Although short message service (SMS) or text message advertising is increasingly common in Europe and Asia, growth of this new advertising medium has been slower in the United States.

Steve Masur

Masur: The challenge is to keep mobile advertising vibrant without letting it violate the spam laws.

Recent surveys estimate as little as 1% of all advertisements come via text messaging. Even so, advertisers will inevitably exploit any easy means of reaching consumers, including sending text messages. However, nobody would be happy receiving as many spam text messages as they receive spam e-mails.

So the big questions are: What is the law with regard to text message advertising, and what do we perceive to be an acceptable unsolicited text message?

The Law
There are two sets of federal regulation that are currently applied to text message advertising: the Telephone Consumer Protection Act (TCPA) and the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM Act).

The TCPA, enacted in 1991 and known to most people because of the national do-not-call registry promulgated by it, restricts unsolicited phone calls, faxes and also text messages. It is enforced by the FCC. Businesses that violate the TCPA may be liable for $500 per violation, which can be multiplied by potentially thousands of recipients.

The CAN-SPAM Act, enacted in 2003 because of public outcry against spam e-mail, prohibits false representations in e-mail, or e-mailing addresses obtained using automated means.  It is enforced by the FTC. Advertisers that violate the CAN-SPAM Act may be subject to prosecution, with liability of up to $6 million. Therefore, the statute has the potential to reduce spam by serving as a threat to spammers.

Myspace was awarded an unprecedented $234 million on May 12, 2008, under the CAN-SPAM Act in an action against two notorious spammers who used as a vehicle for spamming.

The TCPA and CAN-SPAM Acts provide strong financial and legal disincentives for abusing text advertising, as well as dual enforcement by two powerful federal agencies. As a result, abuse of text messaging by advertisers has been relatively rare. However, many believe text message advertising has been slow to grow in the United States because carriers and advertisers fear possible enforcement actions brought by the FCC or the FTC, as well as the possibility of a mobile phone user backlash that could result in increased churn.

What Carriers Do
As a result of these fears, wireless carriers have imposed highly protective standards and requirements of their own. Most carrier-approved services which allow users to be contacted directly via text messages require users to opt-in, and include effective opt-out procedures. No text messages are allowed to be sent unless users have specifically chosen to participate in a particular service (they have “opted-in”). As soon as a user chooses to remove that service, the text messages stop (they have “opted-out”).

However, as increasing competition drives down the prices carriers charge for voice communication, there is increasing pressure for them to look to other forms of revenue, including advertising over the data networks they have created. Furthermore, as more consumers access the Internet from their mobile phones, “off deck” or direct from the Internet mobile content and service offerings will proliferate.

As this mobile Internet traffic increases, it will be increasingly difficult to protect against spam advertisements delivered from all over the Internet, by advertisers that are not approved by carriers. Finally, as high speed mobile Internet access technologies such as 3G and on-phone Wi-Fi proliferate, multimedia delivery technologies such as MMS, J2ME, Java and Flash proliferate, and phones become better and better, as evidenced by Apple’s fully interactive and multimedia-ready iPhone, increasingly compelling advertising content will become possible.

The combination of high consumer traffic and the ability to send messages directly to consumers and present compelling multimedia content cannot be ignored by advertisers, so whether we like it or not, we will see more ads on our mobile phones.

So What Does an Acceptable Text Message Ad Look Like?
What would SMS, MMS and other mobile Internet advertising look like if it were consumer-friendly? We can start to get a sense of this by looking at e-mail advertising, banner ads and Google text advertising on the Internet. The ads would likely feature highly contextual and useful product and service offerings presented inoffensively and at no cost to the consumer.

“Yeah, right,” you’re thinking.  In fact, what’s more likely is the disaster that comes to mind when we think of Internet advertising – a barrage of unhelpful, poorly targeted, cheesy and sometimes objectionable messages and pop-ups that clog your inbox, slow down or crash your phone and generally make a nightmare of the experience of using your phone.

Furthermore, since consumers pay for SMS and Internet access service on their mobile phone bills, and it’s cheap or free for advertisers to send messages from the Internet, consumers would be paying for this nightmarish experience.

Despite what many consider to be overregulation of this area, abuse seems inevitable. And because of the ability to directly access consumers and the high risks posed by breaking the rules, the abuses could be worse than we have commonly seen on the Internet, including dangers to our children, fraud and other situations which might draw the attention of the Department of Justice, or even international enforcement organizations.

What’s the Solution?
The bottom line is that eventually, every minimally educated person in the world will carry a mobile phone with Internet access on their person 24/7, so they will be accessible to advertisers literally every waking hour. This is an unprecedented huge market opportunity. So how can we create a vibrant market for mobile advertising while complying with the law, keeping customers happy and avoiding the nightmare that people associate with Internet advertising?

The answer is through consumer awareness, forward-thinking compromise among the market participants, and targeted, not over-reaching enforcement.

The rules that have developed around solicitations and spam already provide enough – perhaps too much – of a legal regime to control abuses. The problem is that many mobile phone users do not know their rights under the law, and some may still presume that their carrier is ultimately responsible for every ad they receive on their mobile phone.

As mobile advertising increases, carriers and consumer groups should work together to create consumer awareness of the rules, and make it easy to report abuses. Also, enforcement agencies should surgically target only the worst abusers and make public examples of them, so that the rules become crystal clear to advertisers, but do not create a chilling effect on the activities of those who comply with the rules.

Furthermore, judges should dismiss specious class action lawsuits based on archaic and inappropriately applied statutes in a new and undeveloped industry that no one yet fully understands.

As an example, a group of plaintiffs recently brought a class action lawsuit against NBC Universal and Endemol USA on the theory that a premium for sweepstakes entry via cell phone renders the competition an illegal lottery, even if there is a free method of entry. The Supreme Court of Georgia held that plaintiffs’ claims were not valid under existing laws which forbid illegal gambling. 

If consumers are made aware of the protections that the TCPA and the CAN-SPAM Act afford them, they will feel more in control of their mobile phone experience and will be less likely to blame their service providers for unwanted text messages. If the rules are intelligently applied and enforced, then advertisers who play by the rules will not be scared away from the U.S. market.

Measures like these can foster the creation of a vibrant market for Internet advertising that is not offensive or wasteful to consumers. It can foster one that develops less like the Internet wild west, and more like the TV industry, in which consumers understand the value proposition and the ads do not overshadow the value of the product being delivered. This will help the market grow bigger faster, and everyone can make more money.

Masur is managing director of MasurLaw, an entertainment, technology and venture law firm focused on digital media, mobile content, games, operational and intellectual property issues, corporate finance and M&A. The author would like to thank William Finkel, Esq. and Jonathan Lutzky, Esq. for their contributions to this article.