Pay-Per-Call Rule Review: Reponse to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016 #12

Submission Number:
HFT Company
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:


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



FTC FILE No. R6111016



The Federal Trade Commission requested public comment concerning the Commission's Notice of Proposed Rulemaking to amend the Commission's Trade Regulation Rule pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992, commonly known as the 900-Number Rule. These comments are submitted on behalf of HFT, a company providing domestic and international information services.

The proposed changes include a provision in which the Commission seeks to redefine the Congressional definition of "pay-per-call" services in dragnet fashion to include simple domestic and international long distance services such as those provided by HFT at long distance charges set by the long distance carriers. This proposed redefinition derives from an unconstitutional delegation of legislative authority, in violation of the separation of powers, which severely restricts and handcuffs free speech and free association rights guaranteed by the First Amendment, resulting in an over broad statute that clearly exceeds the scope and intent of the Telecommunications Act of 1996. The net result assures not only an unconstitutional infringement on First Amendment Free Speech and Association rights, but in addition, an anti-competitive, pro-monopolistic marketplace, dominated by 900 carriers like of AT&T. This is a clear and undeniable step backwards.



A. Congress Defines "Pay Per Call"

When Congress enacted the Telephone Disclosure and Dispute Resolution Act ("TDDRA"), it correctly adopted the definition of pay-per-call services found in 47 U.S.C. § 228 (i), set forth as follows:

The term pay-per-call services means any service--

(A) In which any person provides or purports to provide--

(i) Audio information or audio entertainment produced or packaged by such person;
(ii) Access to simultaneous voice conversation services; or
(iii) Any service, including the provision of a product, the charges for which are assessed on the basis of the completion of the call;

(B) For which the caller pays a per-call or per-time-interval charge that it greater than, or in addition to, the charge for transmission of the call; and

(C) Which is accessed through the use of a 900 number or other prefix designated by the [Federal Communications] Commission in accordance with [47 U.S.C. § 228 (b)(5)]. (Emphasis added.)

B. Pay Per Call Abuses Identified.

In enacting TDDRA, Congress wisely found that many pay-per-call services were convenient to consumers, provided valuable information, increased choices, and provided services which benefited the public. Congress also found, to no one's surprise, that a few unscrupulous interstate pay-per-call businesses engaged in practices which were misleading to consumers, harmful to the public interest, and contrary to accepted standards of business practice. 15 U.S.C. § 5701. Congress's overriding and principal concern stemmed from the advertising abuse of 800 numbers, widely understood to be toll-free, which turned out to be expensive calls when certain codes and dialing sequences were inputted by callers without the knowledge that they were being transferred to services with high per-minute charges.

C. Congress Authorizes FTC Action

Congress directed the Commission to prescribe rules to prohibit unfair and deceptive acts and practices in the advertisement of pay-per-call services. Congress delineated a number of areas of concern to which it directed the Commission to address rules, in addition to granting the Commission the authority to enact rules which require pay-per-call providers to comply with additional standards as the Commission may prescribe to prevent abusive practices. 15 U.S.C. § 5711. In administering TDDRA, the Commission is governed by the Federal Trade Commission Act (15 U.S.C. § 41 et seq.). 15 U.S.C. § 5713. Pursuant to 15 U.S.C. § 45, subdivisions (a) and (n), the Commission has not been granted any authority whatsoever to declare an act or practice unlawful unless the act or practice:

(1) causes or is likely to cause substantial injury to consumers; (2) which is not reasonably avoidable by consumers themselves and (3) is not outweighed by countervailing benefits to consumers or to competition.

D. Congress Delegates Authority to Legislate

Finally, and incredibly, Congress delegated to the Commission the unfethered authority to redefine the statutory meaning of pay-per-call services. Section 5714 ostensibly permits the Commission to extend the definition of pay-per-call services to other "similar services" providing audio information or audio entertainment if the Commission determines that such services are susceptible to the unfair and deceptive practices that are prohibited by the rules that are prescribed pursuant to 15 U.S.C. § 5711 (a). The Commission has proposed that in addition to, and in direct conflict with, the definition of pay-per-call services contained in 47 U.S.C. § 228 (I), pay-per-call services should also mean:

Any service that provides, or that is purported to provide, audio information or audio entertainment, including simultaneous voice conversation services, where the action of placing a call, receiving a call, or subsequent dialing, touch-tone entry, or comparable action of the caller results in a charge to a customer, and where all or a portion of such charge results in a payment, directly or indirectly, to the person who provides or purports to provide such information or entertainment services.

The Commission apparently feels the public no longer needs to be protected only from $ 3.99/minute charges to the psychic hot line, but also from calls for which the consumer incurs no charge whatsoever other than the charges established by the long distance carriers with the approval of the FCC. Excluded from this new redefinition of pay-per-call services are services for the deaf and directory services.

While not explicitly excluded from the reach of the new definition, other excluded services include those provided by banks, savings and loan institutions, and air carriers, among other entities over which the Commission has no jurisdiction. 15 U.S.C. § 45 (a).



The Commission was established in 1914 pursuant to the Federal Trade Commission Act. 15 U.S.C. § 41. The United States Supreme Court has previously described the Commission as an administrative body created by Congress to carry into effect legislative policies in accordance with the legislative standards prescribed and to perform other specified duties as a legislative or judicial aid. In administering the provisions of the statute, that is, in filling in and administering the details embodied by that general standard, the Commission acts in part quasi-legislatively and in part quasi-judicially. To the extent that it exercises executive function, it does so in the discharge of its quasi-legislative or quasi-judicial powers, or as an agency of the legislative or judicial departments of the governments. Humphrey's Executor v. United States , 295 U.S. 602, 628 (1935).

Additional statutory powers of the Commission include investigation of entities whose businesses affect commerce, requiring these entities to file reports with the Commission, investigation of compliance with antitrust decrees, investigation of violations of antitrust statutes, publication of information gathered in the course of its investigative efforts, and reporting to Congress with recommendations for additional legislation. 15 U.S.C. § 46. Before commencing a rulemaking proceeding the Commission is required to have reason to believe that the practices to be addressed by the rulemaking are "prevalent." 15 U.S.C. § 57a (b)(3).

On the Commission's web site, it boldly pronounces its powers in far-reaching terms, including the power to investigate, to issue subpoenas, to litigate, to administrate, to adjudicate, and to issue rules and regulations. For instance, the Commission's counsel may issue a complaint against an entity which it deems to have engaged in a unfair or deceptive act or practice. If the entity does not cave into the action and sign a consent decree, the entity must defend itself before an administrative law judge, which decision is then reviewable by the Commission itself. The Commission may also seek and obtain from a district court, on no more than a "reason to believe" basis, an injunction against an entity which the Commission believes is violating, or is about to violate, a provision of the law within the Commission's broad authority, pending the outcome of a Commission administrative proceeding.

In short, the Commission views its "mission" as being able to define the scope of those activities it does not like, to prosecute those activities it does not like, and to adjudicate those activities it does not like. The Commission no doubt feels this is an appropriate confluence of power in an administrative body not directly responsible to the citizens of this country, but fortunately, the U.S. Constitution does not.



A. Congressional "Give Away"

Article I, § 1 of the U.S. Constitution provides that "All legislative powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and a House of Representatives." It is black-letter law that Congress is not permitted to abdicate or to transfer to others essential legislative functions with which it is thus vested. Panama Refining Co. v. Ryan, 293 U.S. 388, 421 (1935).

Unfortunately, the present administrative bureaucracy which weighs down American businesses has become widely recognized as the fourth branch of government.

Whether a fourth branch, quasi-legislative, quasi-executive, or quasi-legislative, this Commission may only enact rules, if at all, which are only valid as subordinate rules, and only when part of a sufficiently defined legislative policy. Id., at 421, 429-429.

Accord, A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495.

The Congressional give-away by 15 U.S.C. § 5714 and the Commission's eager willingness to accept the baton of legislative power, as demonstrated by the proposed change in the definition of pay-per-call services, plainly crosses the line established by Article 1, § 1, as explained by the High Court. The proposed rule is not a proper exercise of rule-making power. It does not seek to implement, augment, or administer legislative policy--it seeks to establish its own legislative policy. The proposed rule conflicts with and deliberately ignores the essential meaning and intent of pay-per-call services, i.e., a charge for the content of the call over and above the cost of transmission of the call. By permitting the Commission to ignore the cost-of-the-service component of pay-per-call services in its new definition, Congress permits far more than a subordinate rule to go into effect, it allows the Commission to enact the functional equivalent of coordinate legislation, thus expanding and redefining the scope of its authority far beyond the meaning contained in 47 U.S.C. § 228 (I), and effectively overruling the statute with a rule which subsumes and then obliterates the statute.

B. Failure to Establish Need

Despite the requirement that a practice which the Commission seeks to regulate must be: 1. prevalent; 2. which causes or is likely to cause a substantial injury; 3. which consumers cannot reasonably avoid themselves, and 4. which is not outweighed by countervailing benefits to consumers or competitors [15 U.S.C. §§ 45 (a, n), 57a (b)(3)], the proposed rule treats the American public as too stupid to realize that a call to another country or to a telephone number outside of one's area code will result in a toll charge. Moreover, no causal connection between the providers "profit motive" and resulting prevalent fraudulent practices and substantial injuries has or can be made. Intuition is not enough. As so eloquently stated by Roscoe V. Starek, III, Commissioner of the Federal Trade Commission, in his presentation before the American Bar Association on August 4, 1997:

In any unfairness inquiry, the issue that is apt to be most difficult is causation. In 1994, a majority of the commission - including me - decided to close an investigation of whether the R.J. Reynolds Tobacco Company had engaged in unfair practices through its use of the 'Joe Camel' campaign to promote Camel cigarettes. We said then that '[a]lthough it may seem intuitive to some that the Joe Camel advertising campaign would lead more children to smoke or lead children to smoke more, the evidence to support that intuition is not there.' As the statement said, the record did not show a link between the Joe Camel advertising campaign and increased smoking among children sufficient to satisfy a charge of unfairness in violation of the FTC act.

* * *

I voted against that [revised] complaint because the evidence, including new evidence not before the commission in 1994, did not give me reason to believe that there is a likely causal connection between the Joe Camel campaign and smoking by children. (Prepared Remarks of Roscoe V. Starek, III, Commissioner, Federal Trade Commission Presented Before the American Bar Association Section of Administrative Law and Regulatory Practice Committee on Beverage Alcohol Practice, San Francisco, California, August 4, 1997.)

The Commission was never intended to be an omnipotent body reshaping American industry into a model which the Commission, in its "wisdom," decided best served the country. Section 5714 and the proposed change in the 900 number rule undeniably cross the line as part of an unconstitutional delegation of legislative power.

If the Commission wishes to file a report with Congress recommending that the definition of pay-per-call be so broadly widened, then it should do so.



That the route which the Commission seeks to follow is more efficient for Congress is no excuse for unconstitutional action. For the Commission to propose to enact a rule which effectively nullifies a statute enacted by Congress and signed into law by the President is a gross abuse of power in direct assault upon the separation of powers. That Congress and the President have acquiesced to such action is wholly irrelevant. Clinton v. New York, ---U.S.--- (1998). I.N.S. v. Chadha, 462 U.S. 919, 942, n. 13 (1983).

A. Presentment

Every Bill which shall have passed the House of Representatives and the Senate, shall, before it becomes a law, be presented to the President of the United States. . . . Article 1, § 7, cl. 2. Every Order, Resolution, or Vote to which the Concurrence of the Senate and the House of Representatives may be necessary (except on the question of adjournment) shall be presented to the President of the United States; and before the Same shall take Effect, shall be approved by him, or being disapproved by him, shall be repassed by two thirds of the Senate and House of Representatives. . . . Article 1, § 7, cl. 3. These provisions of Article I are integral parts of the constitutional design for the separation of powers, not simply abstract generalizations in the minds of the Framers of Constitution. I.N.S. v. Chadha, 462 U.S. at 945-946.

The principles laid down by the Presentment Clauses were uniformly accepted by the Framers. Presentment to the President and the Presidential veto were considered so imperative that the draftsmen took special pains to assure that these requirements could not be circumvented. The Framers believed that the powers conferred on Congress were to be most carefully circumscribed. Lawmaking was clearly a power to be shared by both Houses and the President. The President's role in the lawmaking process also reflects the Framers' efforts to check whatever propensity a particular Congress might have to enact oppressive, improvident, or ill-considered measures. It may be, at some times, on some subjects, that the President elected by all the people is more representative of them than are the members of either body of the Legislature whose constituencies are local and not countrywide. Id. at 946-948.

B. Bicameralism

Bicameralism was no less important to the Framers than the Presidential veto.

The requirement that the nation's laws be considered and voted upon by the nation's elected officials was seen as a restraint on legislative despotism. Alexander Hamilton argued that a Congress comprised of a single House was antithetical to the very purposes of the Constitution and a sure path to the tyranny from which the Framers has recently freed themselves. In a single house there is no check, but the inadequate one, of the virtue and good sense of those who compose it. Id. at 948-949. What possible good could be said, then, of a single administrative body which proposes to enact a rule which would eviscerate law passed by both Houses of Congress and signed into law by the President of the United States?

The Framers were acutely conscious that the requirements of bicameralism and presentment would serve essential constitutional functions. The President's participation in the legislative process was to protect the Executive Branch from Congress and to protect the whole people from improvident laws. The division of the Congress into two distinct bodies assured that the legislative power would be exercised after only opportunity for full study and debate in separate settings. The President's unilateral veto power, in turn, was limited by the power of two-thirds of both Houses of Congress to overrule a veto, thereby precluding final arbitrary action of one person.

These procedures represent the Framers' decision that the legislative power of the Federal Government be exercised in accord with a single, finely wrought and exhaustively considered procedure. Id. at 951.

We are here faced with a situation in which both Houses of Congress and the President of the United States have already spoken on the topic of how pay-per-call services should, at their core, be defined. The overriding evil occurs when consumers unknowingly wind up paying excessive charges for the content of the information or entertainment services received. Now the Commission seeks to define its authority as including services provided at reasonable and customary toll rates, with no premium whatsoever on the content of the message. The fact that providers are able to remain profitable when services are provided to consumers for only the cost of the call underscores the tremendous need and demand for these services.

Enacting the proposed rule will ensure that consumers most in need of affordable services will be least able to afford them, if the service provided by HFT and others similarly situated are forced into the 900 arena. For the Commission to so define its own authority and to water down the meaning of the pay-per-call statute without the majority of both Houses or the President agreeing to this de facto repeal is an affront to the constitutional principles laid out by the Framers. The Commission not only exercises legislative power abdicated by Congress, it retains the functional equivalent of an override to a veto which the President was never afforded the opportunity to exercise. That such power could be exercised by a body which so proudly boasts of its prosecutorial and adjudicatory power, as well, is a sure recipe for the tyranny the Framers feared so much, and rightly so.



A. A De Facto Content-Based Restriction

"Through the use of chat rooms, any person with a phone line can become a town crier with a voice that resonates farther than it could from any soapbox." Reno v. A.C.L.U., 117 S.Ct. 2329, 2344 (1997). "Indeed, the First Amendment was designed to prevent the majority, through Acts of Congress, from silencing those who would express unpopular or unconventional views." A.C.L.U. v. Reno, U.S. (1999); No. 98-5591. Through the use of the its proposed change in the 900-number rule, the Commission unabashedly and unapologetically seeks to silence the voice of the town crier in Americans most in need of an open, convenient, and affordable forum for the free, unfettered expression of divergent views.

HFT's domestic and international services include numerous conference chat lines devoted to providing a voice to segments of society which go largely without an opportunity to be heard. HFT provides a safe, clean environment for people from diverse groups to share common interests and to exercise their constitutional rights to freedom of association and speech. HFT provides a forum for the free flow of information to segments of society which may, if not encouraged, go without needed information.

Unfortunately, Congress and the Commission feel this style of free speech is undeserving of the unencumbered free speech which other entities enjoy. For some unexplainable reason, the Commission has chosen to exempt common carrier directory services and telecommunications services for the deaf from the scope of the proposed 900-number rule changes. Proposed 16 C.F.R. 308.2 (g)(3)(iii). And pursuant to 15 U.S.C. § 45 (a)(2), Congress has exempted from the Commission's wide-reaching authority banks, savings and loan institutions, Federal credit unions, common carriers, air carriers and foreign air carriers, and entities subject to the Packers and Stockyards Act.

Ironically, while Congress expressly elected to suspend only communications common carriers' exemption from the Commission's authority, pursuant to 15 U.S.C. § 5711 (c), the Commission chose to reinstate the common carrier exemption [see proposed 16 C.F.R. 308.2 (g)(3)(iii)], even though Congress made no provision for the expansion of exemptions beyond those set forth in 15 U.S.C. § 5711 (a)(5). What this all means is that Congress and/or the Commission have decided that certain messages are "good and pure," deserving of unfettered public access, while other constitutionally-protected messages, such as those provided by HFT, are "bad and evil," and thus to be discouraged and unduly burdened with unnecessary regulatory preambles and other hindrances established by the 900-number arena. Make no mistake, as discussed below, the proposed rule, in effect, eliminates the entire domestic and international ("one plus" and 011 dialing patterns) long distance forums as a meeting place for the free flow of ideas between individuals with common interests unless those participants agree to give up substantial privacy rights. Of course, this action is unconstitutional.

B. An Unconstitutional Financial Disincentive to Free Speech

Regulations which permit the government to discriminate on the basis of the content of the message will not be tolerated under the First Amendment. Regan v. Time, Inc., 468 U.S. 641, 650 (1984). A statute which has the effect of deterring speech, even if not totally suppressing speech, is a restraint on free expression.

A.C.L.U. v. Reno, supra, citing Fabulous Associates, Inc. v. Pennsylvania P.U.C., 896 F.2d 780, 785 (3d Cir. 1990). By permitting certain entities to continue to deliver their messages under the current system, while compelling other speech-based businesses, such as HFT, to incur the cost of switching over to the 900-number system, and thus increasing the cost of message transmission among consumers, the Commission commits an act no different in principle than if it had attempted to require Republican political commentators to pay a registration fee before appearing on television while exempting Democratic political consultants from having to pay the registration fee. E.g., Simon & Shuster v. Crime Victim's Board, 502 U.S. 105 (1991) (financial burdens operating as a disincentive to speech impermissible).

The First Amendment plainly prohibits the Commission from favoring one information provider over another based upon the content of the message. The proposed rule, in conjunction with the dramatic increase in cost to consumers which must result from being thrust into the 900-number arena, will discourage many consumers from utilizing the services of HFT and other similar-situated information providers, while completely preventing other consumers from gaining access to this vibrant and limitless source of information. Reno v. A.C.L.U., 117 S.Ct. 2329, 2337 (1997). "[G]overnment regulation of the content of speech is more likely to interfere with the free exchange of ideas than to encourage it." Id. at 2351. The proposed regulation will undeniably and prohibitively increase the cost of information transmission and hence discourage and hinder individuals' and society's right to receive information of public interest necessary to the sustenance of an intelligent, well-informed populace. Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976).

C. The Motive

One need only look back to 1989 to uncover the genesis of the FTC's not to veiled agenda. In Sable Communications of California, Inc. v. FCC, 492 U.S. 115 (1999), the Supreme Court overruled attempts by the FTC and the FCC to unconstitutionally control the free-flow of information by restricting adults from engaging in "indecent", as well as obscene communications over telephone lines. The FTC's and FCC's attempt to outright ban indecent telephone messages violated the First Amendment, despite the government's attempt to sell the Supreme Court the idea that it had a compelling interest to do so; that is, to protect minors from exposure to indecency. Since that time, both the FTC and the FCC, acknowledging that any future attempt to explicitly control the content of telephone communications would be struck down as unconstitutional, have attacked the same communications obliquely by imposing regulations and rules on an industry which has created a forum for the expression of views which the government feels is inappropriate. The proposed redefinition of pay per call is just the latest attempt by the FTC to carry out its goal of "... silencing those who would express unpopular or unconventional views." A.C.L.U. v. Reno, supra. The FTC should acknowledge the inappropriateness of pursuing a course of conduct which operates in essence to squelch the free-flow of information that certain segments of society simply consider meritless. Freedom of the press should not be limited only to those who own one. (A.C.L.U. v. Reno) Imposing the type of financial burdens that will necessarily result as a consequence of the rule change does just that.

D. Less Onerous and Restrictive Means Are Available.

Even if the statutory and regulatory scheme could be viewed as content-neutral, which they cannot, it is readily apparent that less onerous, restrictive, and deliberately disruptive means are available to advance the Commission's apparent, yet plainly excessive, goal of protecting us from ourselves. Banning information services from the "one plus" and "011" marketplace is simply unacceptable. Unjustified and unduly burdensome disclosure requirements will always chill protected free speech. Far simpler, economical, and effective than the 900-number arena, with its associated preamble and lack of access to the international market, would be the requirement of a straight-forward written disclosure on print advertisement: ORDINARY TOLL CHARGES WILL APPLY; CHECK WITH YOUR LONG-DISTANCE CARRIER FOR RATES. How could it possibly be then argued that after such a disclosure the government could meet the prong of 15 U.S.C. 45(n) which prohibits action by the FTC where the injury is ". . . reasonably avoidable by the consumers themselves."

The Commission cannot justify the proposed change and the ensuing impact it will have upon consumers' free speech and free association rights. The marketplace of ideas which have defined the rich history of American thought takes a back seat to no tribunal, let alone this Commission and its allegiances.



The legislative history surrounding the Telecommunications Act of 1996 reveals that the purpose of the Act was to promote competition, especially among small businesses, and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies, particularly in rural markets.

Reno v. A.C.L.U., 117 S.Ct. 2329, 2337-2338. Pub. L. 104-104, 110 Stat. 56 S.652. Senate Reports 103-367, 104-23 (§§ 3, 4, 309, 406, 703 (3, 4)), 104-230. House Reports 103-560, 104-204, 104-458. Report of Committee on Commerce, Science and Transportation on S. 652 (March 30, 1995) at pp. 10, 11, 15-17, 61, 88. Vol. 141, No. 99, Congressional Record at S8670, 8588, 8593 (§ 703 (a) (1-4)). Vol. 141, No. 158, Congressional Record at H9977 (§ 703 (a)(1-4)). Vol. 32, No. 6, Weekly Compilation of Presidential Documents (February 8, 1996) at p. 218. It is abundantly clear that the primary concern in the pay-per-call arena stemmed from toll-free telephone number abuse.

Unfortunately, the clear intent of the Commission's proposed rule change is to relegate all interstate "Information" telephone transmissions to 900 service, except those exemptions previously discussed. 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 amplified and promoted. This is precisely the ill that deregulation sought to cure.

It is universally accepted that 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. Goodwill evaporates, and ultimately, the consumer will be the ultimate and undeniable loser when the services they seek vanish under the weight of the proposed regulatory scheme.

If all audiotext services were relegated to 900 numbers or presubscription requirements, the result would be the death of electronic commerce. A concrete example comes from Pennsylvania, which had required all live audiotext services to be 556 numbers and 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 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.

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



As detailed above, long-distance non-900 number audiotext services are not susceptible to unfair and deceptive trade practices. Complaint statistics bear this out.

Information providers process over 5 million calls per month which translates into 30 million minutes per month in international calls alone. The rare complaints that surface regarding long-distance audiotext calls invariably involve the 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 isolated (i.e. not prevalent) 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 set by independent long-distance carriers 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 ATT in the evening at ten cents per minute. ATTMCI, 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. 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. Recently a significant number of licensed exchange carriers have indicated their wholesale refusal to process any 900 numbers whatsoever. Ultimately, consumers previously served by these carriers will go unserved, if the proposed regulations take effect.

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. Reno v. A.C.L.U., 117 S.Ct. 2329, 2337 (1997). 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, pay phones and car phones, further restricting market access. Moreover, 900 numbers are inaccessible to callers from out of the country. The Commission's proposed actions will not only deprives foreign consumers access to the services, they will 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 behind the U.S. telecommunications markets in deregulation. Further, the Commission will restrict 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.

DATED: March 9, 1999


Attorneys for HFT