Pay-Per-Call Rule Review: Response to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016 #22

Submission Number:
AT&T Corp
Initiative Name:
Pay-Per-Call Rule Review: Response to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016
Matter Number:


Before the
Washington, D.C. 20580

In the Matter of

Pay-Per-Call Review

FTC File No. R611016


Pursuant to the Commission's Notice of Proposed Rulemaking ("NPRM") released on October 30, 1998, AT&T Corp. ("AT&T") submits these comments on the Commission's proposal to amend its 900-Number Rule, 16 C.F.R. Part 308, and extend the protection afforded the public in the Telephone Dispute Disclosure and Dispute Resolution Act ("TDDRA").

AT&T supports the Commission's efforts to shield consumers from the deceptive and unfair practices of information service providers ("IPs") offering pay-per-call services through non-900 numbers. Unscrupulous IPs are engaging in a variety of abusive practices in deceiving the public into purchasing goods and services and exposing minors to unsuitable material. It is therefore entirely appropriate for the Commission to adopt regulations that address those practices. However, the Commission should preserve the public's ability to readily and easily purchase services that are not susceptible to deceptive sales practices. At the same time, the Commission should take into account the costs its measures would impose on telecommunications common carriers operating in their traditional roles as neutral transporters of audiotext calls, since the public ultimately must bear those costs. In the following comments, AT&T will offer suggestions for achieving the Commission's central goal consistent with affording the public maximum convenience, flexibility, and economy in using pay-per-call services.


A. Section 308.2(q) Application of the "Telephone-Billed Purchase" Definition to the Bundling of Telecommunications and Other Services

Customers increasingly want the simplicity and pricing benefits of "one-stop shopping" in buying "bundles" of communications services and products. To respond to this demand, providers need the ability to bundle local exchange and interexchange services, together with cable television, wireless, and Internet access services in a single telephone bill. Bundled billing does not merely mean the inclusion of several items on a single telephone bill, but rather combining several types of services in a single charge, and at a rate that is more attractive to consumers than purchasing the bundled services separately.1 Thus, the Commission should be careful not to de-rail the market-driven movement toward bundled billing in devising measures to protect consumers from abusive IP advertising and sales practices.

Cable television and wireless services have been sold on an unbundled basis without being subject to the requirements of TDDRA. While Internet access could be read as being subject to TDDRA today, it has not proven subject to abuse and is unlikely to prove so in the future. The Commission therefore should clarify that Internet access will not be subject to its pay-per-call rules. In any event, there is no evidence either that customers are being deceived when purchasing cable television, wireless, and Internet access or that Congress intended to apply the TDDRA requirements to the purchase of those services when charged to a telephone bill. If the charges for those non-telephone services appeared in a single telephone bill, bundled with the charges for local exchange and interexchange services, they would be no more susceptible to deceptive and unfair sales practices than they are today when sold on a non-bundled basis.

Enhancing the efforts of telecommunications carriers to respond to the new challenges of the marketplace by facilitating the public's ability to purchase services on a bundled basis also would be consistent with Congress' goal in enacting the Telecommunications Act of 1996 and in enacting and amending TDDRA. The Telecommunications Act of 1996 seeks to open up new markets to telecommunications carriers by permitting them to offer services in creative ways with minimal regulatory supervision. Allowing carriers to offer interexchange and local exchange services bundled with cable television, wireless, and Internet access services, without being subject to the requirements of TDDRA, would promote that goal.2

Excluding cable television, wireless telecommunications services, and Internet access services from the reach of the Commission's new rule would be consistent with Section 701(b)(1) of the Telecommunications Act of 1996, which authorizes this 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 prohibited" in TDDRA. See 15 U.S.C. § 5714 (emphasis added). As noted above, the provision of cable television, wireless, and Internet access services are not susceptible to those practices.

Given that there is no evidence that customers have been deceived in purchasing cable television, wireless, and Internet access services, it would be consistent with Congress' intent in enacting TDDRA to refrain from treating those services as "telephone billed purchases" under proposed Section 308.2(q). If the Commission instead determined that those non-telephone services should be subject to the protections of TDDRA when bundled with other services in a single telephone bill, they could be provided pursuant to presubscription agreements under the proposed rules. See proposed Section 308.2(q)(1). But that result would interfere with the ability of customers to obtain or modify their services instantaneously - e.g., by ordering a pay-per-view movie from their cable provider via an 800-number. Moreover, essentially requiring telecommunications carriers to enter into presubscription agreements when offering those non-telephone services would impose substantial and unnecessary costs on them - costs which ultimately would be passed on to end users.

In addition, applying the TDDRA requirements to the offer and sale of services provided on a bundled billing basis would simply prove unworkable. For instance, if those requirements were applied to bundled services, a telecommunications carrier would have to give notice one billing cycle in advance for any price changes, notwithstanding that, at least with reference to its telecommunications services, the carrier may change its prices on much shorter notice. In other words, if part of the bundle of services is exempted from the definition of "telephone-billed purchase" as local and interexchange services (see proposed Section 308.2(q)(2)), and the other part of the bundle comprises cable television, wireless, and Internet access services, it is not clear how the TDDRA requirements would apply to one portion of the bundle but not the entire bundle.

Congress has given the Commission authority to "prescribe such regulations as are necessary or appropriate to implement the provisions" of TDDRA. 15 U.S.C. § 5723. As explained above, the Commission should exercise this authority by confirming that telecommunications common carriers can bundle cable television, wireless, and Internet access services in a single telephone bill, with local exchange and interexchange services, without those services being considered "telephone billed purchases."3

B. Section 308.2(g)(3)(ii) "Pay-Per-Call Services" Safe Harbor

The Commission proposes to allow a provider of audio information or audio entertainment services to show that its services do not qualify as "pay-per-call services" by demonstrating that its remuneration for a particular service, on average, does not exceed $0.05 per minute or $.50 per call.4 In the Commission's view, this "de minimis provision exempts only those information or entertainment services that are not susceptible to the unfair and deceptive practices covered by the Rule," such as the local time or weather information line services operated by a local exchange carrier ("LEC") because those services generate minimal revenue for the LEC. NPRM at n.110. However, the Commission would only require a de minimis showing "upon a prior request by the Commission or its staff, or by any other government agency with the authority to enforce this Rule, or as a defense to an enforcement action under this Rule." Id. at n.105. AT&T submits that the proposed exemption is too broad and would expose the public to unfair and abusive practices contrary to the intent of TDDRA.

Title II of TDDRA directs the Commission to adopt rules prohibiting unfair and deceptive practices in advertisements for pay-per-call services and authorizes it to exempt from the disclosure requirements pay-per-call services provided at nominal charges. 15 U.S.C. § 5711(a)(1)(5). Unfortunately, the Commission's proposal would not satisfy the statutory mandate because it would not adequately constrain IPs from engaging in wide ranging unfair and deceptive practices and would result in minors being exposed to adult-oriented chat lines and other unsuitable material. Moreover, the proposed de minimis exemption cannot be reconciled with Section 228(i)(1)(B) of the Communications Act, which defines pay-per-call services as services where the caller pays a charge greater than, or in addition to, the charge for the transmission of a call. In many cases, the Commission's proposal would allow IPs to receive precisely that type of additional remuneration. Thus, if a long distance rate is $.10 per minute and a call lasts for two minutes, but an IP receives $.50 in remuneration which is reflected in the charge to the customer, the call would qualify for the Commission's de minimis exemption yet plainly constitute a pay-per-call service under statutory definition, as the IP would receive a payment of more than double the total cost to the end user for transmission.

1. Domestic Services

The Commission's proposed exemption would permit IPs to receive per-call remuneration that could not reasonably be characterized as de minimis. The proposed rule would permit an IP to receive a substantial percentage of the revenue that interexchange carriers are paid for transporting a call to that IP. For instance, AT&T's "One Rate" plan offers customers service at $.10/minute, and its "One Rate plus 5 cents Sundays" is even more attractive. If an IP received $.05/minute remuneration from AT&T for calls placed by a customer on one of these rate plans, that payment would represent either a fifty or one hundred percent of the charge paid by the caller, an amount that clearly cannot be considered de minimis. And in the future, assuming that the longstanding trend of declining long distance rates continues, an IP's per minute remuneration under the Commission's proposed exemption would constitute an even higher percentage of an interexchange carrier's remuneration. Indeed, as shown above, in some cases the Commission's proposed exemption would allow an IP to receive per-call remuneration that exceeded a long distance call. In the case of a two-minute long distance call charged at $.10/minute, an IP's safe harbor remuneration could be $.50, or more than two times the compensation received by the carrier, which again cannot reasonably be regarded as de minimis.

Further, and contrary to the Commission's apparent assumption, the incentive of IPs to engage in unfair and deceptive practices is not a function of their per-call remuneration, but rather their total remuneration from audiotext calls. In short, volume matters. IPs operate their businesses on the basis of the aggregate revenues and costs generated by all the audiotext calls they receive, rather than the remuneration generated by individual calls. Consequently, an IP would be motivated to engage in unfair and deceptive advertising practices if those practices generated sufficient aggregate remuneration, notwithstanding that its per-call remuneration may be very modest. However, there is no evidence that the Commission's proposal would generate trivial revenues. Indeed, the magnitude of the services that would be exempted from pay-per-call regulation by the Commission's proposal is so great that the basic legal maxim of "de minimis non curat lex" (the law does not take notice of very trivial matters) cannot be satisfied.5

The Commission's per-call exemption proposal also cannot be effectively enforced. The proposal would require the Commission to inquire into an IP's operations or initiate an enforcement proceeding before an IP would be required to make a showing that its remuneration is de minimis. In the absence of any agency initiative, an IP could easily engage in impermissible revenue sharing without the Commission's knowledge. And if the Commission initiated an action it could potentially become embroiled in a costly and fruitless investigation, as the de minimis showing that an IP must make can be susceptible to considerable distortion and manipulation. For instance, in calculating its "average" remuneration, an IP could selectively choose from among various remuneration plans, accord them different weights, select favorable sampling periods, and otherwise use data in self-serving ways to justify its proposed exemption. However, without conducting an expensive audit, the Commission could not verify an IP's assertions.

Investigations of IPs' safe harbor representations also would not be productive. Because every investigation would focus on a given IP's remuneration arrangements, it would be impossible for the Commission to develop policies that could be applied in subsequent investigations. As a result, the Commission would be conducting a series of adjudicatory proceedings, none of which would have broader precedential effect. Moreover, it simply would not be feasible for the Commission to conduct all of the proceedings that would be required to investigate various IP remuneration arrangements. Thus, IPs could generate substantial impermissible remuneration, and unfettered by the constraints of TDDRA engage in unfair and deceptive practices in promoting their audiotext services.

The Commission is incorrect in apparently assuming that its proposed de minimis revenue sharing exemption would be limited to only a very small number of services, most notably time and weather lines. In fact, as explained above, a host of services would be exempted, including chat lines that would expose minors to a variety of totally unsuitable material, and there would be no effective means of blocking access to these services. Standards would be absent, and preambles would be meaningless, even if they were used. In short, this is precisely the result Congress sought to avoid in enacting TDDRA.

At the same time, the proposed de minimis exemption would impose considerable costs on the public as customers of interexchange carriers that transport calls to information providers. Information providers frequently set up local chat lines accessed by long distance calls which are terminated over switched access lines that LECs provide to interexchange carriers at inflated rates. IPs and LECs then share the revenue generated by those excessive access rates. Another scam IPs engage in to generate remuneration involves filing access tariffs as competitive local exchange carriers ("CLECs") and assessing substantial access charges on interexchange carriers, in addition to the LEC access charges, for the traffic that passes through to the CLEC chat bridge. IPs also enter into alliances with purportedly independent CLECs, and then share the inflated access charges assessed on interexchange carriers. All of these schemes inflate interexchange carriers' costs, which their customers ultimately must absorb as higher rates.6

2. International Services

The proposed de minimis exemption also would expose the public to unfair and deceptive practices by vendors of international audiotext services. Moreover, it would be even less feasible for the Commission to investigate the safe harbor claims of international IPs providing those services, even in the unlikely event that it could obtain information suggesting that impermissible revenue sharing was occurring. No such investigation would be possible without the cooperation of a PTT because the Commission cannot compel the cooperation of a foreign-based IP over which it lacks jurisdiction. However, even if a PTT were willing to cooperate with the Commission, an investigation of the IP's safe harbor representations would be unproductive for the same reason such an investigation would be unproductive in the case of a domestic IP's safe harbor claim.

Interexchange carriers also cannot know when international IPs are engaging in impermissible revenue sharing, and even if they did know, for technical and economic reasons they could not block those calls. Interexchange carriers cannot identify calls placed by ordinary international dialing sequences as audiotext calls since they do not have a distinguishing service access code ("SAC"), and those calls cannot be assigned a unique SAC without the cooperation of the foreign PTT responsible for terminating the calls. However, the PTT may be reluctant to assign that code if that would enable interexchange carriers to block audiotext calls when the PTT shares the revenue generated by those calls. In addition, interexchange carriers can identify only a relatively small number of international telephone numbers known to provide audiotext services. New international audiotext service numbers are also established at a rapid rate, with providers of these services frequently migrating to different numbers in order to avoid detection. However, AT&T's network (and presumably the networks of other interexchange carriers) lacks the capacity to block even the limited set of international numbers that can be identified as offering audiotext services.7

Significant changes to the networks of interexchange carriers would be necessary in order to create the capacity to block international audiotext numbers known to involve impermissible revenue sharing, even assuming revenue sharing information were available. But implementing those changes inevitably would increase the cost of international calling and could affect network reliability and call set-up times. Furthermore, interexchange carriers cannot feasibly refuse to terminate traffic to countries with large volumes of non-IP calls, even if they could identify IP calls involving impermissible revenue sharing. Blocking calls to those countries in order to interdict certain calls to international audiotext services would simply be unacceptable to customers. 8

In sum, interexchange carriers can neither know whether international IPs are engaging in impermissible revenue sharing, nor block calls to their services. As neutral transporters of international traffic, interexchange carriers therefore should not be held responsible for the actions of international audiotext vendors that engage in impermissible revenue sharing. Accordingly, in enacting its rule, the Commission should clarify that it does not intend to prevent interexchange carriers from billing and collecting for services in cases where they truly are acting as disinterested common carriers.

3. Proposed Safe Harbor

AT&T appreciates and supports the Commission's desire to establish a workable exemption for those pay-per-calls that would not be susceptible to unfair and deceptive practices, but, as explained above, the Commission's proposed exemption would not be sufficiently stringent to achieve its stated goal. To accomplish that end, AT&T in its prior comments in this proceeding suggested a de minimis standard that would permit some payments from telecommunications carriers to IPs in circumstances that do not implicate TDDRA concerns.9 However, if the Commission is unwilling to adopt such an approach, it should simply abandon as unworkable any cents per minute or per call safe harbor, for the reasons explained above. In that event, the Commission should prohibit all revenue sharing, although AT&T would not oppose a limited exception for calls to local exchange carrier time and weather lines because those calls clearly generate de minimis revenue for the vendor. See NPRM at n.110.10 Eliminating any safe harbor would provide consumers the maximum protection and would relieve the Commission of the burden of fruitless investigations of safe harbor claims.

C. Section 308.2(j)(2) Billing by Credit Card

The Commission proposes to dispense with presubscription agreements for audiotext calls billed to credit cards, but would require those agreements for calls billed to calling, prepaid, or debit cards.11 As the Commission recognizes, its conclusion regarding the requirements of TDDRA is in conflict with the conclusion reached by the Federal Communications Commission ("FCC") in its parallel role in enforcing TDDRA. In light of the Telecommunications Act of 1996 amendments to TDDRA, the FCC has specified that common carriers permitting vendors and service bureaus using their networks to charge for calls made to toll-free numbers to accept calling cards, debit cards, or credit cards.12 The Commission's concern that it would be unable to achieve the purposes of Titles II and III of TDDRA if it adopted that approach is not well-founded. The public routinely has been using calling cards issued by interexchange and local exchange carriers without controversy for many years, and debit cards are widely used to purchase a host of products, even though they are not subject to the same disclosure requirements as credit cards.

Congress clearly was aware of these practices in enacting TDDRA and amending it in the Telecommunications Act of 1996, yet there is no indication that Congress intended to prohibit the use of debit or calling cards for pay-per-call transactions except through presubscription agreements as the Commission proposes. The Commission should not reach a different conclusion than the FCC when both agencies have the same fundamental mission of protecting the public in enforcing the same statute.13 If the Commission is concerned about the issuance of sham cards by unscrupulous providers, it can and should address that issue separately in another proceeding.

D. Section 308.3(g) Internet Advertising

The Commission should not adopt proposed Section 308.3(g), which would require vendors to ensure that in any Internet advertisement a consumer does not receive the information required for the purchase (i.e., the pay-per-call service telephone number) unless the consumer receives the required disclosures displayed clearly and conspicuously. This means that vendors would be prohibited from requiring customers to click through or scroll down to see the disclosures in Internet advertising.14 This proposal derives from the Commission's concern that unscrupulous vendors would use the Internet to sell pay-per-call services without the cost disclosures required of services delivered by more traditional means. Unfortunately, the Commission's proposal would be impossible to administer. From a practical standpoint, it is not possible to know in advance the size of a user's screen, the settings being used, whether the user is inside a "frame" or using a wireless device that has a minimal viewing area, or using a "text-only" setting on the browser. Thus, a general rule prohibiting customers from scrolling down or clicking through to see Internet advertising simply would not be feasible and would interfere with the legitimate efforts of vendors to use and develop this new information medium.

The NPRM correctly acknowledges that "standards for Internet or online advertising would best be considered in a proceeding focusing more narrowly on business practices in the newer types of electronic commerce."15 The public, the Commission, IPs, and emerging Internet commerce all would be better served by deferring any action on the applicability of TDDRA to pay-per-call services sold over the Internet until the Commission has concluded its broader inquiry on the application of its Rules and guidelines to electronic media.16

E. Section 308.10(b) Deceptive Billing for Time-Based Charges After Disconnection by the Caller

The Commission suggests that it would be deceptive to bill a customer in one minute increments after the customer has disconnected because it may be technically practicable to bill in less than one minute intervals.17 However, there is no evidence that customers are being misled by minute-based billing, and the marketplace has not evidenced any appreciable demand for sub-minute billing, although some interexchange carriers now offer that capability. If the marketplace demanded insisted on that kind of billing, IPs presumably would respond accordingly in an effort to attract business. In any event, while it is technically feasible to implement sub-minute billing, that capability could not be provided without cost or without some reasonable lead time to modify billing systems. Ultimately, customers would bear the cost of these changes in the form of higher prices for services--a result that seems unwarranted in light of the lack of market demand for this capability.

If the Commission concludes that the statute requires that billing stop the instant a customer hangs up, it is far from clear what would be an appropriate sub-minute billing increment, as the statute provides no guidance in this regard. Any standard the Commission establishes would necessarily be arbitrary. The crucial issue is not whether billing intervals are in intervals of one minute, ten seconds, one second, or some other unit, but whether consumers are being misled by the pricing now being used by IPs. AT&T submits that there is no evidence that minute-based billing is a source of customer confusion or complaints, as callers understand and expect that telephone calls will be billed in one minute increments. In all events, if the Commission decides, nonetheless, to prohibit interexchange carriers from billing in one minute increments, it should afford them an adequate period of time to develop and deploy the systems needed to satisfy that requirement.

F. Section 308.13(c) Prohibitions Concerning Toll-Free Numbers

The Commission proposes to prohibit charges to a consumer for information or entertainment conveyed during a call to a toll-free number unless that specific consumer agreed to be charged for that information or entertainment by entering into a presubscription agreement.18 This proposal would unjustifiably interfere with the ability of customers to access audiotext services by means of a PIN and the ability of vendors to offer audiotext services in a non-deceptive manner. For instance, if the head of a household had an agreement to access an Internet service such as AT&T WorldNet by an 800-number at a per-minute fee, under the Commission's proposal no other member of the household could be billed for the use of that account unless that person also entered into a presubscription agreement, even though the head of the household fully intended that anyone using its PIN could access the service. This is not a result that the public would find satisfactory. Moreover, AT&T would have no means to verify that a person logging on to that person's account and supplying a correct PIN was not in fact the individual who signed up for the account, and the Commission's proposal is thus unworkable in any event. More broadly, the Commission's proposal could potentially eliminate all non-voice audio information or entertainment services because it would make it impossible to deliver those services by means of the customer's PIN.

The Commission's rule instead should provide that anyone using the appropriate PIN can access and be billed for services provided under the same presubscription agreement. This is precisely what PINs are designed for, what customers expect when using PINs, and what Congress intended by providing for the use of PINs in TDDRA.


AT&T supports the Commission's efforts to extend the protection of TDDRA to the offer and sale of audiotext services provided by means of non-900-numbers and recommends that it adopt its proposed rule consistent with the recommendations described in these comments.

Respectfully submitted,


By /s/ James H. Bolin, Jr. Mark C. Rosenblum
Peter H. Jacoby
James H. Bolin, Jr.
Room 3247H3
295 North Maple Avenue
Basking Ridge, NJ 07920
(908) 221-4617

Richard M. Singer
Jessica Rosenworcel
Drinker Biddle & Reath LLP
1500 K Street, NW
Washington, DC 20005
(202) 842-8800

Attorneys for AT&T CORP.

March 10, 1999

1 For example, a customer might be able to separately purchase local telephone services for $25 per month, wireless services for $30 per month, cable television services for $35 pre month, and Internet access for $20 per month; or obtain all four services on a bundled basis for $99 per month.

2 Although the former definition of "telephone billed purchase" would have covered Internet, wireless and cable, the billing segregation requirements of Section 308.18 formerly applied only to pay-per-call services, while the proposed regulations apply them to all telephone-billed purchases. Therefore, the Commission's current regulations would not create the same problem.

3 At a minimum, the Commission should clarify that all "telecommunications services," as that term is defined in 47 U.S.C. § 152(46), are exempt from the definition of "telephone billed purchases," rather than exempting only "local exchange telephone services or interexchange telephone service" as proposed in Section 308.2(q)(2). This change would exempt wireless telecommunications services in addition to wireline telecommunications, and would also avoid potential difficulties that could arise from the fact that neither "local exchange telephone service" nor "interexchange telephone services" are defined in the Communications Act or the proposed regulations.

4 NPRM, 63 Fed. Reg. 58524, 58535-36 (Oct. 30, 1998).

5 See, e.g., National Labor Relations Board v. Denver Building & Construction Trades Council, 341 U.S. 675, 683 (1951); Tumey v. Ohio, 273 U.S. 510, 530 (1927).

6 See Comments of AT&T Corp., In the Matter of 900-Number Rule Review, FTC File No. R611016 (May 12, 1997) at pp. 27-28 ("May 12 Comments").

7 Id. at pp. 31-32.

8 See Letter from AT&T Corp. to Secretary, Federal Trade Commission regarding 900-Number Rule Review, dated August 8, 1997 at pp. 5-6 ("August 8 Letter").

9 See May 12 Comments at pp. 26-30; August 8 Letter at pp. 2-4.

10 There is no evidence that competing local exchange carriers have engaged in deceptive practices in providing time and weather lines, and it is unlikely that they could successfully sell such services at prices significantly higher than the minimal rates currently charged by incumbent local exchange carriers.

11 NPRM, 63 Fed. Reg. at 58538-40.

12 See Policies and Rules Governing Interstate Pay-Per-Call and Other Information Services Pursuant to the Telecommunications Act of 1996 Policies and Rules Implementing the Telephone Disclosure and Dispute Resolution Act of 1996, 11 FCC Rcd 14738 (1996) adopting 47 C.F.R. § 64.1504(c)(2) that implements Section 228(c)(9) of the Communications Act governing the use of toll-free numbers for audiotext services.

13 As the courts have observed, "[a]dministrative agencies have been required to consider other federal policies, not unique to their particular area of administrative expertise, when fulfilling their mandate to assure that their regulations operate in the public interest. . . . [A]gencies should constantly be alert to determine whether their policies might conflict with other federal policies and whether such conflict can be minimized." LaRose v. F.C.C., 494 F.2d 1145, 1147 n.2 (D.C. Cir. 1974).

14 NPRM, 63 Fed. Reg. at 58542-43.

15 NPRM, 63 Fed. Reg. at 58543.

16 Id. at n.184.

17 NPRM, 63 Fed. Reg. at 58545-46.

18 NPRM, 63 Fed. Reg. at 58547-48.