Ofcom announced a review of the industry in August, following thousands of complaints from consumers over unexpectedly high telephone bills, sometimes caused by fraudulent internet charges.
In the review the regulator highlights an increase in fraudulent "prize competitions" which require consumers to make long calls to premium rate numbers (charging around £1.50 per minute) in order to be eligible for cheap or non-existent prizes.
There has also been an increase in the number of unsolicited marketing messages sent to consumers, encouraging them to connect to a premium rate dial-up service, but the greatest number of complaints relate to the use of rogue diallers.
These are a form of software that installs a default dial-up number onto an unwitting person's computer to call a premium rate number, resulting in an unexpectedly expensive call every time the computer connects to the internet.
"There is a clear need for action here," said Ofcom Chief Executive Stephen Carter. "These are necessary changes to ensure consumer confidence in the premium rate industry for the long term."
At present, premium rate services are regulated by ICSTIS, the Independent Commission for the Supervision of Standards of Telephone Information Services, and companies offering premium rate services in the UK have to comply with the ICSTIS Code of Practice.
But, according to the Review published today, the rules are not sufficiently strong to cope with the growth in abuse of rogue-dialler software and premium rate numbers.
Ofcom therefore recommends that the Department of Trade and Industry consider increasing the maximum fine that can be imposed for a breach of the ICSTIS Code of Practice. At present this amounts to £100,000.
Ofcom also recommends that the Code of Practice be amended to enable ICSTIS to fine network providers as well as service providers, where the network providers fail to meet their obligations.
Another recommendation tackles the issue of customer refunds.
At present customers pay bills to their telecoms providers for calls, including those to premium rate services, and the telecoms providers then pay the relevant network providers' charges for connecting the calls. Often this means that when a consumer complains about an unexpectedly high bill, there is nothing that the telecoms provider can do, as the funds have already been sent to the premium rate services provider.
Ofcom therefore recommends that network providers should NOT share these call revenues with companies offering premium rate services for at least 30 days, to allow ICSTIS sufficient time to assess complaints and potential fraudulent activity.
These call revenues should also be frozen during any additional ICSTIS investigation that is necessary, and if necessary for a further three months after an investigation is complete, to fund any customer refunds that ICSTIS concludes are appropriate.
The pressure on network providers is further increased by Ofcom's recommendation that the Code of Practice be amended to require network providers to support ICSTIS by providing detailed information on:
The Code should also be amended, says Ofcom, to require companies offering premium rate services to have effective customer service and refund policies in place.
Telecoms providers should be required to make practical information on premium rate services available to their customers, including, for example, information on call barring facilities. ICSTIS should consult on guidelines that target effective provision of consumer information on premium rate services, says Ofcom.
Changes to the governance of ICSTIS are also recommended. According to the review, ICSTIS should proceed with proposed changes to ensure appropriate accountability to industry stakeholders. These changes include the conversion of the existing ICSTIS Committee into a Board including members with industry expertise, and the establishment of an advisory committee of industry stakeholders.
Finally, Ofcom recommends that both regulators should agree a Memorandum of Understanding that will clarify the roles of ICSTIS and Ofcom in relation to premium rate services regulation, and ensure appropriate accountability to Ofcom.
A steering committee is now to be formed to take the proposals forward, according to Ofcom. Public consultations are expected in the course of the next year.