Pay-Per-Call Rule Review: 900 Number #18

Submission Number:
18
Commenter:
Edwin N. Lavergne, Esq. Jay S. Newman, Esq. Ginsburg, Feldman and Bress
Organization:
Interactive Services Association
Initiative Name:
Pay-Per-Call Rule Review: 900 Number
Matter Number:

R611016

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

900 Number Rule Review And Request For Comment

FTC File No. R611016

COMMENTS OF
THE INTERACTIVE SERVICES ASSOCIATION

The Interactive Services Association ("ISA"), by its attorneys, hereby submits its comments in response to the rule review and request for public comment concerning the Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992, 16 C.F.R. Part 308 ("900-Number Rule"), released by the Federal Trade Commission ("FTC" or "Commission") on March 12, 1997. The ISA hereby notifies the Commission of its desire to participate in the public workshop-conference on the 900-Number Rule scheduled for June 19-20, 1997.

I. INTRODUCTION AND BACKGROUND

The ISA, formed in 1981, is the leading trade association devoted exclusively to promoting consumer interactive services worldwide. The ISA has approximately 350 members, most of whom play an important role in the provision of telecommunications-based interactive services to consumers. ISA members include leading online and Internet access providers, cable television operators, advertising firms, computer hardware manufacturers, and software companies. Many ISA members are actively involved in the 900 number industry, either as interexchange carriers ("IXCs"), local exchange carriers ("LECs"), service bureaus, information providers ("IPs") or third-party billing entities.

In 1993, after the passage of the Telephone Disclosure and Dispute Resolution Act of 1992 ("TDDRA"), the FTC was given the monumental task of regulating a nascent industry facing its share of growing pains. With valuable input from industry and consumer groups, the FTC rose to the challenge and adopted a comprehensive regulatory scheme which generally safeguards consumers without unnecessarily burdening legitimate businesses.(1) Many provisions of the 900-Number Rule have withstood the test of time well.(2)

The 900 number industry of 1997 is far different than the one that existed in 1992. Today, 900 lines offer business and financial applications (e.g., bank check verification and property assessment), computer technical support, government services (e.g., license processing, UCC searches, passport information and Federal Communications Commission auctions), entertainment services (e.g., concert information and crossword puzzle clues), lifestyle, travel and leisure information (e.g., weather, accommodations, sightseeing and personals), news and polling, professional services (e.g., medical and legal consulting) and sports information. Much of the credit for the "new" 900 industry must be given to the FTC. The ISA is hopeful that these comments will serve as a springboard for a productive review of the 900-Number Rule.

II. SUMMARY AND RECOMMENDATIONS

The FTC has asked 48 detailed questions involving both 900 and non-900 audiotext services. The ISA's comments generally focus on areas where ISA members have either experienced significant difficulties, or encountered situations where modifications to the 900-Number Rule were appropriate. Summarized below are the ISA's recommendations.

The ISA urges the FTC to take the following four steps to address 900 number billing and collection problems: (1) modify its consumer billing notice requirements under Section 308.7(n) to ensure that consumers are informed not only of their rights under the 900-Number Rule, but also of their responsibilities if they fail to pay 900 number charges; (2) enforce and clarify the dispute resolution requirements under Section 308.7 and initiate a review of LEC credit and refund practices to determine whether LECs are complying with the 60-day billing dispute and 90-day billing review requirements; (3) clarify that the 900 number industry can create a database which would allow individual businesses to block abusive callers from accessing 900 number programs; and (4) require billing entities to conduct an appropriate investigation of all billing disputes.

With respect to the FTC's questions concerning fractional billing, the ISA believes that if fractional billing is feasible, 900 number service providers should be permitted to decide for themselves what billing increments are appropriate based on marketplace forces.

With respect to preambles, the ISA urges the FTC to take the following three steps to improve its existing requirements: (1) amend its preamble rules to ensure that IPs are not restricted in their ability to offer free time to callers after a preamble message; (2) recommend to Congress that the TDDRA be amended to require a parental consent disclaimer during the preamble only if a service is directed primarily to individuals under the age of 18; and (3) increase the nominal cost threshold (which exempts IPs from providing a preamble) from $2.00 to $3.00.

With respect to the definition of pay-per-call, the ISA urges the FTC to expand that definition to cover all international audiotext transactions and apply many (but not all) of the existing 900-Number Rule advertising requirements to such services. The FTC should not expand the definition of pay-per-call to cover interstate information services, the cost of which does not exceed a comparable content neutral call by more than a de minimis amount.

With respect to issues raised concerning the Internet and online services, the FTC should not impose specific size, format or other requirements to govern Internet and online advertisements promoting 900 number services. In addition, the FTC should first allow industry self-regulation before adopting specific requirements to govern audiotext services provided over the Internet or through online services.

Finally, with respect to the FTC's 800 number presubscription rules, the ISA believes that the FTC's rules governing 800 numbers should be revised to comport with the Federal Communications Commission's ("FCC's") existing 800 number rules.

III. BILLING AND COLLECTION

The Commission has asked whether there is evidence suggesting that some consumers are refusing to pay for legitimate 900 number calls.(3) The answer is a resounding yes; there is substantial evidence indicating that many consumers are taking advantage of the TDDRA by making numerous 900 number calls with no intention of ever paying for such calls. The problem is so severe that, last year, the ISA's Interactive Telephone Council formed a special task force that conducted an eight-month study of this issue.(4)

The Task Force Study shows that, in 1996, 900 number service providers lost nearly $180 million in billed, but unpaid, telephone charges.(5) This represents approximately 18% of total end-user billings.(6) The ISA believes that consumers who repeatedly use 900 number services with no intention of paying for them are at the heart of the chargeback problem. Indeed, evidence suggests that a relatively small number of savvy consumers are taking advantage of the Commission's billing and collection regulations to avoid payment of legitimate 900 number charges. There are several steps the FTC can take to address this critical problem.

A. The FTC Should Modify Its Consumer Billing Notice Requirements. (Responds to Question 30(b)).

The ISA suggests that the FTC modify its rules by requiring billing entities to include a new notice (the contents of which are discussed below) in each bill that contains a 900 number charge.(7) This suggestion is premised on the ISA's belief that the consumer billing notices currently required by Section 308.7(n) do not adequately inform callers about their responsibility to pay, or the consequences of failing to pay, 900 number charges. Indeed, Representative Bart Gordon (D-Tenn.), one of the principal authors of the TDDRA and a champion for consumer rights in the pay-per-call arena, has expressed serious concern with existing billing notices.

In a letter to FTC Chairman Robert Pitofsky, Rep. Gordon suggested several billing notice revisions to ensure that consumers understand both their obligation to pay 900 charges and the potential for third-party collection efforts.(8) With a few minor modifications, the ISA wholeheartedly supports Rep. Gordon's proposal because it will provide consumers with a complete understanding of their rights and liabilities whenever they call a 900 number. To this end, the ISA proposes that Section 308.7(n) be amended to read as follows:

[NEW LANGUAGE IS IN BOLD ITALICS AND
DELETED LANGUAGE IS IN BRACKETS.]

(n) Notice of billing error rights. - [Existing Section 308.7(n)(1) deleted in its entirety.] [(2) Alternative Summary Statement. As an alternative to §308.7(n)(1), a] (1) A billing entity [may] shall mail or deliver, [on or with each billing statement] in any billing that includes charges for any telephone-billed purchase, a statement that sets forth the procedure that a customer must follow to notify the billing entity of a billing error. The statement shall also disclose: (i) the customer's right to withhold payment of any disputed amount; [and] (ii) that any action to collect any disputed amount will be suspended, pending completion of the billing review; (iii) that a customer may initiate a billing review no later than sixty (60) days after the billing entity transmitted the first billing statement that contains a charge for such telephone-billed purchase; and (iv) that a carrier, vendor or other agent has the right to pursue collection of any disputed amount regardless of the billing entity's resolution of a billing error.

[Existing Section 308.7(n)(3)(i) is deleted in its entirety.] [(ii)] (2) The disclosures required by § 308.7(n) [(2)] (1) shall be made clearly and conspicuously and may be made on a separate statement or on the customer's billing statement. If any of the disclosures are provided on the back of the billing statement, the billing entity shall include a reference to those disclosures on the front of the statement.

[(iii)] (3) At the billing entity's option, additional information or explanations may be supplied with the disclosures required by § 308.7(n), but none shall be stated, utilized, or placed so as to mislead or confuse the customer or contradict, obscure, or detract attention from the information required to be disclosed. The disclosures required by § 308.7(n) shall appear separately and above any other disclosures except those required under 47 C.F.R. 64.1510(a)(2)(i).

These amendments are important because the FTC's billing and collection requirements govern a broad category of "telephone-billed purchases," not just 900 number services. If billing notices continue to leave consumers with the impression that they do not have to pay for legitimate purchases, the viability of using the telephone bill as a vehicle to charge consumers for a whole range of non-communications products and services will be jeopardized.

Set forth below is a sample billing notice that incorporates the ISA's proposed amendment to Section 308.7(n). The billing notice: (i) complies with Section 308.7(n); (ii) complies with the FCC's existing billing requirements under Section 64.1510; and (iii) generally mirrors Rep. Gordon's proposed language to Chairman Pitofsky.

[LANGUAGE ADDED TO GORDON PROPOSAL IS IN BOLD
ITALICS AND DELETED LANGUAGE IS IN BRACKETS.]

CONSUMER BILLING NOTICE

This bill contains charges for calls from your phone to 900 numbers that provided information and/or entertainment which are non-communications services. If you wish to dispute any specific 900 charges that appear on this bill, you must call the number at the bottom of your itemized call page [within 60 days] no later than 60 days after we sent you the first bill on which the disputed charge(s) appeared, otherwise the charge(s) will be presumed to be valid.

Neither your local nor long distance service (including access to emergency services) will be disconnected if you do not pay the disputed charges. Even if the disputed charges are removed from your bill, the 900 service provider has the right to pursue the collection of these disputed charges. Also, if you do not pay legitimate charges, your ability to obtain non-communications services and to make 900 calls from your line may be blocked.

Your failure to pay undisputed charges timely may be reported under the Consumer Credit Reporting Act to a third party credit reporting agency, which may adversely affect your credit. You can call your local telephone company to have 900 calls blocked from your line.

Although you do not have to pay any amount in question while we are investigating, you are still obligated to pay the parts of your bill that are not in question. You will not be reported as delinquent and no action to collect the amount you questioned will be taken until we complete our investigation of your dispute.(9)

B. The FTC Should Strictly Enforce Its Billing And Collection Requirements. (Responds to Question 30(c)).

A second factor contributing to high chargebacks is that some LECs are not complying with the three-step dispute resolution procedures set forth in Section 308.7. Specifically, Section 308.7(b) requires that customers who dispute 900 number charges do so within 60 days after a bill is sent. Section 308.7(d)(3) requires that the billing entity then investigate and resolve the billing dispute within two billing cycles, and in no event later than 90 days thereafter. Finally, Section 308.7(d)(3) (i) requires the billing entity "promptly" to notify the appropriate providing carrier or vendor of its disposition of a customer's billing error. The ISA has obtained documentation which shows that some LECs are violating some or all of the FTC's dispute resolution requirements under Section 308.7.(10) The failure of billing entities to comply with these rules has facilitated egregious and abusive behavior by consumers who have no intention of paying their 900 number bills. For example, the Task Force Study identified a $1,196 adjustment issued to a single customer in July 1996. This adjustment covered more than 131 calls made during nearly a one-year period from July 1995 to June 1996.(11) If the adjustments had been made and notifications provided in accordance with the FTC's billing and collection rules, steps could have been taken sooner to block this abuser from access to 900 number services. To determine the extent to which LECs are not complying with these requirements, the ISA requests that the FTC conduct a review of LEC billing and collection records.

1. Compliance With 60-Day Billing Dispute And 90-Day Billing Review Requirements.

The MCI Report (attached as Exhibit D) raises serious questions as to whether LECs are giving consumers more than 60 days to dispute charges and/or are taking more than 90 days to investigate disputed charges. For example, the report shows that $55,641 in adjustments were made by one Regional Bell Operating Company more than six months after 900 number calls were made.(12) While some of the adjustments made after six months may be explained by variations in state laws governing telephone billing practices, it is unlikely that all such adjustments are attributable to these variations.(13)

Moreover, as a practical matter, any extension by a LEC of the 60-day billing dispute period or the 90-day billing review period seriously compromises an IP's ability to collect unpaid charges.(14) Significantly, because the MCI Report only contains data reported to one IXC for a one-month period, it is the proverbial "tip of the iceberg." To determine the actual level of LEC non-compliance with the FTC's dispute resolution procedures, the ISA urges the FTC to conduct a review of LEC billing and collection records.(15)

2. Compliance With "Prompt" Notice Requirement.

The MCI Report also shows that some LECs are not promptly providing notice of billing adjustments in accordance with Section 308.7(d)(3)(i). Although the FTC has not defined how quickly a notification must occur, it is reasonable to expect, in many cases, such notification to be given within days of the LEC making the adjustment. The MCI Report shows, however, that in March of 1997, MCI was informed of nearly $1,000,000 in caller adjustments more than 30 days after the adjustments were made.(16) Indeed, MCI was not notified of a substantial portion of these adjustments until more than two months after the adjustments were made.(17) To address these problems, the FTC should clarify what constitutes prompt notice under Section 308.7(d)(3)(i). The ISA proposes that such notice be provided on or before the start of a LEC's next billing cycle after the adjustment, but in no event later than thirty (30) days after an adjustment. Specifically, Section 308.7(d)(3)(i) should be amended as follows:

[NEW LANGUAGE IS IN BOLD ITALICS.]

If it is determined that any disputed amount is in error, promptly (i.e., on or before the start of a billing entity's next billing cycle after such determination, but not later than 30 days) notify the appropriate providing carrier or vendor, as applicable, of its disposition of the customer's billing error and the reasons therefor;

C. The FTC Should Confirm That An Industry Database Can Be Utilized To Block Problem Callers From Accessing 900 Number Programs. (Responds to Questions 30(c) and 32).

The ISA's billing and collection task force recommended that the industry establish its own database to combat high 900 number chargebacks.(18) The creation of such a database, combined with vigorous enforcement of the FTC's billing dispute procedures, would enable the industry to identify and block chronic abusers of 900 number services.

The FCC's rules recognize that carriers and IPs can block problem callers from their services,(19) and nothing in either the FCC's or FTC's rules precludes the creation of an industry database. By confirming the lawfulness of using such a database, the FTC will enable service providers to protect themselves against theft, just as retail merchants can protect their businesses by refusing access to habitual shoplifters.(20)

The FTC has asked whether Section 308.7(i) has "affected" the creation of such a database.(21) Although there has been some question within the industry regarding the scope of Section 308.7(i),(22) the ISA does not believe that this provision bars the creation of an industry database consisting of caller adjustments reported by billing entities.

Section 308.7(i)(1) states that, once a customer has submitted a notice of a billing error to a billing entity, "a billing entity, providing carrier, vendor or other agent may not report ... adverse information to any person because of the customer's withholding payment of the disputed amount or related charges, until the billing entity has met the requirements of § 308.7(d)...." [Emphasis added]. In situations where credits have been issued by LECs or other billing entities, Section 308.7(i)(1) is inapposite because the requirements of Section 308.7(d) have been met by the issuance of a credit.(23) Accordingly, the ISA interprets the ban on reporting "adverse information" in Section 308.7(i)(1) as not restricting the ability of IXCs, IPs and service bureaus to share caller adjustments reported by billing entities pursuant to Section 308.7(d)(3)(i).(24)

Separate and apart from Section 308.7(i)(1), there is some question as to how a database may be used given the prohibition against retaliatory actions contained in Section 308.7(m). Section 308.7(m) provides that a "billing entity, providing carrier, vendor, or other agent may not ... restrict or terminate the customer's access to pay-per-call services solely because the customer has exercised in good faith rights provided by this section."

The industry needs some assurance from the FTC that parties will not be violating Section 308.7(m) if they utilize database information to block abusive callers.(25) Specifically, the ISA proposes that Section 308.7(m) be amended to read as follows:

[NEW LANGUAGE IS IN BOLD ITALICS.]

(m) A billing entity, providing carrier, vendor, or other agent may not accelerate any part of the customer's indebtedness or restrict, block or terminate the customer's access to pay-per-call services solely because the customer has exercised in good faith rights provided by this section. Nothing in this section shall preclude a billing entity, providing carrier, vendor or other agent from utilizing information maintained in an industry database to restrict, block or terminate a customer's access to pay-per-call or other non-communications services on the basis of information which shows that the customer has repeatedly requested credits for legitimate charges.

The proposed rule will clarify that 900 number service providers can coordinate their existing internal efforts to combat the chargeback problem.(26) In addition, the modification will give the industry flexibility to adopt appropriate procedures for maintaining the database. For example, the ISA expects that an industry-wide database will be operated in a manner that will protect the privacy interests of those included in the database. In addition, the ISA anticipates that standards will be adopted with respect to the addition and removal of callers from the database. The ISA also expects that any information included in the database will be maintained and used in a manner consistent with pertinent FTC regulations and industry standards. The ISA would welcome the opportunity to work with the FTC and consumer groups to develop appropriate standards.

Finally, the ISA recommends that when a billing entity notifies a caller of the disposition of a requested adjustment, it should simultaneously alert the caller to the possibility of future blocking. Specifically, the ISA proposes that Section 308.7(2)(i) be amended as follows:

[NEW LANGUAGE IS IN BOLD ITALICS.]

Correct the billing error and credit the customer's account for any disputed amount and any related charges, and notify the customer of the correction. The billing entity also shall disclose to the customer that the customer may be blocked from accessing pay-per-call and other non-communications services if the customer does not exercise in good faith rights provided by this section by repeatedly requesting credits for legitimate charges ....(27)

D. The FTC Should Require Billing Entities To Conduct An Appropriate Investigation Of All Billing Disputes. (Responds to Question 30(c)).

Many IPs, service bureaus, and IXCs believe that LECs often issue 900 number adjustments without conducting an appropriate investigation.(28) This, in turn, allows callers repeatedly to request and receive 900 number adjustments.(29)

As a practical matter, LECs have little incentive to deny adjustment requests. The 900-Number Rule does not require billing entities to conduct an investigation before issuing an adjustment. Rather, billing disputes may be resolved simply by crediting a customer's account.(30) In addition, because LECs are paid for 900 number billing and collection services regardless of whether a caller actually pays for the calls, LECs do not incur any direct financial losses by issuing requested credits. Finally, LECs create goodwill with their customers by making the dispute resolution process as easy as possible. This is especially important as competition in the local telephone market looms on the horizon.(31) New competitive LECs will have the same disincentives to deny adjustment requests. Thus, competition will simply perpetuate the existing problem.

To address this concern, the ISA urges the FTC to take steps to ensure that billing entities initiate an appropriate investigation of all billing disputes. Congress never envisioned that LECs would routinely forgive 900 number charges. As a 1991 Senate Report preceding the TDDRA noted:

If [a] subscriber complains or claims not to have understood that charges would result from calls to 900 services in more than one billing period, then the [Senate Commerce] Committee does not intend that the phone company be required to forgive those calls made during subsequent billing periods, except in unusual circumstances.(32)

IV. OPERATION AND STANDARDS

The Commission has asked several questions concerning billing practices and preamble requirements, some of which are addressed below.(33)

A. 900 Service Providers Should Be Permitted To Decide For Themselves What Billing Increments Are Appropriate Based On Competitive And Marketplace Forces. (Responds to Question 17).

The FTC has asked whether it is technologically possible to bill callers to 900 numbers for fractions of minutes. Currently, usage-sensitive 900 number calls are billed in one-minute increments and, while fractional billing may be possible, neither AT&T nor MCI currently offer such an option.

Moreover, even if incremental billing options were available, it would be inappropriate for the government to mandate the use of fractional billing.(34) Such action would be comparable to the FTC prohibiting IPs from imposing a flat, per call charge (e.g., $9.00 for a three-minute call) and, instead, requiring that all calls be billed on a per minute basis (e.g., $3.00 per minute). In both situations, the government would, in effect, be dictating the actual price an IP may charge for its services. If fractional billing options become available, IPs should be permitted to decide for themselves whether to offer such an option based solely on marketplace and competitive factors.(35)

B. The Commission's Preamble Rule Should Be Amended To Accommodate Programs Offering Free Time To Callers. (Responds to Questions 21 and 22).

The ISA urges the FTC to permit offers of free time without requiring an additional signal or tone after the preamble. Last year, FTC staff concluded that if the cost of a call is $3.00 per minute, and the first two minutes of the call are free, a preamble disclosure would be adequate if, in addition to the signal or tone provided at the end of the introductory preamble, "it informed callers that they would receive two minutes free and that to avoid charges they must hang up within three seconds of a tone at the end of the two minutes."(36) According to FTC staff, the additional signal is necessary to ensure that callers know when charges begin and when to hang up without being charged.

Requiring an additional signal at the end of the free time period on the theory that callers should not have to keep track of time themselves is at odds with widely accepted marketing practices in other industries.(37) For example, it is quite common for telephone companies to offer free calling time to entice consumers to switch or sample their service.(38) There is a reasonable expectation in connection with such promotions that consumers can keep track of time on their own. Indeed, consumers calling 900 numbers should always be cognizant of the passage of time regardless of whether the time is free or $3.00 per minute.

Moreover, the free time issue has ramifications that go beyond premium incentive offers. For example, 900 numbers are routinely used to provide live consulting to callers for legal advice, computer support, and other professional and technical services. Calls to such services are often received by a service bureau or a carrier that provides the preamble message before the call is connected to the consulting firm. Once the call is transferred to the firm, an operator at the firm determines the specialty required and identifies an appropriate consultant to handle the call. Because of the delay that can occur in matching a caller to a specialist, these IPs frequently give a minute or two of free time to callers as a matter of goodwill. It would likely be expensive and difficult to provide an additional signal or tone in connection with such services.

The FTC staff ruling was premised, in part, on the staff's conclusion that because free time offers involve no charge, the existing wording of the 900-Number Rule requires an additional signal at the end of the free time period.(39) As a solution, the ISA proposes that free time offers be treated like any other variable rate call under Section 308.3(b)(iii).

Programs offering free time clearly involve variable rates -- a specified number of minutes are being billed at a zero rate and the remaining minutes are being billed at a higher rate. Thus, the ISA proposes the following three changes to the FTC's 900-Number Rule to reflect that an offer of free time is equivalent to a charge of $0.00 per minute:

[NEW LANGUAGE IS IN BOLD ITALICS.]

A new Section 308.5(a)(6) would be added to require that the preamble message:

Informs the caller, in a manner that is neither misleading nor deceptive, if the call (or a portion of the call) is free.

Section 308.5(a)(3) would be amended to require that the preamble message:

Informs the caller 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 indicating the end of the preamble (as used in this section 308.5, "charges for the call" shall include charges billed at the rate of zero cents per minute or zero cents per call);

Section 308.5(a)(2)(iii) would be amended to read as follows:

If the call is billed on a variable rate basis or a portion of the call is offered for free, the preamble shall state, in accordance with §§ 308.5(a)(2)(i) and (ii), 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;

With these rule changes, a program offering free time would include a preamble which states: "The first two minutes are free and each minute thereafter is $3.00." The ISA believes that this disclosure, combined with the other consumer protection safeguards contained in the 900-Number Rule, are adequate to protect consumers.

If the Commission believes that additional disclosures are necessary to ensure that free time offers are not misleading or deceptive, the ISA would not oppose adding an additional statement to alert callers that a program involves free time. For example, the preamble might state: "There will be no additional signal indicating that two minutes have passed," or "Watch your clock -- your free time starts at the signal."

C. The FTC Should Recommend To Congress That The Parental Consent Disclaimer Requirement Be Modified. (Responds to Question 19).

The ISA requests that the requirement that a parental consent disclaimer be included in all preambles be replaced with a requirement that a parental consent disclaimer only be included in preambles for programs directed to persons under the age of 18.

In a 1994 advisory opinion, the FTC staff interpreted the TDDRA as requiring that all preamble messages state that persons under 18 must have parental permission to call a 900 number.(40) As a result, even if an advertisement for a program states "Must be 18 or older," the preamble for that program must contain a parental consent disclaimer. This requirement should be changed.

Under the FTC's existing rules, callers to programs intended for adults are told they must be 18 or older to call (i.e., they should not be calling even if they have their parent's permission). Then, seconds later, they are told that if they are under 18, they must get their parent's permission to call. This message is confusing, and could result in minors listening to programs strictly intended for adults.

The FTC's 1994 advisory opinion was based on a plain reading of the TDDRA. Accordingly, the ISA requests that the FTC recommend to Congress that Section 5711(a)(2)(A)(iv) of Title 15 of the U.S. Code be amended to require that the preamble message:

[NEW LANGUAGE IS IN BOLD ITALICS.]

informs the caller that parental consent is required for calls made by children if the service is directed primarily to individuals under the age of 18;(41)

D. The FTC Should Increase The Preamble "Nominal Cost" Threshold From $2.00 To $3.00. (Responds to Question 33).

The 900-Number Rule does not require a preamble when the entire cost of a call is $2.00 or less.(42) The ISA proposes that this threshold, originally established by the FCC in 1991, be increased to $3.00.(43)

A one-dollar increase would be consistent with the range originally contemplated when the TDDRA was enacted. Congress, as it considered federal pay-per-call legislation in 1991, recognized that "preambles may not be necessary if the total cost of the call is a nominal amount, such as $2 or $3."(44) In 1992, Congress (through the TDDRA) gave the FTC discretion to adjust the nominal cost threshold.(45) Although the FTC ultimately adopted a $2.00 threshold, the agency clearly had discretion as far back as 1993 to set the threshold at $3.00.(46)

In addition, the threshold should be increased given the effects of inflation. Since 1991 (the year the FCC first set the $2.00 threshold), the United States annual inflation rate has been approximately 3%.(47) Thus, $2.00 in 1991 dollars is equivalent to approximately $2.39 in 1997 dollars.

Finally, one indicium that $2.00 calls simply are not profitable is that there are few such programs available today aside from polling applications. For example, a review of approximately 40,000 current 900 number applications revealed that only 725 of these applications (many of which involved polling) were priced at $2.00 or below.(48) The ISA expects that, if the FTC increased the threshold to $3.00, more IPs would consider offering services at or about $3.00 per call. As a result, the number of low-priced services available to the public should increase.

V. SCOPE OF THE DEFINITION OF PAY-PER-CALL SERVICE

The 1996 Act gave the FTC authority to expand the definition of "pay-per-call" to include those services which are susceptible to unfair and deceptive practices prohibited by the 900-Number Rule. In doing so, Congress anticipated that certain services, which are not currently classified as "pay-per-call" would be subject to some or all of the FTC's existing 900 number requirements. The Commission has asked whether it should expand the definition of pay-per-call services and, if so, how such an expansion should be implemented.(49)

A. The FTC Should Impose Disclosure Requirements On Advertisements Which Promote International Audiotext Transactions. (Responds to Questions 1, 4 and 5 of Section G).

The FTC should expand the definition of "pay-per-call" to cover all international audiotext transactions (e.g., those accessed by dialing "809" or "011") marketed as such in the United States. Specifically, the FTC's advertising requirements contained in Sections 308.3(a) (general advertising requirements), 308.3(c) (sweepstakes), 308.3(d) (federal programs), 308.3(e) (prohibition on advertising to children), 308.3(f) (advertising to individuals under the age of 18), 308.3(g) (electronic tones) and 308.4 (infrequent publications) should apply to international audiotext transactions.

International services should not be subject to the FTC's cost disclosure requirements set forth in Section 308.3(b).(50) However, the ISA suggests that advertisements for international audiotext transactions indicate, at a minimum, that the call is subject to international rates and inform callers how to find out those rates (e.g., "Normal International Rates Apply. Dial "00" for Specific Rates.")(51)

In addition, the ISA suggests that advertisements for international audiotext transactions disclose the service provider's name and a description of the service. These disclosures would normally be included in a telephone preamble. However, unlike a 900 number preamble, if a person hangs up during the preamble to an international service, that person will still incur a charge for the call.

B. The FTC Should Not Extend The Definition Of Pay-Per-Call Services To Include An Information Service, The Cost Of Which Does Not Exceed A Comparable Content-Neutral Call By More Than A De Minimis Amount. (Responds to Questions 2 and 3 of Section G).

The ISA believes that neither the FTC nor the FCC should expand their definitions of pay-per-call services to include interstate information services where the cost to call such services does not exceed, by more than a de minimis amount, the cost of a comparable content-neutral call to the same location at the same time. Last year, the ISA submitted comments to the FCC offering this proposal.(52) The ISA suggested that comparable content-neutral rates be defined as the highest content-neutral rate offered by the three major IXCs (AT&T, MCI and Sprint) for a call to the same location at the same time. The ISA also suggested that the term "de minimis" refer to a price differential of no more than five percent (5%).

As long as a service provider only receives a minimal payment, the ISA believes that such services are not susceptible to the unfair and deceptive practices prohibited by the 900-Number Rule. This situation differs from international audiotext transactions where the cost to the consumer can be substantial and the payment to the service provider may be high.

VI. INTERNET/ONLINE ISSUES

The FTC has asked a few questions involving the Internet and online services which suggest that the agency may be contemplating the imposition of restrictions on this new medium.(53) The ISA urges the FTC to proceed with extreme caution in this area because Internet and online services are truly unique.

Although the industry has grown immensely, it is still developing both technically and commercially. In a recent FCC white paper on the Internet, the author correctly observed that "the Internet is fundamentally different from other communications technologies. In most cases, simply mapping the rules that apply to other services onto the Internet will produce outcomes that are confusing, perverse, or worse."(54) Moreover, it is not at all clear that, in passing the TDDRA, Congress intended the FTC use the statute to reach Internet and online services.

A. The FTC Should Not Adopt Specific Requirements To Govern The Advertising Of 900 Numbers On The Internet And Online Services. (Responds to Questions 13 and 16(c)).

The FTC has asked whether the 900-Number Rule should clarify what constitutes a "clear and conspicuous" disclosure in the context of advertising on the Internet or online.(55) The FTC has also asked whether 900 number advertising on the Internet or online should be subject to specific advertising requirements.(56)

The ISA opposes the adoption of any size, format or other requirements to govern Internet and online advertisements. The nature of cyberspace raises a multitude of unique issues that need to be carefully considered before any specific advertising requirements are adopted. For example, any size and type requirements must factor in the effect of (i) using a text-only browser or disabling image loading, (ii) users scrolling through a document, (iii) framing techniques or other hyperlinks, and (iv) disparities in the sophistication of a computer user's hardware and software.

Analysis of these issues -- which undoubtedly will have an impact on all Internet and online advertising -- should not be done in the context of a review of the FTC's 900-Number Rule. Nonetheless, the ISA is eager to work with the FTC to develop appropriate industry principles to ensure that consumers are provided adequate information regarding pay-per-call services that are promoted online and over the Internet.

The FTC also has asked whether audio and non-audio messages promoting 900 number services received on computers should be explicitly covered by Section 308.3(h) and, essentially, treated as telephone solicitations.(57) While this proposal, on its face, does not seem unreasonable, the ISA urges the FTC not to include computer messages within the scope of this requirement for the same reasons discussed above. For example, Section 308.3(h) requires that telephone solicitations promoting pay-per-call services disclose the cost of the call in a "slow and deliberate manner and in a reasonably understandable volume." While compliance with this requirement seems straightforward, some Internet and online service applications allow computer users to control the volume and speed of the audio component.

B. Rather Than Adopt Specific Requirements To Govern Audiotext Services Provided Over The Internet Or Through Online Services, The FTC Should First Allow Industry Self-Regulation. (Responds to Question 8 of Section G).

The FTC has asked whether certain services being offered over the Internet or online services should be subject to the 900-Number Rule. For many of the same policy reasons discussed above, the ISA believes that this is neither the appropriate time, nor the appropriate proceeding, for the FTC to consider regulating Internet and online services. Instead, the ISA believes that industry self-regulation is the appropriate first step to address potential problems with these services.

The ISA recognizes the FTC's concerns about the potential abuse associated with "international modem" services.(58) In response to these concerns, the ISA has initiated an effort to augment its existing Code of Responsibility for Pay-Per-Call Services ("ISA Code") to cover international modem services.(59) The ISA Code, which was updated and ratified last year, offers guidance to the industry regarding appropriate business and marketing practices and includes enforcement procedures to allow the industry to police itself. In the near future, a graphic icon will be used to help consumers identify those service providers that agree to comply with the ISA Code.

The ISA believes that, just as consumers need to receive clear and adequate disclosure of relevant information, the industry also needs clarity as to minimum appropriate disclosures. Among other things, the revised ISA Code will state that all advertisements promoting international modem services should disclose any age restrictions and that international rates apply. Additionally, it is anticipated that the revised code will provide that a user should be able to review clear and conspicuous online disclosures (which should also be printable) regarding any age restrictions, the name of the country in which the international call will terminate, how to find the exact fees and charges for that call, customer service contact information in case they have any questions about the service, and instructions on how to disconnect from the international modem call.

VII. DEFINITIONS/800 PRESUBSCRIPTION AGREEMENTS

The FTC has asked whether its definition of a "presubscription agreement" should be modified to harmonize with changes the FCC has made pursuant to the 1996 Act.(60) The ISA believes that the FTC rules governing 800 numbers should be revised to comport with the FCC's rules which state that callers cannot be charged for information conveyed during a call to an 800 or other telephone number advertised or widely understood to be toll-free unless: (i) the calling party has a "written agreement"; or (ii) the calling party is charged by means of a credit, debit, charge or calling card and certain disclosures are made during a preamble message. The new FCC rules also provide that written agreements must include a unique personal identification number to obtain access to the information service.

The existing FTC rules are inconsistent with the newly adopted FCC requirements. For example, the FTC does not require a written agreement, but does require the caller's "affirmative consent" to establish a valid presubscription agreement.(61) Although Congress only required the FCC to modify its rules governing 800 number services, nothing in the 1996 Act precludes the FTC from harmonizing its 800 number rules with those of the FCC. Indeed, it makes little sense for the two agencies to have inconsistent rules governing the same service.

VIII. CONCLUSION

The ISA appreciates this opportunity to comment on the 900-Number Rule and looks forward to working with the Commission in the coming months.

Respectfully submitted,

THE INTERACTIVE SERVICES ASSOCIATION

___________________________________
By: Edwin N. Lavergne, Esq.
Jay S. Newman, Esq.
Ginsburg, Feldman and Bress,
Chartered
1250 Connecticut Avenue, N.W.
Washington, D.C. 20036
(202) 637-9000

Its Attorneys

Dated: May 12, 1997 (62)

1. Many ISA members, through the National Association for Interactive Services ("NAIS") (which merged with the ISA in 1994), played a significant role in the enactment of the TDDRA and the development of the 900-Number Rule. In addition, in 1994, the NAIS adopted voluntary industry standards and a code of conduct pertaining to 900 number services. Subsequent to the adoption of the 900-Number Rule, the ISA has continued to work closely with government officials and consumer groups. For example, the ISA, working in conjunction with the United States Office of Consumer Affairs ("USOCA"), sponsored a series of roundtable discussions beginning in late 1995 which focused on the growing problems of 800 number and international audiotext services. Significantly, the consensus at the initial ISA/USOCA meeting was that there were relatively few major problems remaining in the 900 number industry. Attached as Exhibit A is a summary of the ISA/USOCA roundtable meetings.

2. For example, the existing 900 number advertising requirements have worked so well that the ISA believes they should be used as a regulatory model by individual states.

3. Question 30.

4. See Interactive Services Association LEC Billing Task Force Summary Report (November 1996) ("Task Force Study") attached as Exhibit B.

5. Task Force Study at 2. In response to Question 33, the ISA defines "chargebacks" as including unbillables, write-offs and caller adjustments. "Unbillables" are charges that a LEC is unable to bill (i.e., the customer may have moved or disconnected service after the call was made but before the LEC issued a bill). "Write-offs" occur when a LEC determines that it is unable to collect future payments from a customer and is forced to terminate all telephone service. "Caller adjustments" are adjustments made by a LEC or third-party billing entity for 900 number calls when a caller denies all knowledge of a call, is unable to pay, or refuses to pay.

6. Task Force Study at 2.

7. This requirement would be consistent with Section 64.1510 of the FCC's rules which requires LECs, in any bill that includes pay-per-call charges, to include a statement indicating that: "(A) Such charges are for non-communications services; (B) Neither local nor long distance services can be disconnected for non-payment although an information provider may employ private entities to seek to collect such charges; (C) 900 number blocking is available upon request; and (D) Access to pay-per-call services may be involuntarily blocked for failure to pay legitimate charges." 47 C.F.R § 64.1510 (1996).

8. Letter from Rep. Gordon to Robert Pitofsky, Chairman of the Federal Trade Commission, dated February 18, 1997, at 1-2, attached as Exhibit C.

9. The ISA's proposed billing notice is somewhat longer than the notice currently required by either the FCC or the FTC. See 47 C.F.R. § 64.1510(a)(2)(i) (1996) and 16 C.F.R. § 308.7(n)(2) (1996). However, adoption of this notice requirement should not impose significant additional costs on billing entities. Billing entities may include the notice on the back of the 900 billing statement if the front of the statement indicates where the notice is located. See 16 C.F.R. § 308.7(n)(3)(ii) (1996) and the ISA's proposed 16 C.F.R. § 308.7(n)(2).

10. Attached as Exhibit D is a report (the "MCI Report") that summarizes caller adjustment data compiled by MCI in March 1997.

11. Task Force Study at 4.

12. MCI Report at 1 (LEC No. 3). The names of the specific LECs referenced in the MCI Report have been replaced with numbers for reasons of confidentiality. As noted above, 900 number charges must be disputed by a consumer within 60 days after being billed for the call. Since LECs bill their customers on a monthly basis, a consumer generally has, at most, 90 days from the date a call is made to dispute the call. For example, if a call is placed on January 1, which happens to be the first day of a LEC's billing cycle, the bill for the call would be sent to the consumer on or about February 1. Pursuant to Section 308.7(b), the consumer has 60 days from February 1 to dispute the charge -- a total of 90 days from the date the call was placed. Section 308.7(d)(3) requires that the billing entity investigate and resolve the billing dispute no later than 90 days thereafter (i.e., by July 1). Thus, assuming facts most favorable to the billing entity, all 900 number billing adjustments should be completed within a six-month time frame -- in this example, from January 1 to July 1 -- unless state law provides otherwise. See infra note 13 and accompanying text.

13. Section 5722 of Title 15 of the U.S. Code provides that this title "does not annul, alter, or affect, or exempt any person subject to the provisions of this title [15 U.S.C. §§ 5721 - 5724] from complying with the laws of any State with respect to telephone billing practices, except to the extent that those laws are inconsistent with any provision of this title .... The Commission may not determine that any State law is inconsistent with any provision of this chapter if the Commission determines that such law gives greater protection to the consumer." 15 U.S.C.S. § 5722 (1996).

14. See, e.g., People's Network v. AT&T, 1997 FCC LEXIS 1928 (rel. April 10, 1997) (The FCC found that an IXC's actions in backbilling for long distance services rendered more than 120 days after such service was rendered constituted an unreasonable practice.).

15. Pursuant to authority granted in Section 5711(a)(3) of Title 15 of the U.S. Code, the Commission appears to have authority to conduct such a review pursuant to Section 308.6 which provides that "[a]ny common carrier that provides telecommunications services to any provider of pay-per-call services shall make available to the Commission, upon request, any records and financial information maintained by such carrier relating to the arrangements (other than for the provision of local exchange service) between such carrier and any provider of pay-per-call services."

16. MCI Report at 3.

17. Id.

18. Task Force Study at 8.

19. Section 64.1512 of the FCC's rules provide that: "Nothing in this subpart shall preclude a common carrier or information provider from blocking or ordering the blocking of its interstate pay-per-call programs from numbers assigned to subscribers who have incurred, but not paid, legitimate pay-per-call charges ...." 47 C.F.R. § 64.1512 (1996).

20. 20/See, e.g., Potter v. LaSalle Court Sports & Health Club, 384 N.W.2d 873 (Minn. 1986) (allowing business to take measures to prevent improper conduct by patrons, but not to refuse service to particular patron who had never been involved in improper conduct); Lewis v. Doll, 53 Wash. App. 203, 209-10, 765 P.2d 1341, 1345 (1989) (allowing refusal of service where there is objective evidence that individual has in the past engaged in improper conduct, but not on basis of race). In some instances, businesses may take steps to protect against theft by persons merely suspected of being shoplifters. See Dangberg v. Sears, Roebuck & Co., 198 Neb. 234, 252 N.W.2d 168 (1977) (recognizing validity of mutual exchange, between security employees of two stores, of security information regarding suspected shoplifter). These cases demonstrate that the use of an industry database is legitimate and necessary to protect against theft.

21. Question 32.

22. See, e.g., Task Force Study at 5.

23. Section 308.7(d) provides that: "A billing entity that receives notice of a billing error ... shall ... (2)(i) [c]orrect the billing error and credit the customer's account for any disputed amount and any related charges, and notify the customer of the correction."

24. Similarly, in situations where a person is denied an adjustment by a billing entity and refuses to pay the 900 number charges, Section 308.7(i) does not bar the sharing of this information as long as it is reported by the billing entity to the providing carrier or vendor in accordance with Section 308.7(d).

25. The FTC has already asserted that this provision "does not constitute an absolute prohibition on all actions that might effectively limit a customer's access to pay-per-call services .... The determining factor in each instance is whether the action was motivated, or reasonably appears to have been motivated, by a desire to retaliate against the customer for asserting his or her billing error rights." 58 Fed. Reg. 42364, 42397 (1993).

26. The ISA expects that an entity using the industry database (just like an entity which maintains its own internal database of problem callers) would decide, on its own, whether to block callers based on the call adjustment data contained within the database.

27. This new language also should be added at the end of Section 308.7(2)(ii) to cover situations where a partial adjustment is given.

28. See Task Force Study at 3.

29. Data provided by MCI demonstrates that a relatively small number of callers account for a significantly disproportionate number of chargebacks. According to MCI, 17% of its customers who received adjustments in 1996 accounted for 68% of the company's chargebacks. See Exhibit E. The information contained in Exhibits D and E have been provided to the ISA by Don Klug, Senior Manager, 900 Services, at MCI. A declaration by Don Klug attesting to this information is attached as Exhibit F.

30. 16 C.F.R. § 308.7(d)(2)(i). See also 58 Fed. Reg. at 42394 (1993).

31. With the passage of the Telecommunications Act of 1996 ("1996 Act"), incumbent LECs are required to open their facilities to new competitive LECs, thereby allowing new entrants to offer local telephone service in direct competition with incumbent telephone carriers. See, generally, 47 U.S.C. § 251(c) (Supp. 1997) (interconnection obligations imposed on incumbent LECs). Incumbent LECs must also offer all of their services to competitors at wholesale rates which they, in turn, can resell to the incumbent LEC's existing customers. 47 U.S.C. § 251(c)(4) (Supp. 1997).

32. S. Rep. No. 1579, at 13 (1991).

33. Questions 17-27.

34. Stephen G. Breyer, Symposium: Anticipating Antitrust's Centennial: Antitrust, Deregulation, and the Newly Liberated Marketplace, 75 Calif. L. Rev. 1005, 1006 (1987) (describing economic benefits and efficiencies of competition without centralized regulation).

35. In an analogous situation, the FCC does not require telephone companies to bill long distance charges in particular time increments. For competitive reasons, carriers offer a multitude of pricing plans whereby service usage is billed in increments of one minute, 30 seconds, six seconds and one second. See, e.g., McLeod Telemanagement, Inc. FCC Tariff No. 1 at 4th Revised Page 63 and 5th Revised Page 65. For example, LCI International touts the fact that it bills its long distance service in six second increments rather than on a per minute basis like its competitors. See Exhibit G.

36. [Emphasis added.] Letter from Eileen Harrington, Associate Director, Federal Trade Commission, Division of Marketing Practices, to Barry Cutler, Esq., dated December 18, 1996, at 1, attached as Exhibit H.

37. The additional signal or tone at the end of the free time period also may be distracting and confusing to callers.

38. Exhibit I contains a copy of a free promotional offer currently being made by a long distance carrier.

39. Under the 900-Number Rule, the preamble message must inform "the caller that charges begin, and that to avoid charges the call must be terminated, three seconds after a clearly discernable signal or tone indicating the end of the preamble." 16 C.F.R. § 308.5(a)(3). The staff found that if the charge for each of the first two minutes was one cent (rather than free), then a second tone would not be required. See Exhibit H at 2.

40. FTC Informal Staff Advisory Opinion Number 94-1 (May 17, 1994) attached as Exhibit J.

41. This proposed language is consistent with the requirement governing disclosure of the parental consent disclaimer in advertisements. See 16 C.F.R. § 308.3(f)(1) (1996) (pay-per-call advertisements directed primarily to individuals under 18 must contain a parental consent disclaimer).

42. 16 C.F.R. § 308.5(c) (1996).

43. See 47 C.F.R. § 64.711(a) (1992).

44. S. Rep. No. 1579, at 13 (1991). See also id. at 18 ("The [Senate Committee on Commerce, Science, and Transportation] considers calls that cost less than $1.00 per minute or $2 to $3 total per call as a reasonable threshold to distinguish nominal and non-nominal charges.").

45. 15 U.S.C.S. § 5711(a)(5)(B) (1996).

46. At the time, the Commission noted that there was no evidence that IPs could not make a profit (while still delivering the preamble) on calls that cost more than $2.00. FTC Report at 113.

47. Consumer Price Index for All Urban Consumers (Department of Labor 1997).

48. See Declaration of Warren Miller, Chairman of the ISA Interactive Telephone Council and President of Telecompute Corporation, attached as Exhibit K. See also Declaration of Carol Ginsburg, Editor and Publisher of Audiotex News, attached as Exhibit L.

49. Questions 1-12 of Section G.

50. Unlike a 900 number call, it is impossible to identify the per minute charge a person will incur since international calling rates vary based on the origination point of the call and the carrier transporting the call.

51. A caller can dial "00" to access the presubscribed long distance operator who, in turn, can provide the caller with the tariffed, per minute charge of an international call originating from the caller's telephone.

52. Attached as Exhibit M is a copy of the ISA's comments to the FCC.

53. Questions 13 and 16, and Question 8 of Section G.

54. Kevin Werbach, Digital Tornado: the Internet and Telecommunications Policy, FCC OPP Working Paper Series 29, at 1 (March 1997). An electronic copy of this document is available at the FCC's World Wide Web Site at http://www.fcc.gov.

55. The 900-Number Rule requires that certain information, including the cost of a pay-per-call service, be disclosed "clearly and conspicuously" in all advertisements. See, e.g., 16 C.F.R. § 308.3(b)(1) (1996). To clarify when a disclosure is made "clearly and conspicuously" in various media, the 900-Number Rule enumerates specific size and format requirements for television, videotape, print and radio advertisements. 16 C.F.R. § 308.3(b)(2) (1996).

56. Question 13.

57. Question 16(c).

58. An "international modem" service is a service in which a consumer's modem dials an international number so as to allow payment for service offered on the Internet.

59. Attached as Exhibit N is the existing ISA Code.

60. Question 12(d).

61. See 58 Fed. Reg. at 42367 (1993).

62.

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