Why Startups Are Beating Carriers (Or The Curious Case Of The Premium SMS Horoscope Service & The Lack Of Customer Consent)

Any startups out there seeking to build a business by setting out to confuse as many users as possible with overly complex pricing structures, while tricking those who can’t afford the full-fat service into signing up for ridiculously over-priced rubbish and then making it really hard for them to opt out? If so you’ll want to look to carriers for inspiration.

Startups aren’t immune to dubious and irresponsible behaviour, of course — appropriating address book data without asking properly first, for instance, or playing fast and loose with TOS and scaring the bejesus out of users — but those that act like douches have to worry that their douchey behviour will cause them to (rightly) lose users. Carriers operate differently: their infrastructure has created captive markets, making it tough for customers to switch to a better alternative. Hence the shoddy behaviour.

But the carrier oligopoly is being challenged by over the top data services. And while the network operators are not about to lose their fiefdoms entirely, they are being pushed onto the back foot. The shift from circuit switched voice-plus-text services to all-IP mobile data has allowed Internet companies to come in and start disrupting their lucrative walled gardens. The traditional carrier revenue streams of voice and SMS are being eroded by more flexible and cheaper VoIP and over-the-top messaging alternatives, whether it’s Skype or Viber or Whatsapp or Line. According to a recent report by Strategy Analytics more than $3 billion in operator messaging revenue will be eradicated between 2012 and 2017 — thanks to the rise of OTT services.

Carriers becoming ‘dumb pipes’ — or to put it slightly less pejoratively, a utility service, a la water, electricity and gas — seems all but inevitable (not that anyone is going to weep on their behalf). But this outcome is not exclusively the result of faster and more innovative startups. To say so is to gloss over how badly carriers have adapted and evolved their business models — preferring, instead, to try to block upstart rivals in order to milk as much as they can from ailing cash cows, rather than accepting that the technology landscape is shifting — and moving on to pastures new.

Having built businesses on restricting and locking in customers — to contracts, to irritating portals, to complex tariff structures, you name it — telcos clearly have trouble thinking outside their locked box approach. And while it’s fair to say that many established companies have trouble rekindling an entrepreneurial spirit — and let’s face it telcos have network infrastructure not software in their DNA — carriers could still have done more to dig themselves out of this innovation hole. Ultimately they still have themselves to blame.

Some carriers are attempting to get in on the over the top services action individually, or by banding together via collective initiatives such as Joyn. But setting aside their conservative, reactionary mindset and suspicion of new ideas — which already puts them at a disadvantage vs startups and app makers — a massive problem they face  in a pick ‘n’ mix world of opt in and out data services is a chronic lack of customer trust. Why should anyone opt in to a new service from a company that’s been doing its best to screw its users for years?

Telcos have blotted their own copybook by treating customers like cattle to be penned in and milked dry. Carriers are not service businesses or entertainment businesses, they are tax collectors — putting up as many toll gates and penalty policed speed limits on your use of their roads as they can. Little wonder they are held in near universal contempt by users. And that’s a pretty terrible position to be in when the walls of your citadel are under attack like never before. (Joyn us? No thanks!)

Here’s one example of current carrier car-crash behaviour, involving T-Mobile U.K. — which in my view is symptomatic of carriers’ wider failings, and illustrates how far they have to go to reform their operations if they are ever going to be able to successfully compete in the popularity contest of apps and services.

Before I go any further, it’s worth noting this is not, by any means, an isolated example — see the following forum posts for example (such as the one screengrabbed below) complaining of near identical issues with T-Mobile, dating back years.


2013 — a new PAYG customer joins T-Mobile UK…

1) A 70-year-old member of my family ordered a pay-as-you-go SIM from T-Mobile UK, with £10 preloaded. This tariff means you don’t pay a monthly fee to use the network, you just pay for your actual usage (phone calls, texts and mobile data)

2) The SIM was left in its packet for three days until the smartphone (an iPhone) was given to her. On activating the SIM we noticed unsolicited horoscope text messages from a shortcode ‘3030’. None of the messages indicated the texts cost money to receivet-mo horoscope

3) On checking the PAYG balance the morning after putting the SIM in the phone, the £10 was found to have dropped to £8.22 — despite no calls having been made or chargeable texts sent. (Being as it’s an iPhone there is no carrier portal where horoscope ‘services’ could have been signed up for in error either)

4) A T-Mobile customer service representative told us the horoscope service was a premium SMS service (each SMS cost 40p to receive). It said it was operated by a third party company. We were told we had opted in to receive the texts on March 6 — which was two days before the SIM was taken out of its packet and put in the phone. On pointing this out, the rep said T-Mobile would investigate the issue and call back the next morning. He also said he would put a block on third party SMSes

5) T-Mobile did not call back. And another horoscope text arrived. On calling T-Mobile again, a different spokesperson said we should text STOP to the number to stop the texts. This spokesperson claimed the texts were sent by a company called MX Telecom who we would need to contact to secure a refund

To my eye, it was pretty obvious that something dubious was going on — so at the same time as we tried to sort the issue out via T-Mobile’s customers services phone line I contacted the T-Mobile press office to ask how they could explain a customer being signed up to a premium service without their consent or knowledge? Had there been a data breach, or were they in fact opting PAYG customers into paid services without their consent?

After several days investigating the issue, T-Mobile’s press office told me the 3030 service is actually a T-Mobile service, not a third party service at all. (Worth reiterating that T-Mobile’s customer services never gave us this information, despite multiple calls about 3030. We were incorrectly informed it was a third party, multiple times.)

The company then claimed that the reason the PAYG SIM had been automatically signed up to receive SMS horoscopes at 40p a pop was because the associated phone number was an old number and the prior owner of it had signed up to the service. It said the failure to remove the old subscription was down to “human error”.

Here’s the statement the company provided in full:

As part of an Ofcom directive to ensure that the UK doesn’t run out of numbers, PAYG numbers are recycled. In this instance, it appears that the premium text service attached to the number remained when the number was transferred to [the customer]. When PAYG numbers are recycled, they are attached to new SIMs so no personal data is transferred.

We have placed a block on [the customer’s] account to stop any further texts and we have credited her account to cover the charges incurred.

This was an isolated human error and no personal data was shared.  We apologise for any inconvenience caused.

Now, it is possible this problem was caused by human error. But it’s not an isolated error — judging by others complaining of this same problem with T-Mobile on various forums (and let’s not pretend, T-Mobile is the only offender here — I’ve found similar complaints on forums associated with other UK carriers). The problem has apparently recurred for years, judging by some of these posts.

Moreover, it seems rather — shall we say — suspicious that the horoscope service that was never signed up for by my family member (indeed, could not have been signed up for since the SIM was still in its packet when the service was activated) was for the correct star sign. There are 12 signs of the Zodiac. Eleven of them would have been incorrect. But T-Mobile’s horoscope service delivered premium SMS for the star sign that is associated with my family member’s birth date.

Coincidence? That’s what T-Mobile claimed when I asked about this (and about why we were never told T-Mobile operates the 3030 service):

We apologise for the misinformation you have received.

We have training processes in place for all our customer service staff, to ensure they are aware of all details relating to the products and services we offer. We continually look to review this process to make improvements, as well as address any specific issues as and when informed.

The star sign being the same was a coincidence, and with the forum posts we can’t comment on specifics without investigating each case further. If customers believe they have mistakenly signed up for the service, we’re happy to talk to them on a case-by-case basis.

It is certainly possible that the prior owner of the phone number was also a pisces so it could be a coincidence. But when you consider that part of the ordering process for the SIM involved my family member providing T-Mobile with her birth date it does seem rather less convincingly coincidental. T-Mobile had the data to calculate her star sign, as well as having her phone number and deductible PAYG balance — all the data it needed, in other words, to sign her up to a premium service and deduct money. All it lacked was her consent.

But let’s be charitable and assume it was just coincidence in this case, and human errors in all the various forum complaints (some carrier led, some customer caused), part of the problem why carrier premium SMS services are so apparently sloppy is the lack of regulatory oversight to rein in these “errors”.

In the UK, an organisation called Phonepayplus regulates premium SMS services — but only third party premium SMS services. It referred me to telecoms watchdog Ofcom when I asked if it had received complaints about T-Mobile’s 3030 service. But Ofcom doesn’t regulate this service either — having decided to remove ‘own-portal’ services (which a spokeswoman told me the premium SMSes would fall under) from the scope of its regulation in July 2012. Meaning carrier premium SMS services are currently unregulated (at least in the U.K.).

Among the reasons Ofcom gave for removing own-portal services from its regulatory remit last year (see: pages 21 & 22 here) was:

It is sufficiently clear to the consumer who provides the service and to whom they should complain if there is any problem

— which is spectacularly ironic, given that the T-Mobile premium SMSes contained no information identifying T-Mobile as the sender; contained no information that the SMSes cost money to receive; and T-Mobile’s own customer services staff repeatedly misidentified the sender as a third party, and never as T-Mobile.

T-Mobile did not provide me with information on how many premium SMS services it operates, despite my asking multiple times. However it is possible to dig this information out of its website, by using — ironically — a third party  text service checker it hosts on the website (buried under multiple sub-menus). The listing of T-Mobile’s 3030 services ran to three pages — which I have composited into the below graphic.

Perhaps carriers think they can get away with a few “human errors” in the premium SMS department because these services aren’t regulated. Perhaps it’s also symptomatic of the command and control mindset of these oligarchs. What’s certain is that if carriers dedicated a little of the energy they plough into maintaining these anachronistic, valueless (to their customers, that is) premium SMS ‘services’ into creating genuinely useful services that customers want to use then they would have a better shot at competing with the startups leapfrogging their gates.

Or they would, if they hadn’t spent years destroying the trust of their users by treating them like numbers on a spreadsheet. There’s a lesson here, for any business — large or small.


[Image by dizznan via Flickr]