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Terms of reference of the Ofcom review of regulation for premium rate services.

1. Since premium rate services (PRS) were introduced in the UK 20 years ago, they have been subject to certain regulatory safeguards in order to ensure adequate consumer protection. PRS rules generally try to ensure accuracy of advertised services and transparent charging in order to protect against fraudulent or unauthorised use of PRS and try to ensure effective control of certain services to prevent access by minors.

2. The current regulatory regime for PRS largely follows a co-regulatory approach, with the primary role for consumer protection falling to ICSTIS. Under the Communications Act 2003 (the Act), Ofcom may approve the ICSTIS Code of Practice. The Act also allows Ofcom to support ICTSIS by way of regulation known as the PRS Condition. Currently the PRS Condition applies to a class of PRS (known as Controlled PRS).

3. A number of regulatory issues have arisen in relation to premium rate services since recent reviews of the rules governing this sector. Oftel carried out a review in 2001, resulting in changes to PRS licence conditions. Ofcom undertook a review of the effectiveness of the PRS regulatory regime in 2004. That review identified a number of problems with the regime, and while Ofcom did not believe it necessary at that stage to move away from the current self- and co-regulatory approach, it developed and subsequently implemented a package of recommendations to improve the effectiveness of PRS regulation within the existing framework.

4. In light of increasing convergence in the communications sector and the growth of PRS as a micro-payment mechanism, Ofcom considers that the time is right for a first principles examination of the role, structure and application of regulation in this area.

5. The aim of Ofcom’s review is to consider whether current PRS regulation meets the needs of consumers whilst supporting an innovative and growing PRS industry.

6. Specifically, Ofcom will consider: the characteristics of the PRS sector; the consumer experience of PRS; the types of services, including new services, that are subject to current PRS regulation; the extent of protection for consumers from the current rules and in light of these considerations, whether the current rules are proportionate.

7. The issues Ofcom therefore expects to address as part of the review of scope include:

• The clarity of pricing in PRS and impact on consumer trust and confidence;
• The mechanics of consumer redress in the PRS sector;
• The ability of the current regulatory regime to adapt to new and emerging services;
• The effective application of regulation across the PRS value chain;
• The feasibility of a service provider registration scheme and its benefits for regulation; and
• Any overlap between ICSTIS’ role and that of other regulators and consumer protection bodies.

8. Following its analysis, Ofcom may propose some of the following, if any:

• Revisions to the PRS Condition and specifically Controlled PRS, which may extend or alternatively withdraw regulation to a particular service(s), based on, amongst others, considerations of proportionality;
• Recommendations to ICSTIS to amend the ICSTIS Code which may include proposals for sector specific guidance;
• Whether resources in enforcing regulation should be concentrated on those areas where the risk of consumer harm is greatest;
• Recommending to Government changes in the legislative framework for PRS regulation if Ofcom’s view is that the current rules are not effective.

9. In carrying out its review, Ofcom will seek evidence from consumers, consumer organisations, industry and other regulators to ensure the policy options developed are fit for purpose and can be effectively implemented if adopted. Ofcom will also carry out market research to provide evidence of consumer experiences of PRS to inform its approach.

Timing

10. It is intended that a public consultation on options for the future of PRS regulation will commence in Autumn 2007. Following a 12 week consultation and consideration of submissions in response, a statement on the outcome of the scope review will be published as soon as possible thereafter.

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