Pay-Per-Call Rule Review: Reponse to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016 #8

Submission Number:
8
Commenter:
Steven P. Goldman
Organization:
Teltrust, Inc.
State:
UT
Initiative Name:
Pay-Per-Call Rule Review: Reponse to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016
Matter Number:

R611016

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

In the Matter of

Pay-Per-Call Rule Review

FTC File No. R611016

COMMENTS OF TELTRUST, INC.

I. Introduction

Teltrust, Inc. ("Teltrust"), by its attorneys, hereby submits its comments in the captioned proceeding. Teltrust has been providing support services to the telecommunications and utilities industries since 1986. One of its business units, Teltrust Teleservices, provides inbound and outbound call center support services, including independent third party verification ("TPV"), to telecommunications carriers and other commercial entities. Teltrust is one of the largest independent third party verification companies in the United States.

Teltrust supports the Federal Trade Commission's ("FTC's" or "Commission's") efforts to revise its rules to control the inclusion of unauthorized charges on a customer's telephone bill, an abusive marketing practice known as "cramming."(1) As discussed below, TPV has been effective in controlling and curtailing the unauthorized switching of customers' long distance telephone carriers, and it can be equally effective in preventing cramming.

II. Third Party Verification Has Proven To Be Effective in Confirming a Customer's Choice of Telecommunications Providers

Third party verification currently is used in the context of confirming a customer's choice of carriers from among competing long distance telephone carriers. Teltrust's TPV process works as follows: after a carrier's telemarketing sales representative has made a sale of services to a prospective customer, the sales representative connects the customer with a live Teltrust TPV agent, who asks the customer a series of questions to confirm that the customer intends to switch service providers or to purchase new services from the current service provider. Depending on how the TPV arrangement is structured, the TPV agent also confirms the rates and products for which the consumer has subscribed. The connection between the customer and the Teltrust agent can be made via conference calling or via an arranged network connection.

Since 1992, the Federal Communications Commission ("FCC") has required long distance telephone carriers to use one of several verification methods, including TPV, to confirm a customer's request to switch from one telephone carrier to another.(2) Carriers that are subject to the rules are required to confirm the customer's change of carriers using one of several verification methods: (1) verify the change using an independent third party; (2) obtain a signed letter of agency ("LOA") from the subscriber; or (3) receive electronic confirmation of the change by having the subscriber call a toll-free telephone number to confirm the change.(3)

Recognizing the benefits derived from verification of carrier changes, the U.S. Congress in 1996 added statutory language to strengthen the FCC's authority to impose verification requirements.(4) The FCC, in turn, has modified its verification rules, extending the verification requirements beyond interexchange toll carriers (who have been subject to the requirements since 1992) to carriers of local and intrastate toll calls.(5)

Thus, the three remaining options -- third party verification, the LOA and electronic authorization -- now apply to all local and long distance carrier changes.(6)

The FCC's modified rules also require carriers to use verification with consumer-initiated carrier changes (known as inbound telemarketing).(7) For example, when a consumer calls the carrier to request information about the carrier's services and the consumer decides to select that carrier as his or her service provider, the carrier must confirm that change of carriers using one of the FCC-approved verification methods. The FCC's verification requirements now apply with equal force to both outbound and inbound telemarketing sales. In addition, the FCC has broadened the scope of its verification rules to cover consumers' requests to freeze their local or long distance carrier selections. Carriers must use verification before installing a freeze on the customer's selection of carriers.(8)

Because slamming occurs only when there is competition among carriers, states increasingly are finding it necessary to protect against this abusive practice in the intrastate telecommunications markets. For example, the California legislature and the California Public Utilities Commission mandate the use of TPV to confirm all changes of telephone service providers made by residential consumers.(9) The California statute provides that no telephone corporation may make any change in the provider of any telephone service until the company's representative has described the services being offered and the representative has "specifically establish[ed] whether the subscriber intends to make any change in his or her telephone service provider."(10) For changes of residential telephone services, the company must confirm the change using an independent third party verification company. California's requirements regarding TPV include the following: (1) the telephone company must connect the subscriber by telephone to the TPV company or arrange for the TPV company to call the subscriber to confirm the change;(11) (2) the TPV company must obtain the subscriber's oral confirmation regarding the change and must record the confirmation by obtaining "appropriate verification data;" and (3) the record of the TPV transaction must be available to the subscriber upon request.(12) Significantly, the California commission staff have been so impressed with the effectiveness of TPV in confirming residential customer choice that they have recommended that the commission extend mandatory TPV to business customer requests to change their telephone service providers.(13)

Other states have either instituted verification requirements or are considering adoption of verification requirements to curb slamming and to ensure that carriers respect customers' choices of local or intraLATA toll carriers.(14) Among these, Montana established verification (including third party verification) as a requirement in 1997 and recently adopted additional verification rules to operate until the FCC's new rules take effect in April 1999.(15) The Massachusetts legislature instituted verification requirements in December 1998 and the Massachusetts Department of Telecommunications and Energy is in the process of considering regulations. The Massachusetts law requires either recorded third party verification or a signed LOA.(16) The Florida Public Service Commission adopted rules in December 1998 which require either third party verification or a signed LOA.(17) The New York Public Service Commission has a pending proceeding in which it is considering various verification issues. In short, federal and state legislators and federal and state regulators are concluding that verification is an effective remedy to the problem of slamming.

III. Third Party Verification Can Effectively Confirm the Customer's Telephone-Billed Purchases and Presubscription Purchases

Teltrust believes that TPV is a fair, pro-consumer way to address the serious concerns that have been raised with respect to the insertion of unauthorized charges on consumers' telephone bills. TPV verifies not only the choice of service provider but also the services and prices the subscriber has obtained. Indeed, a significant percent of the verifications conducted by Teltrust each year include verification of the products and prices. Thus, TPV could easily be employed to prevent cramming. The Commission needs only to add verification of customer purchases of goods or services made via the telephone to its rules. Teltrust has attached to these comments proposed language for the FTC's rules.

Third party verification can be used effectively to confirm both telephone-billed purchases and purchases made by telephone under presubscription agreements. Confirmation of such purchases using TPV is consistent with the purpose of the Commission's revised rules. The FTC has expressed its intention to create, through the revised rules, "strong incentives" for vendors, service bureaus and billing entities who offer telephone-billed transactions that cannot be blocked by the consumer to ensure that these transactions are authorized by the party who will be billed for them.(18) The Commission also has stated that a merchant is not entitled to presume that a customer has agreed to pay for a good or service under presubscription "merely because that subscriber's telephone was used to order a product or service."(19) In other words, some measure of affirmative assent must be used. Requiring third party verification of presubscription agreements marketed by telephone would confirm the consumer's intention and also would preserve the instantaneous nature of purchases made by telephone, an advantage for consumers and vendors of legitimate services.

Third party verification provides assurance of the consumer's express authorization. Proposed FTC Rule 308.17 requires the "express authorization of the person to be billed" before a vendor, service bureau or billing entity can place on the consumer's telephone bill a charge for a purchase made by telephone via a number other than a 900 number (the use of which the consumer is able to block). Third party verification can be the vehicle to ensure that purchases of goods and services made by telephone are indeed authorized. Teltrust believes that the Commission's rules would be greatly strengthened by adding third party verification as a requirement before an entity may insert on a customer's telephone bill a charge for goods or services purchased by telephone.

With respect to presubscription agreements, the FTC has stated that a tape recording of the person to be billed for the service being informed of the material terms of the agreement and agreeing to make the purchase on those terms and pay the charge, "would constitute evidence of express authorization."(20) Teltrust's TPV confirmation process provides digital voice recordation of the TPV transaction and, therefore, would satisfy the requirement to obtain express authorization. TPV would have the added benefit of inserting a neutral third party to confirm that the consumer understands the terms of the presubscription agreement. In addition to protecting consumers, TPV would offer vendors, service bureaus and billing entities a measure of protection against the billing of unauthorized purchases.(21)

Specifically, Teltrust supports the use of live-agent, independent TPV to confirm purchases of goods or services made by consumers over the telephone that will be billed on the customer's telephone bill. Live-agent, independent TPV can be effective in preventing cramming before it happens by ensuring that the consumer has given his or her authorization for the purchase. With live-agent TPV, the consumer is on the line during the entire verification process with a real independent TPV agent who makes sure that the consumer understands and assents to the transaction that has been completed. A live agent can more easily confirm the specific details of the purchase than can an automated, scripted TPV system. In addition, a live operator can detect "red flags" that may indicate a fraudulent transaction is being attempted. In the event a Teltrust TPV agent detects suspicious or fraudulent circumstances, the purchase order would be rejected. Teltrust's live-agent TPV process protects both consumers and carriers against cramming. Thus, in the same way that TPV confirms a consumer's choice of telecommunications providers, it can be an effective tool to confirm the consumer's intention to purchase goods or services and to have them billed on the telephone bill.

IV. The Commission Should Require Recordation of Third Party Verification Transactions

Teltrust recommends that the Commission require third party verification entities to record all TPV transactions. Requiring recordation of the TPV transaction would provide a digital voice record of the purchase and authorization that would assist the consumer and the vendor if a question arises later about the purchase. Recordation of the customer's voice during the transaction will allow for the strongest and most convenient confirmation that the consumer actually requested the purchased goods or services. Voice recordation also will assist the Commission staff to resolve disputes about unauthorized charges on the consumer's telephone bill. Teltrust records TPV transactions using a digital voice recording device and Teltrust believes that this method is the most efficacious means of voice recordation.

Teltrust suggests that the Commission also require TPV entities to make their records of the TPV transaction available to the subscriber or the Commission upon request. A similar requirement is contained in the California statute.(22) The records created during Teltrust's TPV transaction can be obtained, upon request, by the consumer, the vendor or an agency that is attempting to mediate a billing dispute. In addition, the Commission would be well-served by requiring TPV entities to retain records of the TPV transaction for a period of time to facilitate dispute resolution. The California statute requires telephone companies to retain records of verification of a sale for one year(23) and the Florida public utility regulations require telecommunications providers to retain verification records for one year.(24)

V. The Commission Should Ensure that Third Party Verification Entities are Independent of Vendors, Service Bureaus and Billing Entities.

To provide optimal consumer protection, third party verification entities should be independent of vendors, service bureaus and billing entities. Teltrust urges the Commission to address neutrality in the rules by requiring TPV entities to meet certain independence criteria, such as the following:

(1) the TPV entity cannot be operated by, controlled by, or owned at a level of five percent or greater by the vendor, service bureau or billing entity that is attempting to bill or collect for the consumer's telephone-billed purchase;

(2) the TPV entity must operate in a location geographically separate from the vendor, service bureau or billing entity; and
 
(3) the TPV entity must not have an incentive to confirm the transaction due to commission or other payment structures based on positive verifications.

The California statute includes independence criteria similar to those outlined above.(25) Similarly, the Montana public service regulations now include independence criteria that prohibit the TPV entity to be owned, managed, controlled or directed by the carrier or the carrier's marketing agent and prohibit financial incentives to confirm the carrier change order.(26) Moreover, the modifications the FCC is proposing in its anti-slamming rules would include similar factors to demonstrate independence of the TPV entity from telecommunications providers.(27) Teltrust believes that these additional protective measures will deter abuse and strengthen the Commission's rules.(28)

VI. Conclusion

For the foregoing reasons, the Commission should add to its rules a requirement that vendors and billing entities use third party verification before they may insert on a customer's telephone bill a charge for goods or services purchased by telephone. Such a requirement would benefit consumers, carriers and the commission by affirmatively preventing cramming and other billing disputes before they occur. Just as TPV confirms a consumer's choice of telecommunications providers, it can be effective in confirming the consumer's intention to purchase goods or services and to have them billed on the telephone bill. Teltrust advocates the use of live-agent, independent TPV to ensure that the consumer has authorized those purchases. Teltrust further recommends that the FTC require TPV entities to record the TPV transaction and that the FTC incorporate rules to ensure the neutrality of TPV entities. Therefore, Teltrust urges the Commission to adopt modifications to its proposed rules in accordance with the proposed modifications attached hereto.

Respectfully submitted,

TELTRUST, INC.

_________________________________
Steven P. Goldman
Vice President and General Counsel
6322 South 3000 East
Salt Lake City, Utah 84121

Of Counsel:

Leonard J. Kennedy
Loretta J. Garcia
Dow, Lohnes & Albertson, PLLC
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
(202) 776-2000

March 5, 1999

ATTACHMENT

RULE MODIFICATIONS
PROPOSED BY TELTRUST, INC.

[Note: Teltrust's proposed rule modifications are indicated in bold-faced capital letters.]

PART 308

SUBPART A -- SCOPE AND DEFINITIONS

Proposed Rule 308.2. Definitions.

(b) Billing error means any of the following:

. . .


(10) A reflection on a customer's billing statement of a telephone-billed purchase not blockable pursuant to 47 U.S.C. 228(c) that was not expressly authorized by that customer AS REQUIRED UNDER RULE 308.17.

. . .

(j) (1) Presubscription agreement means a contractual agreement to purchase goods or services, including audio information or audio entertainment services, in which:

. . .

AND

(v) THE SERVICE PROVIDER USES THIRD PARTY VERIFICATION ("TPV") AS AN INTERIM ACCEPTANCE METHOD TO ALLOW THE CONSUMER TO MAKE PURCHASES DURING THE PERIOD BETWEEN THE TELEPHONE PURCHASE AND THE RECEIPT OF WRITTEN MATERIALS; OR THE SERVICE PROVIDER USES TPV TO CONFIRM THAT THE CONSUMER HAS RECEIVED THE MATERIALS AND HAS ACCEPTED THE TERMS OF THE AGREEMENT.

SUBPART C - PAY-PER-CALL SERVICES AND OTHER TELEPHONE-BILLED PURCHASES

Proposed Rule 308.17 Express Authorization Required

(a) Any telephone-billed purchase, other than a pay-per-call purchase that is blockable pursuant to 47 U.S.C. 228(c), requires the express authorization of the person to be billed for the purchase AND SHALL BE CONFIRMED BY AN INDEPENDENT THIRD PARTY VERIFICATION ENTITY.

(b) THE THIRD PARTY VERIFICATION ENTITY MUST:

(1) NOT BE OPERATED BY, CONTROLLED BY, OR OWNED AT A LEVEL OF FIVE PERCENT OR GREATER BY THE VENDOR, SERVICE BUREAU OR BILLING ENTITY THAT IS ATTEMPTING TO BILL OR COLLECT FOR THE CONSUMER'S TELEPHONE-BILLED PURCHASE;

(2) OPERATE IN A LOCATION GEOGRAPHICALLY SEPARATE FROM THE VENDOR, SERVICE BUREAU OR BILLING ENTITY; AND

(3) NOT HAVE AN INCENTIVE TO AFFIRM THE TRANSACTION BECAUSE OF A COMMISSION OR OTHER PAYMENT STRUCTURE BASED ON POSITIVE VERIFICATIONS.

(c) It is a deceptive act or practice and a violation of this Rule for any vendor, service bureau, or billing entity to collect or attempt to collect, directly or indirectly, payment for such a telephone-billed purchase where the vendor, service bureau, or billing entity knew or should have known that the charge was not expressly authorized by the person from whom payment is being sought AND WAS NOT CONFIRMED BY AN INDEPENDENT THIRD PARTY VERIFICATION ENTITY.

Rule 308.19 Access To Information.

(a) Any common carrier that provides telecommunication services to any vendor or service bureau shall make available to the Commission, upon written 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 vendor or service bureau.

(b) (1) ANY THIRD PARTY ENTITY THAT CONFIRMS A TELEPHONE-BILLED PURCHASE PURSUANT TO THIS RULE, OR A PURCHASE UNDER A PRESUBSCRIPTION AGREEMENT PURSUANT TO RULE 308.2, SHALL MAKE AVAILABLE TO THIS COMMISSION, UPON REQUEST, ANY RECORDS MAINTAINED BY SUCH THIRD PARTY VERIFICATION ENTITY RELATING TO THE THIRD PARTY VERIFICATION OF A DISPUTED CHARGE OR BILLING ERROR.

(2) ANY THIRD PARTY ENTITY SHALL RETAIN RECORDS OF TELEPHONE BILLED PURCHASES AND PURCHASES MADE UNDER A PRESUBSCRIPTION AGREEMENT FOR ONE YEAR FROM THE DATE OF THE TRANSACTION.

1. Notice of Proposed Rulemaking, 63 Fed. Reg. 58524, Oct. 30, 1998.

2. Policies and Rules Concerning Changing Long Distance Carriers, Report and Order, 7 FCC Rcd 1038 (1992); recon. denied 8 FCC Rcd 3215 (1993). See 47 C.F.R. § 64.1100-64.1150.

3. A recent FCC order eliminated the fourth verification option, which was to include in a "welcome package" sent to the subscriber a postcard which the subscriber signed and returned to confirm the carrier change. Implementation of the Subscriber Carrier Selection Changes Provisions of the Telecommunications Act of 1996, Second Report and Order and Further Notice of Proposed Rulemaking, FCC 98-334, CC Docket No. 94-129 (released Dec. 23, 1998); published in summary form at 64 Fed. Reg. 7746, Feb. 16, 1999, as modified by 64 Fed. Reg. 9219, Feb. 24, 1999 ("FCC Anti-Slamming Order" or "FCC Anti-Slamming Further Notice"). The rules will take effect on April 27, barring a stay by the FCC or a court.

4. 47 U.S.C. § 258.

5. Commercial mobile radio service ("CMRS") providers are exempt from the verification requirements at present. FCC Anti-Slamming Order at ¶¶ 84-86.

6. FCC Anti-Slamming Order at ¶¶ 81-82.

7. Id. at ¶¶ 62-68. Previously, verification was required only when the carrier's sales representative called the customer (outbound telemarketing).

8. Id. at ¶¶ 112-129. A preferred carrier "freeze" allows the customer to prevent any change in his or her choice of local or long distance carriers until the freeze is removed.

9. Cal. Pub. Util. Code §2889.5(a) (West 1999).

10. Id. at §2889.5(a)(1).

11. Id. at §2889.5(a)(3)(B).

12. Id. at §2889.5(a)(3)(C).

13. Telecommunications Division, Calif. Pub. Util. Comm'n, Workshop and Third Party Compliance Survey Report and Staff Recommendations to the Assigned Commissioner on Unauthorized Transfer of Service and Billing, R.97-08-001, I.97-08-002, pp. 43-44, dated June 30, 1998.

14. A local access and transport area is a geographical area, similar to a metropolitan statistical area, which defines the areas in which a Bell operating company may transport telecommunications traffic. See 47 U.S.C. § 153(25).

15. Mont. Admin. R. § 38.5.3801.

16. Mass. Gen. Laws Ch. 93, §§ 108-113.

17. Fla. Admin. Code. Ann. § 25-4.118.

18. 63 Fed. Reg. at 58528.

19. Id. at 58549.

20. Id. at 58549.

21. The proposed rules prohibit the collection of a charge on the customer's telephone bill when the vendor, service bureau or billing entity "knew or should have known" of the lack of authorization. Id. at 58549.

22. Cal. Pub. Util. Code §2889.5(a)(3)(C).

23. Id. at §2889.5(a)(7).

24. Fla. Admin. Code Ann. § 25-4. 118(6).

25. Specifically, the California statute provides that: (1) the TPV company must be independent from the telephone corporation that seeks to provide the subscriber's new service; (2) the TPV company must not be directly or indirectly managed, controlled or directed, or owned wholly or in part, by the telephone corporation that seeks to provide the new service or by any corporation, firm, or person who directly or indirectly manages, controls, or directs, or owns more than five percent of the telephone corporation; (3) the TPV company must operate from facilities physically separate from those of the telephone corporation that seeks to provide the subscriber's new service; and (4) the TPV company may not derive commissions or compensation based upon the number of sales confirmed. Cal. Pub. Util. Code §2889.5(a)(3)(A).

26. Mont. Admin. R. § 38.5.3801.

27. FCC Anti-Slamming Further Notice at ¶¶ 165-168.

28. Although Teltrust's TPV client base includes major carriers and public utilities, Teltrust's TPV operations are truly independent of its clients. It is not owned or controlled by any of its clients. Teltrust is not compensated on an incentive basis; it charges for services based on the number of completed calls, not on the number of approvals.