Wireless carriers draw fire for service charges

By Antony Bruno

DENVER (Billboard) - Legal pressure is mounting against U.S. wireless operators over their role in facilitating either false or misleading charges for mobile content -- primarily ringtones.

The resulting fallout threatens to stunt an area of potential growth for declining ringtone sales: so-called "off-deck" service providers.

The most recent development targets T-Mobile. The operator is being sued in California for adding charges relating to subscription mobile content services Ringazza and Flycell to the bills of customers who claim they never authorized the charges.

Both services are what the mobile industry calls off-deck providers -- companies that market to wireless customers outside the wireless operators' content menu. They advertise their content in magazines and on certain cable TV networks, which customers can buy via text messaging or mobile Web sites. The cost of the content is then added to the customer's phone bill via a billing arrangement with the operator.

The problem is that customers don't always realize what they're buying. Most off-deck content providers operate subscription services whereby members can download a set number of ringtones, wallpapers and games for a monthly fee, typically $10. They attract new customers by advertising free or deeply discounted ringtones. Many of those customers don't notice the subsequent extra recurring fee.

Such confusing marketing and billing practices are not new and have spawned numerous lawsuits against the individual providers engaging in such practices, mostly in Europe. A class-action lawsuit is under way in Florida against such a provider, the U.S. arm of Italian content provider Buongiorno.

But recent developments put wireless operators in the crosshairs for their involvement in collecting the disputed charges, even though they play no role in marketing or distributing the content in question.

DAMPENING SALES

"I would call the situation borderline chronic," MultiMedia Intelligence analyst Frank Dixon says. "The whole problem has just been rampant."

While there isn't any hard data proving that these lawsuits and the problems that initiate them have any direct effect on mobile content sales, Dixon says they're almost certainly contributing to the stalling of the mobile entertainment market.

"We're not seeing the adoption of mobile content like everyone would have liked, so obviously we can say there's some impact on the consumers," he says. "The secondary impact is that operators are getting more careful about how they get to market. They're putting up roadblocks for questionable practices, and they're making a concerted effort to push content through their own on-deck offerings."

Ultimately, that threatens the expansion of off-deck business -- the one area where mobile content sales are up. Total U.S. off-deck sales are expected to rival on-deck sales by the end of this year, according to research from Informa Telecoms & Media. For 2010, Informa projects off-deck sales will reach $5 billion versus $2.1 billion for on-deck sales.

This tightening of rules comes as labels are entering the off-deck market. Island Def Jam teamed with Flycell on IDJ Mobile, a monthly subscription service that lets fans download not only IDJ content but content from any label that Flycell has partnerships with -- to date limited to all Universal Music Group companies.

Reuters/Billboard