This article was included in the November issue of Network - the Communications sector newsletter

The New PhonepayPlus Code and Premium Rate Services (PRS)

At the time of the phone-in scandals and resulting record fines by the regulators we all braced ourselves for consequential changes to the regulatory framework governing PRS. Quickly, the Ayre inquiry was launched and implemented. This resulted in variations to the broadcast licences, adoption of new Broadcasting Code rules as well as changes to the PhonepayPlus Code of Practice giving us the Code in its 11th version. However, in an attempt to further restore consumer confidence and address changes to the industry the regulator has called for further improvements to the regime.

What are Premium Rate Services?

They are a form of micro-payment for paid-for content, data services and value added services. They are generally attached to some form of information or entertainment service which can be accessed through all sorts of telecommunication devices, fixed or mobile. They include TV voting lines, mobile ringtones, technical helplines, phone chats, sports results, directory enquiry services through to adult entertainment, to name but a few and their costs are normally added to your phone bill or charged through a pre-pay account.

Who is the Regulator?

Ofcom has overall responsibility under the Communications Act 2003 but has delegated some of its responsibility for the day-to-day regulation of PRS to PhonepayPlus. All communication providers involved with “controlled premium rate services” are bound to comply with the Code through a “PRS Condition” dated 2003 and revised in 2006 for all PRS accessed by a user in the UK or provided from the UK.

What is the current regime?

Generally the Code sets out rules covering all PRS but also imposes specific rules to certain (riskier) categories of PRS such as “live” services. The Code also contains specific requirements for PRS promotions such as the provision of pricing and contact information; careful use of the word “free”; and the use of the “STOP” command which must be clearly explained and not charged for.

The Code also identifies three categories of players in the industry: service providers, network operators and information providers. The current version of the Code focuses most of the compliance responsibility on “service providers”, who typically contract with network providers to use their network facilities to provide a PRS (not being network operators themselves). As a pre-condition to offering PRS, a service provider must register with PhonepayPlus and amongst other things demonstrate it has the technical capability and expertise to provide PRS. It also has obligations of quality, of ensuring that its contractors are aware of the Code and must offer an effective process for processing refund claims. Past examples have however shown that service providers have been held responsible for breaches they did not cause directly and that perhaps the regime needs to be less focused on a “category” of providers but more on players with actual control and responsibilities. Network providers have not been the focus of PhonepayPlus but are required by the Code to conduct due diligence of service providers they wish to contract with in relation to PRS and to withhold payments to service providers for at least 30 days after the use of the relevant PRS. The Code does not impose stringent obligations on information providers, who are subject to sanctions in only limited circumstances. The current regime’s approach to industry players has been seen as too rigid to reliably make the right culprits accountable for breaches of the Code.

So what’s new?

The Regulator has been concerned with making the regime more flexible so that it can better respond to industry developments and in ensuring that the relevant players are held accountable, rather than basing liability on rigidly defined categories of providers. The main areas for change are as follows:

• Re-classification of players in the PRS value chain
• Traditionally, the Code has held the “service provider” responsible for ensuring that all premium rate phonepaid services with which it is involved comply with the Code, with little responsibility for network operators or information providers. Under the new Code, this responsibility would shift so that providers that are in the “front line” of PRS delivery - responsible for the promotion, operation and content of the services (“level 2 providers”) - would have to comply with overarching outcomes and specific rules on the operation, promotion and content of PRS
• The due diligence obligations under the Code (which currently apply to network providers) would be extended to apply to all “level 1 providers” - typically providers in the PRS delivery chain that subcontract to other parties and are not network operators
• All “level 1 providers” would have an obligation to withhold/retain outpayments of revenue generated by PRS consumers for 30 days. This obligation currently applies only to network providers
• All network providers, level 1 providers and level 2 providers would have to register with PhonepayPlus prior to providing any PRS (with some exemptions)
• Adjudications will be published on the PhonepayPlus website
• PhonepayPlus is considering introducing two new sanctions for breaches of the Code: the first is an automatic refund in case of serious breaches to ALL consumers and not just those who have made a complaint to PhonepayPlus, as under the current regime. This raises a number of practical issues (such as the need for a refund facility) however PhonepayPlus believes that this will be a problem in only a minority of cases. The second would see the introduction of a compliance audit from an independent third party at the expense of a party found in breach.

So what is next?

PhonepayPlus anticipates the new Code will come into force by March 2011 which allows for a 3-month standstill period required under the EU Technical Standards Directive and 3-month implementation period. This seems a rather short timeframe considering that the changes will require certain players to implement internal operational changes as a result but shows that the regulator is eager to restore confidence in the PRS sector. PhonepayPlus issued a public consultation on 27 October 2010 on the Guidance for networks and PRS providers that will support compliance with new Code when it comes into force. The consultation closes on 19 January 2011.

What else?

The Broadcast Advertising Standards Code as amended regarding TV channels which primarily promote PRS took effect on 1 September 2010 together with changes to the Broadcasting Code that affect how PRS services can be promoted within programmes.

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