trust determines usage, or whether indeed usage may affect trust. 35% Directory enquiry services

Proportion using the service

30% 25% 20% 15%

Adult voice and video, tarot/horoscopes and gambling

10% 5% 0% 0%

10%

20%

30%

40%

50%

Proportion stating the service is not trusted at all

Figure 5.3:

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Relationship between service usage and trust [Source: Analysys Mason, 2008]

60%

UK Phone-paid services market: current conditions and future trends | 39

Base: all respondents (n = 3002). Question on usage (y-axis): Have you used any of these [listed premium rate services] in the last six months? Question on trust (x-axis): Here is a list of Premium Rate services, Please indicate which you do use, then indicate how trustworthy you consider each of these services (whether you use them or not) [not trusted at all, low trust, medium trust, very trusted]

Despite the relationship between usage and trust, only 25% of people or fewer cited lack of trust or bad publicity as a reason for not using a given phone-paid services; lack of interest and price were much more commonly cited reasons for non-use (see Figure 3.2). Respondents were most likely to cite lack of trust or bad publicity as a reason for non-use of competition and TV quiz services (see Figure 5.4), clearly reflecting the impact of the TV scandals. Tarot/horoscope services are quite badly affected by lack of trust, although this appears to be due to an inherent lack of trust in this type of service and content, rather than to bad publicity. Respondents were least likely to cite lack of trust as a reason for not using factual information services. Competition and TV quiz services have been significantly affected by bad publicity

25% 20% 15% 10% 5%

Bad publicity

Figure 5.4:

SMS: news or text alert Calls to directory enquiries

Premium MMS

Mobile gaming

Other

SMS: music downloads

TV 'Red-button'

Adult voice

Adult video/photos

Gambling

(09x) - any

SMS TV quiz shows SMS to competition/voting

Tarot/horoscope

0% Calls to TV quiz shows Calls to competition/voting

Proportion of respondents

30%

Do not trust this service

Proportion of those not using the listed phone-paid service who said that ‘bad publicity’ or ‘do not trust this service’ was an important factor [Source: Analysys Mason]

Trust in payment mechanisms The consumer survey ascertained respondent views on levels of trust in the following types of payment mechanism: • • • •

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Telephone banking (fixed line) Internet banking (fixed line) e-commerce (i.e. payment over Internet by credit or debit card) m-commerce (i.e. payment over mobile Internet by credit or debit card, or from a PayPal account)

UK Phone-paid services market: current conditions and future trends | 40

• •

Automated payment card e.g. Paypass, Oyster – allows small payments (5p - £10) by simply touching the card to a terminal without the need to enter a PIN number) Mobile banking and mobile payments - when SMS messages transfer money from your bank or credit card to another person or to pay for goods and services

Ratio of those with low/no trust to those with medium/high levels of trust

Newer payment mechanisms, including mobile banking, automated payment cards (such as the Oyster card) and m-commerce are less trusted than more established fixed-line payment mechanisms (see Figure 5.5). It is also noteworthy that for fixed line payment mechanisms (fixed line telephone and Internet banking and e-commerce), levels of trust are higher amongst older people than amongst younger people, whereas for mobile payment mechanisms (m-commerce, automated payment card and m-banking and m-payment), levels of trust are significantly higher amongst younger age-groups (see Figure 5.5). 300% Levels of distrust are much higher for mobile payment mechanisms than for the older more established fixed payment mechanisms

250% 200% 150% 100%

18-34 35-54 55+

50%

m en

t

d ar m -p an d

M ob

ile

Au t

ba nk

om

in g

at

ay

tc en ym pa

ed

m -c om m er

ce

er ce

eco m m

ki ng an

in g nk

In te rn et b

ba ne ho le p

(fi x

(fi xe d

ed

lin

lin

e)

e)

0%

Te

Figure 5.5:

11-17

Ratio of those with low trust / no trust at all in the stated payment mechanism to those who have medium or very high levels of trust in the stated payment mechanism (values over 100% indicate that there are more people with low trust or no trust than there are with medium or very high levels of trust in the listed payment mechanism) [Source: Analysys Mason, 2008]

Base: all respondents (n = 3002) split into age groups. Question: Here is a list of telephone banking and remote payment systems, Please indicate how trustworthy you consider each of these services ( whether you use them or not),. [not trusted at all, low trust, medium trust, very trusted, none]

As with different types of phone-paid service, there is a strong link between usage of remote payment mechanisms and levels of trust (see Figure 5.6 below).

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UK Phone-paid services market: current conditions and future trends | 41

Proportion of respondents using listed payment systems

50% Internet

45%

e-commerce

40%

Telephone banking

35% 30% 25% 20%

m-commerce

Mobile banking/ payments

Automated payment card

15% 10% 5% 0% 0%

5%

10%

15%

20%

25%

Proportion of respondents indicating the listed payment system as 'not trusted at all'

Figure 5.6:

Relationship between usage levels for remote payment systems/telephone banking and trust [Source: Analysys Mason, 2008]

Base: all respondents (n = 3002). Question on usage (y-axis): Have you used any of these [listed premium rate services] in the last six months? Question on trust (x-axis) Here is a list of Premium Rate services, Please indicate which you do use, then indicate how trustworthy you consider each of these services (whether you use them or not) [not trusted at all, low trust, medium trust, very trusted].

5.1.2 More than 40% of consumers said that accurate pricing information would help improve trust Overall trends For users and non-users alike, accurate pricing information is the single most important factor that will help to improve trust, with around 40% of phone-paid service users citing this as a factor that would help improve trust (see Figure 5.7). For approximately one in four existing users of phonepaid services, having a respectable service provider would also help to improve trust.

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UK Phone-paid services market: current conditions and future trends | 42

45%

Proportion of respondents

40% 35% 30% 25%

non-user

20%

user

15% 10% 5% 0% Accurate pricing information

Figure 5.7:

Keeping my Respectable Service personal service provider is details provider responsive to confidential my requests

Other:

The proportion of respondents (users and non-users of listed phone-paid services) for whom the listed factor would help improve trust [Source: Analysys Mason, 2008]

Base: all respondents (n = 2998). Question: For each of the following services indicate what would help improve the level of trust you have in them.? Note: to produce an overall figure for premium rate services, the results for each of the individual listed premium rate services were averaged, with an equal weighting given to each service.

Different age groups have differing opinions on the factors they consider would improve trust (see Figure 5.8). Opinions in the 55+ age group differ the most from those of other age groups: this age group is less likely than others to name accurate pricing information as a factor that would help improve trust, and are by far most likely to state ‘other’ factors.

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UK Phone-paid services market: current conditions and future trends | 43

45%

% of respondents

40% 35%

Age group:

30%

11-17

25%

18-34

20%

35-54

15%

55+

10% 5% 0% Accurate pricing information

Other

Respectable service provider

Keeping my personal details confidential

Service provider is responsive to my requests

Factors that would help improve trust

Figure 5.8:

Proportion of respondents (by age group) for whom the listed factors would improve the level of trust in phone-paid services [Source: Analysys Mason, 2008]

Base: all respondents (n = 2998). Question: For each of the following services indicate what would help improve the level of trust you have in them.? Note: to produce an overall figure for premium rate services, the results for each of the individual listed premium rate services were averaged, with an equal weighting given to each service.

Differences between men and women are less noticeable; the most significant differences being that a higher proportion of women than men consider accurate pricing information to be important for improving trust, while approximately 4% more men than women attach importance to having a respectable service provider. Trends by service category As shown in Figure 5.9, the factors that would help improve trust do not vary greatly between different phone-paid services. For adult services, gambling and tarot, accurate pricing information is less likely to be considered a factor that would help improve trust than for other services.

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UK Phone-paid services market: current conditions and future trends | 44

Factors that would help improve trust

Service provider is responsive to my requests

6.4% Gambling

Keeping my personal details confidential

7.6% 12.3% Red Directory buttonenquiries

13.2% Directory enquiries Respectable service provider

16.1% Adult video or photo

15.7% Directory enquiries Other

18.5% 09x any, TV quiz shows

13.3% Directory enquiries Accurate pricing information 0%

5%

10%

15%

20%

24.9% Adult video or photo

25%

35.0% Adult video or photo 30% 35%

42.2% 45.5% Music Directory enquiries downloads 40% 45% 50%

% of respondents

Figure 5.9:

Factors that would help improve trust: range of results for different phone-paid services. Phone-paid services with the highest and lowest proportion of respondents are labelled for each factor, plus any outlying results [Source: Analysys Mason, 2008]

Base: all respondents (n = 3002). Question: For each of the following services indicate what would help improve the level of trust you have in them.?

Directory enquiries is the only service with a profile notably different to that of other phone-paid services. Compared to other phone-paid services, a higher proportion of respondents stated that accurate pricing information and responsiveness to requests would improve trust. Service provider respectability, ability to keep details confidential and ‘other’ factors were less frequently cited as factors that would help improve trust for directory enquiries than for any of the other services.

5.1.3 Problems with billing and overcharging are very frequent for some services We have already seen that accurate pricing information is cited by around 45% of users and nonusers alike as a factor that would help improve trust. The high proportion of users who have had to complain about incorrect billing or overcharging 15 adds further weight to this argument. The worst-affected services include adult content, tarot/horoscope and gambling, as shown in

15

In this report, “consumers who have had to complain about incorrect billing or overcharging” does not refer just to those who have made complaints to PhonepayPlus. Our findings on this area are derived from the consumer survey where the question wording was as follows: "For any of the services that you have used in the last 6 months, have you ever had to complain about incorrect billing or overcharging?" With regard to who the complaints were made to, respondents were free to interpret the question as they felt appropriate. Given the context, we would expect most people to be referring to complaints they made to the company from whom they received the bill for phone-paid services, i.e. their mobile or fixed network operator. It could equally be a service provider, broadcaster (in case of TV quiz shows) or Ofcom or PhonepayPlus, for example.

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UK Phone-paid services market: current conditions and future trends | 45

70% 60% 50% 40% 30% 20% 10%

Figure 5.10:

Premium MMS

Calls to TV quiz shows SMS TV quiz shows Calls to directory enquiries Calls to competition/voting SMS to competition/voting

TV “Red-Button”

SMS: music downloads

(09x) - any

SMS: news or text alert

Other

Mobile gaming

Adult voice

Billing-based mobile payment

Gambling

Tarot/horoscope

0% Adult video/photos

Proportion of all using service that have had to complain about incorrect billing or overcharging

Figure 5.10. Apart from the services that have been badly affected by TV scandals, services with a high level of complaints about billing are those for which lack of trust is most likely to be a deterrent to use. This could well be because these services have a bad reputation for billing and overcharging, (perhaps in part because of unexpected mobile surcharges,) especially given that accurate pricing information is the single biggest determinant of trust (see Figure 5.7).

Of those using the listed service, the proportion who have complained about incorrect billing or overcharging [Source: Analysys Mason, 2008]

Base: respondents using the listed service (n varies between 13 (other) and 928 (calls to directory enquiries), depending on the service). Question: For any of the services that you have used in the last 6 months, have you ever had to complain about incorrect billing or overcharging?

5.2

Bad publicity and price transparency were the two issues that most concerned stakeholders in relation to trust and consumer harm Stakeholders felt that a lack of price transparency was having a significant negative impact on consumer perceptions of phone-paid services. Bad publicity caused by the TV scandals, and also that caused by a small minority of information providers was also a significant problem.

5.2.1

Lack of price transparency is a key issue in both consumer harm and consumer confidence “The problem is that consumers don’t read the T&C. Price transparency is the key point and here prescriptive regulation is essential” [Enarpee]

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UK Phone-paid services market: current conditions and future trends | 46

Price transparency is seen as, “an over-arching issue, scams and frauds depend on price obfuscation.” It was ‘well-recorded’ that consumers infrequently read terms and conditions, even when these were explicitly and clearly laid out. A stakeholder commented generally that, “People are very opinionated on the cost of calls but many, perhaps the majority, don’t actually know what they cost.” [118118] A particularly difficult issue was that of the mobile surcharge, which was widely considered to be a source of consumer mistrust of bill shock, and was also regarded by some as a cause of actual consumer harm. The surcharges were criticised by stakeholders at all positions along the value chain, apart from mobile operators. “..the single biggest issue damaging consumer confidence and causing harm is the MNO [Mobile Network Operator] surcharge issue. MNOs impose arbitrary surcharges over and above their interconnection costs. This is a major failure of price transparency. Consumers don’t know what a call will cost, and often they can’t find out either. For example, I called T-Mobile and asked what a 1.5-minute call to a GBP1-per-minute line would cost me and they couldn’t tell me. Broadcasters are addressing this issue as best they can, giving warning such as ‘calls from mobiles may cost considerably more’.” [Service and content provider] It should be noted, however, that it is not only mobile operators that apply surcharges to premiumrate numbers. For example, for an 09x call on band p0, which costs 150ppm from a BT line, TalkTalk charges its customers 165ppm, and AdEPT Telecom charges customers on the ‘Hometalk4free’ tariff 175 ppm plus a 0.04p set-up charge. 16 , 17

5.2.2

TV scandals affected the whole phone-paid services sector Most respondents felt that the publicity and resultant loss of confidence had resulted in widespread loss of trust in, and a resultant drop in, use of almost all phone-paid services. “The Blue Peter scandal was totally unexpected. This and the other rip-offs tainted the whole PRS market. Media exposure is the worst type of exposure; media companies, especially TV companies, hound each other. For example, Eckoh is thinking of countersuing Channel 4 over the Richard and Judy affair, so there is ongoing bad publicity even after two years.” [Network operator and service provider] An exception to this was directory enquiries (DQ). One information services provider told us that no caller had ever referred to the TV scandals, “People do not associate DQ with PRS”. [118118]

16

17

For information about TalkTalk, see http://media.talktalk.co.uk/sites/TalkTalk/Static/Home/Assets/prices.pdf. For information about AdEPT, see http://www.adept-telecom.co.uk/Text/1107304674137-2386/uploadedFiles/11950287078411028.pdf

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UK Phone-paid services market: current conditions and future trends | 47

5.2.3

Stakeholders felt that bad publicity caused by a small minority of information providers is damaging consumer trust Stakeholders felt that a minority of rogue information providers were damaging the reputation of the industry. Overwhelmingly, the stakeholders interviewed asserted that the great majority of people in the phone-paid services industry were, for example “honest and good people”, and that it was only a small percentage of rogues who caused harm, sometimes serially by ‘service-provider hopping’. It was also a broadly held view that the rogue information providers would not be deterred by heavier regulation – they disregarded the rules in any event, and, if they read the various codes, it was only to try to find loopholes. Service providers, operators, information providers and the public did not want such people in the industry.

There is significant scope for improving levels of trust in phone-paid services Levels of trust in phone-paid services are low in more than half of consumers, and 10–25% of those not using a specific phone-paid service stated that lack of trust was an important reason for not using it. If lack of trust as a barrier to use could be overcome, phone-paid service revenue could potentially be improved significantly. Accuracy of pricing information is a key factor that could help improve trust. This is likely to be particularly important for adult services, tarot and gambling, which are the least trusted of all services, and where more than 30% of existing users report having complained about billing or overcharging. Industry stakeholders support greater price transparency and are particularly concerned by the bad publicity caused by a small number of rogue information providers. The mobile surcharge was also cited a source of consumer mistrust. As expected, competition, voting and TV quiz show services have suffered as a result of bad publicity with 20–25% of users citing lack of trust and bad publicity as a reason for non-use. Reassuring messages are required from both broadcasters and regulators in order to help improve consumer trust in this area. Overall, the stakeholders interviewed felt that the most effective way to reduce consumer harm and improve levels of trust was to shift towards a more preventative regulatory framework.

20

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Phone-Paid Services: Today and Tomorrow, Fathom Partners on behalf of PhonepayPlus, 2007

UK Phone-paid services market: current conditions and future trends | 48

6 Size of the phone-paid services market in 2008

6.1 The market for phone-paid services has contracted by 15% between 2007 and 2008 Analysys Mason predicts a drop in the size of the premium rate market from GBP1.08 billion in 2007 to GBP920 million in 2008. This is a significant drop of 15% in the total market and is driven in part by the negative press generated by scandals in the participation TV market and regarding some mobile subscription services. As shown in Figure 6.1, directory enquiries is the largest single segment, worth just over GBP198 million this year (compared to an estimated GBP207 million last year 20 ). Adult services, if the voice, video and photo categories were combined, would be the second-largest service by revenue, worth an estimated GBP153 million in 2008. The combined market for calls and SMS to competition/voting lines or TV quiz shows is estimated to be worth GBP95 million in 2008.

200

198

150

76

73

69

68

67

54

50

Figure 6.1:

Tarot/horoscope

Premium MMS

TV “Red-Button”

Mobile gaming

Adult voice

0

30

29

27

22

21

16

16 Gambling

76

Calls to competition/voting SMS competition/voting Billing based mobile payment Calls to TV quiz shows SMS TV quiz shows

80

other

100

Directory enquiries Adult video/photos SMS: music downloads SMS: news/text alert

Revenue (GBP million)

250

Phone-paid services market size, by service category [Source: Analysys Mason, 2008]

Figure 6.2 presents the above information in terms of market share by revenue. As MMS may overlap with other categories such as adult voice/video, the total does not add up to 100%.

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Short name

Full name

Market share by revenues

Directory enquiries

Calls to directory enquiries (e.g., 118118) for a telephone number

21.6%

Adult video / photos

Premium rate services: adult video or photos

8.7%

SMS: music downloads

Premium SMS services ringtone or full-track music downloads

8.3%

SMS: news/text alert

Premium rate SMS services: news or text alert subscription services

8.3%

Adult voice

Premium rate services: adult voice; recorded or live services

7.9%

Mobile gaming

Game downloads to mobile and premium rate mobile internet gaming

7.6%

TV “Red-Button”

Use of the interactive TV "Red-Button" for chargeable services such as voting or to purchase goods that are billed to your telephone account

7.4%

Premium MMS

Premium MMS services e.g. photos or video clips

7.3%

Tarot/horoscope

Premium rate services: tarot or horoscope

5.8%

Calls to competition/voting

Premium rate calls to competition or voting lines

3.2%

SMS competition/voting

Premium rate SMS texts to competition or voting lines

3.0%

Billing-based mobile payment

Use of a billing-based mobile payment service, e.g. Payforit which charges purchases to your phone bill or phone credit (as opposed to your bank or credit card account)

2.4%

Calls to TV quiz shows

Premium rate calls to TV quiz shows

2.2%

SMS to TV quiz shows

Premium rate SMS texts to TV quiz shows

1.8%

Gambling

Premium rate services: gambling - all types

1.7%

Other

Other phone-paid services (including those premium rate calls 09x which are not captured in any of the above calling categories)

3.2%

Figure 6.2:

Market share of phone-paid services industry by service category [Source: Analysys Mason, 2008]

Overall, mobile phone-paid services (consisting principally of MMS/SMS (including shortcodes) and billing-based mobile payment and excluding directory enquiries) continue to represent an increasing share of the market, now accounting for around half of phone-paid service spend. Landline spend (excluding directory enquiries) now represents a little under one third of the market (assuming that it accounts for the great majority of voice revenues and all red button service revenues), with directory enquiries services taking up the remainder. Figure 6.3 provides an indication of revenues by payment mechanism for 2008.

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UK Phone-paid services market: current conditions and future trends | 50

500 450

430

Revenues (GBP, million)

400 350 300 250

202

200

198

150 100

68

50

22

0 SMS/ MMS Voice (excluding (excluding DQ) DQ)

Figure 6.3:

DQ revenues

Red-button

Billing based mobile payment

Phone-paid services market size by payment category [Source: Analysys Mason]

DQ refers to directory enquiries

6.2 The modelling methodology cross-referenced data from multiple sources The market size was derived from the recorded revenue in the first quarter and compared with revenue from the previous year. The fall in revenue observed was moderated slightly based on the views of a number of key industry stakeholders and the observation of some seasonal variations in the market. Individual services were sized as a percentage of the overall market. Results from a user survey identified the number of users of each service, along with the frequency of use. This allowed a median number of uses to be calculated for each individual service and, when combined with Analysys Mason’s knowledge of service costs, gave the market size for each service. Each service market sizing was then examined and compared with the opinions of the industry stakeholders interviewed for this project. This was done as a sense check to highlight any possible errors in the modelling methodology. Data on market size by payments category was derived from service category market sizing. Stakeholder interviews and outpayments data provided a cross-reference.

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7 Trends in the market for 0871 services Last year the Research Division of Analysys Mason carried out a major pre-consultation exercise on the 0871 market, which may be obtained from the PhonepayPlus Web site: http://www.phonepayplus.org.uk/pdfs_research/research_0871.pdf. This year, PhonepayPlus asked us to conduct a small review of the 0871 market in order to provide insight into how that market might be altering, as the change to regulation as a premium-rate service approaches. Ofcom has recently completed a consultation exercise on the changes in the regulation of the 0871 range and has published the responses of a number of major providers at: http://www.ofcom.org.uk/consult/condocs/087prs/responses/ and those responses should be read in conjunction with the stakeholder views discussed here, which should be regarded as complementary to the Ofcom consultation. We note here that several companies which took part in last year’s study on the 0871 market have already ceased to market, or to accept new customers for, 0871 and 0870 services.

7.1 Overview Amongst those stakeholders who felt able to comment, some stakeholders reported that there has been growth in 0871 usage while another reported that the usage of 0871 numbers had done down slightly. Balanced against the finding that some companies had ceased to market 0871 numbers or to accept new customers, it is not possible to draw firm quantitative conclusions about trends in the size of the 0871 market without conducting further research. Stakeholders with knowledge of the market for 08x numbers generally felt that the market for 084x numbers had shown strong growth while 0870 market is shrinking. A general response from stakeholders that still offered 0871 services was that the uncertainty about the date on which the changes in regulation would come into effect, and over the level of regulatory requirements, was still causing great confusion among 0871 users. SMEs, in particular, may not yet have understood or accepted that the situation could change significantly. Another factor was the end of revenue share on 0870. Some customers had moved, or were considering a move, to 0871 to retain revenue; others were moving to 0844 or 0845 despite the lower revenue share. In the latter case, this was in some instances to avoid the ‘stigma’ of operating a premium-rate service, in others it was due to the uncertainty about how onerous would be the regulatory requirements for 0871, or because customers did not want to come under a regulator that the clients viewed as the regulator of sexual entertainment services. In some instances, large clients were moving to 03x; one example cited was the BBC. Several respondents predicted that this range could become a more popular for larger clients as it becomes more

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familiar to consumers, especially if calls to this range are made part of bundled minutes, as Ofcom intends. Some companies are deciding to change their business practice as the changes in regulation approach. One stakeholder informed us that a large travel-sector operator had changed to an 09x number with the specific intention of discouraging calls in order to drive traffic to the online booking services on its Web site. This was aimed at reducing (staff) costs by an amount greater than the income from the previous revenue share. One respondent also reported that a large mailorder company had switched to 0800, apparently in the hope that consumers would find this more attractive and lead to increased sales that would compensate for the drop in revenue. According to one network operator dealing predominantly with large end-users, a key driver was how critical the revenue was to their operations. “All businesses see changes ahead in the regulation of 0871, but the revenue might be the pull. In industries with tight margins, such as the travel industry, the revenue is important.” [Network operator and service provider] Another network operator echoed these views; large companies are concerned about the stigma of PRS affecting their brands and are leaving 0871. Other companies are “tired of the uncertainty” about the changes in regulation; operators cannot offer them any certainty, either. “The damage [to 0871] is already done, partly because the assumption was made that most people on 0871 numbers would know what to expect, and they mostly don’t.” [Network operator and service provider] “This has not been handled well. There is still a lot of confusion in the market about when and how the change will happen. We have a large client who was thinking of moving to 0871 but is reluctant to do so because the regulatory issues and timetable are still up in the air” [Network operator and service provider] Just how small the margins in the travel industry are was dramatically illustrated in the week following the discussion cited above by the collapse of XL Travel, and by warnings from various sources that several other UK tour operators and airlines were at risk. Some other stakeholders were also concerned about potentially wider effects of worsening economic conditions on the phone-paid services market. A large stakeholder considered that many SMEs, especially those running technical support lines, would want to remain on 0871 as they need the revenue share; this respondent predicted that this would become an increasingly important issue, due to the current economic conditions, “There will be much higher pressure on revenue in six months’ time.” In contrast, a stakeholder predominantly supplying 08x to small SMEs (with 1–20 staff) commented that a lot of these companies were unhappy about the end of revenue share on 0870 and the uncertainties over 0871 regulation, and were abandoning NTS services in favour of geographic numbers; some were installing their own PBXs. This contributor predicted a drop of about 30% in the 0870 market this year and added that the general trend in usage of 08x revenue-

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share numbers was downwards. Many SMEs use NTS services without revenue share in return for value-added services, such as call routing or voicemail. It is unclear whether service providers would be willing to supply these services without charge on lower-rate call ranges such as 0844. The movement of such SMEs away from NTS could accelerate with the advent of business VoIP services. A number of relatively low-cost VoIP PBX systems can support services such as call routing or voicemail. Currently, the costs of a VoIP PBX and of a conventional small-business PBX are similar; for small businesses, the main barriers to take-up of VoIP are the lower reliability of DSL and the often poor voice quality of VoIP over broadband when networks are congested [Source: Analysys Mason Research, 2008]. We note that a trend towards use of VoIP PBXs could be accelerated by the introduction of the promised top-level ‘Real Time’ quality-of-service (QoS) band on BT’s WBC ADSL2+ services, which will prioritise VoIP traffic and hence potentially produce a significant increase in voice quality. BT Wholesale also claims that WBC ADSL2+ offers higher reliability and reduced repair times than standard ADSL products. If these claimed benefits materialise in real-world performance, VoIP may become an attractive alternative for many SMEs.

7.2 Complex migration issues are affecting the 0871 market As noted above, a number of respondents commented that they were already seeing migrations from 0870 in particular. However, there was no consistent pattern; this is partly because of the relatively small number of stakeholders in this study that currently offer 087x, and partly because these different vendors and service providers are targeting different business segments. A broadly held view was that migration from 0870, and that into or from 0871, has been put on hold by many companies of widely differing size and type because of the continued uncertainties and delays; these companies have adopted a ‘wait and see’ approach. Stakeholders had been informing and advising clients by email and telephone over the last 18 months; one stakeholder commented that some companies that had moved range early were 'annoyed” that they had spent what were sometimes considerable sums to change all their advertising, marketing material and stationery, only to see the status quo prevailing in 0870 and 0871. One large provider said that 0871 usage had grown slightly compared to last year; and that 0870 had dropped. However, the largest growth was in 0844. 0870 had dropped 15–20%, 0871 had grown by two-thirds, but 0845 had grown by a factor of 700% or 800%. The drop in 0870 minutes was close to the combined growth in 0871 and 0845 use; however, this could be fortuitous, as some large companies have moved to 0800 or 03x, others have churned to different service providers, and yet others are new clients. Several stakeholders commented that clients changing number range often used this as an opportunity to switch provider, particularly tending towards the smaller, newer providers. An NTS vendor and service provider also reported that 0871 was growing slightly – concerns included the “stigma of PRS” and the lack of access from overseas – but many companies were

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migrating from 0870 to 0844 despite the reduced revenue. 0870 use had dropped by almost 30%, while 084x traffic had quadrupled. However, overall 08x traffic was 20% lower than last year. The same stakeholder commented, “There is a minor effect, if any, of the recession as yet, but this is a bit hard to explain – call volumes are generally related to GDP, with no big variation.” [NTS vendor and service provider]. One possible explanation for this is that, although economic growth in the UK has fallen to approximately nil, GDP has not as yet fallen greatly. However, monthly statistics from the National Institute of Economic and Social Research suggest that there was a fall in output of about 0.2% in the calendar quarter ending in September 2008. 21 Another respondent told us that 0871 was declining, but, like other respondents, added that it was hard to get reliable estimates of the market as a whole. He believed that in the overall market, 0844 traffic had doubled in the last year, while 087x traffic had dropped by perhaps 50%. He did not think that there was much difference between customers of different size. A large NTS vendor and service provider predicted that users would increasingly migrate away from 0871, but it had not seen a great movement as yet, in line with other comments that many customers had decided on a “wait and see” policy until the delays and regulatory issues had been resolved. One medium-sized service provider, for which 08x is a small part of its business, said that it already had evidence for migration out of 0871 to 0845; again, however, this had not been a steady decline and the announcements of delays and U-turns had resulted in a slower migration, as clients put off the decision and hence the related costs of advertising and marketing, etc. However, recently a lot of its customers had been preparing to move, or enquiring about moving, to other ranges.

7.3 Operators, NTS vendors, service providers and end users remain concerned about regulatory uncertainties Some detailed comments on regulatory issues concerning the proposed changes in 0871 regulation can be found in the responses to Ofcom’s consultation exercise (cited at the beginning of this chapter). For example, it is still not clear whether the requirements for due diligence, particularly with regard to retrospective application to sometimes large numbers of existing customers, will be as onerous as those for 09x. Operators, NTS vendors and service providers alike expressed concern about the complexity of some of the regulations, and the likely difficulty some clients – many of which are very small companies – would have first in understanding the issues and then in compliance. The likely costs of compliance were also a major worry for small companies. One large stakeholder commented that many small companies have neither the resources nor the competence to deal with complex 21

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Source: http://www.niesr.ac.uk/pubs/searchdetail.php?PublicationID=2027

UK Phone-paid services market: current conditions and future trends | 55

regulations. A number of stakeholders emphasised that the potential for harm and the margins for both service providers and end-users were much smaller than for other premium-rate ranges, such as 09x. “SMEs on 0870 generally have to decide whether to move to 0871 and accept the regulatory burden, or move to 0844 with a smaller revenue share. They don’t yet know if 0871 regulation will be as onerous as for 09x. PhonepayPlus must spell out the 0871 regulations very clearly and simply. 0871 and 0870 are very different markets to 09x; there are a lot of small businesses on 087x, and an 84-page code is too complex for them. The key points should fill no more than 1 sheet of A4”. [Network operator and service provider]

“Many SMEs may drop out of phone-paid altogether. Are the regulators considering all the economic factors? I doubt it, the impact on especially the smaller companies seems to have been overlooked.” [ NTS vendor and service provider]

7.4 Stakeholders are concerned about the public perception of 0871 and related ranges Stakeholders active in the 08x market expressed concerns about public perceptions of the cost of these services, similar to those expressed by stakeholders about the public perception of phonepaid services in general. A number thought it unfortunate that pronouncements by the regulators tended to focus on negative factors, and that there was not enough emphasis on the uses and benefits of phone-paid services. One small NTS vendor and service provider said about the effects that regulatory announcements had had on public perceptions of 0870 and related ranges that: “Consumers think ‘08xx? Oh, that’s expensive’ and Ofcom says “We will reduce the cost…” giving the message to consumers that these numbers are expensive.” One network operator and service provider was reasonably confident about public recognition of some ranges, but less so about others. There was very high recognition of 0800 as a free call, at least from fixed lines. Possibly 40–50% recognised 09x numbers as premium rate. He went on, “There has been a lot of fuss over 0870, people are reasonably aware of the cost but probably not of the cost of 0871 or 084x. We encourage advertisers to consult the Committee of Advertising Practice code of practice 22 , which encourages publication of costs, as well as Ofcom and PhonepayPlus codes for regulated ranges. For 0871 publication of the cost will become mandatory under PRS regulations; this might influence the choice both of businesses [to use or not to use] and consumers [to call or not to call].” [Network operator and service provider]

22

The advertising codes are the responsibility of two industry Committees of Advertising Practice - CAP (Broadcast) and CAP (Nonbroadcast)

and

are

independently

administered

by

the

Advertising

Standards

Authority

http://www.asa.org.uk/cap/advice_online/advice_online_database/Show+Entry.htm?advice_online_id=476

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(ASA).CAP

website:

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A stakeholder addressing the general issue of price transparency and mobile surcharges in particular, commented that consumers were complaining that 08x numbers were not included in bundled minutes, especially on mobile. In his view, the mobile surcharges and lack of price transparency were causing general wariness about phone-paid services. This was not limited to mobile operators, however. “Consumers don’t know what it costs to call 03. BT operators give the wrong rates for 03 calls 5–10% of the time. 01, 02, OK, otherwise people are unsure of the rates”. [ NTS vendor and service provider] The issue of surcharges, especially by mobile operators, has been repeatedly raised as an issue both by stakeholders and consumers. This is seen as a cause of particular annoyance, or even of actual harm, to consumers, most frequently with regard to calls to 0800 and other 08x ranges. Mobile operators are generally opposing the Ofcom proposal that calls to most 08x and to 03 numbers should be included in bundled minutes. This is a matter for the regulators to resolve; however, we might note here that a primary concern for mobile operators is the risk of such numbers being used by third parties to provide indirect-access calling for the end-users, undercutting the mobile operators’ prices especially on international calls; the mobile premium1 in the UK is about 74%. 23 [source: Analysys Mason Research, 2008]

23

Source: Analysys Mason Research, 2008. Mobile premium refers to the difference between the average cost of calls made on mobile and those on fixed lines.

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8 Predicted growth and penetration of new products and services This chapter discusses the potential for new and emerging phone-paid services in the next 12 months. The potential for new fixed and mobile services are considered, as well as new mobile payment mechanisms.

8.1

There is limited scope for innovation in fixed line services In general, stakeholders were not optimistic about possible new phone-paid services. This was especially the case for fixed services, which is considered a mature market. The limitations on what could be offered over a fixed line – primarily live or recorded voice information or content services, and voting – meant that the possibilities had been explored for more than two decades and there was little scope for further innovation. One possibility raised was an increase of offplatform delivery; a caller would make a fixed-price call to have information or content delivered to an email address rather than to, for example a mobile phone. This could provide the user with a higher-quality listening or viewing experience than is possible on a handset. However, for much content – from ringtones to adult video – it is not clear why a user with a fixed Internet connection and who is prepared to wait, or who is already in the home calling on his landline would choose this option rather than simply downloading similar content free of charge from a variety of sources such as Web sites or Usenet. Advertisement-sponsoring of some services, such as directory enquiries, might change the market for a minority of services (and in doing so remove them from the phone-paid services sector) and is already being used for mobile gaming, but for major uses other than directory enquiries this development was seen as unlikely. Advertisers were regarded as extremely unlikely to want to advertise on or otherwise sponsor adult live or recorded services, or even recorded horoscope lines.

8.2 Providers are exploring opportunities around interactive TV While the interactive TV market has yet to recover from the scandals, two new services have been launched in the last 2 years or so, one as recently as a month ago. The first was called ‘Bedroom TV’. In this service, consumers – particularly those in the 18–30 age group, were invited to upload user-generated videos that would be screened on the Bedroom TV channel on Sky. Every Sunday, subscribers could vote for the different new videos (which could also be viewed via the Internet). Votes cost 100p. For 150p, subscribers could alert their ‘buddies’ that they had uploaded a new video. This service was not successful and ceased functioning earlier this year. Springdoo, the company behind Bedroom TV and which was also involved in other phone-paid services, such as gambling, has apparently withdrawn from all active involvement in premium services.

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The second service has just been launched. ‘WatchME TV’ is also broadcast on Sky. The format is similar to the first, but the business model is not yet clear. The Web site says use is “free for October”, and as yet no information is available about what happens thereafter. However, it has both Basket and Check-out pages (although neither seem to be functioning yet), so presumably some form of purchase will be involved. It remains to be seen whether the possibility of paying to have one’s video clip broadcast to a possibly rather small audience can compete with the likes of free services such as You-tube or Facebook.

8.3 In relation to mobile services, SMS-based information services and mobile video have potential for growth in the next 12 months In general, stakeholders were generally only slightly more optimistic about developments in mobile phone-paid services than those in fixed.

SMS-based information enquiry services One innovation that was regarded as both innovative and appropriate by a broad cross-section of the respondents was the introduction of ‘AskUsAnything’ by the DQ provider 118118. In this service, enquirers can text in a question and receive a prompt answer, for a fee of 35p. Respondents generally considered that this should generate worthwhile amounts of revenue, while providing a useful service. In respondents’ views, this service was appropriate for 118118 as it leveraged the core skills in database design and predictive searching that the provider had developed for directory enquiries. This enabled it to answer most questions automatically, with human intervention necessary only for more obscure or complex enquiries. One stakeholder was puzzled why people would use this rather than employ an Internet search engine such as Google or Ask; however, a number of others described negatively the experience of using ordinary mobile phones – with their small “fiddly” keypads and small displays – when it came to dealing with the thousands or even millions of pages that search engines returned. This new service was regarded as having good growth potential, although no-one wished to predict the level at which it might plateau. Two respondents pointed out that 118118 had a big advertising budget, so it would be difficult for smaller players to emulate this model successfully.

Mobile video services Other than that, it was a fairly common response that the increased capabilities of modern [3G] handsets plus the advent of flat-rate mobile broadband packages meant that there was scope for new or improved mobile video services. These included mobile chat and dating, other mobile social networking, and services based around user-generated video content. A common response was that adult services would be the main driver for developments in mobile video. As D2see explained, “Non-adult services haven’t really taken off yet. Most video is

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currently adult content – mostly adult-video streaming. This is essentially dependent on 3G. It’s like most new technologies including the original voice PRS and even the Internet – the adult sector is the first to exploit it in a big way. The situation for 3G video is analogous to that of the war between Betamax and VHS – there was less porn available on Betamax so VHS won.” One limitation of these services has been the lack of video short codes common to all networks. The recent implementation of voice short codes by O2 means that all five network operators now offer these; and these codes function equally well for video; “They just connect to an appropriate landline”. This development should lead to an increased rate of growth for these, as yet, relatively fledgling services, and could generate significant revenue in 1–2 years time. These tend to be highprice, high-margin services, unlike, text chat or dating, for example, which are now high-volume, low-margin services. Consumers will be able, for instance, to use a video short code for 150p or 200p and get a specified clip without any surcharges. Cross-selling will also be possible – for example, when buying a video clip for 150p on a video short code, the consumer might be offered some additional information, such as, “To receive a text message, press 3 on your handset. This message will cost you 50p.” Hybrid billing is a common practice in mobile services. Several respondents predicted strong growth in mobile video services in the next year, perhaps more than doubling; albeit from a rather small base.

Other mobile services One company said that it was looking at “a new twist in chat”, but declined to expand. In general, stakeholders said that they had no plans to launch new services in the next year or so; this was partly due to the difficulty of identifying new services, partly to the current economic uncertainties, and partly to the burden and complexity of current regulations and uncertainties about future regulatory requirements. One respondent said that the market was so depressed that, if it did have an idea for a new service, it certainly would not talk about it to anyone outside its company.

8.4 Payforit has potential for further growth, as mobile Internet browsing grows in popularity and initial issues with Payforit are resolved

Alternatives to existing phone-paid mechanisms have most potential in the 18-34 age-group Consumer survey data suggests that traditional premium-rate payment mechanisms may face a threat from mobile payment mechanisms among a significant minority of the existing user base, but more than half of consumers would not prefer to switch to this type of service. The 18–34 age group is most interested in this type of service, while those in the 55+ age group are least interested (see Figure 8.1).

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Age group

55+

35-54

Yes Don’t know No

18-34

11-17

0%

20%

40%

60%

80%

100%

Proportion of respondents that would prefer to use mobile payment service

Figure 8.1:

Proportion of respondents who would prefer to use a mobile payment service to pay for and access the same sort of information/content that is currently paid from phone credit or monthly bill [Source: Analysys Mason, 2008]

Base: all respondents (n = 3000) split into age-groups. Question: If your mobile phone had a mobile payment service, such as an account which was accessible on your mobile, into which you could transfer mobile credit or funds from your bank, would you prefer to use that to pay for access to the same sort of information and content, rather than pay out of your phone credit or monthly bill as with current premium rate services?

As mobile broadband becomes more widespread and handset usability continues to improve, we are likely to see a larger proportion of respondents interested in a switch to use of a mobile payment service. In the next 12 months, however, the shift is unlikely to be large.

Payforit Payforit is well placed in the phone-paid industry, being available through all mobile operators. The continuing rise of mobile Internet browsing will mean that more premium content will be viewed this way, and the idea of a network-agnostic payment platform is universally well received. Payforit is still the subject of a number of criticisms based on its functionality. Criticisms of Payforit’s functionality are usually based on the large number of confirmation screens and the switch from the Web site form in which the content is being purchased during a transaction. This has been known to cause a significant drop in conversion rates, and has caused revenue drops of up to 20% for some content providers that have implemented Payforit. However, recently a version of Payforit has been introduced which requires only a single click to make the purchase after the initial ‘click to buy’. A number of stakeholders commented that the adoption of this

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would lead to significantly increased use and to fewer aborted purchases. [Source: http://www.dialogue.net/what_we_do/mobile_billing/mobile_delivery_payforit.php]. Another issue with Payforit mentioned by respondents which has since been resolved is the display of the content company’s logo on the payment screen. This should increase levels of consumer trust in the service, which is an issue that has been identified by several industry stakeholders as an important barrier to the widespread use of this service. A further boost to consumer trust would be a more uniform approach to Payforit.

NFC The rise of near-field communication as a payment method in the UK is continuing. The incorporation of NFC chips into credit cards is increasingly widespread and trials can be seen taking place in many parts of London. The well-publicised trial featuring O2 and Nokia has been hailed as highly successful, with 89% of participants in the trial interested in keeping the Oyster functionality of their phones. The trial also included the Barclaycard payWave system, allowing participants to use their phones to make low-value purchases. This was less popular: only twothirds of participants were interested in keeping this functionality, indicating a possible public lack of trust and comfort with contactless payment for items or services other than mass transit. In addition, NFC-enabled handsets have yet to appear in the UK market, apart from a very small number of prototypes, suggesting that even with favourable market conditions, it will be at least three years until sufficient market penetration of NFC-enabled phones has occurred to make NFC payment a mainstream service. The role of the mobile operators in the NFC payment value chain is still uncertain. Given their lack of involvement with the payment process itself, it seems unlikely that they will be able to generate significant revenue from commission. The alternative is that partnerships with banks and traditional payment houses could be a service differentiator for the operator with the most widely accepted payment platform, potentially increasing subscriber numbers. The industry is still developing, and a universal standard has not yet been decided upon. Until this happens, NFC may continue to be a promising proposition, but fail to live up to expectation.

8.5 Growth in new phone-paid services and payment mechanisms will be centred around mobile in the next 12 months Mobile video and SMS-based information enquiry services are the new services with the most potential for growth in the next twelve months. Payforit has growth potential as mobile broadband becomes increasingly widespread and initial issues with its functionality are resolved.

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9 Outlook for phone-paid services in the next 12 months This chapter considers the prospects for phone-paid services in the next 12 months. Having discussed the prospects for the market as a whole, the outlook for different service categories and payment mechanisms are evaluated. An analysis of the likely impact of deteriorating economic conditions on the market for phone-paid services is integrated throughout this chapter. This chapter concludes with a summary of potential consumer-harm issues and services that may fall under the remit of PhonepayPlus in the next 12 months.

9.1 The phone-paid services market will continue to decline in the next 12 months There is concern in the industry about the prospects for some existing premium-rate services, especially in the fixed market, and a degree of scepticism regarding services that are often cited as being the ‘next big thing’. Stakeholders interviewed on this topic have often referred to the aging portfolio of services currently comprising premium rate, and noted that there has been no consistent growth in the market for some time. The decline is sometimes masked by a number of spikes in service use – explosions which last only briefly and give a false impression of the future prospects for premiumrate services in the UK. Examples of such spikes over the last few years include: the TV quiz service, the use of which has been severely curtailed by the scandals of earlier this year and ringtone downloads, which are falling partly as a result of saturation, but also as more users sideload appropriate files from the fixed Internet. At the same time, the impact of the economic downturn on phone-paid services is likely to become more severe as economic conditions deteriorate. Stakeholder comments on this area include the following. “There is an effect of the downturn already – mortgages, food, energy are all considerably more expensive and people have less disposable income” [Enarpee] “Economic downturn has had some impact but not a massive one” [Network operator and service provider] “We are only just beginning to see the effects of the economic downturn” [NTS vendor, content provider, and service provider]

“We are hoping that it [the market for phone-paid services] will stabilise but it will probably shrink, possibly even at the same rate as this year with the effects of the credit crunch and so on coming on” [Service and content provider] Consumer data supports the view that the phone-paid market will continue to decline, revealing that only a very small proportion of consumers expect their usage of phone-paid services to

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UK Phone-paid services market: current conditions and future trends | 63

increase. For all phone-paid services other than red-button services and the ‘other’ category, only 3–4% of those who stated their intentions for usage of a given phone-paid service expected this to increase 24 . For all phone-paid services, between 34% and 40% of those who stated their intentions for using a given phone-paid service expected their usage to stay the same. The remainder of respondents who stated their intentions either expected their frequency of use to fall or have stopped/will stop using phone-paid services – these accounted for the majority of respondents. Declining interest, preference for accessing the same information by another mechanism and falling disposable income were each cited as reasons for declining use by approximately 30% of those who expected usage of a given phone-paid service to fall. 25 Some phone-paid services will be more sensitive than others to lower disposable incomes. Consumer survey data suggest that calls and SMS to competition/voting lines and gambling are most sensitive to falling disposable income, while adult voice/video and directory enquiries are least income sensitive (see Figure 9.1). Competition lines/voting, TV quiz shows and Directory enquiries and adult gambling are most likely to be affected by video/photo services are least likely to lower disposable income be affected by lower disposable income

Proportion of respondents

40% 35% 30% 25% 20% 15% 10% 5%

Adult video/photos

Calls to directory enquiries

Adult voice

SMS: news or text alert

(09x) - any

TV “Red-Button”

Other

Premium MMS

Mobile gaming

Tarot/horoscope

SMS: music downloads

Gambling

Calls to competition/voting SMS TV quiz shows SMS to competition/voting Calls to TV quiz shows

0%

Less disposable income

Figure 9.1:

For a given phone-paid service, the % of respondents stating less disposable income as a reason for using the listed phone-paid service less frequently [Source: Analysys Mason, 2008]

Base: Respondents expecting to use listed phone-paid service less frequently (n ranged from 28 to 325, depending on the service). Question: For the services that you thought you would use less frequently, please indicate one or more of the following reasons why that is the case.

24

6% of those who stated their intentions about future use of red-button services expected usage to increase; for the ‘other’ category, this figure was 13%.

25

Among those expecting usage of a given phone paid service to decline, on average 29% cited less disposable income as a reason , 28% cited preference for accessing the same information by another mechanism and 27% cited lack of interest as reasons for declining use.

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UK Phone-paid services market: current conditions and future trends | 64

Although survey data about intended usage provides useful indicative data, there is potential for divergence between the stated intentions of consumers and their actions. One stakeholder commented that, “Participation media/premium rate services are almost entirely impulse services that meet a consumer need at a specific moment in time; as such, it is difficult, if not impossible, for consumers to predict how much they will use them. A good example of this is a show like XFactor, where the participation levels depend entirely on the audience's empathy with contestants”.

9.2 Most premium rate service categories will see declining revenues in the next 12 months

Directory enquiries Directory enquiries have withstood the decline in the premium-rate market better than other services. The desirability of these service has not been dented by new technologies as yet, but the availability of online databases is likely to reduce the use of these services as mobile broadband continues to proliferate. Consumer survey data supports this hypothesis, with more than 50% of those who plan to discontinue their use of directory enquiries stating that they will do so because they prefer other methods of accessing the same content and information (see Figure 9.2). Directory enquiries is vulnerable to alternative methods of accessing the same information

Proportion of respondents

60% 50% 40% 30% 20% 10%

Calls to TV quiz shows SMS to competition/voting Calls to competition/voting SMS TV quiz shows

Adult voice

Gambling

Premium MMS

Mobile gaming

TV “Red-Button”

SMS: music downloads

Adult video/photos

Tarot/horoscope

(09x) - any

SMS: news or text alert

Other

Calls to directory enquiries

0%

Prefer other methods of accessing the same content and information

Figure 9.2:

For a given phone-paid service, proportion of respondents stating “prefer other methods of accessing the same content and information” as a reason for using the listed phone-paid service less frequently [Source: Analysys Mason, 2008]

Base: Respondents expecting to use the listed phone-paid service less frequently (n ranged from 28 to 325, depending on the service). Question: For the services that you thought you would use less frequently, please indicate one or more of the following reasons why that is the case.

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Although consumer survey respondents were less likely to cite falling disposable incomes as a reason for their intention to stop using directory enquiries than they were for other phone-paid services, spend on this area is still sensitive to economic conditions. One information services provider commented that, “We certainly expect to work even harder to promote our services to both business and consumers. DQ [directory enquiry] services are discretionary.” Overall, Analysys Mason expects directory enquiry service revenue to decline in the next 12 months, as a result of continuing price pressure, deteriorating economic conditions and consumer preference for alternative mechanisms of accessing the same information.

Premium rate competition services and voting lines Calls and especially messages to non-broadcast competition and voting lines have remained quite robust in the aftermath of the recent scandals on the mishandling of the closely related TV quiz services. However, unless there is some innovation in this part of the industry, it seems unlikely that competition services will be immune to the overall decline. If trends already seen over the past 12 months continue, then premium rate calls are likely to more vulnerable to decline than premium rate SMS in the area of competition / voting services. Loss of interest is most likely to be cited as a reason for declining use of SMS for non-broadcast competition/voting and calls and SMS to TV quiz show services, although as shown in Figure 9.1, these services are also vulnerable to falling disposable incomes.

Premium rate voting on TV quiz shows There is still a market for TV quiz services, despite the bad publicity of the last two years. These once very popular services are now being re-introduced, but with stringent regulations in force. Some stakeholders consider that the requirement to display real-time call rates on screen will dissuade consumers from participating on the more popular shows, since they will perceive little chance of being selected; and recovery will therefore be limited. This said, one stakeholder felt there would be, ‘growth in the television voting and quiz arena, due in part to the recovery of consumer confidence and in part to the increased TV viewing levels that tend to be seen in difficult financial times as consumers go out less.’ This stakeholder also felt that, ‘there would be a return to participation services on the radio, as the new owners come to terms with the regulation and the revenue generation opportunities.’

Premium rate gambling Gambling has been quoted by some stakeholders as the only premium-rate service in which they expect to see any significant growth. The popularity of services such as online poker may translate into the premium-rate market, and the introduction of mobile TV could provide a new channel for gambling services.

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UK Phone-paid services market: current conditions and future trends | 66

Premium rate game downloads to mobile and premium rate mobile internet gaming The market for mobile gaming looks set for continued growth. A significant factor here is the recent introduction of advanced handsets like the iPhone, with features such as larger displays and touch screens; some handsets even offer motion-sensitive functions which can be used in games. Mobile games are a good candidate for Payforit style billing. Provided that issues such as the position of mobile operators regarding Payforit as a premium rate service can be resolved and uptake hence increases, mobile gaming could make this a popular payment mechanism.

Premium rate tarot/horoscope These services are among those that are expected to experience a relatively sharp decline in the next year. They are often bundled as subscription services, which continue to receive a lot of negative attention in the media. This may put off potential customers. However, some stakeholders have pointed to the fact that these services retain a loyal group of users, which may slow, if not prevent a decline.

Premium rate music downloads (full track and ring-tones) Decline is likely to continue in this area over the next year. Consumers are already using their fixed Internet connections to download content (again, often for free) onto their PCs and then sideloading this onto their mobile handsets; this practice is likely to continue to contribute to the decline in this area. Meanwhile, as mobile broadband grows in popularity more users will be downloading music, video clips etc. onto their handsets via their mobile broadband connection. This content may often be available for free (apart from any data transmission fees).

Adult content Adult services, including traditional voice and content, have often led the way in embracing new services. It is a commonly held view in the industry that adult services will be among the first to benefit from premium video and that this may have a noticeable impact over the next eighteen months. This will be highly dependent on the speed of uptake of mobile broadband, and the types of handset that are commonly owned.

SMS news or text alert subscription services SMS news and text alert subscription services, like directory enquiry services and mobile content, are vulnerable to the growth in mobile broadband. As such, they are very unlikely to grow, and will probably follow a path of steady decline. Relating to premium rate mobile content in general,

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UK Phone-paid services market: current conditions and future trends | 67

one stakeholder considered that there would be some decline in this market as a result of tightening of the regulation around subscription services.

9.3 Fixed-line premium-rate voice will continue its decline, while the outlook for other services is more positive

Premium-rate voice Fixed-line premium-rate voice has been a declining market for a number of years. The availability of online content, which may be free of charge, or can be purchased using credit cards and traditional banking methods will continue to damage this market. This decline is set to continue, with deteriorating economic conditions potentially leading to a sharper drop off in usage than we would otherwise see, particularly for services such as competition lines and quiz shows, which are fairly income sensitive.

Premium SMS Overall use of SMS continues to defy expectations and growth this year is expected be around 30% (Source: Mobile Data Association, 2008). Premium SMS is expected to remain a very popular payment mechanism and to represent an even larger share of the premium rate market. Even without mobile broadband, the introduction of flat-rate subscription services for music downloads by operators and others is significantly reducing mobile phone-paid music purchases.

Premium MMS MMS services overall are also experiencing significant and sustained growth roughly in line with that of SMS (Source: MDA). Video and picture content available as premium rate MMS will become a more important part of the phone-paid market over the next year. Concerns have been raised by stakeholders over the appeal of video on the mobile handset screen, but this relates more to longer clips. The short clips and content that are the mainstay of premium MMS are not expected to be too affected adversely by screen size, especially as a number of service providers such as D2see specialise in optimising such content for display on mobiles.

Voice and video short codes Now that all mobile network operators support voice and video short codes, there is potential for significant growth in the use of this service over the next 12 months. These services are more expensive than 09x numbers to set up and rent, but are likely to prove more popular with consumers as there is greater price transparency (and potentially lower prices) and the numbers are easier to remember and easier to type into a handset.

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Payforit As discussed in the previous chapter, the growing popularity of mobile broadband creates considerable potential for Payforit. If functionality and usability improves and it is well publicised, it has the potential for reasonably strong growth in the next 12 months.

TV-red button premium rate services The popularity of TV red-button premium rate services is likely to be a function of the recovery of TV-based competition / quiz show type services although the primary route for participation is likely to remain phone-based premium rate services. Red button purchases of film premiers, sports etc. are not premium rate but added to TV bills.

9.4

Improvements in price transparency and efforts to reduce problems with incorrect billing/overcharging could significantly improve consumer perceptions of the phonepaid industry in the next 12 months Problems associated with incorrect billing, overcharging and price transparency are key issues that should be considered in the next 12 months. It is vital that these issues are tackled in order to improve currently high levels of mistrust, which are acting as a barrier to the adoption of phonepaid services. •

In particular, steps need to be taken by those in the industry to reduce the currently high level of complaints about incorrect billing or overcharging (as reported by respondents to the consumer survey).

•

The mobile surcharge on premium-rate calls is also currently acting as a barrier to the use of mobile for premium-rate voice calls and may be contributing to distrust of the phone-paid sector – it may therefore be in the interests of consumers and the industry overall for PhonepayPlus to examine this issue.

•

For phone-paid services as whole, there is a need to reduce price obfuscation, with full details of prices being published including additional charges.

Dealing effectively with the small number of rogue information providers that are tarnishing the image of the industry and causing consumer harm could also do much to improve the health of the phone-paid sector in the next 12 months. An extension of the Ofcom consumer protection lists to incorporate some form of licensing of information providers could be an important way to reduce the access of rogues, and thus reduce consumer harm and improve the image of the industry. Given that lack of trust and bad publicity is still affecting consumer use of phone-paid services, reassurance from PhonepayPlus and other regulatory bodies could help to restore public confidence after the TV scandals.

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UK Phone-paid services market: current conditions and future trends | A–1

Annex A: Details of industry interviews Analysys Mason conducted a series of in-depth interviews with industry stakeholders. In total, 38 stakeholders from 25 companies were interviewed during September and October 2008. A combination of face-to-face and telephone interviews were held, typically lasting for around 45 minutes. Topics discussed included the nature of the stakeholder’s involvement in phone-paid services, the structure of the value chain for phone-paid services, market size and trends in the phone-paid market, the evolution of phone-paid services, consumer harm, marketing and promotion and 0871 migration. Stakeholders interviewed included six network operators/service providers (three fixed and three mobile), four mobile service providers/aggregators, two specialist mobile service providers, a major UK broadcaster, a major UK newspaper publisher, and other players from across the phonepaid value chain. Among the companies who took part were: • • • • • • • • • • • • • •

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118118 2Ergo 3 UK BT D2see Enarpee Fremantle Media Invomo MBlox News International Opal Premier Communications Reality Telecom Sponge.

UK Phone-paid services market: current conditions and future trends | B–1

Annex B: Details of consumer survey An online survey was conducted in September 2008, of 3000 consumers. The sample was nationally representative and covered those aged 11 upwards. Key areas covered in the consumer survey included usage levels (including usage in the past 6 months and intended future usage), reasons for use/non-use of phone-paid services, complaints about billing/overcharging, levels of trust and factors that would help to restore trust, usage and levels of trust in telephone banking and remote payment mechanisms, future use of mobile payment services, responsiveness and levels of trust in advertising of phone-paid services. The range of phone-paid services that respondents provided answers on were: • • • • • • • • • • • • • • •

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Calls to directory enquiries (e.g. 118 118) for a telephone number Premium rate services (09x) – any Premium rate services: tarot or horoscope Premium rate services: adult voice; recorded or live services Premium rate services: adult video or photos Premium rate services: gambling – all types Premium rate SMS services: news or text alert subscription services Premium SMS services ringtone or full-track music downloads Premium MMS services e.g. photos or video clips Game downloads to mobile and premium rate mobile Internet gaming Premium rate calls to competition or voting lines Premium rate calls to TV quiz shows Premium rate SMS texts to competition or voting lines Premium rate SMS texts to TV quiz shows. Use of the interactive TV ‘Red-button’ for chargeable services such as voting or to purchase goods that are billed to your telephone account.

UK Phone-paid services market: current conditions and future trends | C–1

Annex C: Examples of published out-payment rates The following table contains examples of published out-payment rates; these illustrate the variations of pay-out rates between service providers, between different charge bands, and for different services. Service

Example tariff,

Out-payment

Volume level, minutes per

ppm (from a BT

ppm

month; minimum revenue

line)

Source

(if stated)

1-2-1 live chat (adult)

100

35

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #1

150

70

1-2-1 live chat (adult)

100

28

Up to 3000; unspecified minimum threshold.

Content provider and reseller #2

150

76

1-2-1 live chat (adult)

100

40–45

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #3

150

74–105

Adult, recorded

100

48–52

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #1

150

85

100

55

Up to 3000; unspecified minimum threshold.

Content provider and reseller #2

150

85

100

40–62

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #3

150

90–95

Tarot and psychic (live)

150

35–60

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #1

Tarot and psychic (live)

150

78

Up to 3000; unspecified minimum threshold.

Content provider and reseller #2

Tarot and psychic (live)

150

45–70

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #3

Horse racing tips (recorded)

100

45

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #3

Horse racing tips (recorded)

100

55

Up to 3000; unspecified minimum threshold.

Content provider and reseller #2

Horse racing tips (recorded)

100

60

No pay-out unless revenue exceeds GBP10 per month

Content provider and reseller #3

Live information (e.g. technical help lines). The end-user client supplies the call agents, etc.

150

100

33 600 (for the example given on the Web page)

Content provider and reseller #2

Live information (e.g. technical help lines). The end-user client supplies the call agents, etc.

150

95

Negotiable pay-out rates at over 10 000 minutes per month

Service provider and NTS vendor

Adult, recorded Adult, recorded

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UK Phone-paid services market: current conditions and future trends | C–2

Figure C.1:

Operator

Example pay-outs to information providers for selected white-label phone-paid services

Example tariff

Out-payment (p)

Vodafone

Vodafone

O2

O2

O2

Orange

Orange

Orange

T-mobile

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Source

month; other charges

(p)

Vodafone

Volume level, messages per

100

56.7

150

90.3

100

58

150

91

100

58.7 (<20 000)

100

64.1 (>500 000)

150

94 (<20 000)

150

99 (>0.5 million)

100

56.5

150

88.3

100

58

150

91

100 [MT]

67

100 [MO]

63

150 [MT]

100

150 [MO]

97

100

57.4

150

89.2

100

58

150

91

100

59 (<5 000)

100

63 (0.5-1 million)

150

94 (<5 000)

150

99 (0.5-1 million)

100

58.5

150

87.9

Set-up fee (single shared code) GBP150, minimum GBP25 per month fee

Service provider #1

Up to 25 000 messages per month. No set-up fee; minimum fee GBP50 per month (2 numbers)

Service provider #2

Dedicated short code; set-up GBP720, monthly fee GBP630. This SP takes no share of revenue, but a charge is made for each outbound message

Service provider #3

Set-up fee (single shared code) GBP150, minimum GBP25 per month fee

Service provider #1

Up to 25 000 messages per month. No set-up fee; minimum fee GBP50 per month (2 numbers, shared code)

Service provider #2

Dedicated short code; set-up GBP720, monthly fee GBP630. This SP takes no share of revenue, but a charge is made for each out-bound message.

Service provider #3

Set-up fee (single shared code) GBP150, minimum GBP25 per month fee

Service provider #1

Up to 25 000 messages a month. No set up fee; minimum fee GBP50 per month (2 numbers, shared code)

Service provider #2

Dedicated short code; set-up GBP720, monthly fee GBP630. This SP takes no share of revenue, but a charge is made for each out-bound message.

Service provider #3

Set-up fee (single shared code) GBP150, minimum GBP25 per month fee

Service provider #1

UK Phone-paid services market: current conditions and future trends | C–3

T-mobile

T-mobile

3

3

3

Virgin Mobile

Virgin Mobile

Figure C.2:

100

58

Up to 25 000 messages per month. No set-up fee; minimum fee GBP50 per month (2 numbers, shared code)

Service provider #2

150

91

100

62 (<25 000)

Dedicated short code; set-up GBP720, monthly fee GBP630. This SP takes no share of revenue, but a charge is made for each out-bound message.

Service provider #3

100

65 (>250 000)

150

93 (<25 000)

150

98 (>250 000)

100

61.8

Set-up fee (single shared code) GBP150, minimum GBP25 per month fee

Service provider #1

150

91.2

100

58

Up to 25 000 messages a month. No set-up fee; minimum fee GBP50 per month (2 numbers, shared code)

Service provider #2

150

91

100

65 (<5 000)

Dedicated short code; set-up GBP720, monthly fee GBP630. This SP takes no share of revenue but a charge is made for each out-bound message.

Service provider #3

100

72 (0.5 - 1 million)

150

94 (<1 000)

150

97 (0.5–1 million)

100

33.3 50.4

Set-up fee (single shared code) GBP150, minimum GBP25 per month fee

Service provider #1

150 -

-

-

Not offered by Service provider #2

Selected tariff data from three different service providers. [Source: Analysys Mason, 2008]

Notes: 1. Tariff figures include VAT; pay-out values are after deduction of VAT by the operator. 2. The pay-out figures from service provider #3 are likely to be the same or marginally less than that from operators for a dedicated short code. The difference between those and the shared short code figures from the smaller service providers reflect the margin that a smaller service provider might take (or the combined margins of an aggregator) and a service provider reselling a shared short code from that aggregator. 3. Individual operators not only may set upper limits on the charge that made be made via a short code, but also have individual codes of practice that can restrict the services that may be offered.

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