Paying a Premium: Consumers and Mobile Premium Services Written By: Eden Maher and Janet Lo Public Interest Advocacy Centre 1204 – ONE Nicholas St Ottawa, Ontario K1N 7B7 Published June 2011 Revised September 2011 With Funding from the Industry Canada's Contributions Program for Non-profit Consumer and Voluntary Organisations 1 Copyright 2011 PIAC Contents may not be commercially reproduced. Any other reproduction with acknowledgment is encouraged. The Public Interest Advocacy Centre (PIAC) Suite 1204 ONE Nicholas Street Ottawa, Ontario K1N 7B7 Canadian Cataloguing and Publication Data Paying a Premium: Consumers and Mobile Premium Services ISBN 1-895060-93-1 2 Acknowledgment The Public Interest Advocacy Centre received funding from Industry Canada's Contributions Program for Non-profit Consumer and Voluntary Organisations. The views expressed in the report are not necessarily those of Industry Canada or the Government of Canada. PIAC would also like to thank all stakeholders who participated in this study. 3 EXECUTIVE SUMMARY Since 2004, mobile premium services (MPSs) have become an increasingly popular form of text messaging, providing new opportunities for entertainment, information, and interaction through consumers’ handsets. Some of the most commonly used MPSs include jokes, horoscopes, chat, sports and weather updates, trivia games, and contests. Consumers purchase MPSs as either one-time services, such as texting a vote to television, or subscription services, such as daily jokes that are sent via text message to the consumers’ handset until the consumer unsubscribes. MPS messages are charged a premium rate, usually on a per-message basis, in addition to standard text message costs, and are not included in any unlimited text messaging plan currently offered in Canada. The consumer will be billed for receiving premium text messages regardless of whether they open the messages or respond to the messages. The industry refers to mobile premium services as “common short codes.” This report details the consumer experience using MPSs, from the consumer’s first contact with MPS advertisements, to the process of purchasing MPSs, to unsubscribing from services, and finally, to disputing MPS charges. This report also details the technical functioning of MPSs, the MPS industry, the various players within the industry, the profit-sharing arrangement between industry players, and the self- regulatory model surrounding MPSs. Under the current self-regulatory model, the wireless industry’s voluntary association, the Canadian Wireless Telecommunications Association (CWTA), oversees the leasing and administration of MPSs. A sub-committee of the CWTA, comprised of wireless service provider representatives, approves all MPSs that run on wireless service providers’ networks in Canada. The major players within the industry form a value chain comprised of content providers, application developers, aggregators, MPS companies, and wireless service providers. All parties profit from the MPS scheme, however wireless service providers profit the most, as they control the networks on which MPSs run and provide the billing platform. Since the launch of the MPS industry, the CWTA has developed guidelines and codes of conduct to assist the industry in providing standardized services for MPSs in Canada. The CWTA has maintained its position that these safeguards protect consumers. However, this report draws attention to two polarized explanations for the consumer experience with MPSs - the industry’s explanation and consumers’ explanation - and explores the difficulties consumers have experienced under the current self-regulatory model employed by the industry. This report provides important groundwork by collecting reports about and describing multiple aspects of the consumer experience that have proven troubling for Canadian consumers. PIAC’s methodology involved eliciting and collecting anecdotal reports from consumers. PIAC employed two primary methods - conducting focus groups and receiving reports directly from consumers through email. Focus groups provided the opportunity for consumers with direct knowledge of MPSs to discuss numerous aspects of their experiences using MPSs and to comment on the Canadian self-regulatory model as compared with the Australian regulatory 4 model. PIAC followed up with consumers who emailed PIAC to gather further information on various aspects of their experiences using MPSs. The findings from the focus groups and consumers’ emails reveal that consumers’ problems with MPSs relate to multiple aspects of the consumer experience and are more pervasive than the industry has acknowledged. PIAC consulted with Canadian agencies such as the Commissioner for Complaints for Telecommunications Services (CCTS), the Competition Bureau and the Canadian Anti-Fraud Centre (CAFC). PIAC reviewed advertisements for MPSs on wireless service provider websites and MPS websites. PIAC also consulted with the Canadian wireless industry for their views on consumer protection in the MPS industry. To better appreciate international approaches to regulating MPSs, PIAC consulted with foreign regulators. Findings indicate that consumers’ problems are both under-detected and underreported, and that industry often dismisses the complaints that are brought forward. No single agency in Canada tracks or handles consumer complaints with respect to MPSs. The CCTS receives several complaints about MPSs and the CCTS plays an important role in resolving consumer disputes about MPS charges, but can only do so when a consumer brings forward a complaint. The CAFC tracks reports of fraud and provided useful statistics on the rising trend of text messaging fraud in Canada. However, no agency has conducted a systemic inquiry into the regulation of MPS and the efficacy of consumer safeguards in Canada. PIAC found that consumers are frequently misled by advertisements for MPSs. In particular, PIAC heard from consumers that online pop-up advertisements for MPSs are problematic because they lack clear and pertinent information, give a misleading impression about the nature of the service, use small print, and disappear after the consumer has inputted their wireless number or PIN. Results of the focus groups and consumers’ reports signal that consumers are often not presented adequate terms and conditions prior to purchasing MPSs, while others are subscribed entirely without their consent. PIAC found that consumers are dissatisfied with being subscribed indefinitely to MPSs that they believed would be one-off services such as a contest entry or quiz result. Consumers reported issues with the unsubscription process, as they do not understand how to unsubscribe, do not receive necessary assistance when they contact their wireless service providers, are required to unsubscribe multiple times, and are still billed after unsubscribing. Moreover, results from the focus groups and consumers’ reports demonstrate that when consumers contact wireless service providers and MPS companies to stop or dispute charge, they routinely encounter hassles, blame, misinformation, denial of assistance, and denial of proof that they opted-in to the MPS. Lastly, PIAC found a lack of transparency and accountability within the industry with respect to audits of MPSs, compliance enforcement, and the profitable relationship between wireless service providers and MPS companies. The Canadian Radio-television and Telecommunications Commission (CRTC) has in the past refrained from regulating wireless services in Canada, finding that the market was sufficiently competitive to protect the interests of consumers. In 2009, Quebec consumer group Union des consommateurs filed an application to the CRTC seeking an order requiring wireless service providers to waive disputed charges. The CRTC denied Union’s application on the basis that 5 market forces and the industry self-regulatory mechanisms could be relied upon to protect consumers. The CRTC recently modified the forbearance framework for mobile wireless data services to retain certain powers to address issues with respect to the provision of mobile wireless data services by Canadian carriers. PIAC examined various regulatory approaches for MPSs in international jurisdictions. The United Kingdom and Australian models have strong regulatory bodies that are tasked with regulating all aspects of MPSs from advertising to mandatory registration. These bodies also comprehensively investigate consumer complaints and use strong enforcement powers to punish noncompliant companies. As well, the regulatory bodies can address systemic problems by issuing determinations that the industry must follow. The United States has a self-regulatory model, wherein the Wireless Association and wireless service providers jointly administer the common short code regime. In the United States, the wireless service providers play a large role in monitoring and enforcing MPS compliance with industry best practices and other guidelines. In one case, wireless service provider Verizon Wireless filed a lawsuit alleging fraud with respect to MPSs and set up a third-party content subscription refund program for consumers who were improperly subscribed and billed. Notably, the Australian regulator requires all wireless service providers to provide an MPS blocking feature to their consumers. Wireless service providers in the United Kingdom and United States also offer the MPS blocking feature to their customers. In light of the findings from our study, PIAC recommends a number of