Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted, subject to final approval, an agreement containing a consent order from WebTV Networks, Inc. ("WNI").

The proposed consent order has been placed on the public record for thirty (30) days for receipt of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the agreement and the comments received, and will decide whether it should withdraw from the agreement or make final the agreement's proposed order.

WNI advertises and promotes the WebTV system, consisting of a set-top box and an Internet service which, together, allows users to connect to the Internet through a telephone line and a television. WNI licenses the set-top box technology to various companies, including Sony, Philips Electronics, and Mitsubishi, which manufacture and sell the boxes. WNI sells the Internet service for a flat monthly fee.

This matter concerns allegedly false and deceptive advertising for the WebTV system. The Commission's proposed complaint alleges that WNI falsely claimed that:

• the WebTV system provides access to all of the Internet's content, including all of the entertainment and information available on the Internet. In fact, WebTV users are unable, for example, to access files on Web sites that use popular formats or programming languages, including technologies for Web site audio, video, interactivity, and multimedia used for online entertainment and information communication.

• the WebTV set-top box is equivalent to a personal computer with respect to its Internet-related performance. In fact, in contrast to a computer, WebTV users are unable, for example, to download, store, or run software available on the Internet; display certain Web pages or play certain Web files; or open email attachments in certain common formats.

• WNI's upgrades to the WebTV system keep users current with the latest Internet technology. In fact, those upgrades have failed to provide certain commonly used Internet technologies for audio, video, interactivity, and multimedia.

The complaint also alleges that, in advertising the total cost of using the WebTV system, WNI failed to disclose adequately that a significant percentage of U.S. consumers will incur long distance telephone toll charges while connected to the Internet through the WebTV Internet service. The complaint alleges that this is a deceptive practice.

The proposed consent order contains provisions designed to prevent WNI from engaging in similar acts and practices in the future.

Part I of the proposed order prohibits the three alleged false representations, as well as any false representation related to access to Internet content or functionality of any Internet access product or service.

Part II of the proposed order prohibits WNI from making any representation about the cost of any Internet access product or service unless it discloses certain material information. If using such product or service to access the Internet may result in telephone toll charges, this fact must be disclosed, clearly and conspicuously, along with how consumers can determine whether they would be subject to these charges.

Part III of the proposed order requires that WNI make clear and conspicuous disclosures about long distance charges on a log-on screen, dialog box, or other similar device that appears prior to any Internet access product dialing a telephone number for which there is a toll charge. The disclosures must state the following: (a) that the user will or will likely incur such a charge while connected to the Internet access service; (b) how the user can determine whether in fact (s)he will incur such a charge, and the amount of the charge; and (c) a source of information about means, if any, of avoiding the charge. Under this provision, WNI must use a procedure designed to ensure that the user expressly consents to connecting on a toll basis, before a toll charge is incurred.

Part IV of the proposed order requires that WNI clearly and conspicuously disclose in its Terms of Service and introductory kit, or the equivalent documents it provides to new subscribers, that users may incur toll charges while using the Internet service, if that is the case, and how users can determine whether they would incur these charges.

Part V of the proposed order requires that WNI offer reimbursement to certain former subscribers to its Internet service for toll charges they incurred. Subscribers eligible for reimbursement are those who: (a) incurred toll charges before March 1, 1999, and within sixty days of subscribing to the service; (b) have not been previously reimbursed; (c) canceled their subscription before April 1, 1999, and within ninety days of subscribing to the service; (d) identified toll charges as a reason for canceling; and (e) provide proof of the charges. Eligible subscribers may receive reimbursement for toll charges incurred in the first two months of their subscription. Subscribers who cannot provide phone bills as proof of the charges would receive reimbursement up to a maximum dollar amount, which depends on the type of proof submitted.

Part VI of the proposed order requires WNI to notify its advertising agencies, manufacturers, and retailers to discontinue making any of the advertising claims prohibited by the order. WNI must also set up, staff, and refer consumers to a toll-free customer service telephone number (or a similar mechanism that is free to consumers) that would handle inquiries regarding telephone toll charges.

Part VII describes a consumer education campaign that WNI must undertake to inform consumers about the limitations of Internet access devices as compared to computers. The campaign will include one-half page advertisements in three national magazines, as well as a brochure that WNI will (a) distribute to retailers selling WebTV set-top boxes for posting in the stores and (b) post on its Web site.

Parts VIII through XI of the proposed order are reporting and compliance provisions. Part XII is a provision "sunsetting" the order after twenty years, with certain exceptions.

The purpose of this analysis is to facilitate public comment on the proposed order. It is not intended to constitute an official interpretation of the agreement and proposed order or to modify in any way their terms.