Pay-Per-Call Rule Review: Response to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016 #26

Submission Number:
Bell Atlantic
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 Rule Review

File No. R611016


John M. Goodman

Attorney for the Bell Atlantic

telephone companies

Michael E. Glover

Of Counsel 1300 I Street, N.W.

Washington, D.C. 20005

(202) 336-7874


Dated: March 10, 1999

Table of Contents



1. The Proposed Rules Exceed the Commission's Jurisdiction.3

A. Telephone-Billed Purchase4

B. Directory Services5

C. Vendor7

D. Express Authorization8

2. Some of the New Rules Should Not Be Adopted as Proposed.9

A. Knew or Should Have Known9

B. Person To Be Billed11

C. Written Response to Billing Inquiries Should Not Be Required.12

D. De Minimis Charges13

E. Billing in One-Minute Increments13

F. Annual Notification14

G. Post-Billing Adjustment Periods14


Before the


Washington, D.C. 20580


In the Matter of

Pay-Per-Call Rule Review

File No. R611016



Bell Atlantic(1) shares the Commission's concern about evasions of the Commission's pay-per-call rules and about cramming and related deceptive and unethical practices. The Commission, however, should deal with these two types of problems differently.

As to the pay-per-call rule evasions, Bell Atlantic supports the Commission's proposals to close the loopholes in its rules. We agree that there is a "necessity of establishing additional standards to ensure that consumers receive the protections and rights that TDDRA intended."(2) We also applaud the Commission's steps to "ensure that TDDRA protections apply to the offer and sale of every audiotext service, regardless of the dialing pattern used to access the service [and to] ensure that international audiotext services could not be offered in a manner that evades TDDRA's dispute resolution procedures."(3) We also support rule changes so that "a single call to a pay-per-call service could no longer result in a consumer being enrolled in a 'psychic club' or other service plan which would result in recurring fees."(4)

Cramming is a different matter, however. Bell Atlantic has been an industry leader in taking action against crammers and, during 1998, stopped billing for dozens of service providers who were the subject of cramming complaints. As a result, consumer complaints dropped 50 percent between October 1998 and February 1999. Many of the recent complaints relate to providers that Bell Atlantic had already suspended. If this is taken into account, the February complaints were less than 25 percent of the October level.

Moreover, cramming violates existing laws, and Bell Atlantic urges governmental agencies and law enforcement authorities to take action directly against the crammers. This is the best thing that the Commission can do to stop these practices.

Although well intentioned, the proposed rule changes which are directed at cramming are misguided and inconsistent with the Commission's statutory authority.

They are misguided because the best way to stop cramming is to go after the crammers. It is not to regulate the billing services offered by local telephone companies and to impose on those services obligations that the Commission has not placed on the other parts of the billing services industry.(5)

In addition, the Telephone Disclosure and Dispute Resolution Act ("TDDRA") gave the Commission only limited jurisdiction and authority. The Commission's existing regulations are consistent with that authority -- many of its proposed regulations are not.

Congress directed the Commission to "prescribe rules establishing procedures for the correction of billing errors with respect to telephone-billed purchases."(6) Many of the new proposals go way beyond "establishing procedures for the correction of billing errors." Although Bell Atlantic might not have any particular quarrel with the substance of such rules, as they are generally consistent with the practices Bell Atlantic already follows, TDDRA simply does not give the Commission the authority to adopt them.(7)

In addition to prescribing activities other than "procedures for the correction of billing errors," the new proposals attempt to reach transactions and firms which are outside the scope of TDDRA. Most significantly, Title III of TDDRA relates only to the billing and collection of "telephone-billed purchases," a term carefully defined by Congress. The Commission would now have its rules apply to billing of goods and services other than the "telephone-billed purchases" defined by Congress.

1. The Proposed Rules Exceed the Commission's Jurisdiction.

This Commission has limited jurisdiction over common carriers, like Bell Atlantic's telephone companies.(8) However, recognizing that unscrupulous non-carriers can use the services and facilities provided by carriers in furtherance of their deceptive schemes, Congress enacted TDDRA to give the Commission certain authority over carrier business practices.

The Commission's existing rules adhere faithfully to Congress' directions and the words of TDDRA. In several places, however, its proposed rules seek to rewrite the statute, which is something that only Congress may do.

A. Telephone-Billed Purchase

Section 5721(a) instructs the Commission to

"prescribe rules establishing procedures for the correction of billing errors with respect to telephone-billed purchases. The rules prescribed by the Commission shall also include provisions to prohibit unfair or deceptive acts or practices that evade such rules or undermine the rights provided to customers under this subchapter."

Congress carefully defined a telephone-billed purchase as "any purchase that is completed solely as a consequence of the completion of the call or a subsequent dialing, touch tone entry, or comparable action of the caller."(9) Congress did not define a telephone-billed purchase as any purchase billed on a telephone bill, and it, therefore, did not give the Commission jurisdiction over the billing of all such purchases. And yet that is precisely the jurisdiction the Commission claims in its proposed rules.

To do this, the Commission proposes to amend the definition of telephone-billed purchase in its rules to cover "any purchase that is . . . charged to a customer's telephone bill."(10) The rules would, therefore, apply not just to purchases "completed solely as a consequence of the completion of the call or a subsequent dialing, touch tone entry, or comparable action of the caller" as the statute prescribes, but also to any purchase completed in any way, as long as it is billed on the telephone bill. This change was intentional, as the Notice states that the proposed rule "expands the definition of telephone-billed purchase to include all purchases that are 'charged to a customer's telephone bill,' even if the purchase did not involve a telephone call."(11) This definitional change would radically change the coverage of these rules and expand them far beyond the authority Congress gave the Commission. It is a change that the Commission does not have the power to make.(12)

The Notice suggests that this change is permissible because "Congress has given the Commission significant flexibility in prescribing regulations that are 'necessary or appropriate' to implement the provisions of Title III."(13) However, rules governing "all purchases charged to a telephone bill" are beyond the scope of Title III to begin with, and the Commission cannot bootstrap itself into additional jurisdiction in this way.(14)

B. Directory Services

The statute defines the term "pay-per-call services" and carefully excludes certain services from that definition. Among the exclusions prescribed by Congress are "directory services provided by a common carrier or its affiliate or by a local exchange carrier or its affiliate."(15) Therefore, all directory services provided by these firms are excluded from the definition.

The Commission proposes to narrow the statutory exclusion to include only "tariffed directory services."(16) The Commission cannot, of course, change by rule an exemption that Congress has created by statute.(17)

But for this exception, traditional directory assistance services would appear to satisfy the definition of pay-per-call services, as would improved offerings such as national directory assistance. Up until now, because of the exclusion in the statute (and mirrored in the Commission's rules), these services, whether tariffed or not, have not been covered by the TDDRA regulations. As far as Bell Atlantic knows, this has not caused any problems.

Now the Commission wants to narrow the exclusion and to make directory assistance abide by all the Subpart B rules that apply to such services and, because pay-per-call services are included in the Commission's proposed definition of telephone-billed purchases, all the Subpart C rules as well.

After several years' experience with TDDRA, Congress considered whether to amend the definition of pay-per call service in order to respond to changes in the marketplace. Section 701(b)(1) of the Telecommunications Act of 1996 Act does give the Commission some authority to expand that definition:

"The term 'pay-per-call services' has the meaning provided in section 228(i) of the Communications Act of 1934, except that the [Federal Trade] Commission by rule may, notwithstanding subparagraphs (B) and (C) of Section 228(i)(1) of such Act, extend such definition to other similar services providing audio information or audio entertainment if the [Federal Trade] Commission determines that such services are susceptible to the unfair and deceptive practices that are prohibited by the rules prescribed pursuant to section 201(a) [of TDDRA]."

Thus, Congress said that the Commission may find that a service is a pay-per-call service even though it does not meet the requirements of subparagraphs (B) and (C) of paragraph (1). Significantly, however, Congress did not give the Commission authority to expand the definition to reach those services exempted by paragraph (2), such as carrier-provided directory services.

C. Vendor

TDDRA defined a "vendor" as "any person who, through the use of the telephone, offers goods or services for a telephone-billed purchase."(18) The Commission's rules correctly provide that "[a] person who provides only transmission services or billing and collection services shall not be considered a vendor."(19) Thus, today, the Commission recognizes that a local exchange carrier which provides telephone service to a vendor and also bills its customers for goods or services they bought from the vendor does not itself become a "vendor" under the statute.

The Commission now appears to want to change this result and to turn telephone companies into "vendors" if the real vendor happens to do business in their territory. It would do this by changing the words of this definition only slightly -- by adding a single word -- so that the definition would say that "[a] person who provides only transmission services or only billing and collection services shall not be considered a vendor."(20) Apparently, under this new formulation, if a vendor has its business in New York and buys local service from Bell Atlantic - New York and uses Bell Atlantic - New York's billing service, then Bell Atlantic - New York will itself be a "vendor." This is inconsistent with the statute and, moreover, makes no sense.

Congress was clear as to what entity should bear the responsibilities it intended vendors to have -- this was a firm which, "through the use of the telephone, offers goods or services for a telephone-billed purchase."(21) A local exchange carrier does not offer the goods and services of the companies to which it provides telephone and billing services (indeed, it would violate federal law for the telephone company to offer some of these services(22)). And yet with its proposed new definition, the Commission would appear to want to make the telephone company every bit as liable as the firm that actually provided the goods or services. The Commission should not -- and under the statute may not -- try to shift these obligations to local telephone companies.

D. Express Authorization

Bell Atlantic agrees completely that customers should not be billed for purchases unless they have authorized them. And as the Notice observes, "Telephone-billed purchases are no exception to this broad legal principle."(23) Bell Atlantic also agrees that for purchases that are not TDDRA-blockable, authorization "cannot be inferred from the fact that a telephone call came from a specific telephone"(24) -- more is required.

Bell Atlantic does strongly disagree, however, with the suggestion in the Notice that some special authorization verification procedures or recordkeeping should be required just because a charge is to be billed on a telephone bill rather than directly by the vendor.(25) Whatever is sufficient to obligate a customer to pay as a matter of contract law should be sufficient under TDDRA. This does not mean, of course, that billing entities may not require the vendors for which they do billing to verify purchases in specified way, and many telephone companies already have such requirements in place.

Moreover, nothing in TDDRA gives the Commission the authority to regulate in this area. The Commission's jurisdiction is limited to "prescrib[ing] rules establishing procedures for the correction of billing errors."(26) Proposed rule 308.17 goes well beyond the authority conferred by that provision.

2. Some of the New Rules Should Not Be Adopted as Proposed.

Even if the Commission has jurisdiction in these areas -- which it does not -- some of the new regulations should not be adopted as they have been proposed.

A. Knew or Should Have Known

Section 308.17 makes it a deceptive practice for a billing service provider to bill any charge if it "knew or should have known that the charge was not expressly authorized by the person from whom payment is sought."(27) "Should have known," of course, is not a very precise standard and is one that does not give billing entities much guidance as to what is required of them. Unfortunately, the Notice makes matters worse when it suggests that the standard is even vaguer than stated in the proposed rule -- that it is a deceptive practice if a "billing entity should have known that numerous consumers were likely to have been billed without authorization."(28)

The Notice also suggests that the "should-have-known" standard is satisfied when "[a]ny billing entity that receives complaints from consumers who are being charged without their express authorization is on notice of the problem. . . ."(29) Thus, it is apparently the Commission's view, that a billing entity that receives complaints about a vendor from more than one consumer -- out of perhaps millions of items billed -- should know that the vendor is submitting unauthorized charges for billing. This is unrealistic and is a much higher standard than other billing service providers are held to.

If the Commission adopts a rule of this sort, rather than the "should-have-known" approach, Bell Atlantic suggests that the Commission adopt the model recently formulated by Congress in the Digital Millennium Copyright Act of 1998 in connection with an analogous situation. In that case, Congress was considering when an on-line service provider could be found liable for actions of its customers which infringed the intellectual property right of a third party. In that Act, Congress explicitly rejected a "should-have-known" standard(30) and found instead that the service provider should not be liable for the improper activities of its customers unless the provider is "aware of facts or circumstances from which infringing activity is apparent."(31)

B. Person To Be Billed

In several places, the proposed rules speak of "the person to be billed for the purchase." For example, section 308.17 requires that the express authorization be made by "the person to be billed for the purchase." To be valid, presubscription agreements must be entered into by "the consumer who will be billed for the service."(32) PINs must be delivered to "the consumer who will be billed."(33)

Typically, there is one person's name on a consumer's telephone company billing account -- the account does not list, for example, all the adults who live in a household. The telephone bill is mailed to that person. Presumably, that person and only that person is "the person to be billed" under the Commission's proposed rules.

This narrow definition is intended to protect consumers. However, whether or not it is effective at doing so, it will certainly inconvenience them. This is because it fails to recognize the fact that even though only one person is listed on the account, that does not mean that others in the household may not bill charges to the account or make changes with respect to the service. For example, an account might be in the wife's name, but the husband should certainly be allowed to accept a collect call placed to the home or arrange to have Internet access service billed on the family telephone bill.

The phrase "the consumer who will be billed" is, therefore, too restrictive.(34) At the very least, the Commission should use language like that written for anti-cramming legislation proposed in the last Congress and to define the customer as:

"the party identified in the account records of a common carrier issuing a telephone bill (or on whose behalf a telephone bill is issued), any other person identified in such records as authorized to change the services subscribed to or to charge services to the account, and any person otherwise lawfully authorized to represent such party."(35)

This approach, while significantly better than the Commission's proposal, still is not flexible enough, as it does not recognize today's reality that tens of millions of consumer telephone account records, many of which have been active for years, do not contain the names of others authorized to charge services. Therefore, Bell Atlantic suggests the use of the legislative language, with the following addition:

"the party identified in the account records of a common carrier issuing a telephone bill (or on whose behalf a telephone bill is issued), any other person identified in such records as authorized to change the services subscribed to or to charge services to the account, any person that the vendor has a demonstrable reason to believe is authorized to change the services subscribed to or to charge services to the account, and any person otherwise lawfully authorized to represent such party."

C. Written Response to Billing Inquiries Should Not Be Required.

The existing rules recognize that consumers usually communicate with their telephone companies orally -- they know how to call the telephone company business office and do so readily. The rules, therefore, permit consumers to raise billing inquiries orally and telephone companies to respond orally.

The proposed rules, however, would appear to require that a telephone company billing entity must respond with "a written explanation" even where the original inquiry was oral.(36) Bell Atlantic is not aware of any problems caused by the oral dealings, and the Notice does not indicate that there have been any. This proposed change, therefore, should not be adopted.(37)

D. De Minimis Charges

The Commission proposes to exempt from the pay-per-call rules services for which the charge is de minimis, and the Notice suggests that this should be defined as "the payments to the provider will not exceed $.05 per minute or $.50 per call for the particular service."(38) The legislative history suggests that Congress had a much higher figure in mind, as both the 1991 Senate and House Reports indicated that "a nominal amount" was "$2 or $3."(39) Moreover, whatever the amount, it should be stated in terms of what the customer pays, not what the provider actually receives.

E. Billing in One-Minute Increments

The Notice states that the Commission intends to construe section 308.10(b) of the proposed rules as prohibiting billing pay-per-call services in increments of one minute or more. This is because the Commission believes, "Based on the current information contained in the record, the Commission believes that technology has made it possible to bill in increments smaller than one minute."(40)

While this belief is correct as to Bell Atlantic, there is no need for the Commission to regulate the increments of time in which services are billed, as there is nothing inherently unfair, unreasonable or deceptive about one-minute increments. The primary purpose of the statute is disclosure -- after all, that's what the Act is called. If the Commission's rules ensure that consumers know what they are paying for -- and how they are paying for it -- the purposes of the Act are well satisfied.

F. Annual Notification

The Commission proposes to eliminate the annual notification requirement of section 308.7(n) and to replace it by imposing a more expansive notice on every bill under amended section 308.20(m). There is no reason to believe that there is any need for this additional information on every bill, and, therefore, it should not be required.

G. Post-Billing Adjustment Periods

Sections 308.20(c)(3)(i) and 308.20(n)(4) of the proposed rules would regulate aspects of the business arrangements between the billing entity and its billing customers (vendors and service bureaus) by prescribing what information the billing entity must provide and when. There is no record that such regulation is necessary or beneficial.(41) These matters are best left to negotiation between the billing entity and its billing customers. If the billing entity insists on unreasonable terms, it will lose the business, and vendors will have their billing done elsewhere.(42)


The Commission should modify its pay-per-call rules in ways that protect consumers. It should not adopt the changes it has proposed that exceed its jurisdiction under TDDRA. It should also make the editorial improvements suggested in these comments.

Respectfully submitted,


John M. Goodman

Attorney for the Bell Atlantic

telephone companies

Michael E. Glover

Of Counsel 1300 I Street, N.W.

Washington, D.C. 20005

(202) 336-7874

Dated: March 10, 1999


1 Bell Atlantic-Delaware, Inc.; Bell Atlantic-Maryland, Inc.; Bell Atlantic-New Jersey, Inc.; Bell Atlantic-Pennsylvania, Inc.; Bell Atlantic-Virginia, Inc.; Bell Atlantic-Washington, D.C., Inc.; Bell Atlantic-West Virginia, Inc.; New York Telephone Company and New England Telephone and Telegraph Company.


2 Notice, 63 Fed. Reg. at 58526.


3 Notice at 58528.


4 Notice at 58528.


5 As the Commission's recent action against Internet crammers shows, cramming is not limited to telephone company bills. See FTC News Release, "Internet 'Crammers' Face FTC Charges," dated January 12, 1999.


6 15 U.S.C. § 5721(a)(1).


7 Bell Atlantic does not object if the rules are changed so that consumers could "dispute unauthorized charges 'crammed' on to their phone bills and have these charges removed" (Notice at 58528), and this is a practice that Bell Atlantic has already implemented.


8 For example, the Commission's authority under section 5 of the Federal Trade Commission Act to prevent companies from using unfair or deceptive acts or practices does not extend to common carriers.


9 15 U.S.C. § 5724(1).


10 Proposed section 308.2(q).


11 Notice at 58541.


12 Even if the Commission has the power to broaden this definition, it certainly should not expand it to include a company's billing its own products and services.


13 Notice at 58542.


14 Similarly, the reference in the Notice to section 5721(a)(1) (Notice at 58547), which gives the Commission authority over practices which "evade such rules or undermine the rights provided to customers under this subchapter," cannot expand the scope of the Commission's jurisdiction.


15 47 U.S.C. § 228(i)(2).


16 Proposed section 308.2(g)(3)(iii). The Notice states, "The proposed Rule adds the word 'tariffed' to clarify the meaning of the exemption, and to prevent unscrupulous vendors from seeking to abuse the exemption." Notice at 58536.


17 Congress knows how to distinguish between tariffed and non-tariffed services when it wants to. In fact, as originally enacted, this same definition of pay-per-call services contained an exemption for "any service the charge for which is tariffed." Of course, if the directory services exemption were limited to tariffed services, there would have been no need for a separate directory exemption.


18 15 U.S.C. § 5724(5).


19 Section 308.2(t).


20 Proposed section 308.2(t) (emphasis added).


21 15 U.S.C. § 5724(5).


22 See, e.g., 47 U.S.C. § 274.


23 Notice at 58548.


24 Notice at 58549.


25 The Notice (at 58549) states: "For example, a tape recording of the person to be billed for the service being informed of the material terms of the agreement and then agreeing to make the purchase on those terms and pay the charge, would constitute evidence of express authorization. Similarly, an agreement containing a non-deceptive statement of material terms and conditions and signed by the person to be billed for the service, would be evidence of express authorization." While signed agreements and recording are sufficient demonstration of express authorization, they should not be required by the Commission.


26 15 U.S.C. § 5721(a)(1).


27 Similarly, proposed section 308.16 makes a service bureau liable if it "knew or should have known" of a violation.


28 Notice at 58549.


29 Notice at 58549.


30 H. Rep. 105-551 at 105th Cong., 2d Sess. (1998). The Conference Report adopted the House language for this provision. H. Rep. 105-796 at , 105th Cong., 2d Sess. (1998).


31 Pub. L. 105-304 § 202 to be codified at 17 U.S.C. § 512(c)(1)(A)(ii).


32 Proposed section 308.2(j).


33 Proposed section 308.2(i).


34 The proposed approach is also inconsistent with the Commission's approach in Reg Z, which the Commission is supposed to use as a model for the TDDRA rules. Reg Z recognizes that there will be more than one consumer and that where "there is more than one consumer, the disclosures may be made to any consumer who is primarily liable on the account." 12 C.F.R. § 226.5(d).


35 H. R. 3990 § 505(6), 105th Cong., 2d Sess. (1998).


36 Proposed section 308.20(c)(2)(ii).


37 While Reg Z requires a written response, it also requires that the billing error notice be in writing as well. 12 C.F.R. § 226.13(b).


38 Notice at 58535.


39 S. Rep. No. 102-190, 102nd Cong., 1st Sess. at 13 (1991); H. Rep. No. 102-430. 102nd Cong., 1st Sess. at 12 (1991).


40 Notice at 58546.


41 The Notice merely states, "One of the major complaints from industry members has been the length of time it takes to learn from the LECs about chargebacks or refunds the LECs have granted" (Notice at 58553) without any finding that these complaints are valid.


42 It is far from obvious that the Commission's authority to prescribe regulations "establishing procedures for the correction of billing errors with respect to telephone-billed purchases" gives it authority to regulate these sorts of business dealings.