Lessons need to be learnt from the recent closure of premium SMS in the US

By December 13, 2013Featured Post, Guest blog, Regulation

Andrew BudLast month three of the major US carriers – AT&T Mobility, Sprint and T-Mobile entered into an agreement with 45 states to stop billing customers with premium SMS (PSMS).  Verizon Wireless is not part of the settlement but has also confirmed it too will discontinue PSMS.  The initiative, led by the Vermont Attorney General’s office, is intended to put an end to unsolicited third party charges on mobile bills, a practice commonly known as cramming.

Here MEF Global Chair Andrew Bud discusses the implications of this move for the mobile industry and consumers alike.

This news marks a watershed in the history of the mobile content industry.  For over a decade, carriers and content providers alike were confident that carrier billing would be a fundamental part of the payment mix, a key enabler for mobile commerce.  That era is now over.

A few years ago, this would have been a thunderclap.  Only five years ago the mobile content industry billed $35bn annually worldwide via PSMS.  It was virtually the only way mobile commerce was paid for and underpinned many established businesses that provided entertainment services, games, TV voting and information services.

“In countries as varied as the UK, Brazil and Indonesia, MEF has engaged with national industry regulators, which have successfully eliminated the toxic practice of cramming without closing off PSMS as a payment option.”

But the industry has evolved with incredible speed to a model we describe as mobile 3.0, well illuminated in MEF’s third annual Global Consumer Survey released this month.  This shows how a decline in the purchase of small-value content has been more than replaced by a tendency to buy more valuable things via mobile; a trend consistent across both developed and growth markets. It identified a fall in purchase volumes of digital content identified for the first time from 54 per cent of mobile media users in 2012 to 42 per cent in 2013.

However with physical and perishable goods accounting for just 25 per cent of m-commerce payments globally according to the 13-country study, the end of PSMS in the US eliminates the American mobile carriers’ offer of a fast and easy way to pay for valuable items of mobile commerce.

It didn’t have to be this way.  In countries as varied as the UK, Brazil and Indonesia, MEF has engaged with national industry regulators, which have successfully eliminated the toxic practice of cramming without closing off PSMS as a payment option.  But despite the best efforts of the carriers, the FTC and the state’s attorney generals, cramming has persisted there and has come to be seen as a serious problem in the US, fatally damaging consumer trust and confidence.

Whilst Mobile 3.0 is built on a wide range of different payment models, the PSMS debacle is an example of how a useful model of mobile commerce can forfeit its place in the market, highlighting the wider issue of the fundamental importance of consumer trust and confidence in the mobile channel.

Indeed, the survey also indicates quite clearly that trust in mobile remains a significant barrier and is a growing concern for consumers with 40 per cent of respondents citing trust as an issue compared with 35 per cent in 2012 and 27 per cent in 2011.

So in terms of consumer trust, what can we learn from the end of US PSMS?

The freemium model for the mobile content and services relies on the gathering and monetisation of user data.  Instead of buying digital goods, we are increasingly exchanging them for our personal information, such as our names, email addresses, browsing preferences, location and more.

As PSMS payments are replaced with the value that is locked inside data, we must be sure not to replace PSMS abuse with the cloaking of data collection and utilisation.

It’s still a fundamental issue of trust.

AppPrivacy_320x192Whilst there is absolutely nothing wrong with the freemium model, its long term viability depends on all parties collaborating to ensure transparency across this data value-exchange.

To give this some context, earlier this year, MEF’s Global Privacy Report 2013 showed that only a third of consumers are comfortable sharing personal data with an app. Transparency is key: 70% consider it important to know when an app is gathering and sharing their personal information.

Consumer trust, transparency and confidence are the foundations upon which the industry must be built.  MEF works with its members to build these assets worldwide, focusing on the emerging area of consumer privacy. The recent launch of www.appprivacy.net is an example of industry-led best practice and of promoting the establishment of consumer trust through self-regulation.

It is foolish to make the same mistakes over and over again.  Let’s learn the lesson the US has just given, and be sure to apply it to consumer data privacy.

Andrew Bud is Global Chair of MEF. This article originally appeared on VentureBeat on 12/12/2013.

No Comments

  • David Clarke says:

    Great article Andrew. It may be a contradiction in terms, but perhaps what we need is “slow digital commerce”…short, crystal clear Terms & Conditions and Permissions that cannot be avoided or just clicked away without reading. A few moment’s of considered action, even at the expense of loss of some impulse sales, must make more sense than continuing declines in consumer trust.

  • Andrew Bud says:

    Thank you for your comment. We agree absolutely, which is why MEF has created http://www.appprivacy.net , a free service that gives developers the means to accomplish exactly that. In the absence of clear, worldwide Codes in this area, collective action, free tools and the trumpeting of best practice are the most effective actions we can take right now.

  • All says:

    Sorry how is this a great article? Its and advert for the MEF who have done very little over the years except hold decent award ceremonies…The fact is the US is litigation central and the operators can’t handle the wary things work. Having tried to get services live in the US that have taken forever to be approved and never gone anywhere this is not a surprise to me. The whole region is badly organised as each state is like its own country and each operator has its own rule set nothing is standardised. The down fall of this market has been their own.

    • Simon Bates says:

      I agree it’s a shame to see PSMS go – there’s nothing intrinsically wrong with it as a payment mechanism, despite the blatant fraud of a few bad apples. MEF has always represented the honest mobile marketer in policy debates and while we can’t win them all, you just have to look at the work we did in Brazil to see the value we’re able to add (we drafted an entirely self-regulatory code). We helped inform the world-beating new UK Code of Practice and we helped bring PSMS back to Indonesia.

  • […] 2013 saw a major blow dealt to Premium SMS. The US network operators AT&T, Sprint and T-Mobile entered into an […]

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