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The Conditions regulating Premium Rate Services

Statement

Summary

1.1 ‘Ofcom’ (the Office of Communications) exists to further the interests of citizens and consumers through a regulatory regime which, where appropriate, encourages competition. Effective competition delivers choice and lower prices to consumers as well as opportunities for new services and providers. However, consumers may need protection from inappropriate behaviour by certain providers that may undermine confidence in the market as well as causing consumer detriment.

1.2 One example of such protection is the regulation of Premium Rate Services (‘PRS’). PRS are defined in section 120 of the Communications Act 2003 (‘the Act’). In broad terms, PRS offer consumers some form of content, product or service accessed via fixed or mobile telephones and charged to the user’s telephone bill. While the majority of PRS providers promote and provide PRS responsibly, a minority do not. The activities of that minority can harm consumers; for example, by causing them to unknowingly incur charges or run up high phone bills, or by providing children with access to content that is inappropriate for them. Some PRS providers even use PRS to deliberately mislead or defraud. PRS regulation is designed to offer consumers a degree of protection from such harm.

1.3 The statutory provisions for the regulation of PRS are set out in sections 120 to 124 of the Act. These provisions provide Ofcom with the power to set conditions (‘the PRS Condition’) that bind the persons to whom they are applied, for the purpose of regulating the provision, content, promotion and marketing of PRS. Briefly, where Ofcom has approved a code for regulating the provision and contents of PRS, the PRS Condition can only require the persons to whom it applies to comply with directions given in accordance with that code by that code’s enforcement authority.

1.4 PRS are currently regulated primarily by the Independent Committee for the Supervision of Standards in the Telephone Information Services (‘ICSTIS’) under a code which Ofcom has approved (‘the Approved Code’). The currently applicable version of the Code was approved for the purposes of sections 120 and 121 of the Act on 29 December 2003, and approval was also given for an emergency code amendment on 4 August 2005.

1.5 The currently applicable version of the PRS Condition was published on 8 June 2006 and requires ‘Communications Providers’ (as defined in the PRS Condition) to comply with directions given by ICSTIS under the Approved Code. ‘Communications Provider’ is defined within the PRS Condition in such a way as to restrict that expression to persons involved in the provision of a subset of PRS known as ‘Controlled Premium Rate Services’ (‘CPRS’). Of particular significance for the purposes of this Statement is that the definition of CPRS in the existing version of the PRS Condition contains an express exclusion for “a Mobile Service, a Personal Numbering Service or a Radiopaging Service”.

1.6 A failure by a Communications Provider to comply with an ICSTIS direction will normally amount to a contravention of the PRS Condition and may lead to ICSTIS referring the matter to Ofcom. Ofcom may then take enforcement action under the relevant procedures set out in the Act.

1.7 In November 2005, Ofcom published a consultation document (‘the First Consultation’) on proposals to modify the wording of the PRS Condition. This was for two reasons. First, there was growing evidence of consumer harm arising from ‘rogue’ internet dialler software which, once installed on a computer (typically without the user’s knowledge), dialled ‘087’ numbers whenever the user tried to access the internet. As calls to such numbers generally cost less than 10 pence per minute to call, the providers of such services were not subject to the PRS Condition. Ofcom therefore proposed an amendment to the PRS Condition by extending the definition of CPRS to include “internet dialler software”, irrespective of the call cost or number.

1.8 Second, Ofcom had received representations that the wording of the definition of CPRS within the PRS Condition was ambiguous. In particular, it had been suggested that the definition of CPRS excluded PRS accessed from a mobile phone. Ofcom’s legal view of the true meaning of the PRS Condition was that PRS accessed over mobile phones was not excluded. Nevertheless, Ofcom proposed to modify the PRS Condition in such a way as to remove any potential scope for confusion or doubt.

1.9 The form of modification which Ofcom proposed was the replacement of the “Mobile Services” exclusion with an exclusion for “calls to Mobile Services”, thus removing any perceived uncertainty as to whether calls from mobile phones to PRS were or were not also excluded from the definition of CPRS. Any such uncertainty was not only unhelpful (since regulatory requirements should be set out as clearly and accessibly as reasonably possible) but could also contribute to consumer harm. Such harm could, for example, arise if ICSTIS’ task of taking prompt and effective regulatory action was made more difficult by uncertainty on the part of some PRS providers as to whether the services they were providing were subject to Ofcom’s ‘backstop powers’ under the PRS Condition in the event of failure by a Communications Provider to comply with an ICSTIS direction.

1.10 Having considered the responses received to the First Consultation, Ofcom was of the view that its proposed modification might be read as excluding services provided or paid for via reverse-billed SMS (in respect of which the charge is made by sending an SMS message to a person’s mobile phone). Accordingly, that modification had the potential to itself cause confusion, thereby substantially defeating the purpose of making the modification in the first place.

1.11 In a further document in June 2006 (‘the Second Consultation’) Ofcom confirmed the modification to the PRS Condition so as to include “internet dialler software” within the definition of CPRS irrespective of the cost of the call, but proposed, and invited comments on, an alternative form of modification to the PRS Condition to remove any perceived ambiguity in respect of the “Mobile Services” exclusion. The proposed modification was to remove the exclusion for “a Mobile Service, a Personal Numbering Service or a Radiopaging Service” entirely. As Ofcom stated in that consultation, its legal view was that the exclusion had been unnecessary and that removing it would make no difference to the true scope of CPRS. Such removal would, however, enable the clarification that Ofcom was seeking to provide to be delivered in a neat and simple way that did not have an apparent potential to itself give rise to confusion as to what the CPRS definition did and did not capture.

1.12 That view was fully in accordance with the original intention behind the exclusion, namely, to make clear that ordinary calls to mobile phones and other services which enabled the called party to be reached irrespective of his or her physical location were not within the scope of CPRS. That clarification appeared to have been thought desirable because of a perceived potential for confusion to arise as to whether callers to such services were being provided with a form of CPRS insofar as those callers were charged more than 10 pence per minute. In reality, however, callers to mobile phones, personal numbering services and radiopaging services were not being provided with a service which fell within section 120 of the Act (as properly interpreted) and were not, therefore, being provided with any form of PRS at all. If a service was not within the scope of PRS, it could not be within the scope of CPRS. The exclusion of “a Mobile Service, a Personal Numbering Service or a Radiopaging Service” was therefore unnecessary and of no practical effect. Accordingly, the removal of that exception would not have the effect of extending regulation in any way.

1.13 In addition, Ofcom confirmed in the Second Consultation the intention which it had expressed in the First Consultation to carry out a comprehensive review, commencing in 2006, of the scope, purpose and effectiveness of PRS regulation. This review would consider the scope of PRS regulation, and how it should be applied to, or removed from, emerging commercial services coming out of the mobile, fixed telephony, and broadcast sectors, as well as growth in broadband and Voice over Internet Protocol ('VoIP') billing as a possible new route to content. This review is now underway.

Conclusion

1.14 Having carefully considered the responses to the First and Second Consultations, Ofcom has now decided to proceed with the modification to the PRS Condition proposed in the Second Consultation. In that regard, Ofcom believes that it is plainly desirable that regulatory requirements should be set out as clearly, unequivocally and transparently as is possible (notwithstanding the inevitable complexity of the technology and markets with which Ofcom’s responsibilities are concerned), and that confusions or doubts which might make ICSTIS’ consumer protection work more difficult should be removed.

1.15 Ofcom is also satisfied that the statutory requirements for modifying the PRS Condition are met in respect of the amendment. In that regard, Ofcom does not see any incompatibility between the provision of clarity in respect of existing regulatory requirements, and the principles of transparency, proportionality or non-discrimination.

1.16 The modification, which is set out at Annex 2 will come into force one month from date of publication of the Notification and Statement.

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