Pay-Per-Call Rule Review: 900 Number #13

Submission Number:
13
Commenter:
Peter H. Jacoby, Mark C. Rosenblum, Peter H. Jacoby, James H. Bolin, Jr.
Organization:
AT&T
State:
NJ
Initiative Name:
Pay-Per-Call Rule Review: 900 Number

Mark C. Rosenblum
Peter H. Jacoby
James H. Bolin, Jr.
Its Attorneys

Room 3245H1
295 North Maple Avenue
Basking Ridge, NJ 07920
(908) 221-4243

May 12, 1997

Before the
FEDERAL TRADE COMMISSION
Washington, D.C. 20580

In the Matter of

900-Number Rule Review

FTC File No. R611016

AT&T CORP. COMMENTS

Pursuant to the public notice ("Notice") released March 12, 1997, AT&T Corp. ("AT&T") hereby submits these comments concerning the overall costs and benefits of the Commission's 900-Number Rule, 16 C.F.R. Part 308, and whether the Commission should expand the scope of that rule pursuant to the authority granted in Section 701(b) of the Telecommunications Act of 1996 ("1996 Act").

To facilitate the Commission's review of its comments, AT&T will address the questions presented in the Notice sequentially. Throughout its comments, AT&T will use the terms "900-number" or "900 service" to refer to services that meet the Commission's current definition of "pay-per-call," including services that use service access codes ("SACs") other than 900.

SECTION F. QUESTIONS AND ISSUES FOR COMMENT
PURSUANT TO REGULATORY REVIEW OF THE RULE.

I. GENERAL ISSUES FOR COMMENT

1. Is there a continuing need for the 900-Number Rule?

(a) Since the Rule was issued, have changes in technology, industry structure, or economic conditions affected the need for or effectiveness of the Rule?

(b) Does the Rule include provisions that are unnecessary?

(c) What are the aggregate costs and benefits of the Rule?

(d) Have the costs or benefits of the Rule dissipated over time?

(e) Does the Rule contain provisions that have imposed costs not outweighed by benefits?

It is clear that there is a continuing need for the 900-number rule. Both consumers and the pay-per-call ("PPC") industry have benefited significantly from the requirements imposed by the Telephone Dispute Disclosure and Dispute Resolution Act ("TDDRA"), and the FTC and FCC rules implementing that law. Consumers are able to call 900- numbers and other information services with greater confidence that they know what charges they will incur, and that they can obtain relief in the event of a billing error. Information providers ("IPs"), service bureaus ("SBs""), interexchange carriers ("IXCs") and local exchange carriers ("LECs") also have benefited because these entities cannot develop the commercial opportunities PPC services present unless customers are willing to use them.

Although TDDRA has had a dramatic impact on the incidence of fraudulent and abusive PPC practices, there is an obvious ongoing need both for effective enforcement of existing rules, and for continued vigilance against new scams. Reports of ever-more elaborate fraudulent PPC schemes constantly appear, and it is plain that unscrupulous IPs have sought to tailor their scams to seek to take advantage of perceived "loopholes" in existing regulations. Moreover, even when a practice is plainly prohibited by law, only a meaningful prospect of enforcement will deter violations.

AT&T knows of no changes in technology, industry structure, or economic conditions since the 900-rule was issued that affect the value of its continued enforcement, and is not aware of any superfluous provisions in the current rule. The chief costs AT&T incurs to comply with the Commission's regulations are those relating to its Multiquest Consumer Care Center. This center receives approximately 150,000 customer inquiries per month regarding PPC services, and generates roughly 35,000 pieces of correspondence monthly in response to these calls. The benefits of the 900-number rule include both increased consumer protection and greater consumer willingness to use such services. Consumers must be able to use 900-numbers with confidence that they know what charges will be assessed, else they will become reluctant to call any IP, or even to use toll-free numbers for other purposes. AT&T believes that the aggregate benefits of the rule greatly outweigh its costs.

2. What effect, if any, has the Rule had on consumers?

(a) What economic or other costs has the Rule imposed on consumers?

(b) What benefits has the Rule provided to consumers?

(c) What changes, if any, should be made to the Rule to increase the benefits to consumers?

(d) How would these changes affect the compliance costs the Rule imposes on industry?

The Commission's 900-number rule has provided consumers with better and more complete information about PPC services and has ensured uniformity in the handling of billing errors and complaints. In addition to the obvious benefits of protection against fraud and abusive practices, increased consumer confidence makes callers more willing to use all types of information services, enabling IPs to develop new and better services which consumers value, and which are profitable for IPs, carriers, and SBs. IPs' costs of compliance with the Commission's 900-number rule may have resulted in slightly higher rates for PPC services, but these costs are more than offset by the benefits described above. AT&T discusses the changes that it believes the Commission should make to its rules in the course of its answers to the questions posed in the Notice.

3. What impact, if any, has the Rule had on firms that must comply with it?

(a) What economic or other costs has the Rule imposed on industry or individual firms?

(b) What benefits has the Rule provided to the industry or to individual firms?

(c) What changes, if any, should be made to the Rule to minimize any burden or cost imposed on industry or individual firms?

(d) How would the changes affect the benefits provided by the Rule to consumers or industry?

Compliance with the Commission's 900-number rule has caused IPs, SBs and carriers to incur additional costs, such as obtaining legal advice, handling customer complaints and billing disputes, and paying for transmission and generation of preambles to calls. At the same time, increased consumer confidence in 900- and other information services has led to increased call volumes and greater profitability for the industry than would have been possible in the absence of the Commission's rules. See response to question 1.

4. How has the Rule affected small business entities with respect to costs, profitability, competitiveness, and employment? What would be the economic impact on small businesses if the Rule is left unchanged?

Small PPC providers now operate in large part through SBs, and AT&T expects this trend to continue absent significant changes to the 900-number rule.

5. Are there regulatory alternatives that might reduce any adverse economic effect of the 900-Number Rule, yet comply with the mandate of TDDRA to curtail certain unfair and deceptive practices by some 900-number providers, yet encourage the growth of the legitimate 900-number industry?

AT&T is not aware of any alternative forms of regulation that could satisfactorily achieve the aims of TDDRA at significantly lower costs to the industry.

6. Are there additional advertising, operating, or other standards for the audiotext industry not included in the Rule that might now be desirable or necessary to prevent deception or other abuses, or to prevent evasion of the Rule's requirements and prohibitions?

AT&T encourages the Commission to conform its regulations to the amendments to 47 U.S.C. º 228 enacted by the 1996 Act, and to coordinate its review of the 900-number rule with the FCC's efforts to address those provisions.1 Any discrepancies in these agencies' regulation of information services can only result in confusion that will harm both consumers and providers alike. AT&T's specific concerns are addressed by its responses to the questions posed in the Notice.

7. The FCC and FTC share regulatory authority over the audiotext industry.

(a) Are there any unnecessary regulatory burdens created by overlapping jurisdiction? What can be done to ease these burdens?

(b) Are there gaps where neither agency has addressed a particular abuse? For example, does such a regulatory gap exist where a entity claims status as a "common carrier" for purposes of FTC regulation, but claims that its actions are not those of a common carrier for purposes of FCC regulation?

(c) Does the Rule overlap or conflict with other federal, state, or local government laws or regulations?

The overlapping jurisdiction of the FTC and FCC over TDDRA has to date not resulted in any unnecessary burdens or created any regulatory gaps. In order to continue this highly desirable state of affairs, it is critical that the agencies not permit any discontinuities to develop between their regulatory regimes as each body adapts its rules to the requirements of the 1996 Act.

There is, however, an obvious "gap" in both agencies' current regulations: outbound international audiotext calls, which have become the vehicle of choice for a variety of scams. Although the full panoply of 900-type requirements cannot be applied to such calls -- for example, free preamble requirements would be infeasible, see response to question 5 in Section G -- the Commission's advertising requirements can and should be applied to international audiotext services. The only advertising provision that appears to require modification in the international context is º 308.3(b)'s cost disclosure requirement. Because an IP operating a non-900 audiotext service cannot determine what rate a customer will pay his or her designated international carrier for transport, information services that terminate abroad should be required to clearly and conspicuously disclose: i) that the call will be an international call, ii) that the caller will be charged for that international call at the standard rate imposed by his or her long distance carrier, and iii) any charges that will apply in addition to the charges for transport. The charges described in item four should be disclosed with the same clarity and detail as charges for domestic 900-number calls under the Commission's rules. In addition, the Commission should impose certain restrictions on revenue-sharing arrangements between IPs and IXCs or foreign PTTs, as described in AT&T's responses to questions 3 and 4 in Section G.

8. How does Section 701 of the Telecommunications Act of 1996 concerning the FCC's regulation of the pay-per-call industry, or the FCC's recently adopted and proposed regulatory changes under that section, affect the FTC's Rule, if at all? How should the FTC's Rule be amended to harmonize with these changes and proposed changes in the FCC regulatory approach?

These issues are addressed in AT&T's responses to the other questions in the Notice.

9. What categories of audiotext services (e.g., sports, psychic, chat, adult) are provided through 900 numbers?

(a) What percentage does each type constitute of all audiotext services accessed through 900 numbers?

(b) How much gross sales revenue has each category generated in each year since 1993?

(c) Have the gross sales revenues and/or profits of information providers using 900 numbers changed since the Rule was promulgated? What impact, if any, has the 900- Number Rule had on the level of gross sales revenues and/or profits?

AT&T currently serves as a carrier for 900- services offering information and entertainment services in the following subject areas: sports, psychic, technical support, government-sponsored information, voice personals, check verification, and video game tips. AT&T's contracts with its customers prohibit it from revealing data concerning sales volumes or revenues.

II. DEFINITIONS

10. Are the definitions set forth in section 308.2 of the Rule effective for the purpose of curbing unfair and deceptive practices targeted by the Rule?

(a) If not, how have the definitions been inadequate?

(b) Are there additional definitions that should be added to the Rule? Explain.

In the 1996 Act, Congress amended the definition of "pay-per-call services" in 47 U.S.C. º 228(i) by removing the statutory exception for "any service the charge for which is tariffed." This amendment was intended to eliminate scams in which carriers or access providers conspired with IPs by filing tariffs setting unreasonably high rates for calls to information services using access codes other than 900, and then asserted that the information services provided via such calls were actually "free" (because callers paid only for transport) and so could not be deemed "pay-per-call," despite the fact that callers were billed at rates higher than those that would have been charged for a comparable call to a non-IP. In such scams, the carrier or access provider then remitted some portion of the compensation it received from callers to the IP as an under-the-table payment for the information service.

Schemes such as those described above harm consumers in at least two key respects: First, callers frequently incur unexpectedly large charges for what they believe to be ordinary long distance calls. Second, because such calls are designed to exploit a perceived loophole in the Commission's definition of pay-per-call, they do not afford consumers the benefits of preambles, advertising restrictions, or protections for minors. In order to fulfill Congress' intent in removing the so-called "tariffed services exemption" from º 228, the Commission should amend its rules to require that whenever an IP or a party advertising an audiotext service receives remuneration from a carrier (including LECs and competitive access providers, as well as IXCs), or there is a reciprocal arrangement between those entities, there is a rebuttable presumption that such a service is "pay-per-call." See response to question 3 in Section G.

In addition, Congress amended º 228 to provide additional protection for consumers placing calls to IPs via toll-free numbers. To account for these changes, the Commission should amend the 900-number rule's definition of "presubscription or comparable arrangement" in º 308.2(e)(1) of its rules and its requirements for credit card billing of such calls. See response to question 12.

11. The current definition of "service bureau" states that the term includes any person other than a common carrier.

(a) Is it appropriate to exclude common carriers, regardless of activities, from the definition?

(b) Should entities engaging in service bureau functions be covered by the Rule, even if they also engage in "common carrier" functions at other times?

AT&T believes that the Commission's exclusion of common carriers from its definition of the term "service bureau" is appropriate and should be maintained. Common carriers are already subject to comprehensive oversight by the FCC, and there is thus no need to subject them to an additional layer of regulation. Moreover, regulating common carriers as "service bureaus" would significantly increase the risk of inconsistent or duplicative TDDRA-related regulatory requirements.

12. Has the Rule's definition of "presubscription agreement" affected the market for 900-number services? If so, in what way?

(a) Who uses presubscription agreements, and for what purpose?

(b) What opportunities for unfair and deceptive practices exist under the current definition of "presubscription agreement"?

(c) How might the definition be changed to diminish or eliminate these opportunities?

(d) Should the definition of "presubscription agreement" be modified to harmonize with changes in FCC rules made pursuant to the Telecommunications Act of 1996, or to harmonize with proposed changes made by the FCC to the definition of "presubscription agreement"?

(e) Would any changes in the definition of "presubscription agreement" be appropriate in light of Section 701 of the Telecommunications Act of 1996? For example, should the Rule require that a presubscription agreement be in writing?

In the 1996 Act, Congress significantly amended TDDRA's presubscription requirements for information services accessed via toll-free numbers. 2 These amendments differ in significant respects from the Commission's current 900-number rule. Section 228(c) mandates that common carriers "require by contract or tariff" that PPC providers comply with the terms of that section. Thus, while the section applies only to common carriers, it is clear that Congress intended that PPC providers abide by its requirements. To implement that intent, and to clarify IPs obligations under the 1996 Act, the Commission should incorporate º 228(c)(8)'s requirements into its definition of "presubscription." The FCC has already amended its regulations in this fashion. See 47 C.F.R. ºº 64.1501(b); 64.1504(c)(1).

Section 228 now requires that charges for information services obtained via toll-free calls (or calls widely understood to be toll free) be imposed pursuant to a "written" presubscription agreement (º 228(C)(7)(C)(i)) or, if charged to a credit card, pursuant to specific disclosure requirements (º 228(C)(7)(C)(ii)).3 The Commission's rules currently define presubscription as simply "a contractual agreement" -- a phrase that could include purely oral transactions. Although presubscription agreements must be in writing, º 228(c)(7) expressly permits agreements "transmitted through an electronic medium," and thus execution of written presubscription agreements does not require a customer's signature.4 The specific elements of a presubscription agreement are specified in º 228(c)(8), and differ in some respects from the Commission's current rule: for example, º 228(c)(8)(A)(v) requires such agreements to provide that an IP will notify subscribers at least one billing cycle in advance of any future rate changes.

While the current 900-number rule permits a customer to form a valid presubscription merely by disclosing a credit or charge card number (º 308.2(e)(2)), º 228(c)(9) now establishes specific disclosure requirements for credit card transactions permitted to substitute for written presubscriptions. These requirements also should be incorporated into the Commission's rules. Again, the FCC has already amended its rules in this fashion. See 47 C.F.R. º 64.1504(c)(2).

III. ADVERTISING

13. Are the advertising disclosure provisions in the Rule adequate for regulating advertising on the Internet or on commercial online services?

(a) Should the Rule be more precise regarding the definition of "clear and conspicuous" in the context of advertising on the Internet or on commercial online services?

(b) Are there other forms of advertising in other media for which the Rule should provide specific advertising disclosure requirements? Explain.

Section 308.3 of the Commission's rules define what constitutes 'clear and conspicuous" disclosure of the cost of 900- calls and other required information by defining type sizes and other formatting requirements. AT&T does not believe that specifications of this type can practicably be applied to the Internet, because users of that medium control many of the formatting parameters of the information they obtain through that medium. For example, by using "frames" on a World Wide Web browser or viewing a web page in "text only" mode, a user could radically affect the size and appearance of an Internet ad. Moreover, Internet advertising can combine elements of audio, video and print; and users can control and manipulate almost all aspects of each of these types of information.

Regulation of the format of on-line advertising for PPC services should occur, if at all, only after the Commission conducts a fuller inquiry into all advertising in this unique and rapidly evolving medium. Any rules adopted in the instant proceeding could have significant ramifications for regulation of other Internet ads, and the Commission should not take such action without the benefit of comments by Internet Service Providers ("ISPs"), Internet users, and others with an interest in this issue.

If the Commission does resolve to impose on-line advertising formatting requirements in this proceeding, it should simply state that it will examine such ads on a case-by-case basis to ensure that they make any required disclosures in a fashion that is not calculated to mislead.

14. Does the Rule provide adequately for disclosing the cost to consumers prior to making a call to a 900-number service?

(a) Do the current size requirements ensure that the cost disclosure is "clear and conspicuous"?

(b) Are there other more effective means for ensuring that the advertisements provide adequate cost disclosures to consumers?

AT&T believes that the Commission's current rules ensure adequate disclosure.

15. Are the required disclosures for 900-number services that advertise sweepstakes sufficient to ensure that consumers are informed of all material information necessary to dispel deception? Have there been abuses associated with sweepstakes advertised and offered through the use of a 900 number that make it necessary to require additional protections for consumers who respond to such sweepstakes offers?

AT&T believes that the Commission's current rules provide adequate disclosure to consumers, and is not aware of any abuses that could be corrected by additional advertising disclosure requirements.

16. Is the requirement governing "telephone solicitations" in section 308.3(h) clear, meaningful, and effective?

(a) Is there additional information that such a solicitation should include to ensure that consumers have sufficient information prior to calling a 900-number service advertised in this manner?

(b) Is the Rule clear that it applies to messages left on telephone answering machines or telephone numbers left on pagers?

(c) What about audio and non-audio messages received on computers? Should these or other message delivery systems be explicitly included within this provision?

(d) Should "telephone message" as used within section 308.3(h) be defined and if so, how?

AT&T does not propose any changes to the Commission's current rules governing telephone solicitations, as it believes º 308.3(h)'s reference to "any telephone message" is sufficiently broad to encompass both inbound and outbound telemarketing, as well as messages left on answering machines, voicemail or pagers.

However, any attempt to require that audio messages received on computers be disclosed "in a slow and deliberate manner and in a reasonably understandable volume" (º 308.3(h)) would be unworkable. The volume and intelligibility of any such message will depend in large part on a recipient's computer hardware and software, or on the particular settings that user has set for his or her computer, none of which are within an advertiser's control. See also response to question 13.

IV. OPERATION & STANDARDS

17. In the Statement of Basis and Purpose describing the Rule, the Commission recognized that at the time the Rule was promulgated, time- sensitive billing involved in 900-number services was "accomplished in one- minute increments, and that any portion of a minute will be billed as full time."

(a) Has the technology for calculating usage time for billing purposes changed since the implementation of the Rule? If so, how?

(b) Is it possible using current technology to stop the assessment of time-based charges immediately upon disconnection by the caller, and therefore, bill consumers for fractions of minutes?

Billing technology has not changed in any relevant respect since the Commission promulgated its 900-number rule. AT&T can bill for PPC services in fractions of minutes; however, it does not know whether other carriers also have this capability.

There is no basis for the Commission to mandate that PPC services be billed in fractions of minutes. Competitive forces will determine whether customers value fractional billing sufficiently to make such programs worthwhile. For example, some interexchange carriers and resellers recently began advertising fractional billing programs. If consumers believe that such programs offer a better value than billing rounded to the nearest minute, they can, and will, "vote with their feet" by doing business with those carriers. The same logic plainly is applicable to pay-per-call. There is no more reason for the Commission to mandate fractional billing than to require any other pricing plan. IPs will compete with one another to offer the billing options that are most appealing to their potential customers.

18. How have technological changes affected the way information providers can and do set their rates?

(a) Is it now technologically possible to suspend charges during a program, to provide a period (or periods) of programming free to the caller? Explain.

(b) Is it now technologically possible to alter the rate at which a caller is charged during a program, to provide a period (or periods) of programming charged to the caller at reduced rates or at higher rates than other portions of the call? Explain.

(c) Is it now technologically possible to have a free introductory message longer than 18 seconds, which was the standard at the time the Rule was adopted? Explain.

AT&T's Varia-A-Billsm service can permit PPC providers to provide periods of free programming during a call, and can alter the rates charged to a caller during a program. AT&T's Enhanced Rate Setssm service can provide a free introductory message longer than 18 seconds.

19. How has the requirement of a preamble affected the 900 number industry?

(a) Have preambles conferred benefits on consumers who make 900- number calls?

(b) How might the preamble requirements be changed to make the preambles more useful or informative to the consumer? What costs would likely arise from such changes?

(c) How might the preamble requirements be changed to make compliance easier for information providers? Would such changes diminish benefits to consumers and if so, how?

The Commission's preamble requirement has provided consumers with better information about PPC services, and better protection from fraudulent and abusive practices. As a result, the image of the PPC industry has improved significantly, which in turn has made consumers more willing to call such services. See also responses to questions 1 and 3.

20. Are preambles effective in reducing unauthorized use of 900-number services by minors or others? How is this properly measured?

(a) How might preamble requirements be changed to be made more effective in addressing the problem of unauthorized calls?

(b) What further actions might be taken by industry or by the FTC to reduce unauthorized calls to 900 number and other audiotext services?

Anecdotal evidence suggests that preamble requirements have not been effective at reducing unauthorized use of 900-number services by minors. AT&T does not believe that changes to existing preamble requirements would make these provisions any more effective.

21. Section 308.5(a)(3) requires that the preamble state "that charges for the call begin, and that to avoid charges the call must be terminated, three seconds after a clearly discernible signal or tone." If an information provider were to provide, for example, the first two minutes of an audiotext call free, what should the preamble disclose to inform callers when charges for the call begin?

(a) In the example above, should the information provider be required to inform the caller, through a tone or other signal, when the free time has expired?

(b) In the example above, at what point(s), if any, during the call should the disclosures be made? At what point(s), if any, during the call should a signal or tone occur?

(c) In the example above, would a single signal following the preamble but immediately preceding the free time provide sufficient information to enable consumers to avoid all or most charges from remaining on the line after close of the free time?

AT&T endorses the resolution of this issue offered in a December 16, 1996 advice letter from the Commission's Associate Director of Marketing Practices:5 The preamble to such a call should disclose that a caller will receive a certain amount of free time, and disclose what charges will apply after that free time ends. Three seconds prior to the end of the caller's free time, the IP should provide a clearly discernible tone, but need not provide additional text warning the caller that his or her free time is ending.

22. Section 308.5(a)(2)(iii) requires that "if the call is billed on a variable rate basis, the preamble shall state . . . the cost of the initial portion of the call, any minimum charges, and the range of rates that may be charged depending on the options chosen by the caller." Should this provision be construed to cover situations where pay-per-call services charge different rates for different time periods within a single call (e.g., no charge for the first two minutes after the end of the preamble, $3.00 per minute for the third through the eighth minutes, and $1 per minute for every minute thereafter)?

(a) Assume for purposes of questions 22(a) and (b) that calls to such services described above are "calls billed on a variable rate basis" covered by Section 308.5(a)(2)(iii). Should that Section be modified to require something other than preamble disclosures of "the cost of the initial portion of the call, any minimum charges, and the range of rates that may be charged depending on the options chosen by the caller?"

(b) For example, in the scenario described above, should Section 308.5(a)(2)(iii) explicitly require a clearly discernible signal or tone to mark the end of the free two-minute period? Should it explicitly require a clearly discernible signal or tone to mark the end of the six-minute period during which charges are $3.00 per minute?

AT&T supports the preamble disclosure and construction of the 900-number rule discussed in the Commission's initial example (i.e., "no charge for the first two minutes after the end of the preamble, $3.00 per minute for the third through the eighth minutes, and $1 per minute for every minute thereafter"). In the example given in part (b) of this question, a tone should be required to mark the end of a caller's free time, but is not necessary in order to mark subsequent changes in rates.

23. What percentage of 900-number services fall into the category of "nominal cost calls" as described in section 308.5(c) of the Rule?

(a) Do the data suggest that $2.00 is an appropriate threshold for designation of "nominal cost calls" for which no preamble is necessary? If not, what "nominal cost" threshold do the data support?

(b) Should the "nominal cost" figure be adjusted for inflation? Explain.

AT&T does not know what fraction of calls to 900-number services are "nominal cost calls," but believes it is a small percentage. The Commission's current "nominal cost" threshold appears to be adequate to support the limited types of programs (e.g., polling applications, state lottery results applications) that operate under this provision of its rules, and the $2.00 figure need not be adjusted for inflation or otherwise increased absent some showing that such services are not viable at that rate.

24. What percentage of callers to 900-number services hang up the telephone before the charges begin and how is this ascertained?

(a) Of these, what percentage are first time callers?

(b) Does this percentage correlate to the cost of the call? To the nature of the service?

AT&T does not compile information responsive to this question in the ordinary course of its business.

25. What impact, if any, has the 900-Number Rule had on the number of complaints about, or requests for credits or refunds for, calls to 900- number services that allegedly were not authorized by the subscriber of the telephone line from which the calls were placed?

(a) Has the percentage of such complaints or requests increased, decreased, or remained the same since the Rule went into effect?

(b) What percentage of all requests for credits or refunds of charges for 900-number services involve calls allegedly unauthorized by the telephone subscriber?

(c) What percentage of these requests are due to allegedly unauthorized calls placed by minors?

AT&T does not compile information responsive to this question in the ordinary course of its business.

26. What, if any, procedures are used by industry to ensure that calls to audiotext services are authorized by the subscriber of the telephone line from which the calls are placed?

(a) What, if any, procedures are used by industry to minimize or eliminate unauthorized calls placed by minors to audiotext services?

(b) How effective have these procedures been in reducing the number of complaints or the number of requests for credits or refunds regarding allegedly unauthorized calls to audiotext services?

Preamble messages are the industry's chief means of ensuring that calls are authorized by the subscriber to the telephone from which they are placed, and to minimize unauthorized calls by minors. AT&T does not have any information as to the effectiveness of these strategies.

27. What percentage of telephone subscribers have chosen to block access to 900 numbers from their telephone lines?

(a) Of those choosing to block access to 900 numbers, what percentage choose to do so when initiating phone service?

(b) What percentage do so after phone service has been initiated?

(c) Of the latter, what percentage have done so after complaining about charges to audiotext services?

(d) What percentage of consumers who complain about charges for audiotext services choose to block 900 numbers?

(e) To what extent, if any, has blocking been effective in reducing complaints involving 900-number services?

(f) What, if any, are the costs to consumers or industry of receiving or providing 900 number blocking services?

AT&T does not have sufficient data to provide an answer to this question.

V. BILLING AND COLLECTION

28. What services are provided to the audiotext industry by billing entities other than the telephone companies (or "alternative billing entities")?

(a) Do the types of services vary for different types of audiotext services? Explain.

(b) What percentage of audiotext services are billed through billing entities other than the telephone companies? Explain.

(c) Have the types or number of these alternative billing entities changed since the Rule went into effect in 1993? What impact, if any, has the Rule had on the nature of these billing entities?

(d) What are the terms and conditions of the arrangements between the alternative billing entities and other players in the audiotext industry?

(e) What is the role of a "billing aggregator"? What services does a billing aggregator provide to members of the audiotext industry?

AT&T understands that "billing aggregators" provide billing, secondary collections, and receivable financing. AT&T does not have sufficient information to respond to the other parts of this question.

29. Does the definition of "billing error" in section 308.7 of the Rule adequately reflect the range of billing errors occurring in the 900-number marketplace? If not, how might the definition be changed?

AT&T believes that the Commission's current definition of "billing error" is appropriate.

30. Is there any evidence suggesting that some (adult) consumers are refusing to pay for audiotext calls or 900-number calls which they purchased after hearing a preamble containing the disclosure of material information currently required by the Rule?

(a) If such a problem exists, to what extent is it affected by the dispute resolution provisions of the 900-Number Rule?

(b) If such a problem exists, to what extent is it affected by the billing notice requirements set forth in section 308.7(n)?

(c) What steps, if any, could the Commission take to reduce the incidence of this practice without weakening protections afforded consumers by TDDRA and the 900-Number Rule?

Anecdotal evidence suggests that some consumers are simply refusing to pay for 900- calls and other calls to IPs. The 900-number rule's current billing notice and dispute resolution provisions do not impact intentional acts of this sort, except to the extent that they may enable some callers to delay collection by invoking the billing error provisions of the rule.

31. Distinguished from billing for unauthorized calls, the problem of "phantom billing" occurs when a telephone subscriber is billed for an audiotext call that the subscriber asserts was never placed from the subscriber's telephone.

(a) How does phantom billing occur?

(b) What procedures and safeguards currently exist or should exist to insure that telephone subscribers are billed only for calls which were actually placed from that subscribers phone?

(c) How does a billing entity determine that billing tapes or other records of calls are genuine?

(d) What percentage of consumers who complain about "phantom billing" of audiotext services choose to block access to 900 numbers?

AT&T is not aware of any process errors that could result in "phantom billing" through its systems, and is unable to provide responsive information for the other parts of this question.

32. Section 308.7(i) places restrictions on the extent to which adverse credit information can be reported to any person.

(a) How, if at all, has this restriction affected the creation of a shared d database of "problem callers" for the purposes of blocking such persons from 900 or other audiotext transactions?

(b) Would such a database be useful to industry?

(c) Does allowing such a shared database adversely affect consumers? If so, how?

AT&T does not believe that the Commission's current rules constrain its ability to exchange information about customers who have failed to pay undisputed charges for information services, as º 308.7(i) only prohibits reporting in retaliation for good faith efforts to dispute bills and places restrictions on reporting when charges are subject to a valid ongoing dispute. In concert with other telecommunications carriers, AT&T is in the process of seeking antitrust review from the Department of Justice of a proposal to participate in the National Consumer Telecommunications Data Exchange ("NCTDE").

The NCTDE will be an independent not-for-profit corporation that will maintain information concerning consumers who have failed to pay an undisputed balance of $50 or more and have had their account closed by a participating carrier. This proposal is closely patterned on the National Telecommunications Data Exchange ("NTDE"), which maintains similar information about business customers. On March 8, 1994, the Department of Justice issued a letter announcing that it would not oppose the formation of the NTDE.6 The NCTDE plans to begin operation when it obtains the required approvals.

33. How is "chargeback" defined by the industry?

(a) Does the term include the situation where a consumer has refused to pay for an audiotext service? Does it include the situation where a consumer pays and then requests a refund?

(b) Are there data on chargeback rates for the 900-number industry? For the audiotext industry as a whole? Do the data represent chargeback rates for all types of "pay-per- call services" or only for services provided through 900 numbers?

(c) How do the chargeback rates for the pay-per-call industry compare with other collection and payment systems, such as the credit card collection and payment system?

(d) What are the current and projected future trends regarding chargeback rates for the pay-per-call industry?

AT&T defines the term "chargeback" to include any billing which it is unable to collect from a caller, and would include both situations in part (a) in that definition. AT&T does not have data concerning industry chargeback rates, but anecdotally those rates are thought be higher than those experienced by other industries. AT&T does not have any projections as to future chargeback rates.

34. Do chargeback rates vary according to the category of audiotext service?

(a) Do the providers of some types of services experience a greater chargeback rate than other types of services? Are there data demonstrating these differences?

(b) If certain kinds of audiotext services correlate with higher c chargeback rates, what is the explanation for the correlation?

(c) Are there data to show whether services that attract callers of certain age groups (e.g., minors) are more likely than others to result in chargebacks?

(d) How do chargeback rates for non-900 audiotext services compare to rates for 900 number services?

e) How do chargeback rates for nominally priced calls (i.e., those exempted from the preamble requirement) compare to the chargeback rates for other calls?

AT&T does not compile information responsive to this question in the ordinary course of its business.

35. Do chargeback rates vary according to the payment method?

(a) Do services that utilize a credit card billing system rather than an Automatic Number Identification ("ANI") billing system experience fewer chargebacks?

(b) What about services provided according to oral presubscription agreements?

(c) What about those services provided according to written presubscription agreements?

AT&T does not compile information responsive to this question in the ordinary course of its business.

36. Has the advent of third party billers affected the chargeback rates in the audiotext industry? If so, how?

(a) Is there any correlation between the type of billing entity (e.g., a local exchange carrier or a third party biller) and the rate of chargebacks? If so, why?

(b) Are chargeback rates affected by the amount of time a billing entity gives to a consumer to complain about a bill? To what extent to different billing entities follow the Rule's time limits on initiation of billing review?

AT&T does not compile information responsive to this question in the ordinary course of its business.

SECTION G. REQUEST FOR COMMENT

1. Are there "audio information or audio entertainment" ("audiotext") services which are not currently covered by the definition of "pay-per-call service," but which are susceptible to the same unfair and deceptive trade practices prohibited by the current Rule?

(a) If so, should the Rule be amended to cover these services?

(b) If so, how should the Rule be changed?

(c) How would these changes affect consumers and businesses?

(d) What characteristics of an audiotext service make it susceptible to the unfair and deceptive trade practices prohibited by the current Rule?

As described in AT&T's answers to the other questions posed in the Notice, the Commission should modify its rules so as to address international audiotext services and improper revenue-sharing arrangements between IPs and carriers or other entities. In addition, the Commission should modify its rules to incorporate the changes Congress made to º 228 in the 1996 Act.

2. How can a definition of "pay-per-call service" be crafted so that audiotext services which are susceptible to unfair and deceptive trade practices are covered by the Rule, but any services that are not susceptible to these practices are not swept into the Rule?

It is impossible to craft a rule that could prevent all potential scams -- indeed, every effort to extend or clarify regulation of pay-per-call services is likely to breed new and more creative schemes designed to circumvent those rules. AT&T believes that the rules outlined by the FCC in its recent pay-per-call proceeding, with some modifications as described in AT&T's comments and reply comments in that docket, represent a sound approach that is protective of consumers, permits sufficient flexibility to the industry and is true to Congress' intent.

3. Should the Rule be extended to cover any audiotext transaction where an information provider or service bureau receives a portion of the fees paid by a caller? Explain.

As AT&T showed in its comments and reply comments in the FCC's pay-per-call proceeding, an absolute prohibition on arrangements by which an IP receives a portion of the fees paid by a caller would sweep too broadly.7 At the same time, the Commission must take account of the fact that some scams have emerged in which callers pay only the price of an ordinary direct-dialed call, but IXCs are, in effect, forced to pay for an audiotext service.

AT&T strongly supports the goal of the Commission's proposal: to prohibit scams such as those in which a carrier files an unjustifiably high tariff, ostensibly solely for transport, and then passes a portion of its proceeds to an IP that purports to provide a "free" information service. However, the Commission's proposal would prohibit not only abusive practices, but also arrangements that are both benign and economically efficient.

For example, AT&T and other carriers have entered into terminating switched access arrangements ("TSAAs") with many subscribers that receive a large volume of incoming calls over the carrier's network. In such arrangements, the called party provides its own link to an IXC's point of presence ("POP"), the point at which the IXC's network interconnects with the local exchange carrier's network. The called party thus becomes an access provider, and levies access charges that are in all cases lower than those that would be charged to the IXC by the LEC that otherwise would provide terminating switched access. If a TSAA customer were an IP, then a TSAA arrangement might be deemed to constitute payment of "a portion of the fees paid by a caller," in violation of the proposed prohibition.

TSAAs are categorically different from the types of practices the Commission seeks to address. First, TSAA arrangements do not result in higher charges to callers to information services. All AT&T customers pay the same tariffed rates for the same services, regardless of whether those services are terminated over TSAAs. Unlike some proposals in which IPs seek permission to charge callers a rate based on the highest rate tariffed by a major IXC for that time of day, callers to numbers using TSAA arrangements pay the very same rate for transport that they would pay in the absence of that arrangement. Thus, a caller that has signed up for an AT&T's discount plan receives the appropriate discounted rate for a long distance call to a party with a TSAA contract -- not another, higher rate that also happens to be tariffed for that time of day, but which would not apply to that caller for a call to a party not using a TSAA arrangement.

However, the rates callers pay are not the only indicators of compensation-sharing arrangements that should be prohibited. In some cases, unscrupulous IPs have engaged in scams which extract hidden payments for information services from IXCs. AT&T has been the victim of arrangements in which an IP establishes a chat line in the service area of a local exchange carrier with unusually high terminating access rates, and then advertises the availability of that service at ordinary long distance rates. When end-users call the chat line, the LEC assesses the IXC over whose network the call was completed a terminating access charge per minute that in many instances standing alone exceeds the IXC's total revenue for the call, and far exceeds the LEC's true cost of providing access. The LEC then shares a portion of its inflated access revenues with the IP, giving the LEC and the IP a shared, direct financial interest in promoting calls to that information service.8

In sharp contrast to TSAA contracts, such schemes create no efficiencies for the participating IP or LEC. The flow of compensation from LEC to IP in such arrangements is in no way based on avoided costs, but is simply a kickback. Moreover, it is a basic principle of economics that when the consumers of a resource do not bear the full costs of using it, they will use greater quantities than is economically efficient. In the case of these bogus "access" charge scams, callers will be almost completely insensitive to the charges levied against IXCs, because the callers only indirectly bear those charges. Thus, permitting IPs to shift the costs of their services to IXCs will result in higher call volumes than would be observed if callers had to pay for these services themselves, because these information services appear to be "free." These scams therefore are likely to proliferate, as they potentially will be more profitable to IPs than offerings for which users must pay directly. Ultimately, however, the costs of these "free" calls will inevitably be passed on to consumers of ordinary long distance services, as IPs engaged in these schemes have publicly recognized.9

Callers to these ostensibly "free" information services are also denied the benefit of the disclosures Congress ordered in TDDRA. In addition, consumers cannot block such calls (because they are offered via ordinary long distance calling sequences) despite the fact that they can be accessed without presenting a credit card number or obtaining a written presubscription, and so are readily accessible to children.

Under TSAA contracts, carriers and IPs share the benefits of real, demonstrable cost-savings created by such arrangements. This fact stands in stark contrast to schemes in which carriers or other entities agree to share revenues with an IP only because their rates have been artificially inflated so as to cover side payments for an information service. Although AT&T strongly encourages the Commission to amend its rules to prohibit abusive revenue-sharing schemes, it would be both arbitrary and inefficient to prohibit TSAA arrangements -- particularly in light of the fact that such relationships would remain perfectly lawful for called parties that are not IPs.

AT&T proposes that rather than enacting a per se ban on arrangements in which an IP or SB receives a portion of the revenues paid by a caller, the Commission should establish a rule that any flow of remuneration from a carrier (including LECs and competitive access providers, as well as IXCs) to an IP or party advertising an information service, or a reciprocal arrangement between those entities, should create a rebuttable presumption that an IP is offering a pay-per-call service. Arrangements between carriers and their customers take myriad forms -- and will likely take on new patterns with the advent of local competition under the 1996 Act -- many of which are economically efficient and do not lead to abuses. A party accused of offering a pay-per-call service not in compliance with the Commission's rules could meet its burden of proof by demonstrating either: i) that it was simply passing along a portion of its own cost savings achieved through a mutually beneficial arrangement; ii) that its transaction with an IP is not materially different from similar arrangements it has made with non-IPs; or iii) that its payments to an IP properly reflect the cost or value of services actually provided to the carrier.

4. Should the definition of "pay-per-call service" be extended to encompass international audiotext transactions where the information provider or service bureau receives a portion of the fees paid by the caller? Explain. If so, are there other modifications to the Rule that would be necessitated by such a change?

AT&T believes that the same analysis it offered in response to question 3 is applicable to this question as well. Arrangements in which an IP located outside the United States receives a portion of the fees paid for international calls originating in this country should give rise to a rebuttable presumption that the service in question is "pay-per-call."

International audiotext calls present the additional difficulty that in many cases, the entity sharing fees with an IP is a foreign PTT which is seeking to encourage inbound international calling so as to obtain settlement payments from IXCs. This situation can only be changed through the FCC's ongoing efforts to reduce international settlement rates.

5. Are there technological differences between 900-number and non-900- number audiotext services that would make it difficult to implement the Rule in its current form with respect to non-900-number audiotext services? Explain.

(a) For example, could free preambles (as required by section 308.5) be provided at the beginning of non-900-number audiotext messages billed through arrangements with international long distance carriers? How could accurate cost disclosures as required by the Rule be made for these services?

(b) Must any changes be made to the Rule to accommodate these differences?

(c) How would these suggested changes affect audiotext services utilizing 900 numbers?

The primary difficulty in regulating non-900 audiotext services is the fact that calls to other SACs are not readily identifiable as pay-per-call. For example, a consumer cannot request blocking of calls to 800- numbers offering audiotext unless he or she is willing to give up access to all 800- numbers, and thereby lose the ability to use a variety of valuable resources offered via that SAC. In addition, while local exchange carriers are required to offer 900- blocking without charge, consumers would have to pay for 800-blocking (assuming their LEC even offers that service).

Further, calls to ordinary domestic long-distance numbers could not offer callers a free preamble in the absence of significant network modifications by carriers. Because of these difficulties, AT&T recommends that whenever the total cost of a call to an audiotext service exceeds the cost that a consumer would pay for a comparable direct-dialed call to a non-IP (taking into account any arrangements by which revenue is shunted to the IP from the caller or any other entity -- see response to question 3 in Section G), such a call must either be placed via an SAC designated for pay-per-call, or else must adhere to the presubscription and credit card billing requirements Congress established in the 1996 Act amendments to º 228.

International audiotext calls also cannot be identified by carriers as pay-per-call because they do not have a unique SAC, and could not be assigned to a unique service access code without the cooperation of the foreign PTTs responsible for terminating such call. It also would not be possible to offer callers a free preamble unless domestic IXCs could obtain the cooperation of terminating PTTs. If such calls could be identified before being transmitted abroad, domestic carriers could potentially provide a preamble; but, such an arrangement would require significant network modifications and development of new capabilities, and could not be provided to callers without charge. Moreover, the cost of developing and implementing such a system could be quite high, and it likely could easily be circumvented by international audiotext providers.

6. In a Notice and Order, the Federal Communications Commission (FCC) stated that "regardless of whether the FTC extends the scope of its pay-per-call regulations [pursuant to º 701(b)(2) of the Telecommunications Act of 1996], our pay-per-call rules continue to be delineated by the statutory definition of pay-per-call services contained in Section 228(i) of the Communications Act." Thus, if the FTC extends the definition of "pay-per-call services" pursuant to its authority under the Telecommunications Act of 1996, then the two agencies would be regulating the audiotext services industry using two different definitions of "pay-per-call services."

(a) What impact, if any, would this result have on the audiotext industry?

(b) What could be done to reduce any potential complications or conflicts? Explain.

IXCs and LECs will be bound by the FCC's rules interpreting º 228 because of their status as common carriers, and will be required to ensure that IPs or service bureaus for whom they provide 800- or 900- services comply with those rules, as well as with any rules prescribed by the FTC. Thus, as a practical matter, to the extent that the agencies' rules are inconsistent, those IPs, SBs and carriers that wish to abide by the law will adhere to whichever agency's rule is most stringent in any given situation. There is, however, no question that consumers and industry alike will benefit greatly by having uniform, consistent rules. Moreover, if the FTC and FCC were to issue irreconcilably conflicting requirements, then industry participants would be placed in the intolerable situation of being forced to violate one or the other set of regulations. AT&T urges the Commission to coordinate its efforts with those of the FCC, and hopes that both agencies will work to ensure that their regulations form a coherent, consistent whole. The surest way to achieve this end is to use the 1996 Act amendments to º 228 as a blueprint, as AT&T has suggested in these comments.

7. In light of the FCC's implementation of the Telecommunications Act of 1996 as it relates to the audiotext industry, are there additional changes the FTC should consider making to its own 900-Number Rule?

See responses to questions 10 and 12; and to questions 3 and 4 in Section G.

8. Are there any audiotext services currently being provided over the Internet or commercial online services? If not, is it likely that these services will be available over the Internet or commercial online services in the near future? If yes, how do these services work?

(a) Are there audiotext services provided over the Internet that are susceptible to the same unfair and deceptive practices prohibited by the current Rule? If so, should these services be encompassed within an expanded definition of "pay-per-call services"?

(b) What elements would a definition have to include to encompass such services?

(c) What are the costs and benefits to including online services within the scope of the 900-Number Rule?

(d) If such audiotext services provided over the Internet or commercial online services were included within an expanded definition of this term, what, if any, changes to the Rule's provisions would be necessary in order for the Rule appropriately and effectively to prevent unfair or deceptive practices in the advertising, sale, and operation of such services?

(e) How would preamble and other Rule requirements be met for audiotext numbers which are used to connect a caller's computer to the Internet or to commercial online services?

As AT&T explained in its responses to questions 13 and 16, it would be inappropriate (and potentially impossible) to apply the Commission's 900-number requirements to the Internet. Moreover, any attempt to regulate Internet offerings under the aegis of TDDRA would almost certainly have important effects on Internet commerce generally. AT&T believes that at this early stage in the development of the Internet and other on-line services, the Commission should refrain from imposing regulations of this type. To the extent the Commission does seek to extend TDDRA protections to these services, it should only do so after conducting a fuller inquiry and soliciting the comments of ISPs, Internet users, and other interested parties.

9. What steps can a consumer take to prevent his or her telephone line from being used for unauthorized non-900-number transactions such as international audiotext transactions?

(a) Is call blocking of international audiotext calls possible without requiring the consumer to block access to all international numbers?

(b) If not, what, if any, technology is under development that would permit selective blocking of particular numbers, area codes or international country codes?

Because telecommunications carriers cannot determine whether an international call is destined for an IP, consumers cannot block such calls without blocking all international calls. Selective blocking of designated international country codes potentially could be developed, but could require significant network modifications. Selective blocking of particular numbers also potentially could be developed, but is unlikely to be cost-effective, as unscrupulous IPs could simply migrate to another number once their original number became known and subject to blocking.

10. What steps can a consumer take to obtain a credit or refund if he or she believes that there has been a billing error or an unauthorized use of his or her telephone for a non-900-number audiotext transaction? What happens if, for whatever reason, a consumer refuses to pay for a non-900-number audiotext call?

For non 900- calls, the billing carrier would set the policies applicable to credits or refunds (subject to applicable state consumer protection and other laws). AT&T forgives such charges in appropriate circumstances.

11. What was the gross sales revenue generated in the non-900-number audiotext industry for each year since the promulgation of the Rule in 1993?

(a) What explains the emergence and growth of non-900-number audiotext services?

(b) What, if any, benefits do audiotext services accessed through dialing patterns other than "900" confer on consumers or industry?

(c) How has the 900-number industry been affected by audiotext services that are not currently covered by FTC or FCC regulations? Explain.

AT&T is unable to provide data on the sales of non-900 audiotext services. There appear to be two primary reasons for the growth of such services: Many consumers are reluctant to call 900-numbers, for fear of scams or because these numbers are seen as unsavory because of their association with "adult" entertainment. Perhaps more importantly, IPs offering non-900 services seek to avoid complying with many TDDRA requirements.

12. What categories of audiotext services (e.g., sports, psychic, chat, adult) are provided through non-900 audiotext numbers?

(a) What percentage does each type constitute of all pay-per-call information services accessed through dialing patterns other than "900"?

(b) What was the gross sales revenue for each category in each year since 1993?

AT&T does not compile information responsive to this question in the ordinary course of its business.

CONCLUSION

AT&T urges the Commission to revise its 900-number rule consistently with the recommendations provided in these comments.

Respectfully submitted,

AT&T CORP.

By /s/ Peter H. Jacoby
Mark C. Rosenblum
Peter H. Jacoby
James H. Bolin, Jr.

Its Attorneys

Room 3250J1
295 North Maple Avenue
Basking Ridge, NJ 07920
(908) 221-4243

May 12, 1997

EXHIBIT 1

EXHIBIT 2

EXHIBIT 3

EXHIBIT 4

1 See Policies and Rules Governing Interstate Pay-Per-Call and Other Information Services Pursuant to the Telecommunications Act of 1996, CC Docket No. 96-146, Order and Notice of Proposed Rule Making, FCC 96-289, released July 11, 1996. AT&T's comments on the FCC's NPRM, filed August 26, 1996, and its reply comments, filed September 16, 1996, are attached as Exhibits 1 and 2 to this document, respectively.

2 AT&T's comments on the FCC's proposed rules also address º 228's presubscription requirement. See Ex. 1, pp. 4-5; Ex. 2, pp. 7-8.

3 Section 228(c)(8)(D) exempts three types of calls from the written presubscription and credit card disclosure requirements: calls utilizing telecommunications devices for the deaf, calls for directory assistance services provided by a common carrier or local exchange carrier, and calls "for any purchase of goods or of services that are not information services." As AT&T described in its comments to the FCC, this last exception could become a vehicle for scams unless the agencies strictly enforce a written presubscription requirement. See Ex. 1, p. 4.

4 See Ex. 2, pp. 7-8.

5 See Letter from Eileen Harrington, Associate Director, Division of Marketing Practices, FTC, to Barry J. Cutler, McCutchen, Doyle, Brown & Enerson (Dec. 18, 1996), attached as Exhibit 3.

6 A copy of the Department's letter and the press release accompanying it are attached as Exhibit 4.

7 See Ex. 1, pp. 5-9; Ex. 2, pp. 2-7.

8 Some IPs have engaged in still another scam that also relies on inflated access charges. In this scheme, a chat line provider files an access tariff under the guise that it is a competitive access provider ("CAP"). The IP then purports to assess its own "access" charges on IXCs delivering calls to its service, in addition to the traditional LEC access charges for handling that same traffic as it passes through the LEC's switches to the IP's chat bridge. Alternatively, an IP may enter into an alliance with a separate entity purporting to be a CAP, in which the parties similarly share bogus "access" charges which the CAP collects from IXCs.

9 See Ex. 2, p. 4.