Growth in the market is being driven by services which consumers enjoy

The PSA’s Director of Policy and External Relations Simon Towler comments on some of the findings from the PSA’s Annual Market Review and what they mean for consumers, industry and regulation

We published our Annual Market Review recently, produced for us by Analysys Mason. The key insight is that the market grew significantly in the last financial year, up more than £90 million from £540.5 million to £630.9 million.

The good news from a consumer protection point of view is that growth is being driven by popular services from major brands. Evidence, both in the Review and from PSA operations, suggests that it is services which attract few if any complaints and which score relatively highly on consumer satisfaction indicators which are changing the face of the market and bringing growth.

The biggest sector of the market by payment type is operator billing. This won’t surprise many working in the industry, and is in line with recent trends, as mobile services continue to replace declining voice-based services as the main drivers of the phone-paid services market.

The graph below illustrates the transition that has been going on in the market for the last few years. Growth in mobile services – Operator Billing, Premium SMS and charity donations - has outpaced decline in voice-based services like 118 directory enquiries and other premium rate number ranges.

Figure 1.1: Variations in end-user spend (excluding VAT) by spending channel, 2017–2018 to 2018–2019

Note: This chart shows the total spend in 2017–2018 (accounting for retrospective corrections in VAT) on the left-most bar and total spend in 2018–2019 on the right-most bar. Bars in between show spend growth (in light purple) or decline (in dark red) by spending channel (for example, spend on operator billing increased by £87.7 million between 2017–2018 and 2018–2019).

Source: Phone-paid Services Authority

The overall market picture is also consistent with other research from Ofcom. In their most recent Communications Market Review, they found consumers using landlines considerably less than mobiles for making calls, with landline call usage falling by 17% while there was a 5% increase in the volume of calls made on mobiles. Losses in revenues from fixed voice services contributed to a 4% real-term decline in fixed telecoms revenues year-on-year.

When looking at user spend on services, entertainment services generated £68.4 million in revenue via operator billing for the industry in 2018–2019, fuelled by the growth of subscription-based music services, pay-per-view TV or video content, as well as some smaller, more-niche service providers of TV or video content.

Entertainment services perform better on Net Promoter Score (NPS) than any other type of service – indicating good consumer satisfaction, with music services attracted the best score of all, at NPS of +7. Moreover, the brands which are the chief drivers of this growth have not attracted any complaints to the PSA in the period. This strongly indicates that compliant services offering content which consumers enjoy are driving the market and producing robust, sustainable growth.

Figure 3.4: End-user spend (excluding VAT), by service category, 2018–2019

Sources: Phone-paid Services Authority, Analysys Mason, 2019

Analysys Mason identified consumer confidence as a crucial factor driving growth in this area. Previously, consumers had either not heard of operator billing at all. However, its adoption by household name, blue chip brands and wider availability on major content platforms has, Analysys Mason believes, helped to improve consumer perceptions of the payment mechanic.

This is consistent with what the PSA has found in other research we have commissioned. For example, research we published earlier in 2019 from Jigsaw found that most consumers were not aware of phone payment as an option. However, where it was offered in a clear, secure and consistent way, like other payment methods they were used to, they were potentially open to using it.

A key priority for the PSA has been improving standards within the market to protect consumers and facilitate further innovation and growth. This has been the objective of some of our recent regulatory changes, including our new Special conditions for phone-paid subscriptions and work with the mobile networks and independent security experts to ensure good standards of platform security. Action to ensure all providers are taking their due diligence, risk assessment and control responsibilities seriously is both a policy and an enforcement priority for the coming year.

Growth in the industry hasn’t all been about operator billing, however. Premium SMS (PSMS) services remain an important part of the market, growing from £150.1 million in 2017/18 up to 174.4 million in 2018/19, accounting for 28% of the market in total.

This growth has mainly been driven by TV and radio engagement, principally entry into competitions, which broadcasters operate, via text. With advertising revenues declining, many major radio stations such as Heart, Capital, Magic and Classic FM are increasingly use this as a way to engage listeners. Viewers of popular reality TV shows such as Love Island and Strictly Come Dancing will also be familiar with paying via text to vote on proceedings within the programme, although this voting method has largely been supplanted by free-to-use apps.

One further source of growth within the market was donations to charity by text, which grew from £37.9 to £49.6 million in 2018/19. Readers may be familiar with advertising on TV or public transport that encourages you to text a word to a five- or six-digit short code number in order to donate to a charitable cause.

Text donation is increasingly a large source of revenue for major telethons such as Children in Need and Red Nose Day as well. We estimate that over 25% of all donations to these major telethons being made via text.

Analysys Mason expects the trends of previous years to continue, i.e. declining revenues for voice-based services, offset by mobile and internet-based services.  They don’t anticipate growth in the market overall in the next financial year, as there are fewer large charity telethons and major new entrants to the market are not currently forecast. However, we do expect the market to consolidate the gains made in 2018/19, meaning a more positive outlook for the future.