Sir George slams premium rate phone scam
29 Jun 2004
This is Sir George's speech in the House of Commons on this subject.

Westminster Hall
Tuesday 29 June 2004
[Sir Nicholas Winterton in the Chair]
Premium Telephone Numbers
Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Derek Twigg.]
9.30 am
Sir George Young (North-West Hampshire) (Con): I welcome this opportunity for a debate on premium rate numbers and the growing problems of abuse to which my constituents are falling prey. I note that several other hon. Members share my concern. It is good to see the Minister in his place. If I may say so, he is an effective political firewall for his Department, neutralising and repelling hostile attacks.
This is a topical subject. Last Thursday's edition of The Times featured a story by Helen Nugent—"BT chases phantom sex caller as bills soar"—and the day before I read "Pop-up scam hits internet phone lines" by Liz Philips in the Money Mail. The Sunday Times two days ago included the story "Premium rate robbery" by David Hewson, and I have a large number of headlines from press cuttings that were helpfully provided by the Library: "New mobile phone scam promises prizes but could cost a small fortune", "BT urged to act over internet scam", "Couple dispute £750 phone bill", "BT customers may sue over internet rogue-dialling scam" and, last but not least, "Phantom of the phone sex lines strikes again in Middle England".
I shall describe the premium rate number industry, set out the abuses that are now rife, analyse the regulatory response, which I believe to be wholly inadequate, and suggest some possible remedies. Basically, the premium rate number market revolves around the use of the 090 telephone number range, for which charges to the caller are up to £1.50 per minute. Most of the premium rate market, which is worth £1 billion per annum, does not involve any abuse. It embraces the voting lines for "Big Brother", lines for weather reports, technical help desks, chat lines, horoscopes, TV games, charities, music downloads, Government Departments and what is politely called adult entertainment. The world would continue to rotate without premium rate numbers. Indeed, many countries have banned them. People in those countries who want to pay for premium services over the phone pay by credit card. I shall return to that nuclear option later.
The structure of the industry is not straightforward. Let us start with the network operator—BT, NTL or Telewest. They are the folk to whom we pay our phone bills. A premium rate call goes from our phone line through two separate organisations. First, it goes through the terminating network operator, of which there are several dozen. They are the owners of the 090 numbers, which are allocated by Ofcom. They in turn lease the numbers to service providers, which provide some 30,000 services. They are at the end of the chain and may or may not be located in the UK.
It is important to understand not only the structure of the industry, but the revenue sharing arrangements. All the money that ends up in the hands of the fraudsters starts off in the hands of reputable telephone companies. As BT is typically paid quarterly in arrears for calls by its customers, it may be paid up to four months after a premium rate number has been called. However, it pays out to the terminating network as early as 14 days after a call has been made. BT keeps between 6p and 7p per minute and hands the rest to the terminating network, which, as the 090 host, keeps its percentage of the revenue and pays out the remainder to the service provider, which typically gets 80 per cent., although in some cases it may be less. The secondary settlements can take place weekly. If there is an abuse, it may not be noticed for some time; typically, it will be noticed when the subscriber gets a phone bill. In the meantime, the fraudsters receive their money—in some cases, they do so as soon as seven days after the call—leaving BT or NTL exposed and an argument about whether the bill should be paid.
BT is, in effect, acting as a credit card for the sale of services via the telephone line, but without some of the essential features of the credit card market. For example, a credit card company can be held jointly liable if the goods supplied by one of its merchants are faulty. In the cases we debate this morning, however, BT has no control over the "merchant", because an intermediary in the process licenses the merchant and BT and other carriers are obliged to carry the traffic that presents itself. Again, I will return to the revenue sharing arrangements at the end of my speech. That is the industry in a nutshell: the majority of carriers are responsible and law-abiding, but a minority are not so.
Abuse can take place over a telephone line, involving either the telephone or computer attached to it. Starting with the telephone, last year a spate of misleading and unsolicited text messages conned people into calling premium rate numbers to win non-existent prizes. Typically, a text message would appear on the screen of a mobile, saying, "Congratulations, you have won £2,000. Ring this number to collect your prize." It would not be made clear that the number was a premium rate number; that those who rang it would have to listen to a long pre-recorded message at £1.50 per minute; and that the prize would often be elusive or valueless. Children with mobiles got those messages, and in comparison with adults, they had less chance of knowing that they were a scam.
The Independent Committee for the Supervision of Standards of Telephone Information Services—ICSTIS—is the regulatory body, and it notes:

"During the second half of 2003 we had to deal with over 7,000 of these complaints. In most cases it became evident that there was both spam marketing taking place and that "services" associated with the text promotions were at best misleading and at times apparently fraudulent."
Clearly, there was substantial abuse in that part of the market.
Scams targeting computers have generated most publicity recently. There are some legitimate services that can be accessed by dialling an 090 number via one's computer. When that happens, the computer will disengage from the normal service provider, dial a premium rate number and the user's phone bill will be charged accordingly. The principal type of abuse takes place when, unbeknownst to the owner, the computer initiates the dialling of the premium rate number. That can happen when a rogue dialler is installed, often through an unsolicited pop-up box that looks like an advertisement. It may ask the user if they want to download some software, and even if they click "no" or close the box, the software is downloaded. It replaces the number that the computer normally dials to get on line, which is typically 08, with a premium rate number—09. The rogue dialler is sophisticated enough to turn off the modem dialler, so that the user does not hear it dialling away at their expense. Some diallers call the 090 number once, some call programmatically—for example, in the early hours of the morning if the computer is left switched on—and some change the default dialler.
There are cases in which a member of a household dials one of those services, but denies having done so when the bill arrives. That obviously causes problems in the household and for BT. However, there are enough cases of clear fraud to cause concern, and they have been well documented in the press. Other hon. Members may also have their own examples.
Mr. and Mrs. Higdon of Maidenhead faced a £744 bill, run up in six weeks by calls to premium rate numbers linked to websites owned by a company in west Africa of which they knew nothing. BT has not so far waived the charges. A constituent e-mailed me last week after being charged for an internet call that he did not make. When he reported it, he found that it was already under investigation by ICSTIS, but BT has told him that its policy is not to refund.
Malcolm Bruce (Gordon) (LD): The right hon. Gentleman makes an important point. Does he not agree that even if people have knowingly accessed a premium rate number, they should also be given information about the charging rate? The fact that they may be embarrassed to admit that they made the connection should not be an excuse for people to rip them off.
Sir George Young : The hon. Gentleman is right. The ICSTIS code makes it clear what information must be given to the consumer about the rate that is being charged, but, sadly, some rogue diallers do not provide consumers with those details.
Money Mail tells us of Raquel from Kensington who ran up a £300 bill, probably through a rogue dialler. She has been cut off by NTL, which will not reconnect her until she pays. Susan Westnedge was mentioned in Money Mail on 23 June. Her BT bill suddenly trebled from £50 to £150 in April. Nine calls had inexplicably been made to Sao Tomé in west Africa. She said:

"When I rang, I was told nothing had been done to prevent this continuing. I was told BT was inundated with similar complaints about fraudulent calls."
Some19,000 BT customers are currently having calls to premium rate numbers investigated. At £102 per sum disputed—an ICSTIS figure—that is some £2 million of potential fraud, and those are just the cases that have been reported to BT.
The high-tech crime unit of the police is now involved and has stated publicly that it suspects collusion and/or conspiracy to defraud within what is called the value chain. However, with much of the fraud committed by companies based overseas, it may never bring the culprits to book.
What has been the regulatory response to the abuse? The role of ICSTIS is to prevent consumer harm by requiring clear and accurate pricing information; honest advertising and operation of services—that relates to the point made by the hon. Member for Gordon (Malcolm Bruce)—and appropriate and targeted promotions. It is funded by the industry, with a budget of some £2.8 million in 2004. It enforces its decisions through an Ofcom-approved code of conduct. It sets and reviews standards of content and promotion for premium rate services, and it licenses services, ensures compliance, investigates complaints, adjudicates and applies sanctions, such as fines. That is the theory.
In its October 2003 newsletter, ICSTIS said of text messages, the first scam I that mentioned:

"Wherever necessary, we have acted to bar access to numbers and impose heavy fines."
However, when I took up a constituency case in that very month, the response was wholly unsatisfactory. I e-mailed ICSTIS on 18 October last year, after a constituent got a message that said:

"Urgent; your mobile number was awarded a £2000 bonus."
To collect the prize she had to telephone a premium rate number, with a long pre-recorded message, which cost about £8. I got no reply to my e-mail to ICSTIS and wrote again on 7 January. I also wrote to the company responsible—Prize Line, PO Box 80, 571 Finchley lane—and never got an answer. I eventually got a reply from ICSTIS on 10 March, four and a half months later:

"I am responding to your email of October 18th and your subsequent letters of 11 and 27 February. I am sorry you have had to chase for a response in this way."
If that is the service given to MPs, what sort of service do our constituents get when they contact ICSTIS directly? In its consumer guide, ICSTIS says that it aims

"to resolve all complaints quickly, effectively and consistently".
That was not my experience in this case.
The letter went on to reveal the failure of the regulatory system. To take action against the service provider at the end of the chain, ICSTIS needs to get its identity from the terminating network—the guys in the middle. The letter stated:

"While we have been active in closing down services, the co-operation of the terminating network is required in every case. In some cases, we have problems with network operators failing to provide the necessary information promptly or otherwise failing to assist us with the investigation of cases. This information is essential if we are to act to close apparently rogue services in order to stop harm. In your case the network responsible for the 090 number is One World Interactive and the service provider contracting for its use was Smile Telecom Ltd . . . The identity of the service provider was not however known to us for a period of 10 weeks as a result of delays at the network level."
In other words, when an alleged scam was reported, ICSTIS could not close it down because the host would not reveal the name of the service provider. And so the scam continued, with money going to Smile Telecom, until eventually One World Interactive told ICSTIS who had the number.
On the current scam involving rogue diallers, the regulatory system seems to be in meltdown. Many have tried to complain to ICSTIS, but the line has been constantly engaged. The helpdesk is in meltdown because of a record volume of complaints. On 16 June, the ICSTIS director, George Kidd, said that it had never before had to respond to so many complaints from the public. Daily, 2,000 calls are being reported to ICSTIS—and those are the ones that get through. With such a high volume, it takes up to 26 weeks for ICSTIS to conclude investigations.
I note from ICSTIS's June newsletter that the Minister said:

"ICSTIS does an excellent job, and is a good model of effective self-regulation without, until now, any legislative support".
In light of the current circumstances, I wonder whether he stands by that statement.
ICSTIS has the ability to fine, but 70 per cent. of fines do not appear to be paid, presumably because the offending company is based overseas or is in liquidation. ICSTIS tells me that, in 2003, it fined the highest sum in its history. That was a reaction to the batch of wilful spam and scam mobile promotions that swept the UK, which I have mentioned. The basic figures for 2003 show that 209 companies were fined a total of £1.26 million, of which less than £500,000 was paid. Some fine income received in 2003 relates to fines set in 2002. Equally, it is likely that fines issued in the last month of 2003 will not be settled or written off until early 2004.
So there is abuse and regulatory failure. That leads me to remedies. A first option would be a total ban on premium rate numbers. That has happened in other countries. It would mean that legitimate enterprises—"Big Brother" and the like—would be unable to collect revenue via a premium rate service. I suspect that that would affect the viability of some popular television programmes. The alternative revenue stream could come from credit cards, but that is logistically more difficult for the companies and less convenient for users of genuine premium rate services. I personally would not favour that solution at this stage, but if I were the Minister or ICSTIS, I would use the threat of closure in the near future as an incentive for the industry to get its act together.
Mr. Mark Lazarowicz (Edinburgh, North and Leith) (Lab/Co-op): I am grateful to the right hon. Gentleman for bringing the issue to the attention of the House. I am sure that there is not a single Member of the House or of the population who has not been affected in some way by someone trying to sell premium rate numbers to them.
Will the right hon. Gentleman expand on why he has rejected the idea of a total ban on premium rate numbers? With so many abuses, is there not a case for that simple resolution of the problem? To use his example of television reality shows, I am sure that the makers or the companies would find some way of allowing the public to vote for them. It seems hard to suggest that the world would be a worse place if we did not have premium rate telephone numbers.
Sir George Young : The hon. Gentleman makes a strong case for abolishing premium rate numbers. As I said, I do not rule that option out. My initial view is that, as the majority of the industry is responsible, it would be sad if the activities of a minority wiped out an industry. I hope that we can improve the regulatory system in the way that I am suggesting, which would mean that the fraud was wiped out, but would enable the legitimate industry to survive. I do not rule out abolition in the long term, but I think that it would be a bit defeatist to go for that option at this stage.
The second thing that we could, and I think should, do is make the terminating networks responsible for the fines imposed by ICSTIS on the service providers if they are not paid. That would encourage the owners of 090 numbers to be far more careful about the folk to whom they lease the numbers. Of course, unlike ICSTIS, those owners can access revenue flow to ensure that the fines are paid. At the moment, the terminating networks are not at risk, although the fraud can take place only with their compliance. Moving responsibility for collecting fines to the terminating networks would significantly reduce the administrative burden on ICSTIS, which is seriously stretched.
Thirdly, the terminating networks could be asked to put up bonds before they can issue numbers. The bonds could be drawn on either if the fines remain unpaid or for the resourcing and funding of a proper compensation scheme, of which I shall say more in a moment. Fourthly, the TNOs should be stripped more readily of their licence to issue numbers. I mentioned earlier the delay in providing ICSTIS with the details of Smile. ICSTIS told me:

"The real problem however was the subsequent reluctance and in effect refusal by One World Interactive to provide us with the service provider information for the number range in question."
Why in heaven's name is Ofcom or ICSTIS allowing One World Interactive to go on issuing 090 numbers if it refuses to co-operate? Service providers get away with the scam only because of shoddy work by a few TNOs, but ICSTIS seemed reluctant to act. On 10 June, it told me that

"we are involved in three enforcement actions against terminating networks who have failed to provide us with information or who have failed to prevent access to services when so instructed or who have failed to withhold payments when told to do so."
Those are the companies that issue the numbers; they should be thrown out.
Fifthly, we should change the arrangements for the flow of revenue. The rapid outpayments that I mentioned earlier reduce the likelihood that funds can be frozen at the network level, even when an emergency procedure is invoked. Weekly payments to service providers should stop at once. I was surprised to learn that modest reforms to the payment regime may require legislative change. When I queried the current regime with ICSTIS, I was told:

"You should note that there are legal constraints on our right to require that monies be withheld at the TNO level pending completion of an investigation. If the Committee agree there is the risk of serious harm, they can approve an Emergency Procedure action of the kind previously described. This involves an instruction to withhold revenue to the TNOs involved. If the case does not merit pre-emptive action we are advised that it would be prejudicial to withhold payments, other than provision for administrative costs, pending an eight to twelve week process and adjudication."
BT is also quoted as saying that it could be sued if it does not pay the premium line holder monthly. Perhaps the Minister will comment on whether there are legal constraints that prevent slowing down the revenue flow—particularly when there are allegations of fraud—which I regard as an important part of the solution.
Sixthly, one could ask the service provider to put up a deposit, which it would lose should it be found by ICSTIS to be abusing the system. Service providers should also register details with ICSTIS of what they plan to do and get prior permission—something that used to happen but which has now stopped.
Seventhly, ICSTIS needs more resources simply to cope. It needs more people on the help desk, quicker investigations and a more proactive approach to prevent abuse. The levy on the industry should be put up to fund this; I am certainly not advocating any taxpayer support. I welcome much of the work that ICSTIS has done. It provided advice recently to MPs on how to help our constituents, and it recently participated in a seminar chaired by the hon. Member for Sheffield, Hallam (Mr. Allan), which was very helpful. However, it is drowning under the wave of complaints.
Eighthly, we need more publicity for free premium rate service barring, free software downloads and better customer education. I welcome what BT is doing by contacting every BT customer over the next few months to alert them of that and it has already e-mailed its 1.8 million retail internet customers. Perhaps it should be bolder about cutting service providers off when fraudulent activity is taking place.
Ninthly, we need a faster uptake of broadband so that the problem of rogue diallers cannot arise. I know that the Minister is committed to roll-out, but the issue at the moment is low take-up where it is available.
To bring the score up to 10, and to conclude, what is needed is an effective, comprehensive and properly resourced regulatory regime with meaningful sanctions promptly enforced and an efficient compensation scheme for telephone subscribers who are ripped off by fraud. We are some way from that goal, and I have identified some milestones along the route. If we do not start moving along it, we should look again at the nuclear option mentioned by the hon. Member for Edinburgh, North and Leith (Mr. Lazarowicz) of removing premium rate numbers entirely. I hope that the Minister will be able to respond to this debate by outlining a strategy for recovery.

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Copyright Sir George Young Bt. 2015