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A group of 14 mobile-content companies agreed last week to pay as much as $63 million to settle an Illinois class-action lawsuit after a group of consumers claimed they were billed for ringtones and games they thought were free. Meanwhile, halfway around the world in Australia, Vodafone was fined $110,000 after an SMS marketing campaign may have breached anti-spam laws. While the two events are unrelated, both are developments that players in the SMS advertising space should take to heart.

SMS marketing in the U.S. is poised for dramatic growth. According to a recent report from eMarketer.com, revenues in the sector will nearly double over a five-year span, reaching $436.8 million by 2013. eMarketer’s optimism mirrors a report earlier this year from Opus, which noted that text ads generate response rates 2-10 times higher than Internet display ads.

Much of the hype surrounding SMS marketing is easy to understand, especially when compared to other forms of wireless ads. The mobile Internet is still a fairly small place, thanks largely to the fact that most phones are astoundingly ill-suited for web use, and applications such as location-based marketing and MMS ads remain in their infancy. But nearly every phone on the market supports text, and SMS usage continues to gain followers at astounding rates, particularly in the United States. American operators delivered more than 740 billion text messages in the first half of 2009, according to data from CTIA, nearly doubling text activity from the year-prior period.

For SMS marketers to fully tap what looks to be a massive market, though, it will have to approach consumers very carefully. Last week’s study of UK users by the Direct Marketing Association found that while 70 percent of users would willingly accept marketing messages via their phones, two-thirds of users wanted to control when they received messages and an unspecified majority said they felt the opt-in process for receiving text come-ons wasn’t clear enough.

Those transparency and control factors will be key to the growth of SMS advertising — just as a lack of consumer trust was horribly destructive in the early days of mobile content. Vendors such as Buongiorno Ltd. and VeriSign’s Jamster made vast sums of money hawking ringtones and other mobile goodies, but tactics such as targeting underage users with disguised subscription services drew the wrath of consumer-watchdog groups and regulatory agencies, shackling the long-term market for more ethical retailers.

Sure, industry groups such as the Mobile Marketing Association have helped clean up the space, but — as last week’s settlement in Illinois demonstrates — the legal fallout continues. And Vodafone’s transgression is a clear sign that not everyone in the SMS marketing space has heeded those lessons. Indeed, some other early text campaigns have already crossed the line between advertising and infuriating: AT&T blurred the line between marketing and spam with an unwelcome pitch for “American Idol” earlier this year, and T-Mobile USA users actually filed a lawsuit against the carrier over unwanted messages last year. Those kinds of tactics lead consumers to create a mental barrier against text come-ons — just as unscrupulous content providers helped users to equate the ringtone business with fraud.

The SMS marketing space holds more promise than ringtones ever did, of course, and mobile players have worked hard to create a well-lit ecosystem where the cockroaches aren’t as comfortable as they once were. But the potentially massive market for text ads is sure to lure a host of shadowy operators. It will be up to carriers and their partners to protect customers.

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