ICSTIS Activity Report 1996

ICSTIS STATEMENT OF PURPOSE

"To establish, maintain and ensure compliance with appropriate standards of protection for users of telephone information and entertainment services and, in doing so, contribute towards the developments of the industry. In seeking to achieve this, ICSTIS will:

CHAIRMAN'S STATEMENT

In 1996, ICSTIS celebrated its tenth anniversary. Today's premium rate services have developed well beyond the adult and chat services which dominated the industry and newspaper headlines 10 years ago. Consumer awareness is now stronger and there is a greater level of compliance with the Code of Practice.

Recognition of the success of self-regulation led to the transfer of responsibility for live services regulation to ICSTIS. This was confirmed in Oftel's statement, The Future Regulation of Premium Rate Services, published in October 1996.

The Oftel statement raised a number of important consumer issues that could have a significant impact on the premium rate industry. These included unbundling, the separation of the content and conveyance charges, numbering and the disconnection of customers in dispute over charges.

Last year the number of network operators offering premium rate services doubled, with Scottish Telecom, Norweb Communications, Torch Telecom and Orange joining existing operators BT, Mercury Communications and Vodata. This will encourage new services and provide consumers with greater choice although consumer confidence will depend on having the right regulatory framework in place.

ICSTIS' effectiveness can be largely attributed to the support of the network operators. The establishment of the ICSTIS Network Operators Committee (INOC) will continue to build upon this, with INOC working to full strength in 1997.

Although most of the four million or so calls made to services each week do not give cause for concern, public complaints have remained constant, reinforcing the need to remain vigilant.

Increasing complaints about competitions and virtual chat services prompted reviews into these areas. I am particularly grateful to the ICSTIS Industry Committee for their assistance and advice during these reviews, the recommendations of which will be incorporated in the eighth edition of the Code, due in the latter part of 1997.

International adult entertainment services highlighted the need for international co-operation and we will continue to work with our counterparts overseas to address concerns.

During 1996 there have been changes within the Committee itself. We welcomed a new member, Gordon Simpson, in March. Gordon, who has extensive experience of the premium rate industry, is currently European Director of Softbank Interactive Marketing. Mark Stephens resigned from the Committee in October. We are grateful to Mark for his energetic contribution and the expertise he brought to the Committee.

Under Sarah Harrison's experienced directorship, the Committee continues to be well served by the Secretariat. The commitment to dealing promptly and precisely with complaints was demonstrated by our achievement in gaining accreditation to the international quality standard ISO 9002.

In the forthcoming year, we expect to see a further increase in the number of operators licensed to carry premium rate services and in the types of service using premium rate as a payment method. Similarly, we expect to see further developments in the way services are paid for and the use of new media. Changes in the wider regulatory environment and at Westminster and Whitehall will also bring greater scrutiny of the effectiveness of systems of industry regulation. These are the kind of challenges which we are well placed to meet.

The features which have characterised the ICSTIS system of regulation in the last 10 years - independence, accessibility, flexibility and effectiveness - will be instrumental in responding to these developments and in maintaining consumer protection without impeding industry development.

Baroness Dean


SECRETARIAT

Director

Sarah Harrison

Deputy Director and Head of Policy

Anthony Smith

Head of Compliance and Investigations

Saru Balakrishnan

Head of External Affairs

Kate Close

Case Team Manager

Catherine Gerosa

Policy and Research Manager

Elizabeth Cloud

Procedures Manager

Judith Oliver

Personal Assistant to the Director and Chairman

Dawn Walton

Finance and Administration Officer

Ann Fahy

Case Handling and Advice Officers

Chris Allen

Philippa Copeman-Hill

Darryl Medcalf

Lee Morris

Sarah Payne

Craig Scantebury

Chris Shea

Xerses Kazak

Lindsey Norman

Customer Services

Lisa Firmin

Michelle Vincent

Media and Public Relations Officer

Rob Dwight

External Affairs Officers

Natalie Cole

Sharon Ward



REVIEW OF 1996

It is estimated that 228 million calls were made to premium rate services in 1996, generating an approximate annual revenue of £160 million. Almost 1,000 companies, ranging from large organisations to one man operations, provide a variety of entertainment and information lines available by telephone, fax or personal computer. Services are widely advertised across all media.

Compliance

ICSTIS received 3,582 complaints about premium rate services in 1996. The number of public complaints remained on a par with those received in 1995. Approximately three-quarters of 1996's complaints came from the public, mostly via ICSTIS' 0800 500212 free complaints line.

However, increased monitoring was carried out in 1996 to address public complaints and poor compliance levels in the international adult entertainment services sector. This resulted in a twenty-fold rise in the number of international cases requiring investigation and action. This, in turn, contributed to a 10 per cent increase in overall complaints on 1995.

Although most of the four million or so calls made to premium rate services each week operate without cause for concern, complaints from the public have remained constant and there is still work to be done by ICSTIS to address the concerns which these raise as well as to safeguard consumers.

What causes concern?

Misleading claims about services caused most public concern in 1996. The 935 complaints received about misleading promotional material and content accounted for over a quarter of all complaints, once again highlighting the need for services to deliver what they promise in the promotional material.

The number of cases involving the promotion of adult entertainment services in generally available, and not top-shelf, publications more than trebled in 1996 to 736 and accounted for over 20 per cent of all complaints.

Complaints about inadequate pricing information also rose last year, although there was a welcome fall, for the second year running, in the number of cases involving unreasonable delay.

A sharp fall is also evident in the number of complaints involving consumers who have experienced technical problems when calling a service. In 1996, there was a 23 per cent reduction in such complaints - from 34 per cent in 1995 to 11 per cent last year. ICSTIS' policy of directly referring these complainants to the relevant service provider is working well, with the majority satisfied with the outcome.

Competition services continued to generate the highest number of complaints. Although these fell by almost a quarter on the previous year, the 683 received in 1996 accounted for almost 20 per cent of all complaints.

A record 220 complaints were received about practical joke lines, while complaints about live one-to-one conversation services more than doubled. However, complaints about dating services, racing tipster and sports lines continued to fall.

Prior Permissions

Companies wishing to operate services at the higher tariff of £1.50 per minute require ICSTIS' prior permission to do so. Prior permission is also required for certain services operating at £1.00 per minute and now for all live services regardless of the tariff.

173 higher tariff services were given prior permission to operate in 1996, bringing the total number permitted since their introduction in September 1994 to 363. Typical services range from computer and legal helplines to wine and music information services.

ICSTIS publishes guidelines to assist those service providers who are planning to set up services which require prior permission. As well as detailing the applications process, the guidelines also help service providers understand the types of service that are likely to be permitted and the conditions that may be attached.

Guidance

ICSTIS continues to give guidance to service providers and advertising departments on the Code.

Through feedback from the industry, it is becoming increasingly apparent that ICSTIS' copy advice and general guidance services are valued and welcomed.

The Secretariat handles over 100 copy advice and guidance enquiries each week, contributing to the overall improved levels of compliance with the Code.

Top 10 Service Types By Complaints Received 96 95

Competitions 683 881

Information 565 621

Adult Entertainment 412 83

Live Conversation 378 148

Virtual Chat 321 268

Dating 235 367

Practical Joke 220 7

Racing Tipster 168 225

Advice 115 94

Entertainment 95 135

Top 5 Reasons For Complaints Received 96 95

Misleading 938 711

Adult (Top Shelf) 736 224

Inadequate Pricing Information 564 356

Unreasonable Delay 217 288

Inadequate Address Information 133 102

Total Complaints Completed 96 95

Requiring Investigation

Upheld 1170 1265

No Breach Raised 1006 (-)*

Resolved Informally 273 165

Not Upheld 11 255

Not Requiring Investigation

Operational Difficulty 596 1109

Not Within Remit 472 98

General 172 103

Billing 32 26

Enquiry 18 121

Other 27 44

* No records available for previous years


REGULATORY CHANGES

Oftel, which has overall responsibility for promoting competition and consumer protection in the UK telecommunication industry, has been content that regulation of the premium rate industry by ICSTIS is effective. This was confirmed in October when Oftel issued its Statement on The Future Regulation of Premium Rate Services, which followed a consultation document published in 1995.

The Statement dealt in detail with the future regulation of live services (see page xx). In addition, it raised a number of important consumer issues which Oftel is looking to the industry to deal with.

These include a relaxation on the ban on chatlines, allowing business services such as video conferencing to develop, the introduction of free selective call barring, new numbering arrangements for the premium rate industry, the disconnection of customers in dispute over premium rate charges and unbundling, the separation of the content and conveyance charges for premium rate services. These could have a significant impact on the premium rate industry and ICSTIS will be contributing to work on these issues in 1997.

Numbering

The number of dialling codes on which premium rate services are available doubled in 1996 to 26. The codes are scattered across the numbering range from 03 and 06 to 08 and 09. This has only served to confuse consumers. To address this and other numbering issues, Oftel issued a consultation document, The National Numbering Scheme in August 1996 .

This proposed that all premium rate services use dialling codes starting with the numbers 09, therefore making premium rate services easily recognisable.

In January 1997, Oftel's follow-up Statement confirmed the move to dialling codes beginning with 090 - new services using these codes should start appearing in mid-1997. Existing services will be allowed to continue for a fixed time before they have to move to the new codes.

Before the consultation was published, ICSTIS and Oftel carried out joint research into what consumers wanted from changes in the numbering system. The results of this research, The Future Numbering of Premium Rate Services: Identifying Consumers Needs, was also published in August.

The findings showed that consumers favoured a single dialling code for premium rate services, as well as clear pricing information in promotions, already a requirement of the ICSTIS Code of Practice.

A free recorded message during the service giving the cost of the call was also stated as being desirable.

In addition, Oftel asked questions about call barring. The research showed that consumers were largely unaware that they could get their telephone company to bar access to premium rate lines from their home phone. Many of those asked favoured barring access to adult services, chatlines and dating services.


LIVE SERVICES

Most premium rate services involve consumers listening to recorded messages. Some, however, use live operators to answer calls or to put callers in touch with each other. Following problems with chatlines in the late 1980s and early 1990s, Oftel has retained ultimate control of the regulation of live services.

However, Oftel and industry recognition of the success of ICSTIS' regulation led to discussions aimed at transferring more responsibility for live services regulation to ICSTIS. This was stated in Oftel's Statement, The Future Regulation Of Premium Rate Services (October 1996):

"Oftel's view remains that it does not wish to impose intrusive

arrangements where voluntary arrangements are working well.

The preference remains for industry self-regulation."

This heralded the transfer of responsibility to ICSTIS enabling it to become the 'one-stop shop' for live services. The new arrangements, including a new Live Services Code of Practice, came into effect in January 1997 giving ICSTIS new powers to sanction live service providers in breach of the Code.

Service providers wishing to operate live services are now required to obtain prior permission from ICSTIS. As part of this process, additional conditions may be imposed to ensure the right level of control.

Under the new arrangements, ICSTIS continues to run the compensation scheme which helps telephone subscribers with genuine compensation claims for unauthorised use of their phones to live one-to-one conversation services. The funding arrangements are under review to ensure that greater responsibility for funding is placed on those companies against whom claims have been made.


ICSTIS AND THE INDUSTRY

The ICSTIS Industry Committee (IIC) is an advisory group to ICSTIS. Its role is to inform and advise ICSTIS on issues likely to affect the development of premium rate telephone services and how they are regulated and, where appropriate, to make recommendations to ICSTIS regarding these.

IIC members are appointed in their individual capacities from both the service provider and network operator communities, bringing invaluable expertise to ICSTIS' work.

The IIC, which meets every two months, is proving to be an invaluable focus for industry input into ICSTIS' work. In 1996, the work agenda covered a wide range of issues including the ICSTIS reviews into competition and virtual chat services, the transfer of responsibility for live services from Oftel to ICSTIS and the formation of a new compensation fund for live services.

In a wider context, the IIC proved to be a useful forum for the exchange of information on general telecoms issues which may effect the premium rate industry.

Over the last year, two IIC members representing the service provider community, Mike Tully and Andrew Wadland, resigned from the IIC due to other work commitments. ICSTIS would like to thank them for their valuable contributions.

New Network Operators

In 1996, the number of licences granted to network operators to operate telecommunications services within the UK increased significantly.

This has had a major impact on the premium rate service market, with the number carrying premium rate services more than doubling.

Seven network operators currently offer premium rate services: BT, Mercury Communications, Norweb Communications, Orange (proprietary service only), Scottish Telecom, Torch Telecom and Vodata.

The emergence of new network operators has led to increased competition in the premium rate sector and this is expected to continue as more network operators enter the premium rate services market in the future.

After a fairly static 10 years in terms of tariff structures, a range of new premium rate tariffs was introduced in October 1996. It is anticipated that the trend towards fixed charges per call will open the way for new types of service such as product purchase.

Greater pricing flexibility will provide consumers with increased choice but its success will depend on careful consideration of consumer issues.

The ICSTIS Network Operators Committee

In 1995, in its review of ICSTIS, Coopers & Lybrand recommended that a Board of Finance should be introduced to improve transparency and accountability and to deal with the increasingly complex issue of funding.

In 1996, in response to this recommendation, ICSTIS established the ICSTIS Network Operators Committee (INOC). INOC has had a series of preliminary meetings to consider and agree the composition of the Committee, its terms of reference and future funding arrangements for ICSTIS.

INOC is still at an early stage of its development but ICSTIS looks forward to it working to full strength in the forthcoming year.


ADJUDICATOR'S REPORT

1996 Adjudicator's Report In Relation To Live Conversation Services

The ICSTIS Compensation Scheme was introduced in December 1989 and is available to telephone subscribers who receive high bills as a result of unauthorised calls to one-to-one live conversation services.

The Compensation Scheme continued to receive and pay out claims, although the pattern of falling claims, as seen in 1995, continued in 1996.

By the end of 1996, the One-To-One Fund had paid out a total of £1,004,643.82 since its introduction. During the year, 89 claims were received, of which five succeeded in gaining an award. The total amount paid out of the Fund in 1996 was £2,375.89.

The introduction of BT's 'opt-in' facility in 1994, which meant that subscribers could only access live one-to-one chat and adult services with a PIN code, led to a significant decrease in the number of calls to services and an even greater decrease in the incidence of unauthorised use. This continued to be an influence on the low level of claims in 1996.

However, ICSTIS has observed an increasing number of claims being made because of unauthorised calls to virtual chat services and international adult entertainment services.

Claims for calls to these services do not fall within the remit of the Compensation Scheme but do, however, raise issues of concern and questions over how they should be addressed. These concerns prompted the recent review of virtual chat services, the conclusions of which will be reported on in 1997.

During 1996, ICSTIS examined viable models for a new scheme which would be able to deal effectively with the reduced number of claims now being received and at a lower cost.

Consultation with representatives of the one-to-one services sector highlighted the need for new funding arrangements for the scheme which placed greater responsibility on those companies against whom the claims were being made.

For ICSTIS, the principles of any new scheme must be to ensure that, without exception, all legitimate claims for unauthorised use can be met, to impose the cost of the unauthorised use on the service provider involved in the claim and to ensure that the costs of administering the scheme are reasonable and not disproportionate to the sums awarded.

Various proposals have been considered by the network operators, service providers and ICSTIS. No suitable alternative to the present scheme has yet been agreed, although ICSTIS remains committed to working with the industry in order to find a solution which satisfies its principle objectives.

Sir John Bailey KCB


ACCOUNTS

Income Notes £(1996 ) £(1995)

Funds Provided (1) 1,270,760 1,332,288

Interest Provided 22,509 29,956

Total Income 1,293,269 1,362,244

Expenditure

Committee And Secretariat Costs (2) 938,200 906,245

Adjudicator And Secretariat Costs (3) 19,214 57,439

Disbursements 96,197 109,420

Legal and Professional Fees 85,703 83,612

Accounting and Audit 13,000 11,260

Other Costs 135,496 186,779

Total Expenditure 1,287,810 1,354,755

Profit Before Taxation 5,459 7,489

Taxation (5,459) (7,489)

Profit After Taxation 0 0

(1) The company is non-profit making. Funds are received form the network operators and the compensation fund in order to match the expenditure incurred. The figures have been adjusted to allow for timing differences in the receipt of such funds.

(2) The Committee and Secretariat costs indicate the costs attributable to supporting the Committee in its work of regulating premium rate services and include staff, accommodation, office equipment, policy advice and Committee members' fees.

(3) The Adjudicator and Secretariat costs include the costs attributable to the administration of the Chatline Claims ands the Live Conversation Compensation Funds and include staff, accommodation, office equipment and Adjudicator's fees.