TELECOM Digest OnLine - Sorted: Spam Beginning to Spell Trouble For Wireless Phones

Spam Beginning to Spell Trouble For Wireless Phones

Dan Frommer and Lisa Lerer (
Thu, 12 Oct 2006 13:05:00 -0500


Spam could spell trouble for wireless industry
Providers counting on text messaging to boost the bottom line

By Dan Frommer and Lisa Lerer, Forbes

Everyone with an e-mail box knows about spam: junk messages hawking
porn, Viagra deals or Nigerian get-rich-quick schemes. But now spam is
going mobile, chasing after cellphone users who use text messaging

Earlier this month, some Verizon Wireless and Sprint Nextel
subscribers received unsolicited text messages promoting penny stocks
First National Power and Encore Clean Energy. "Subject: the end of
oil? First National Power (OTC: FNPR) invents new patent for green
energy intiative," reads one message, sent from "Encore Clean Energy unveils a new patent for green
energy alternative to oil! Exxon, get out of the way!" reads another,
sent from

It's unclear who actually sent the messages: Mutual fund company
Dimensional Fund Advisors, which owns the web address,
has a disclaimer on its Web site stating that it has nothing to do
with the spam. The phone number listed in U.S. Securities and Exchange
Commission documents for Vancouver-based Encore Clean Energy is not in
service. First National Power's SEC documents describe it as a
Bellevue, Wash.-based company, but an August press release lists a
British Columbia telephone number. Calls to Darryl Mills, described in
First National's press releases as both president and the company
contact, were not returned.

On Friday afternoon, Verizon Wireless sued whoever has been sending
the messages via a "John Doe" complaint, which allows an accuser to
begin court proceedings against an unknown defendant. In court
documents filed in a federal court in New Jersey, Verizon said someone
promoting First National Power, Encore Clean Energy, W2 Energy and
Armor Electric had sent about 550,000 messages over the carrier's
network since Sept. 24.

While spam sent via e-mail is an annoyance, text message spam has a
real cost. U.S. wireless subscribers generally pay about 10 cents for
each message they receive. If the problem gets bad enough to
discourage text message use, it could ultimately cause a problem for
the wireless business, which is counting on text message users to
boost their bottom line.

U.S. wireless carriers will generate about $3 billion of their overall
$140 billion in service fees from text messaging this year, projects
the Yankee Group research firm, which also predicts that text
messaging revenue will stay flat in the next four years. But text spam
is on the rise. Ferris Research analyst Richi Jennings estimates that
spammers will send 1.1 billion text spams next year, up 38 percent
from this year.

Wireless carrier spokesmen says that customers who receive text spam
should call their customer service centers, who may offer them a
refund on a case-by-case basis. But Sprint Nextel spokesman Travis
Sowders acknowledges that spam texts are not only a consumer nuisance,
but a sore point for carriers, too. If customers find too much spam
clogging their data services, he says, "people are not going to want
to use them."

An influx of junk messages could also crimp carriers' plans to pad
revenues by selling legitimate advertising on their mobile data
services. Telecommunications and media research group Informa projects
that marketers will spend more than $11 billion on mobile advertising
by 2011. But that estimate is predicated on customers who trust that
they're only receiving messages they want to see.

Few investors seem interested in either First National Power or Encore
Clean Energy; both stocks trade for less than a quarter a share. First
National Power, which describes itself in SEC filings as a company
with plans to "purchase and deploy green energy solutions that are new
to the market," had an earlier life as Capstone International, "a full
service death services" company. It has yet to record revenues from
the energy business.

Encore Clean Energy has not filed an annual report for 2005 or a
quarterly report for the first quarter of 2006. Its most recent
financial report, filed in September 2005, said the company had
"negative work capital" of $3.6 million; the company has received
public letters questioning its “financial controls.”

Wireless carriers are already taking measures to minimize junk
messages. Like popular e-mail providers such as Yahoo! and Google,
wireless companies have filters meant to screen out junk messages.

They are also employing a low-tech rebuttal: In February, Verizon
Wireless, a joint venture of Verizon Communications and Vodafone, won
a $10,000 judgement against Florida-based Passport Holidays. Verizon
had alleged that Passport sent about 100,000 text spam messages via
its wireless network. In 2004 Verizon won an injunction against a
Rhode Island-based spammer it said had sent millions of spam text

Yet determined spammers can still easily get their messages onto
wireless phones, a process that can be even easier than sending junk
mail to conventional e-mail accounts. Some buy mobile phone number
databases over the Internet. Others can simply try a brute force
approach by mass-messaging random numbers, targeting certain prefixes
that tend to be used for mobile phones. To skirt the messaging fee,
the spammers send the text message through the Internet.

Spam text messages are more common in Europe and Asia, where many
subscribers don't have to pay for incoming messages. In Europe, Short
Message Service Centers, or SMSCs, manage mass text messaging. While
an authorized advertiser can pay up to send mass messages, spammers
sometimes sneak through, connecting with stolen credit cards and false
credentials, says Ferris' Jennings.

Text spam also differs in content from e-mail spam. Text spammers,
limited to 200 characters per message, have to make their point
quickly to maximize return. As a result, junk messages are either a
stock tip or often a solicitation to call a strange phone number,
which ends up being a costly 900-number call.

That 200-character limit should make text messages an ineffective way
to send spam, says Jonathan Zittrain, a law professor at Oxford
University. Zittrain recently conducted a study that found a positive
correlation between e-mail stock spam and a rise in stock prices, but
says it's hard to imagine a text message stock tip having much effect.

"It really would have to be the odd person who would listen to the
spam and not be outraged," says Zittrain, "Even a spammer has to worry
about the palatability of the message."

Then again, one man's spam may be another's financial advice. First
National Power shares began the week at 5 cents but now trade for 8.5
cents, a 70 percent increase. And Encore Clean Energy shares traded
this week for 15 cents, up from 10 cents in mid-September.

Copyright 2006

Copyright 2006

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