MEMO/08/516

Brussels, 17 July 2008

EU crackdown of ringtone scams. Frequently Asked Questions

SECTION 1: THE SWEEP
SECTION 2: THE RESULTS- RESULTS OF SITES CHECKED BY COUNTRY, SITES TARGETING CHILDREN, BREAKDOWN OF MAIN PROBLEMS FOUND
SECTION 3: LIST OF COMPANIES/WEBSITES FLAGGED FOR FURTHER INVESTIGATION BY REPORTING COUNTRY
SECTION 4: PRESS CONTACTS FOR NATIONAL AUTHORITIES

SECTION 1: THE SWEEP

1. BACKGROUND

What is a Sweep?

An "EU Sweep" is a joint EU investigation and enforcement action to check for compliance with consumer protection laws. It involves carrying out a targeted and coordinated check on a particular sector with a view to seeing where consumer rights are being compromised or denied. Member State enforcement authorities then follow up on these findings, contacting the incompliant companies and demanding that they come into line with the relevant requirements. Legal action can be taken against operators who violate EU consumer law.

The first EU Sweep on Airline ticket selling websites was conducted in 2007. It brought together 15 Member States plus Norway in a first joint action between enforcement authorities across Europe (see IP/08/722).

This second EU Sweep announced today is on mobile phone content services such as ring-tones, and wallpapers). It was carried out between 2-9 June 2008, by enforcement authorities in all 27 Member States as well as Norway and Iceland, and it was coordinated by the European Commission.

How does a "Sweep" work in practice?

There are two phases:

• 1. The first phase is the co-ordinated sweep action: Participating Member States systematically check for practices on different websites which breach consumer protection law. For instance, it is against consumer protection rules to advertise a product for free and afterwards tying the consumer to a long term subscription. It is also against consumer protection rules to advertise a product for free and still require a one-off payment. It is further against consumer protection rules not to provide the name of the trader and main characteristics of the product.
• 2. The second phase is the enforcement action: During this phase, authorities will further investigate websites flagged as "having irregularities" during the sweep and take appropriate follow up actions to ensure that non compliant sites are corrected and/or closed. National authorities will investigate and take enforcement actions for national cases. When it is a cross -border case (e.g. where the trader operates from another country), enforcement authorities will request assistance from colleagues in other countries' authorities. This is done via the Consumer Protection Co-operation Network of national enforcement authorities from 27 Member States and Norway & Iceland. During this enforcement phase the companies have a right of reply and an opportunity to correct practices which are illegal. Those who fail to do so could face legal action leading to fines or closure of their Web sites. Such sweep action tells us if EU consumer protection laws are doing what they were designed to do. This kind of tool also enables us to test the effectiveness of our enforcement action.

What sanctions can be taken?

EU consumer laws are enforced – and sanctions and penalties are therefore set – at national level. Possible measures can include a request to a company demanding to change or cease a prevailing practice, imposing and collecting fines, or closing down web-sites. Enforcement authorities are obliged to take measures (repeatedly if need be) until the infringement has ceased.

Which Member States participated in the mobile services Sweep?

All 27 Member States plus Norway and Iceland participated in this second sweep. The full list of participating authorities, and their press contacts, can be found below.

Why does a Sweep require EU co-operation?

Online selling often concerns operators located in countries different from the consumers' country.

In case of deceptive online selling practices, tackling these rogue traders can be done more effectively if there is EU wide co-operation. For example, a website selling to one Member State, e.g. France may well be based in Belgium, and to challenge the illegal practice, France needs to request the co-operation of the Belgian authorities.

2. THE MOBILE SERVICES SWEEP

What are mobile services?

Mobile phones have become an extremely popular means of communication and a sector which continues to grow. Linked to this is a growing market for mobile services i.e. ring-tones, wallpapers for mobile phones, subscriptions to chat services, phone games, logos, etc. These mobile services are widely advertised and sold on the Internet, as well as through print media or on TV.

Why did you pick mobile phone content services for this second sweep action?

The mobile phone service sector was chosen by the Commission and national enforcement authorities for this Sweep due to the growing number of complaints received by Member States about providers in this sector. The European Consumer Centres (ECCs) have also reported 27 cases so far in 2008. Many of the complaints referred to misleading practices which targeted children and young people in particular. There are two examples:

• A consumer ordered a free screensaver from a trader in November 2007. He started getting text messages but could not open them. He has been debited altogether € 76.00 for these messages that he has never ordered. It has taken him reasonable efforts to find out where the messages came from.

The service provider denies responsibility but the consumer had to pay the fees to the mobile operator so that his regular GSM phone service would not be blocked.

• A consumer's 9 year old daughter - by mistake - ordered a free ring tone. It has turned out that the free ring tone has led to some sort of a membership - not free at all. The consumer found this unacceptable and requests a refund. Reclamation has been made to both mobile phone operator and the ring tone vendor.

The mobile phone operator has agreed to refund messages received by the end of October, in total €124,76. All other expenses which the consumer requests from the ring tone vendor –in total 272,71 – were retained. It should be noted that the mobile phone operator's billing has been delayed throughout the whole autumn which is why the consumer has not even been aware of these messages.

When did this Sweep take place and what does it involve?

In the first phase of the exercise, officials in enforcement authorities across Europe examined mobile services websites during the week of 2 – 6 June. In total, they checked over 500 websites to see if they were in compliance with the relevant EU legislation, or whether there were for instance signs of misleading practices. Among the practices which were addressed in this sweep were:

• Services advertised as "free" when they were not free. Some services had costs which the consumer would only discover after the transaction. Some tied the consumer to a long-term contract without clearly indicating how the consent to such a contract was given or how it could be terminated;
• Prices and related charges not indicated in a clear way (until invoiced via the phone bill);
• Unclear disclosure of important information for the consumer: hiding key contractual or product information, or presenting it in an unintelligible, ambiguous, or untimely way;
• Targeting children and young people in advertising services: Children and young people are particularly vulnerable consumers, prone to certain commercial practices due to their age or credulity and unable to recognise misleading or false marketing as quickly as an adult would.

How did the authorities choose which sites to check?

The sites in question were targeted either by inputting key words into search engines, pre-selected lists of sites with mobile services content or by collecting information from organisations (consumer NGOs, ombudsmen, organisations defending the interests of children and young people etc) which had received complaints about specific sites.

3. NEXT STEPS

What happens next, as a follow up to these findings?

Following on from the findings of this initial investigation, national enforcement authorities will now contact the traders responsible for the incompliant websites, telling them to correct the irregularities or face legal sanctions. The actual sweep phase is to be followed by appropriate enforcement actions. Flagged sites are scrutinised closely to determine those sites that require action. This enforcement phase of the exercise will include notably for identified cross border cases, applying the cooperation mechanisms of the CPC Regulation, namely requesting investigative and enforcement assistance from other Member States' enforcement Authorities. Cases when the business, consumer and enforcer authority are all situated in the same country will be followed by the given national authority.

Feedback on these enforcement actions is to be provided to the Commission is to be returned with a first indication in the first half of 2009.

How long does enforcement take?

It varies. Some companies are ready to correct mistakes after the first contact by the enforcers while others tend to use all the available tools (including legal ones) to postpone the necessary changes. The length of the enforcement phase depends on how complicated the individual cases are or whether they require international coordination.

For this sweep the enforcement phase is just starting and the authorities are currently assessing the findings of the June sweep in order to decide on the most appropriate follow up action to take. Complicated cases – e.g. those involving several sites in different countries – may last even longer than a year. We will have a cleaner picture once authorities report back on their enforcement work in the first half of 2009.

Why have only 5 Member States agreed to name the non-compliant websites?

Practices and national legal constrains of the participating enforcement authorities are different. In some countries they are free to go public with names of the companies involved right after when they have detected problems while in other countries they need to wait until the enforcement actions are finalised sometimes through court procedures. Authorities from only 5 Member States and two other participating countries confirmed that they can name non-compliant websites at this stage of inquiries.

Is it realistic to expect that the authorities will be able to tackle the problems with these websites? Will many of them not just close down and re-open under another name, or even just ignore the enforcement demands?

It is the job of the enforcers to check the market and correct mistakes. They are free to use all the powers in their possession to cease infringements including the shutting down of the web-sites. Companies can not just ignore the instructions of the authorities without facing this option. Some of the operators may certainly re-open their sites elsewhere and that action will not be treated in the framework of the present sweep. Nevertheless, subsequent enforcement actions may identify those new sites and authorities may check these sites repeatedly.

How do you contact websites that do not have contact details (which is one of the problems identified with many of these websites)?

Authorities have the necessary powers and tools to establish the identity of operators.– either those owning the site or at least those operating the server on which it is based. If the identity of the (legal or private) person operating a problematic web-site can not be established and therefore can enforcers can not contact it, the authorities may request the web server operator to shut it down.

The enforcement phase on the Airline sweeps has taken longer than expected – how does the Commission intend to close this Sweep satisfactorily?

The airline sweep was a valuable exercise - not only have more than half of the non-compliant websites come into line with consumer law – but it also helped to give a clearer picture of this sector and the issues that still need to be addressed. More work needs to be done. The Commission intends to discuss the issue of EU enforcement of consumer law with EU Ministers in the Autumn. It will also meet with the airline sector to discuss their role and responsibilities in ensuring that consumer laws are respected in their sector. The intention is to wrap up the Airline Sweep in May 2009.

Why are you starting a new Sweep when the follow-up to the last one is still ongoing? This kind of enforcement action is new. But we have already learned from the first exercise on Airline ticket selling websites that it is effective and we want to develop it further. 50% of airline ticket selling websites have been corrected at an early stage of enforcement actions– which is a very positive sign. We will build on that experience and intensify enforcement work. The present sweep tackles a completely different market segment. The Commission wanted to check the compliance of this high-tech sector and the ability of the Enforcement network to tackle these type of challenges.

4. THE EU LAWS

What are the EU consumer rules that the companies need to comply with?

Under EU rules, companies must ensure that consumers who purchase telecom services on-line:

- can see who the trader is and how to contact him

- can clearly see what the total price is

- are not misled – if a product is advertised as "free", it must be free with no hidden charges or subscription conditions

- should understand clearly what they are purchasing, whether it is a subscription or not and what the terms and conditions are.

The following EU measures provide the legal basis for the sweep:

• Unfair Commercial Practices Directive (UCP) 2005/29/EC. The UCP Directive provides that traders must display all the information that consumers need to make an informed choice in a clear and intelligible way. It also bans deceptive or misleading advertising or marketing, and aggressive sales techniques. Certain groups that may be particularly vulnerable to unfair commercial practices due to age/credulity (e.g. children) are also protected under the UCP Directive.
• Distance selling Directive 1997/7/EC. This Directive defines some of the minimum information requirements which online traders must provide, including the identity of supplier, main characteristics of goods, complete price (including taxes), period of subscription, duration of the contract etc.
• eCommerce Directive 2000/31/EC. This Directive provides for additional information requirements concerning the details of the service provider, including his e-mail address.

SECTION 2: THE RESULTS- RESULTS OF SITES CHECKED BY COUNTRY, SITES TARGETING CHILDREN, BREAKDOWN OF MAIN PROBLEMS FOUND

5. THE RESULTS

Of the 558 sites checked, 466 sites were flagged for further checks to verify whether one or several of the irregularities described above could be found on them. They are further detailed in the Press Release.

How many companies were investigated?

Over 500 sites were verified for compliance with EU laws. In 20% of the cases the trader has not yet been identified. Further investigation may establish the identity of the owners. The remaining sites relate to over 340 companies.

Were the same websites checked by different Member States? As for the previous sweep, authorities searched for sites targeting consumers in their country. For companies operating different sites for different countries, authorities checked the one concerning their own consumers Sometimes a site operates in a language which is in use in more than one country. Such sites might have been checked by more than one authority. However, it did not happen too frequently and authorities will coordinate their work through the Enforcement Network.

Did the results demonstrate a cross-border dimension? How significant was it? The sweep's first results indicate a rather low cross border dimension (16%), which could be an indication for a fragmented market. This rate was higher in the sites targeting children and young people (22%).The picture will become clearer after the enforcement phase.

Were breaches different in different Member States?

Enforcement Authorities used a common list of questions to verify the web-sites. Findings so far has not revealed any national specificity.

First Results

The Commission report on the first phase is based on available reports from 27 participating Member States plus Norway and Iceland.

Table 1: Websites checked by the sweep and number of the websites that need further investigation

Table 2: Websites checked by the sweep and number of the websites that need further investigation per Country

Particular attention was paid to sites targeting children and young people

As ringtones and wallpapers are particularly popular with children and young people, authorities paid particular attention to actively search for and to verify sites targeting (partially or exclusively)children and young people. Authorities had evidence that websites sometimes target children taking advantage of their lack of consumer experience and credulity. Typical criteria used to identify these sites were cartoons, popular characters from TV shows or the explicit indication in the site that parental content was required. The sweep's first results reveal a rate of irregularities (80%) comparable to that of sites oriented towards adults.

Table 3: Websites targeting children and young people

* In some websites more than one criterion applied.

What were the main problems found?

The most common problems identified in this first phase of the sweepconcerned: misleading price information so that the real costs are unclear or customers may be unaware that they are signing up to a subscription; the use of the word "free" to lure consumers into long-term contracts; missing information about the trader and/or missing information about terms of payment, means of delivery or on complaint handling.

Table 4: Main problems found*

* Some websites contained more than one of the above problems

Any conclusions so far?

Enforcement authorities will do their job and will follow up on problems in the interest of the consumer. But enforcement work alone can not be expected to reach and resolve all of the problems. Here the role of the consumer is critical in terms of awareness and prevention. Parents can educate their children . and warn them of the danger that they may face on the internet whether they buy mobile content services or engage in other commercial activities.

SECTION 3: LIST OF COMPANIES/WEBSITES FLAGGED FOR FURTHER INVESTIGATION BY REPORTING COUNTRY

SECTION 4: PRESS CONTACTS FOR NATIONAL AUTHORITIES

List of Contact Points for the Press