Ofcom: Regulator blames regulation for Premium Rate Fraud

[El Gringo]

http://www.aimelink.org/newsdisplay.aspx?id=1865
16 October 2008

REGULATION Outgoing Ofcom chairman Currie points to his mistrust of “light touch regulation” following banking crisis and outlines future turmoil in comms during last annual lecture
16 October 2008

In his outgoing annual lecture, soon-to-be ex-Ofcom Chairman David Currie drew on the current financial crisis to – perhaps unsurprisingly – admit that he has never been a fan of light touch regulation and citing that lack of hefty regulatory powers in the comms sector has led to numerous scams and problems in the past few years.

“I personally dislike the term light touch regulation,” he said. “Either it arrogantly assumes that the regulator knows everything that is going on in the market and can apply just the right, discerning, touch on the tiller to maximise wellbeing. No regulator is that omniscient. Or ‘light touch’ means a palsied unwillingness to act, captive to the producer interest, when real detriment to the consumer is occurring.”

Currie stresses that Ofcom’s approach to regulation has three elements. “First, a bias against intervention: a well-functioning market is the best safeguard of the consumer interest. Second, where intervention is necessary, a preference for the least intrusive form of intervention: for example, price publication rather than price controls, wholesale pricing rather than retail controls. But, thirdly, where intervention proves necessary being swift and decisive”.

“On this last, I would accept that we have been on a voyage of discovery,” he said. “We have learned that it takes longer than we would like to identify a new consumer detriment, to understand why it is occurring and how it operates, and to gather the evidence for a proportionate response – all in a climate where all our decisions can be, and often are, appealed.”

That is at its starkest with consumer scams, he says. “There can never be complete protection for the consumer: rapidly changing technology and business models will always create new opportunities for unscrupulous operators to fleece unwary consumers.”

Currie believes, however, that Ofcom has picked up the pace in response to these and tightened the chain of command within Ofcom and with our sister regulators.

“In terms of scams,” he said, “the first and financially most distressing were the international rogue internet diallers. One of the many new internet software scams that have sprung up. It came onto our patch – or to be precise that of our then sister regulator, ICSTIS - because the payment mechanism was the telephone bill. It took many months before the necessary regulatory controls were in place right through the value chain. And only with the transition from dial-up to broadband has it been eradicated.”

He continued: “Broadcast premium rate services probably affected more consumers, though the individual amounts involved were much lower. The pace from discovery to ‘cease and desist’ was swifter. Several broadcasters, who ought to have known better, came close to forfeiting wider public trust. Hefty fines were in order. They have learned that they too have a duty of care to individuals in the audience as consumer as well as to the mass audience as viewer.”

Currie went on to claim that Ofcom has learned two important lessons from these two scams. The first that reliance on complaints-driven investigation and enforcement is not foolproof. “If consumers do not know that they have been diddled they do not know to complain,” he said. “We now have proactive audit controls in place.”

Secondly, Currie said Ofcom had realised that relationships with sister regulators must be on a very clear footing. “Where the relationship is one where there are clear boundaries and handovers of regulatory power and responsibility, then a self-regulatory or co-regulatory relationship is possible, as we have with the ASA over broadcast advertising,” he said. “Where the boundaries are ambiguous and the need for speed vital, a tauter ‘agency’ relationship, such as we now have with Phone Pay Plus, is appropriate.”

As to prospects for the comms industry as the economic whirlwind rips through national and international markets, Currie painted a bleak picture: “It is easy to forget, in the midst of today’s banking and wider economic crisis, just how hard hit much of the communications sector had been by the collapse of the dotcom and TMT boom,” he said. “BT had just de-merged its mobile arm. The other MNOs were still digesting the £22 billion transfer to the Treasury for the 3G spectrum. All were nervously calculating the investment costs of the network roll-out and marketing that would be necessary, in straitened times, before they would see a penny of that £22 Billion back in revenues. Broadband investment, already mired in clumsy process and inter-industry wrangles, had dried up completely. Cable was in thrall to its American bondholders for whom ‘capital expenditure’ were dirty words. And the UK’s first big venture into terrestrial pay television had just gone broke. It was not a pretty picture. So, right in Ofcom’s founding DNA was a concern for investment and innovation.”

He continued: “The Communications sector is important in its own right. But it also underpins the health of our wider economy and society. So the health of the sector is central to our concerns. Particularly so in a time of credit crunch and national, possibly global, recession. This does not mean putting producer interests ahead of the consumer interest. New investment and new ideas are usually most effectively generated by a strongly competitive environment where producers strive to get the pound in the customers pocket by best meeting their needs.

“As a regulator we cannot make investment happen. But we can help – or hinder – that decision. I believe that the regulatory framework we created for broadband and the wider Strategic Review framework encouraged the much needed consolidation and re-capitalisation of the fixed network operators and brought new and energetic competitors like Carphone and Sky into that space.”

all very well saying this now he's leaving

http://news.bbc.co.uk/1/hi/business/4397308.stm
"The most successful fraudsters have a capacity to look us in the eye, to engage our trust and then betray it without a qualm"

[mike99]

I think Currie makes some excellent points here. As to why he is only saying this now, I think we must assume that, while he was still doing his job, he was being lent on from above and being told not to do his job too well.