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Welcomespeaker:

Andrew Pinder CBE, Chairman, PhonepayPlus

PhonepayPlus regulatory

developmentsspeaker:

Jo Prowse, Acting Chief Executive, PhonepayPlus

What I’ll be covering:

Changes – changing market, changing PhonepayPlus

Judicial Review

A new Code of Practice & Special Conditions

Commitment to you on how we regulate:

Protecting consumers

Proportionate and fair

Flexible approach

Working collaboratively

A changing market, A changing Code of Practice, A changing PhonepayPlus.

The Judicial Review brought by Ordanduu & Optimus

Emergency procedure Communication

Costs Implications

Our response to the judgment: 1. Immediate amendments to the 12th Code

of Practice, see more at bit.ly/changesto12thcode

2. A review of our legal procedures

Review procedures of Part 4

Compliance with EU & domestic law

Impact of any recommendations

Full consultation & approval of the 14th Code of Practice

Part 4 Review

Changes in communication

Blog Emails

Newwebsite

Forums &Meetups

Regular meetings with industry providers

IMI

Open Market

Netsize

ZamanoVeoo

mGage

Safari

FonixInfomedia

TxtNation

SE7

Veoo

Connect Mobile

Buongiorno Eye

Remote GamesXinion

PM Connect

Hatchster

Tekka

Q1

Q2

Q3

Q4

37%

28%

36%

11%

Informal; 63%

Informal; 72%

Informal; 64%

Informal; 89%

Formal Informal

Proportional approach in investigations

Over 70% of investigations resolved informally

Proportional approach (continued)

2012/20132013/2014

2014/2015

£3,510,000£3,460,000

£1,590,000

54% less fines invoicedvs previous years

54%

34%11%

Informal resolutionsFormal investigations

Directing 11 % less toformal investigations and Code Compliance Panel

Directing 34% more to informal resolutions

Efforts in cost effectiveness

Overhead costs

Other regulators

Legal costs

Partners

25%

Reduced budget

25% budget reduction

over the past 5 years

Consumer complaints

In 2014/15 complaints up 44% on previous year.

We need your help

The 13th Code of Practice is coming,are you ready?

Vulnerable consumers

Caps

Access to customer services

Qualifications / Licenses

Special conditions

Get involved

Sign ups available for the following workshops & seminars:

27th May 2015 DDRAC24th June 2015 Special conditions15th July 2015 Consumer vulnerability, complaint handling requirements & refund sanctions

Q & A Session with

Andrew Pinder CBE, Chairman, PhonepayPlus Jo Prowse, Acting Chief Executive, PhonepayPlus

Simon Towler, Director of Policy & External Relations, PhonepayPlus

Panel discussion: Developments in

consumer protection in digital markets

speakers:Chair: Kevin Brown, PhonepayPlus Board

Lynn Parker, Director, Consumer Protection, OfcomMark Falcon, Head of Regulatory Policy & Strategy, Payment

Systems RegulatorSimon Towler, Director of Policy & External Relations,

PhonepayPlus

Panel discussion: Annual Market Review

& industry developments

speakers:Chair: Hugh Griffiths, PhonepayPlus Board

Nick Lane, Chief Insight Analyst, mobilesquaredRory Maguire, Managing Director, AIME

Dave Stephens, Senior Manager, B2B Enablers, Vodafone

By Nick Lane, chief insight analyst@mobilesquared

PRS Annual Market Review 2014, PRS market outlook 2015

Coming up

mobilesquared.co.uk@mobilesquared

1. PRS market overview 2014-2015

2. The new 3 G’s

3. PRS users + the impact of non-compliance

4. PRS riding the technological change

5. Opportunities

About mobilesquared


We provide intelligence and insight on the telco and media sectors.

The real value we deliver lies in how we transform our research into high-performing content and strategy that puts our clients ahead of their competition.

Our work has a clear impact on our clients' business results, because we design each brief around their business objectives.

We've been analysing the telco space for two decades, so our experience has been earned, not learned.

Our instinctive ability to ask the right questions uncovers invaluable nuggets of insight, which we interpret to help shape truly-effective strategy for our clients.

Who we work with

@mobilesquared www.mobilesquared.co.uk

Our approach


Pre-research

Worked closely with PhonepayPlus and the PRS industry to identify key areas to research

The research

• Quantitative consumer survey• Street research• Industry research

Post-research

Worked with PRS industry to sense-check research findings (March-April 2015)

Methodology


2014 revenue market-modelling

The market-modelling exercise was based on revenue (excluding VAT) from the network returns submitted to PhonepayPlus, combined this with consumer survey data about stated use of different services by consumers.

The subsequent model produced estimates of revenue for different categories of service. These figures were then sense-checked with the PRS industry, and adjustments were made to account for over- or under-reported use of services.

Charitable donations were introduced to the model on the basis of a robust figure derived from figures supplied by industry players working in that sector and consumer data. This is a departure from the methodology in previous years, in which estimates of charitable donations by premium rate were calculated as a percentage of the rest of the market.

2015 forecasting

Methodology employed in the sector-by-sector forecasting for 2015 was based on the 2014 market modelling exercise. Forecast annual revenues for each payment platform were derived by taking the annual totals from 2010-2014 and extrapolating to 2015 using least-squares regression.

Adjustments were then made to account for over- or under-reported use of services. Sense-checking with the PRS industry was applied according to industry forecasts for their sectors.

Nb. The forecasts are based on data and information collated during the research process.

Methodology


Consumer survey

The quantitative consumer survey went out to a nationally representative online sample of 8,538 participants aged 11 and above in order to provide a representative sample of 3,000 users of premium-rate services. Questions in relation to adult entertainment, dating and gambling did not go out to under-18’s.

The online survey was conducted by Lightspeed GMI between December 2014 - January 2015

The consumer raw data provided by the consumer research was then sense-checked by 116 face-to-face consumer interviews, conducted in March in Guildford, Peterborough and Reading.

Industry research

Mobilesquared conducted 122 interviews, spanning 95 companies, operating within and outside of the PRS sector. The interviews took place between December 2014 and March 2015.

Market in decline


2010 2011 2012 2013 20140

100

200

300

400

500

600

700

800

900

816.0 794.2

763.8

708.9 686.6

PRS 2014 market revenues (£m, excl VAT)*

-2.7% -3.8%

-7.2%-3.2%

£686.6 mil. (excl VAT)

Revenues down 3.2% on 2013

Fourth successive year PRS market revenues have dropped

*Revenues include charitable donations

PRS market contracted by 16% since 2010

£571.6 mil.(excl charitable donations, excl VAT)

Revenues by service type


-

20

40

60

80

100

120

140

116.9 115.0

57.749.3

42.436.8 35.7 32.9 32.3 29.6 29.2

23.5 19.7 19.2 19.010.1 10.0 7.2

PRS market revenues 2014 (£m excl VAT)

Directory enquiries still on top

Consumers drawn to simplicity of charitable donations

Revenues by payment type


“Mobile” + “Operator billing” accounted for 60% of total revenue in

2014

Mobile + Operator billing revenues 2014


Voice-based* revenues 2014

£274.72 mil. (excl VAT)*including red button

116.93

343.45

68.44

88.65

69.14

Premium rate channels by payment type, 2014 (£m, excl VAT)

Directory enquiries (DQ)

Mobile (including voice shortcodes)

Operator billing (incl PayforIt)

Voice PRS/09 & red button

Voice 087

10%

17%

50%

10%

13%

% of total revenues

Revenue change by payment platform


DQ, 087, voice PRS/09* hardest hit by decline in market revenues.

*incl. Red button

Operator billing (incl. PayforIt)



Voice 087


-40%

-20%

0%

20%

40%

60%

80%

100%86%

5%

-17% -17%-26%

2013-2014 PRS revenue % change by payment plat-form

£m excl VAT 2013 2014 Directory enquiries (DQ) 140.93 116.93 Mobile (including voice shortcodes) 328.35 343.45 Operator billing (incl PayforIt) 36.82 68.44 Voice PRS/09 & red button 119.2 88.65 Voice 087 83.63 69.14 Total 708.9 686.60

Forecast 2015e



Revenues down 7.2% on 2014

2010 2011 2012 2013 2014 20150

100

200

300

400

500

600

700

800

900

816.0 794.2

763.8

708.9 686.6

637.5

PRS market revenues 2010-2015 (£m, excl VAT)

-2.7%-3.8%

-7.2%

-3.2%

-7.2%

*Revenues include charitable donations

£513.5 mil.(excl charitable donations, excl VAT)


Directory enquiries (eg numbers starting 118) -

Charity donations -

TV or radio show voting or interaction (e.g. X Factor voting) -

087 Custom

er service (eg information, advice or support)

Games on social networks -

Betting or gambling (eg betting, lottery, scratch cards) -

Games or apps charged to m

y bill (not on social networking sites) -

Adult content (eg video clips, chat, images) -

Low cost international or reverse charge calling -

Competitions or quizzes -

Music or video content -

Internet-based information services (books, m

agazines, newspapers)

Dating or flirt chat service - (inc 087)

Off-handset purchases for adult-related content (e.g. DVD unlock) -

Tarot or astrology -

Ringtones, ringback tones, wallpapers etc -

Voice-based information services (eg weather hotline, text alerts, etc.) -

Virtual gifts in the social media space such as Facebook credits or SwapIts -

-

20

40

60

80

100

120

140 94.6 124.0

47.944.1 44.3 39.6 42.5

26.9 26.026.2 28.0

22.1 17.3 16.0 14.8 9.6 6.8 6.8

PRS market revenues 2015e (£m excl VAT)

20142015

The new 3 G’sGiving, Gaming, GamblingOnly 3 services to experience growth

2014-to-2015

2015e forecasts by service type

The 3 G’s2014: £229.9 mil (excl VAT) / 33% of total revenues2015: £250.4 mil (excl VAT) / 39% of total revenues

Forecasts 2015e by payment type


94.6

339.8

79.5

61.7

61.9

Premium rate channels by payment type, 2015 (£m ex VAT)



Operator billing (incl PayforIt)


Voice 087

“Mobile” + “Operator billing” projected to account for 66% of total

revenue in 2015

Mobile + Operator billing revenues 2015

£419.3 (excl VAT)

Voice-based* revenues 2015

£218.2 (excl VAT)*including red button

15%

53%

12%

10%

% of total revenues

10%

2014-15e revenues


Revenue decline accelerating for DQ & voice PRS/O9 services

Mobile + Operator billing revenues

forecast to grow 2%

Voice-based services forecast

to fall 21%

Operator billing (incl. PayforIt)



Voice 087


-40%

-20%

0%

20%

40%

60%

80%

100%86%

5%

-17% -17%-26%

16%

-1%

-19%-10%

-30%

2013-14, 2014-15e PRS revenue % change by payment type

2015e

2015e



y bill (not on social networking sites) -

Charity donations -

Betting or gambling (eg betting, lottery, scratch cards) -

Games on social networks -

Music or video content -

Ringtones, ringback tones, wallpapers etc -

Virtual gifts in the social media space such as Facebook credits or SwapIts -



087 Custom

er service (eg information, advice or support)

Competitions or quizzes -

Dating or flirt chat service - (inc 087)

Off-handset purchases for adult-related content (e.g. DVD unlock) -

TV or radio show voting or interaction (e.g. X Factor voting) -

Adult content (eg video clips, chat, images) -

Directory enquiries (eg numbers starting 118) -

Low cost international or reverse charge calling -

Tarot or astrology -

Voice-based information services (eg weather hotline, text alerts, etc.) -

-40%

-30%

-20%

-10%

0%

10%

20%

30%

19%

8% 8%5%

-4% -5% -6% -6%-10% -12% -12%

-17% -17% -18% -19% -20%-22%

-32%

% change in PRS revenues 2014-2015e % change

PRS users


Customer service (eg advice, sales or support)

TV or radio show voting or interaction (e.g. X Factor voting)

Charity donations


y bill (not on social networking sites)

Betting or gambling (eg betting, lottery, scratch cards)

Directory enquiries (eg numbers starting 118)

Competitions or quizzes

Music or video content



Games on social networks

Adult content (eg video clips, chat, images)

Low cost international or reverse charge calling

Dating or flirt chat service

Ringtones, ringback tones, wallpapers etc

Tarot or astrology

Off-handset purchases for adult-related content (e.g. DVD unlock)

Voice-based information services (eg weather hotline, text alerts, etc.)

Virtual gifts in the social media space such as Facebook credits or SwapIts

01,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,00010,000,000

8.8 mil.

6.6 mil.5.8 mil.

4.8 mil.

3.5 mil. 3.4 mil. 3.3 mil. 3.3 mil. 3.1 mil.2.7 mil.

2 mil. 1.9 mil.1.5 mil. 1.5 mil. 1.5 mil. 1.2 mil. 1 mil.

0.5 mil.

PRS users by servicePRS users, as of Jan 2014:

19.3 mil. Average PRS users per service, Jan 2014:

3.1 mil.

Nb. Users by PRS service have been calculated using the weightings for over/understated use applied to the PhonepayPlus market model.

Average

@mobilesquared

% re

venue grow

th, 2014-15

-40%

1,000,000 2,000,000 3,000,000 4,000,000 5,000,000 6,000,000 7,000,000 8,000,000 9,000,000

-20%

0%

20%

-10%

10%

-30%

Gambling

Games on social

networks

Charity donations

TV / radio interaction

Voice-based info

services

Adult Directory enquiries

Off-handset purchase

(adult)

Competitions or quizzes

Tarot or astrology

Low cost int’l /

reverse calling

Music / video

contentInternet-

based info services

087 customer

service

Virtual gifts

Ringtones, RBTs,

wallpaper

Dating or flirt

services

Tarot or astrology

Adult

Music / video content

Off-handset

purchase (adult)

High risk to service

Medium risk to service

Low risk to service

Users, Jan 2014

Low risk to service – Annual decline in revenues less than 10%, lower-than-average to average user base

Medium risk to service – Annual decline in revenues of up to 15% with lower-than-average user base

– Annual decline in revenues greater than 15% with higher-than-average

user baseHigh risk to service – Annual decline in revenues greater than

15%, lower-than-average user base

mobilesquared.co.uk

State of play 2014-15eGames &

apps

PRS ARPU (annualised)


£35.60(Incl. charitable donations, excl VAT)

£38.64(Incl. charitable donations, excl VAT)

PRS market losing low-paying users

2014

2015e

Annualised ARPU

Directory enquiries (eg numbers starting 118) - 33.90£ Charity donations - 19.78£ Low cost international or reverse charge calling (inc 087) 17.43£ Adult content (eg video clips, chat, images) - 16.68£ Off-handset purchases for adult-related content (e.g. DVD unlock) - 16.31£ Games on social networks - 15.54£ Virtual gifts in the social media space such as Facebook credits or SwapIts - 13.07£ Tarot or astrology - 12.93£ Dating or flirt chat service (inc 087) 12.75£ Betting or gambling (eg betting, lottery, scratch cards) - 10.57£ Voice-based information services (eg weather hotline, text alerts, etc.) - 9.23£ Competitions or quizzes - 8.98£ Music or video content - 8.94£ TV or radio show voting or interaction (e.g. X Factor voting) - 8.70£ Internet-based information services (books, magazines, newspapers) - 7.56£ Games or apps charged to my bill (not on social networking sites) - 7.48£ Ringtones, ringback tones, wallpapers etc - 6.65£ 087 Customer service (eg advice, sales or support) - 5.60£

Cost to vote Cost to call on X Factor DQ (p/min)

Average response £1.63 £1.08

Consumers believe PRS costs between £0.25 - £10*

Consumers say*:

* Source: Street research, mobilesquared March 2015

Users 2014-15e


2014 (January) 2015 (January) -

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

PRS users

-14%

Consumer reasons for stopping PRS usage during 2014, include:

- Stopped trusting PRS

- Problems with a service - Free content elsewhere- Using other paid services

- No longer see value in PRS- Services not as good as they were

- Not interested in the service any more- I pay for the services using credit/debit card

PRS industry lost 233,000 users per month in 2014

Non-compliance activity accounted for

108,000 (or 46%) of these users per month

125,000 people per month stopped using PRS because of cost, service

relevance and alternative content-related issues

19.3 mil.

16.5 mil.

PRS weathered device evolution

@mobilesquared mobilesquared.co.uk

2000 2006 20152002 2007App Storelaunched

Mobile internet comes of

age

WAPLaunched in

UK

PRS

2005N series

launched

16.5 mil. users

2015

Smartphone impact


Smartphone penetration 68%

Source: mobilesquared research

Smartphone penetration among

PRS users: 72%

Why have you reduced or stopped using PRS in 2014?

2.8 million PRS users claim they get free content elsewhere

2.6 million people claim to not afford PRS any more

2009 2010 2011 2012 2013 2014 2015 -

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

10,821,999 14,977,230

26,055,177

37,962,041 44,949,046

51,809,175 57,935,050

UK smartphone & mobile internet penetration

Total Smartphones Non-smartphone Mobile internet users

Payment opportunity


•Smartphones creating new mobile payment opportunity – PRS expansion into quasi-physical and physical goods.

•Operator billing only PRS area experiencing growth; projected to slow down in 2015.

•Industry waiting for release of the update to Payment Service Directive (PSDII) in July 2015 before deciding mobile payment strategy;

• Major Level 1 providers expected to reduce role in PRS sector in pursuit of mobile payment strategy.

•Operator billing to be viewed as separate platform from traditional PRS services in order to attract corporations and major retailers (brand identity);

• Brand reputation an important consideration

•PayforIt potentially becoming “brand” for operator billing restricted to PRS sector.

•Credit/debit cards have the march on operator billing;• Industry outpayment timelines a potential hurdle.

•Operator billing requires significant promotion from a united industry.

10.8 million PRS users would be interested in using their mobile phone

to pay for “other” transactions that appear on their monthly mobile phone bill, or uses available credit from

their pay-as-you-go account

Opportunities for Operator billing

Toll roads Vending machines

Take-awaysTicketing

Electric car chargingHiring of rental bikes (e.g. Boris Bikes)

Airtime credit payments (e.g. Father-to-child)

Working in unison


• Industry and PhonepayPlus worked successfully together to counter threat from non-compliant affiliate marketing (initiative commenced mid-2013).

• Increased openness and closer working relationship between industry and regulator developed during 2014.

• Formation of rapid response unit viewed as significant step forward.

• Disconnect between industry and regulator remains.

Key findings

[email protected]@mobilesquared

1. PRS market decline continues: Down 3.2% 2013-2014, projected to fall 7.2% 2014-2015.

2. Operator billing only payment mechanism within PRS experiencing revenue growth; promise of quasi-physical and physical

goods revenues prompting major Level 1 providers to develop divergent strategy.

3. Service growth from the 3 G’s of Giving, Gaming, and Gambling.

4. PRS users dropped from 19.3 million (Jan 2014) to 16.5 million (Jan 2015); ARPU increasing

5. Non-compliance accounts for the loss of 46% of users per month; cost, service relevant and alternative content-related

issues affect the remaining 54%.

6. Compliance hit 80% in 2014, industry targeting 85-90% in 2015.

7. Disconnect between industry and regulator remains.

Concluding remarks

speaker:Andrew Pinder CBE, Chairman,

PhonepayPlus

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