The Premium SMS Fiasco Explained

This is a guest post by Ario Tamat. Ario worked in the digital music industry in Indonesia since 2003, and currently works in the movie and TV industry in Vietnam. Keep up with him on Twitter at @barijoe or his blog on http://barijoe.wordpress.com

In the past few weeks, the issue of theft of phone credits has been making headlines across Indonesian media outlets, with the current developing story being that the Indonesian Telecommunication Regulatory Authority (BRTI) has issued an official letter basically saying that all premium SMS services must be shut down.

To give a bit of background, since 2002, many companies, many of them essentially startups, took advantage of SMS technology and started running premium SMS services in which people who purchased or subscribed to these services would receive the various virtual wares offered by these companies in various forms ranging from ringtones, horoscopes, mobile wallpapers, quizzes to chatting.

Due to the limited amount of data that the SMS protocol can carry, they had to be very creative in designing the services. Either the content delivered had to fit 160 characters, or the SMS had to provide a WAP link that would bring users to the content they desire. The industry slowly but surely flourished, with little or no regulation from the government - let alone support - and the premium SMS services have evolved from nice-to-have value added services (VAS) to an industry in its own right.

Flash forward to 2011. The push for more growth and profits from the premium SMS industry has caused some companies to be, um, too creative in their charging schemes to customers. Many consumers have been complaining that they could not unregister from certain premium SMS services, causing loss of money - some do not recall ever registering for those services. The mounting complaints eventually brought BRTI to send out a letter to all the telecommunication companies to basically stop ALL premium SMS services.

The letter's main points were:

1. Ceasing all promotion of SMS services via SMS broadcast, autodialers or pop screen until further notice
2. The deactivation/unregistration of all Premium SMS services (including, but not limited to, SMS/MMS subscriptions, music tones, games or wallpapers) by Tuesday, October 18th 2011 midnight, except for public, financial and stock market services; by sending a deactivation notice and informing of how to re-register for those who are still interested in the services (with no extra charge).
3. Recap the transaction data of all users whose phone credits have been cut by Premium SMS services activated via SMS broadcast/pop screen.
4. Return the phone credits to users who list money from Premium SMS services
5. Report results of point 1 to 4 regularly in writing to BRTI starting Wednesday, October 19th 2011, every Wednesday, until December 31st, 2011.

This letter created a flurry of tweets from practitioners within the telecommunications and music industries, with some musicians calling the 'death of ringback tone (RBT)' a blessing to the industry, while some others are campaigning to save RBT on Twitter as it is now the majority revenue driver for the recording companies.

The music industry has become reliant on RBT and SMS services since the drop in physical product sales and both services would be impacted by this letter from BRTI.

BRTI then clarified to the press that the letter is not intended to shut down all services, but reset the whole system; trying to make sure that those who are still interested in the system can re-register, while those who might have inadvertently subscribed to an SMS service could stop. The ridiculous thing is that the Minister of Communication and Informatics did not know about this, although later on the Ministry issued a statement supporting BRTI's letter. [What a convoluted mess! -Ed]

The Association of Telecommunication Companies of Indonesia is expected to issue a statement about this, although most of the members have already asked their content provider partners to start deactivating all services and to notify subscribers on how to check whether they are subscribed to any premium SMS service.

At the peak of the content provider industry, as it is known in Indonesia, there were hundreds of these companies, employing at least 5-10 people per office. These were essentially technology companies who had to be creative with the service and content they offered to users.

It came to the point where the telecommunication companies themselves got creative with how to promote these services and content, with many ways of promoting through SMS broadcasts, autodialers, free trial periods and so on. These companies, in essence, were startups with a backend and an idea.

In retrospect, many of these services took advantage of the ignorance of many users to obtain subscribers, hence the many complaints, but many still ran things more legitimately. If some regulation was put in place from the start, perhaps the entire industry wouldn't be held hostage by BRTI's letter and the services that do offer real value to the user will still continue to be used.

What nobody wants to talk about is how many of the subscribers of these premium SMS services are actually 'real' customers, as opposed to customers who absentmindedly subscribed to a service.

Now, with the current boom in tech startups, covering a wide range of businesses that might or might not be supported by existing regulations, how long do we have to wait until a nice set of rules are set up that not only supports the growth of the industry, but also protects the consumer?

The Indonesian government's track record on this is notoriously bad - they came in late to properly regulate the banking industry in the 90's, they were late in regulating the premium SMS industry, and in both situations, both the industry and the consumer suffered.

So, what will happen now? Will the digital music and premium SMS content industry suffer as a result? And what does this say about government support for Indonesia's developing industries in the future?

The Recording Company Association of Indonesia (ASIRI) is expected to make a press conference today at 4 PM Jakarta time to release a statement regarding this issue.