Pay-Per-Call Rule Review: 900 Number #29

Submission Number:
29
Organization:
HFT and Lo-Ad Communications Corporation
Initiative Name:
Pay-Per-Call Rule Review: 900 Number
Matter Number:

R611016

Before the Federal Trade Commission
Washington, D.C. 20580

In the Matter of

Rule Review Pursuant to the 900-Number Rule and
Request for Comment Regarding Possible Modification of
Definition of "Pay-Per-Call Services" Pursuant to the
Telecommunications Act of 1996

COMMENTS OF HFT AND LO-AD COMMUNICATIONS CORP.

FTC FILE No. R611016

COMMENTS

I.

These comments address the FTC's proposed rulemaking action on the issue of whether to extend the definition of "pay-per-call services" to cover other services not currently governed by the 900-Number Rule, specifically non-900 domestic calls and international calls where audio services, entertainment, or information are provided.

The proposed rule change is seriously flawed in that it:

1. Unfairly penalizes companies that provide telephone information and entertainment to consumers at reasonable and customary long-distance rates;

2. Unfairly penalizes consumers who desire to purchase information and entertainment at reasonable and customary long-distance rates;

3. Presents insurmountable technological problems;

4. Places an unfair stigma on information providers and consumers using the services;

5. Stifles competition and economic growth;

6. Involves over broad and unduly restrictive constraints; and

7. Violates the First Amendment to the U.S. Constitution insofar as the proposed changes represent an unreasonable and arbitrary restriction on content.

II. BACKGROUND STATEMENT

HFT and LO-AD Communications Corp.(hereinafter "Commentors") are companies which provide domestic and international information services, including such services as anti-discrimination hotlines, aids information lines and teleconferencing. All such services are provided at reasonable and customary long distance rates. Each company fears that it and the services it provides at reasonable and customary long distance charges will be prevented from reaching the broadest possible markets resulting in: 1) increased dominance by the major common carriers; 2) an inhibition in the growth of diverse services offered to the general public; 3) a dramatic increase in prices to consumers for identical services; and 4) an unprecedented chilling effect on the First Amendment right of free speech and association. For these reasons, each believes that the FTC should abandon its proposed rule change.

III. NON-900 CALLS BILLED AT CUSTOMARY AND
REASONABLE LONG DISTANCE RATES ARE NOT "SUSCEPTIBLE TO UNFAIR AND DECEPTIVE TRADE PRACTICES"

These Commentors provide information and entertainment services ranging from discrimination hotlines and AIDS information lines to adult chat lines. Apart from providing information and entertainment to consumers who desire such services, the key appeal of these Commentors' services is that they are billed at reasonable and customary long-distance rates - the very same rates that the consumer pays when calling a child at a faraway college, a computer company for technical support, a product manufacturer in another state, or a loved one overseas.

For domestic calls, the mechanism which enables such an arrangement is as follows: these Commentors contract with (mostly) rural telephone companies that are paid a per-minute terminating fee by the large carriers such as AT&T and MCI. A higher volume of calls terminated generates higher fees. Accordingly, in exchange for the higher call volume that these Commentors generate for the rural carrier, the carrier pays a commission to these Commentors - a portion of the terminating fee paid by the large carrier. From the consumer's perspective, this arrangement is identical to the volume commission arrangements enjoyed by large institutions such as universities, computer technical support lines, and banks: the consumer dials a long-distance number and pays only the ordinary long-distance rates.

In terms of consumer expectations and costs, these Commentors' services are functionally identical to other long-distance calls: a willing consumer knowingly dials a distant area code for an amount of time wholly controlled by the consumer, who is then billed the reasonable and customary charges for the call. As with all long-distance calling, the consumer can keep his or her bills down by (1) not placing the call; or (2) shortening the amount of time on the phone. Moreover, the caller need only contact his or her long-distance carrier to obtain the per minute rate.

For these reasons, such calls cannot be susceptible to unfair and deceptive trade practices because they are simply long distance calls indistinguishable from other long distance calls. To the extent that such calls are terminated in foreign countries, the FTC can control those unscrupulous providers by regulating advertising and requiring preambles. (See Section X below, regarding international calls.)

These Commentors' position is firmly supported by empirical data: complaints about domestic long-distance audiotext calls are virtually nonexistent. At the FTC workshop when the representative of the Association of Attorneys General was asked if such calls were a problem, she responded that she was not familiar with any consumer complaints regarding them. Nowhere do the comments of the National Association of Attorneys General mention that 1+ calls (i.e., calls to other area codes) are a problem for consumers. Similarly supporting these Commentors' position, the comments of U.S. West cite no complaints regarding 1+ dialing.

In the international forum, there are approximately 5 million direct-dial international calls per month originating in the United States. Given this volume, the small number of complaints received is negligible, especially compared to the 800 number abuses cited in comments and at the FTC's workshop.

IV. THE FTC SHOULD FOCUS ON AREAS TRULY SUSCEPTIBLE
TO UNFAIR AND DECEPTIVE TRADE PRACTICES: 800 NUMBER SCAMS

In reality, the 800 number abuses are far more problematic than the isolated problems with international calls, and the apparently non-existent problems with domestic long-distance audiotext calls. Abuses of 800 numbers are legion. Among them are "Instant" calling cards, with which someone can place a call from one phone (e.g. in a nursing home, or from a condominium phone closet), and obtain a calling card that bills subsequent calls to that phone. A simple solution to this problem is to require formal written presubscription agreements signed by the telephone subscriber.

Unbeknownst to unwitting consumers, some 800 number services redirect and miscode billing tapes for those calls which then appear on phone bills as international calls. Such a practice is blatant fraud upon consumers, and is not the subject of sufficiently energetic enforcement. Too often, the LECs turn a blind eye to such practices, because they profit from the international traffic. The FTC should require LECs to immediately cancel their service agreements with 800 number abusers. The penalties for 800 number abusers and any LEC that does not cut off service to them immediately should be made harsher. The same goes for such obviously fraudulent practices such as the "Moldova internet" scam. Existing laws are adequate to deal with the problem if enforcement efforts and penalties were "beefed-up".

These Commentors cannot stress enough the fact that audiotext services billed at reasonable and customary long-distance rates are not susceptible to these abuses.

Most importantly, the continued abuse of 800 numbers undermines consumer confidence in the 800 number pattern, a confidence that is vital for all legitimate companies. The 800 (and new 888) patterns should remain sacrosanct in the pantheon of consumer trust, both for consumers' sake and for the sake of the thousands of companies that rely on 800 numbers.

V. THE PROPOSED RULE PENALIZES CONSUMERS WHILE MAJOR CARRIERS REAP PROFITS

The organizations who support the FTC's proposed expanded redefinition of pay-per-call have much to gain by the new definition. These organizations look forward to selling (and reselling due to the lack of 900 portability) their 900 services and charging exorbitant prices for transmitting these services over their networks. The net result, should these organizations have their way, will be that the consumers looking to afford themselves the opportunity to utilize these services will suffer by having to pay a premium equal to two, three and sometimes four or more times the basic charge for carrying the call on a regular long distance or international phone line. Consumers are going to be left without a choice regarding how they access these services. Eliminating choices discourages competition and increases the incentive to engage in predatory pricing practices. The FTC should not be tempted by the opportunistic purveyors of 900 network services who, under the veil of "consumer protection" are really attempting to set up a protected niche market where those who wish to participate as consumers must pay non-competitive and outlandish rates.

VI. THE PROPOSED RULE CHANGE PRESENTS INSURMOUNTABLE TECHNOLOGICAL PROBLEMS

The salient aspects of the 900-Number Rule are: (1) rate disclosures in advertisements; (2) preambles regarding rates and age-appropriateness/parental consent; (3) blocking capacity; and (4) non-deniability. To a great extent, these controls would be impractical or impossible for non-900 numbers.

Accurate rate disclosures in advertisements are impossible, because telephone rates constantly vary depending on the time of day, the basic (or dial-around) long distance carrier, and the distance between the caller and the termination point. However, because the consumer only gets billed according to the rate charged by the long-distance carrier, the consumer has automatic price-gouging protection and easy, free access to rate information simply by calling his or her long-distance carrier.

While preambles theoretically feasible, because such calls are placed using standard area codes, the numbers are indistinguishable from other numbers: free preambles would be impossible. A preamble could not set forth the precise rate, but merely a range of rates. A preamble would be an ironic waste of the consumer's money, as the consumer would, having intentionally placed a long-distance call billed at customary rates, have to listen to a message informing him or her that a long-distance call costs money, while paying for the preamble time. At best, a preamble could only give the caller a range of possible rates, or a minimum or maximum. In any event, the consumer has direct, free access to the rate information from his or her long-distance carrier.

Blocking is impossible and unnecessary. Because volume commission based long-distance calls are simply long distance calls, a consumer would have to block all long-distance service, which is an unlikely choice. However, every consumer knows that a long distance call (i.e. dialing a distant or foreign area code) results in toll charges. These Commentors services involve toll charges that are customary and reasonable, and blocking is therefore no more necessary than blocking for other long-distance services.

Another technical impossibility is non-deniability. As noted above, there is no way to distinguish long-distance audiotext calls from other calls, so they could not be segregated on billing statements for non-deniability purposes. Moreover, non-deniability results in higher charge backs. The inefficiency created by higher charge backs is ultimately borne by consumers: charge back losses are directly linked to the extraordinarily high 900-number per minute rates.

VII. THE PROPOSED RULE CHANGE PLACES A STIGMA ON AUDIOTEXT PROVIDERS AND THEIR CUSTOMERS

There is an enormous negative stigma surrounding 900 numbers. From sex chat lines to psychic "friends", from scarcely probable "sweepstakes" to daytime T.V. polls ("call Ricki Lake and tell her what vou think!"), these numbers continue to be associated with sleaze, deceptive marketing, and plain ignorance. These Commentors acknowledge that although because of TDDRA's success, 900-numbers fulfill wider functions now, the public's perception has still not changed for the most part. Most sophisticated consumers would never dial a 900 number, and would be simply mortified to have one appear on their phone bill.

Yet under the proposed rule change, a vast number of useful information services would be lumped into the 900-number realm. Consumers wary of the obvious stigma, and suspicious of ANY number starting with 900 would shy away from using services ranging from Universities' information lines, computer technical support, and weather forecast numbers, all of which make a profit based simply on a volume commission.

VIII. THE PROPOSED RULE CHANGE IS ANTI-COMPETITIVE AND PROMONOPOLISTIC

The clear intent of the proposed rule change is to relegate all interstate "Information" telephone transmissions to 900 service. It is undisputed that 900 services are already seriously dominated by AT&T. By forcing all information based transmissions to the 900 service arena, AT&T's dominance is magnified and promoted. This is precisely the ill that deregulation sought to cure.

Moreover, 900 service lacks portability, a characteristic which is essential to insure access to all regional markets and thus promote, rather than inhibit, competition. It is well known that providers of information services rely heavily on customer loyalty to particular phone numbers through advertising. Without portability, movement throughout the regional markets is eliminated and competition suffers. Ultimately, the consumer suffers as a result of the lack of options for the services they seek.

It would truly by a shame to solidify AT&T's effective monopoly in the 900 service arena by forbidding competitors to have access to the same markets where these competitors can offer their services at the reasonable and customary long distance rates charged by the likes of AT&T.

If all audiotext services were relegated to 900 numbers or presubscription requirements, the result would be to effectively kill electronic commerce. A concrete example comes from Pennsylvania, which recently required all audiotext services to be either 900 numbers, or have formal, written presubscription agreements. Ultimately, in the entire state only 700 people signed up for presubscriptions. Pennsylvania has over 12 million people. This remarkably small number of subscriptions (.0075% of the population) is dramatic testimony to the fact that if consumers are overburdened with unnecessary regulations, there is a chilling effect on electronic commerce. Plainly, with such a small clientele, no audiotext provider could afford to serve Pennsylvania consumers.

Additionally, the proposed rule stifles competition and legitimate economic enterprise. The overall economy benefits from efficiency. Volume commission arrangements allow audiotext providers to offer a service to consumers absent the exorbitant cost of 900-number services.

IX. THE PROPOSED RULE CHANGE IS OVER BROAD AND UNDULY RESTRICTIVE

As detailed above, long-distance non-900 number audiotext services are not susceptible to unfair and deceptive trade practices. Complaint statistics bear this out. The rare complaints that surface regarding long-distance audiotext calls invariably involve unauthorized use of a phone, e.g., where people break into phone rooms in apartment buildings or condominiums. In reality, all long distance calls, domestic and international, are subject to this kind of abuse. This sort of abuse is not a legitimate reason to relegate calls which are billed at customary and reasonable rates into the 900 number realm.

Modifying the definition of pay-per-call to include domestic and international audiotext long-distance calls billed at reasonable and customary rates is illogical when considering nondeniability factors. There is absolutely no basis on which to distinguish 1+ or International audiotext calls from other long distance calls. Taken to its logical extreme, in order to make those audiotext calls non-deniable, all long-distance calls would have to be made non-deniable if the real motivation is to protect the sanctity of universal access to local phone service.

Moreover, modifying the definition of pay-per-call to include telecommunications services provided at reasonable and customary long-distance rates without charging the subscriber any premium whatsoever unreasonably restricts access to these services by the general public in a number of ways.

It is universally accepted that 900 access is more expensive to the subscriber because of the tremendous bad debt (charge backs) created by the non-deniable nature of the charge. Because of the tremendous bad debt write offs, the providers must charge more for their services, resulting in an otherwise unnecessary additional expense to the consumer. As an example, under the current rules and regulations, a given provider can transmit its service to a subscriber through MCI in the evening at ten cents per minute. MCI, by agreeing to share twenty percent of its reasonable and customary charge for transmitting the call with the provider affords the provider the opportunity to service the subscriber at the customary long distance rate while at the same time realizing a profit. The deniability of the charge encourages financial responsibility on the part of the subscriber and results in far less bad debt. In the 900-number arena, common carriers charge a premium for transporting 900 calls of approximately thirty-three cents per minute plus an additional ten percent for collection.(1) Assuming a bad debt write off of fifty percent, which is not unusual in the industry, in order to offset the cost of providing the service, the provider of the service would have to charge the subscriber approximately eighty-six cents per minute, almost nine times the normal long distance rate.

Additional market restrictions include the inability of the general public to access 900 service from pay phones. As a consequence, those who cannot afford or who do not wish to have their own phones are denied access to the services altogether. The inability to access these services from a pay phone also eliminates caller anonymity as caller identity is revealed as a matter of course in a 900 call. Service through 900 is also unavailable at most hotels, businesses and car phones, further restricting market access. Moreover, 900 numbers are inaccessible to callers from out of the country. This not only deprives foreign consumers access to the services, it prevents domestic providers from capitalizing on the international market. This prohibits smaller U.S. carriers from capitalizing on niche markets in overseas territories that are still monopolistic or otherwise lagging far behind the U.S. telecommunications markets in deregulation. Further, it restricts domestic providers from creating additional demand for U.S. goods and services in these international markets, especially as it relates to the promotion of tourism, software products and telecommunications equipment.

The overbreadth of the proposed rule change is further demonstrated by the way in which the proposed change would inhibit innovative methods to generate traffic and fully utilize the communications network. Under the proposed scheme, many of the current mechanisms for providing information based services at reasonable and customary long distance rates would be prohibited. For instance, AT&T provides a service entitled Terminating Switch Access Arrangements (TSAA) whereby AT&T makes payments to entities that receive large volumes of calls over AT&T's network if the entity connects to AT&T through its dedicated access. Under the scheme, AT&T compensates the entity by paying it a percentage of the transmission charge for terminating the call. As AT&T is able to avoid the much higher terminating charge often imposed by the local exchange carrier, the subscriber entity enjoys a net reduction in its monthly phone charges, and the consumer benefits from the savings. These TSAA's are widely utilized by hospitals, educational institutions, airlines, financial institutions and other large organizations which routinely provide recorded and live information services over the phone. Although everybody benefits from this and similar types of arrangements, they would be illegal under the proposed scheme.

Perhaps the most serious overbreadth concern is the equating of "information services" with "pay-per-call services". Clearly, the two are not the same. Section 228(I) makes it clear that it is not the providing information service itself that Congress opposed. Instead, it was the unexpected charges imposed for those services as a consequence of the deceptive practices by unscrupulous providers that Congress sought to prevent. Clearly, the purpose of section 228(I) is to put the kibosh on the unscrupulous billing practices and not to prohibit the dissemination of information services. The FTC would be hard pressed to identify anywhere in the Act where Congress seeks to equate information services with pay-per-call. The proposed rule would, for instance, outlaw a bank's "mortgage information hotline" if the bank were receiving any volume discounts or payments under a TSAA or similar agreement as described in section IV above.

Last, the distinction is arbitrary: if one computer company has a volume commission agreement with a carrier and the other does not, the first is penalized for its arrangement (which keeps the cost of its service down), while the second is not.

X. THE PROPOSED RULE CHANGE IS AN UNCONSTITUTIONAL CONTENT BASED RESTRICTION

The redefinition of pay-per-call is, in addition, an impermissible violation of First Amendment Rights insofar as it is, in actuality, an attempt to improperly regulate content. Since all long distance calls are subject to disconnect for failure to pay, relegating "information service" calls which are billed at the same reasonable customary long distance rates as non-information service calls to 900 service is a transparent attempt to regulate the content of the calls being made.

Supporters of this proposed change want to discourage providers from transporting "objectionable" material with the threat of nondeniability and its concomitant exorbitant rates. The limited ability to collect payment for the service provided is an effective way to regulate and in fact eliminate the transporting of content the FTC or others deem undesirable. As the FTC well knows, the First Amendment ". . . does not countenance governmental control over the content of messages expressed by private individuals." (Turner Broadcasting Svstems v. FCC, 114 Supreme Ct. 2445 (1994).)

The FTC knows that information providers cannot offer their services at the reasonable and customary long distance rates without accepting some form of remuneration from the carrier. Thus, although the consumer is paying no more for the service, it is branded with the pay-per-call label and penalized with the nondeniability hurdle to collection. Unable to have equal access to the much cheaper transmission service, the content is in effect being regulated out of the more competitive markets domestically, and completely out of the international markets.

XI. THE PROPOSED RULE CHANGE IS A DE FACTO RESTRAINT ON FREE SPEECH AND FREEDOM OF ASSOCIATION

If all audiotext calls were relegated to 900 numbers, certain free-speech activities would be effectively chilled out of existence. Currently, LECs refuse to contract with audiotext providers to bill for 900 number party-line traffic, also known as "chat" calls, because the LECs have received too many complaints about them, and (presumably) the 900 deniability rules makes collection inefficient. LECs however, will contract to bill for 1+ party-line traffic, which is a popular service. If party-line traffic is relegated to 900 number status, no such chat calls could exist, unless the comparatively (to LEC'S) minuscule audiotext providers set up their own billing services, a prohibitive expense. The effect will be that chat lines would simply be regulated out of existence. Consumers' First Amendment rights of free speech and freedom of association, i.e., talking to whom they please when they please, will be trampled. If the recent Supreme Court pronouncement is any guide, in the new era of expanding media and mushrooming internet use, freedom of electronic association will no doubt emerge as a viable right. See, Reno, Attorney General of the United States, et al. v. American Civil Liberties Union, et al., U.S. (1997) (Case No. 96-511, decided June 26, 1997).

XII. INTERNATIONAL AUDIOTEXT CALLS

As mentioned above, international audiotext calls present unique challenges, because regulation of foreign entities is more difficult. However, consumer protection is possible, and wholeheartedly endorsed by these Commentors. International calls are subject to the same impracticabilities as domestic calls with respect to disclosure of rates, free preambles, blocking, and nondeniability. However, and because the international arena has been a hotbed of abuse, advertising restrictions can be used effectively. HFT endorses proposals that advertising for international audiotext services must disclose (1) the maximum possible rates; (2) that a consumer can determine the rate to be charged by calling his or her long-distance carrier; and (3) that reasonable and customary rates and not more apply; and (4) that a preamble repeat this information, if deemed necessary.

XIII. THE ALTERNATIVE

The redefinition of pay-per-call as suggested by the FTC becomes even more suspect when considering the more rational alternative to accomplishing the goal of eliminating the "unexpected charges" as a consequence of "unscrupulous billing practices". The FTC should adopt guidelines requiring disclosures in all advertising for the services being offered notifying the proposed user that he or she would be charged normal and/or customary long distance rates for the call, and no more. The consumer's "expectation" would be identical to the reality. This, coupled with a rule requiring that the services may only be provided at reasonable and customary long distance rates prevailing in the market, will eliminate price gouging and would, in fact, encourage competition and increased network usage resulting, ultimately, in lower prices to the consumers.

HFT and LO-AD implore the FTC to resist the impulse to implement rules which inhibit growth and competition and instead focus on alternatives which both protect the consumer and encourage broad use and access to the national and international telecommunications markets.

DATED: July 18, 1997

DICKS & DUNNING LLP
JOSEPH G. DICKS, ESQ.
Attorneys for HFT, INC. and LO-AD COMMUNICATIONS, CORP.

Endnote:

1. MCT recently increased its collection charge from twelve cents per call to thirty-five cents per call!