First official question/complaint made during the congress, organized by the Mobile Content Observatory of the Politecnico of Milan

On the 28^th of June at the Politecnico of Milan, during the congress organized for the presentation of the 2007 Research, the Mobile Content Observatory has presented the results of the performance of the Italian Mobile Value Added Service Market in 2006.

The observatory has estimated that for VAS the Italians have spent in 2006 around 1,5 billion euro.

One of the most interesting presentations during the conference was the one of Andrew Bud (Vice President of Mobile Entertainment Forum), who has told one important data not analyzed by the Observatory: the satisfaction of the consumers that are using VAS.

Mr. Bud told that in the UK market (one of the most regulated markets) over 74% of the consumers are really unsatisfied of the UK VAS services.

What would be the consumer dissatisfaction percentage in Italy? The Observatory of the Politecnico unfortunately hasn’t analyzed this important data, that, Andrew Bud empathize, is essential for the correct and durable development of this kind of business.

At the center of the afternoon session of the conference, moderated by Professor Umberto Beretelè (President School of Management of Politecnico of Milano), it was an authoritative debate with the top management of the four Italian mobile operators and some software, technology and web companies.

• Marco Comastri - CEO Microsoft Italia
• Paolo Dal Pino – CEO Wind
• Luigi De Vecchis – CEO Nokia Siemens Networks S.p.A.
• Pietro Guindani – CEO Vodafone Italia
• Luca Luciani – General Manager Domestic Mobile Services Telecom Italia
• Massimiliano Magrini - Country Manager Google Italia
• Vincenzo Novari – CEO 3 Italia
• Andreas Schneider – CEO Alcatel - Lucent Italia

At the end of the speeches made by the top managers, Professor Bertelè has opened the question and answer session.

Emanuele Preda, CEO of SMS.it, making echo to the first question from an entrepreneur, that asked if there is a solution for the problems that small companies are kept out from the market by the mobile operators.

Mr. Preda asks if the monopoly of the VAS based on the short code 48XXX, the ones for which Italian consumers spend every year 1,5 billion euro, is legal, considering that it seems there aren’t any laws supporting this monopoly, while there is a deliberation, the # 9 made by AGCOM, the Italian telecommunication authority in 2003 that seems to support the contrary.

Prof. Bertelè prevents that the question of Mr. Preda is completed, even asking two young person of his team to take by force Mr. Preda away from the conference room, despite many people from the audience (see the video) expressly asked Prof. Bertelè to let Mr. Preda to continue his speech and let the top manager answer the question of Mr. Preda.

Watch the video of the question/complaint (English version)

Full text of Mr. Preda speech for the Q&A session

Good evening, my name is Emanuele Preda.

I’m CEO of SMS.IT.

I’m sorry if I’m going to annoy you as usual, but there is a question that I feel as the most important of all and that today has been addressed only in a very shy manner.

Is this market legal?

This morning, during the introduction, the Telcos were advised by the organizers to LIBERALIZE this market in order to encourage the competition and hence the growth. The liberalization of this market has been done 15 years ago, ok? There is nothing to liberalize.

Maybe the problem is that this VAS market has been voluntary structured in a way that favors illegally the interests of a few. For the VAS distributed with the short code 48XXX each and every one of the four operators is a de facto monopolist in his own share of the market. There are 4 monopolies. For example, it’s not possible to offer SMS VAS, if you don’t sign a single agreement with each of the four mobile operators, exposing to the risk that one or more of them deny the activation for arbitrary reasons.

Before someone interrupts me I want to inform you that this entire speech is available at WWW.SMSVAS.COM where you may also find more interesting material, I repeat smsvas.com.

Is there someone among the present here now that has tried to launch an SMS Premium service but couldn’t because they wouldn’t let you do it? I ask you to raise a hand.

(It happened to us), they tell you/us that the service is an internal service and therefore the activation is their unchallengeable decision. But who gave them the right to decide? This is legal only if there is a law to say so. Otherwise, it’s illegal monopoly.

Maybe there are laws that I don’t know of, I apologize in advance for my ignorance.

But there is one law I found, it’s the deliberation n.9 by AGCOM in 2003, this is a legally bounding resolution of an Authority, published in the Gazzetta Ufficiale (August, 1^st 2003).

It is entitled “Numeration plan in the telecommunications sector and implementation discipline”, and states in Art. 10:

COMMA 1: this article concerns decade 4 numerations, which means it is fully pertinent to the numerations 48 used to deliver the premium services object of this observatory.

COMMA 2, I’ll read it literally, it’s very short and each word weights a ton: “This numerations are dedicated to services *provided by the *same *operator, *correlated with *network *functionality and that *don’t *require *interoperability with other operators’ networks. The offer blabla is subordinated to the respect of the selective call blocking (but there is no way you can activate it) and value added services blocking”. End quote.

What does it mean - services provided by the operator correlated with network functionality? It’s the voicemail, call waiting, call ID, the credit left on your prepaid, etc… You remember those? All those services were changed to decade 4 in 2003.

These VAS services object of this observatory, that generate 1,5 billion euro of income, 5 times the Italian music industry, these services numerations also start with a 4, therefore they need to respect all the above conditions. Let’s see.

They are to be provided by the “operators themselves”. But isn’t it true that almost all of these services are supplied by third parties? Who are those gentlemen we heard speaking in the previous session? Are they MNOs’ employees or do they work for other companies, called Mobile Media Companies? These companies advertise freely their services using their own brand, and they are doing it transversally and operator independent. How can we say that these services are “provided by the operators themselves”, I don’t understand. [i]

Then again you might give me a convincing explanation, but let’s continue with our resolution. I’m sorry to annoy you all, but I don’t think I’m off topic and I don’t believe this is a marginal matter. I read: “correlated with network functionality”. The horoscope is connected with network functionality? Aries, you’ll have optimal coverage during the day.

The logos, the tunes, are these connected with network functionality? Is it legal to offer those services on decade 4 numerations? THIS DELIBERATION SAYS CLEARLY NO! But you kept doing it all the same for the last years. BRAVO!

But there’s more to the comma 2: “and that don’t require interoperability with other operators’ networks”. [ii]

These services are value added services, how can it be they don’t require interoperability when we know interoperability is required for other value added services, such as those on numerations 166, 899, etc?

In the regulated services (899, 166, etc), thanks to the interoperability any company can easily activate and offer a VAS service to any consumer independently of the operator.

The number of companies that today in Italy can sell VAS is limited (around ten) and potentially very high. This happens because mobile operators in Italy don’t allow to all interested companies to activate VAS services based on the laws of the free competition, masquerading behind the short number 48XXX, that is regulated by the law and can be used only for operator internal network services, that of course are not regulated.

Thanks to interoperability, it is in force the competition among operators, and each company that wants to offer a service selects its supplier basing its decision on the best conditions it can have.

In the last years mobile operators in Italy don’t respect the law, controlling and limiting the market growth favoring few companies and damaging consumers that have to pay high prices for this kind of services.

Is there someone from the Telecommunication Authority here? We have exposed this problem to the AGCOM two times already, and never received an answer. So much for the Authority of Communications.

Let’s speak plainly about this situation, if you in the observatory don’t have the courage to say it loud, I will.

- Is it legal that the operators share, half to them and the other half to the 8 existing service providers (we don’t count the very little ones), this pie of 1,5 billion euro, worth 5 times the Italian discography market?

- Are the entry barriers legal, such as TIM asking for 50.000 euro activation quota for a premium number? Why other regulated premium numbers like 899/166 cost only 20 euro each.

- Is it legal that those existing 8 service providers were exonerated from the payment of these 50.000?

- Is it legal that Vodafone demands a guaranteed minimum of 50.000 euro of monthly traffic?

- Is it legal that the operators can arbitrarily decide not to activate a service because it doesn’t meet their minimum profitability requirement even if it’s a public utility service and/or for minorities?

- Is it legal that an operator can decide to arbitrarily close an active numeration, without giving any explanation?

- Is it legal that the percentage of revenue kept by the operator from end user price is above 50 or 60%? I’m not that angry on those 8 service providers that today are distributing VAS services in Italy, because if we consider these low revenues, the advertising costs, the ringtones licences fee, etc. to generate profit you need to come out with those horrible services such as those fake subscriptions. The only one that doesn’t do fake subscription services, we need to respect that, is Mediaset. But it’s also a fact that they have less advertising expenses. Mediaset could have a better margin but chose transparency instead. If others have to behave differently it doesn’t automatically mean it’s also legal or it’s correct and worth an applause. Do you deserve our applause?

All this market distortions are caused by lack of interoperability. What’s unbelievable is that a law already exists, the Minister or the Authority could simply impose a deadline for interoperability of those services.

This is what I ask: interoperability now!

And this is not only me asking, quite shyly more than one person asked the same today, and a whole bunch of people in the past years.

Is there someone in this room that is against interoperability?

We are unanimous.

I ask the operators,. Show some dignity. Adapt to the laws and to the common sense, even if it is too late.

Don’t wait until they force you to, there are always more problems if a Parliament has to decide, look for example at the Bersani Act that is bad in many points and the question of European roaming. Learn something form the past, come on.

We are tired of being oppressed in silence and from now on we’ll make you hear our voice, we are creating an association. Anyone interested please send your contacts to info@smsvas.com.

Operators, beat us on time, that way it’s less work for everybody. Activate interoperability by the end of summer, you’ll see next year’s growth.

Now a few questions for the masters of the house, and I’m finished. Or better, I’ll be precise, to the organizers of this congress.

First of all thanks for letting us have this debate.

1. On which page are the consumers? Are they a part of this food chain? Are they satisfied users? The only information on users that has been given to us this whole day comes form Andrew Bud and is about the English market. Maybe there isn’t any because the Italian results are even more disappointing than the 74% of the non satisfied English? Is there someone in here that felt satisfied when buying a premium service? Please, raise your hands! There’s your poll. How many of you got subscribed to a service without knowing and then easily and immediately managed to cancel your subscription? Next year do an independent poll and insert it in your report. Then maybe we can all start working to make our users more happy.
2. Besides your observations on the income generated by subscriptions, that cost us 3 or 4 euro weekly, for a total of almost 200 euro in a year, why haven’t you analyzed the usage? Maybe it’s because you might discover that 80 out of 100 subscribers never download any content but are still charged their weekly fee? You think they know it and are good with it? Are they all so rich and generous? Or is this a *blatant proof that the conditions are not so transparent?
3. This observatory whishes to be impartial? One could take this for granted, but then again why haven’t you written any of this in your report and you even censored a part of our box telling us, I quote from your email, that “your organization cannot publish the following sentence: “In Mobile Content area, since 2004 SMS Italia is ready to launch various utility services with innovative business models with respect to those currently adopted in the Italian market, but its entrance in this market has been until now halted by entry barriers imposed by the first two Italian MNOs, barriers that – as stated by the Company – do not exist in any other European market”. See our box, and see if this sentence is there or not.

There. I’m done.

Are you proud of your behavior? I’m asking you all.

Are you proud you are producing and selling these services?

The economical results are great, but are you proud of the WAY you reached them?

Jack Welch, one of the greatest CEOs in the World, writes in the prologue of his book Winning, I quote “Winning companies, and the people that work for them, are the engine of a healthy economy, and in providing the revenues for government, they are the foundation of a free and democratic society. That’s why winning is great”. There’s no need to say (or maybe we do need to say it here?) that, I quote, “you have to win the right way”, that is by playing it “cleanly and *by the rules”. It goes without saying. And I keep quoting when I read: “Companies and people that don’t compete fairly don’t deserve to win”.

I hope that from tomorrow on we’ll all behave in order to deserve it.

Thanks

[i] If we look at the differences between a tune supplied by Zero9 or by any other content provider to a TIM user and to a Vodafone user, we’ll find there is no difference. How can you say that this services are provided by the operator himself? Additionally the content service providers have to deal with the whole chain, from the initial idea to the advertising they have to pay for. The media plan is one of the main requirements that an operator takes into consideration when deciding whether to activate a service proposed by the service provider, or not. If they were buying only a content there would be no media plan to discuss of. If I want to buy some candies to fill my automatic candy machines I don’t care of the media and advertising budget of my supplier, but if I’m more interested in the media capacity then in the product itself, it’s not a content I’m providing any more, it’s a service!

[ii] INTEROPERABILITY: If a company (service provider) wants to sell a value added phone service to the general public or to a limited users community, the company can choose, as in any other service, the operator that offers better conditions. The interoperability allows us to reach any fixed or mobile user of any operator. The interoperability is mandatory for value added services, and is not requested only for decade 4 services, reserved for internal services related to network functionality.

In the last years the Premium SMS services, that are clearly value added services and that are also available via voice call, have been abusively implemented on decade 4.

With this particular numeration, being excluded from interoperability obligations, a service provider who wants to activate a service cannot choose an operator that offers better conditions, but needs to strike a deal with all operators, that is with the 4 MNOs and Telecom Italia in order to reach 100% coverage.

These operators, each and every one of them a monopolist in their own market realm, are free to impose strangling conditions, such as:

• revenue shares below 45% (for each euro the client pays, only 0,45 euro are given to the service provider who also has to pay for advertising, copyright fees, and content production costs, therefore the content’s real value is obviously much lower than the sum paid by the final user)
• high activation commissions (50.000 euro for TIM) or monthly minimum (50.000 euro for Vodafone)
• right of veto on services that may or may not be activated
• right to determine the price for each service, thus making impossible any competition between service providers (i.e. a single tune is sold for 3 euro, and no provider is allowed to sell it with a different price)

All of this is clearly at the expense of the users.