Pay-Per-Call Rule Review: Response to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016 #28

Submission Number:
Pilgrim Telephone, Inc.
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
16 C.F.R. Part 308

Notice of Proposed Rule making and Request for Comments

FTC File No. R611016


Pilgrim Telephone, Inc. ("Pilgrim"), by its attorneys, hereby files the following Comments in response to the Federal Trade Commission's ("FTC") Notice of Proposed Rule Making in this proceeding, dated Friday, October 30, 1998 ("NPRM"). Pay Per Call Rule, FTC File No. R611016, Notice of Proposed Rule Making (rel. Oct. 30, 1998) ("NPRM"). Specifically, in its NPRM, the FTC proposes certain amendments to its rule ("Rule") implementing the 1996 amendments to the Telephone Disclosure and Dispute Resolution Act of 1992, codified at Section 5701, et. seq. of the Federal Trade Act 15 U.S.C. § 5701 et seq., and 47 U.S.C. § 228 ("TDDRA").

I. Introduction

Pilgrim is an interstate interexchange telecommunications carrier that provides common carrier services primarily through casual access methods(1). Pilgrim is also a provider of information, enhanced and pay-per-call services, primarily consisting of personal teleconferencing, group access bridging, voice mail, telemessaging and bulletin board services.(2) In order to bill for its services, Pilgrim principally relies on LEC essential facilities of billing and collection to render bills to its customers. In the case of casual access services, LEC billing and collection is the only manner in which casual call providers can bill their services as the providers have no continuous relationship with the caller, and real time billed name and address ("BNA") is blocked by LECs.

Pilgrim has been involved in and made presentations before the FTC in both prior rule makings, proceedings regarding the TDDRA, Pilgrim also participated extensively in proceedings before the Federal Communication Commission ("FCC") regarding TDDRA and other communications matters. Pilgrim's business operations, and the ability of its customers to reach its services, will be directly impacted by the rules ultimately adopted by the FTC in this proceeding.

Although Pilgrim applauds the FTC's effort to protect consumers through the adoption of rules and regulations designed to ensure against unfair and deceptive practices, it cannot endorse the Rules, as proposed by the FTC exceed the scope of authority granted to the FTC by Congress, or otherwise fail to further the policies and goals set forth in the TDDRA. Specifically, for the reasons described below, Pilgrim opposes the FTC's proposed Rule because the Rules does not include the Congressionally mandated exemption for calling card purchases, the Rule unnecessarily imposes three second tone warnings and provides inadequate dispute resolution procedures.

II. Statutory and Rule Making History

A. History of FTC Rule Making Actions

After the passage of the Telecommunications Act of 1996, which, inter alia, amended portions of the TDDRA codified in the organic statutes of both the FCC and FTC, the FTC instituted a rule making and comment proceeding proposing a variety of changes to its rules.(3) On June 19 and 20, 1997, the FTC also held public hearings, in which Pilgrim was one of the panelists.

The FTC has declined to amend its rules since that time, however, despite the fact Congress made several significant material changes to the TDDRA in its amendments in 1996.(4) As a result, Pilgrim is of the opinion that a number of the FTC's current rules are invalid as being inconsistent with the Act. Furthermore, failure to timely adopt new rules which address perceived consumer harm, and address consumer fraud, and reflect the changes made to the statute by Congress, causes significant confusion in the industry and makes it very difficult for service providers, such as Pilgrim, to adequately plan and manage its operations in a manner which best benefits consumers and reduces the risk of exposure to regulatory liability.

B. The 1996 Amendments Made to Act had Limited Impact on the FTC

In the 1996 amendments Congress made only one change to the FTC's statutory provisions codified at 15 U.S.C. § § 5701 et seq. The sole change made by Congress was the amendment of Section 5714 to provide that the FTC may, for purposes of Section 5711(a) of its statute, disregard elements (B) and (C) of the definition of pay-per-call set forth in 47 U.S.C. § 228(i) which would otherwise apply.(5) The purpose of this exception was to permit the FTC to apply its advertising disclosures and other regulations adopted pursuant to Section 5711(a) to long distance information services, international dialed information services and to all services accessed by dialing numbers other than 900-numbers, for the protection of consumers.

It is well known by the FTC, and has been extensively discussed in prior rule making proceedings, that many Vendors service providers provide service through dialing international, long distance or other dialing patterns. The Vendors receive a portion of the transmission charge as their commission or compensation. The 1996 amendments to TDDRA granted the FTC authority to apply its 5711(a) regulations to the alternative calling patterns even though they do not fall within the definition of pay-per-call services set forth in Section 228(i)(1)(c) of the Communications Act.

III. The FTC's Proposed Rule Fails to Recognize Exception
in the Act Specifically Authorizing Calling Card Purchases
via 800-number Dialed Calls.

A. Proper Interpretation of Act

The FTC undertook the instant proceeding in response to the 1996 amendments to TDDRA. The proposed rules, however, are inconsistent with even the TDDRA.

A superficial review of Section 5711(2)(F) gives the impression that Congress' amendment to Section 5714 permits the FTC to prohibit the use of 800-numbers for any information service. However, upon careful examination of the organic statutes of each of the FTC and FCC, coupled with a close review of the other amendments made by Congress at the time of passage of the amendments, it is clear that Congress preserved options for access to information service through 800-numbers under specific circumstances.

In 1996, Congress amended the TDDRA to exempt certain calling card transactions from the scope of the Act's regulatory framework. Specifically with respect to calls billed to 800-numbers, Section 228(c)(7)(C)(ii), of the Communications Act of 1934, as amended, 47 U.S.C. § 228(c)(7)(C)(ii), permits the use of toll-free telephone numbers to charge for information conveyed during a call provided that "the calling party is charged for the information in accordance with paragraph (9)." Section 228(c)(9) provides:

For purposes of paragraph (7)(C)(ii), a calling party is not charged in accordance with this paragraph unless the calling party is charged by means of a credit, prepaid, debit, charge, or calling card and the information service provider includes in response to each call an introductory disclosure message [containing certain specified oral information].(emphasis added).

47 U.S.C. § 228(c)(9). Section 228(c)(10) of the Communications Act further defines "calling card" as "an identifying number or code unique to the individual, that is issued to the individual by a common carrier and enables the individual to be charged by means of a phone bill for charges incurred independent of where the call originates." 47 U.S.C. § 228(c)(11). By the Act's express language, Congress did not intend to prohibit the use of 1-800 dialed enhanced and information service calls, even in the absence of a pre-subscription agreement, so long as such charges result from the use of a valid calling card and the provider complies with certain oral disclosure requirements in accordance with § 228(c)(9).

The amendment to Section 5714 specifically does not permit the FTC to ignore other express exceptions in the Communications Act, including the express language in Sections 228(c)(7)(C)(i), (C)(ii), 228(c)(8), 228(c)(9) and 228(c)(11) which expressly permit the provision of information services over 800-numbers when either written presubscription agreement or a calling card is used. Congress not only added the calling card exception, it added an extensive description of the differences between the two methods, and a new definition of calling cards at Section 228(c)(11).

If Congress had meant to permit the FTC to make the provision of information service over 800-numbers charged to calling cards illegal, it would have (i) included Section 228(c) as one of the sections that can be disregarded by the FTC and (ii) it would not have made the detailed changes to Section 228(c) setting forth the method that must be followed by information service providers and carriers in providing services through 800-numbers. Congress's amendment to Section 5714 permits the FTC to impose the same advertising disclosure requirements on all information services not provided over 800-numbers pursuant to written pre-subscription or calling cards, and allows the FTC to prohibit the offering of information or pay-per-call services over 800-numbers through any method other than written presubscription agreements or calling cards and credit cards.

The fact that Congress specifically provided two separate means of delivering information services over 800-numbers is unmistakable from the amendments made to the TDDRA. Congress created a new Section 228(c)(7)(C)(i), adding calling cards to the charge methods which permitted Vendors of 800-number based information services, Section 228(c)(9) permitting this method as an exclusion from other prohibitions of using 800-numbers for provisions of such services and Section 228(c)(11) providing a detailed definition of calling cards.

By the 1996 amendments, Congress set forth two clearly distinct methods of providing service by 800-numbers: 1) written presubscription agreements and 2) calling cards. For written presubscription agreements, a written notice must be sent to the customer, but no further disclosure is required on each call. In contrast, when a calling card is used to access service, the vendor is never required to provide any written notice to the customer, but must provide extensive audio notifications on every single call. Pilgrim has provided a side-by-side analysis of the requirements which makes clear that there are two separate specific methods of providing 800-number based information services as Exhibit B to this document. The fact that written notice is never required under the calling card exception is unmistakable from the absence of that requirement in 228(c)(9), the absence of that requirement in the definition of a calling card in 228(c)(11), and Congress's admonition to promote the development of electronic commerce which often does not rely on any written requirement.

Notwithstanding this express language, rather than propose a Rule consistent with the Act, the FTC's proposed Rule ignores the calling card exemption established by Section 228 of the Communications Act. Instead, the FTC's revised Section 308.2(e)(2) of its rules, requires a written pre-subscription agreement and the assignment of a "personal identification number" ("PIN") to the billed party before allowing providers to bill for calls placed to toll-free numbers, irrespective of whether the call is charged to a valid calling card. The FTC's absolute disregard of Congress's mandate, however, by proscribing conduct expressly permitted by the Act, both frustrates Congressional intent and exceeds the scope of the FTC's authority.

B. Pilgrim Supports Adoption of a Rule Which Furthers Congressional Intent As Expressed By The Act's Plain Language.

Pilgrim supports the inclusion of a rule section which tracks the calling-card exemption set forth in Section 228(c)(7)(C)(ii) of the Communications Act. Specifically, Section 308.2(g)(3)(iv) should be added as follows:

The Services are charged to a credit, prepaid, debit, charge, or calling card and the information service provider includes in response to each call an introductory disclosure message that--

(A) clearly states that there is a charge for the call;
(B) clearly states the service's total cost per minute and any other fees for the service or for any service to which the caller may be transferred;
(C) explains that the charges must be billed on either a credit, prepaid, debit, charge, or calling card;
(D) asks the caller for the card number;
(E) clearly states that charges for the call begin at the end of the introductory message; and
(F) clearly states that the caller can hang up at or before the end of the introductory message without incurring any charge whatsoever.

Adoption of Pilgrim's proposed Section 308.2(g)(3) would give full force and effect to the Congressionally established calling-card exception.

According to well-established administrative rule making principles, agency regulations must reflect Congressional intent as expressed by the language of the administered statute: "The rule making power granted to an administrative agency charged with the administration of a federal statute is not the power to make law. Rather, it is the power to adopt regulations to carry into effect the will of Congress as expressed by the statute." Ernst & Ernst v. Hochfelder et al., 425 U.S. 185, 213 (1975). The starting point in determining Congressional intent is the express language of the statute itself: "First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court as well as the agency, must give effect to the unambiguously expressed intent of Congress." Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984); See also Legal Envtl. Assistance Found. V. E.P.A., 118 F.3d 1467, 1473 (11th Cir. 1997)("In a statutory construction case, the beginning point must be the language of the statute.) Accordingly, implementing regulations that fail to reflect Congress's intent, as expressed in the plain language of the statute, are void and exceed the scope of the authority granted to administrative agencies. See, In re City of Bridgeport, 128 B.R. 688, 701 (Bankr. D. Conn. 1991) ("An agency . . . cannot change the statute which grants it powers unless the statute expressly so provides. It follows then that any action taken by an administrative agency in excess of its statutory authority is void and without legal effect.")

Relying on these principles, Courts routinely have invalidated agency regulations that are inconsistent with statutory mandates and the unambiguously expressed intent of Congress. For example, in Federal Communications Commission v. American Broadcasting Co. Inc., 347 U.S. 284 (1954), the United States Supreme Court invalidated the FCC's attempt to prohibit the broadcasting of 'giveaway' programs pursuant to a statute prohibiting the broadcasting of "any lottery, gift enterprise or similar scheme." The Court explained: "the Commission's power in this respect is limited by the scope of the statute. Unless the "giveaway" programs involved here are illegal under Section 1304, the Commission cannot employ the statute to make them so by agency action." Id. at 290. Agencies cannot, therefore, through the implementation of regulations, proscribe conduct otherwise permitted by Congress. Cf. Kokechik Fishermen's Ass'n v. Secretary of Commerce, 839 F.2d 795, 802 (D.C. Cir. 1988) (an agency lacks authority "by regulation or any other action, to issue a permit that allows conduct prohibited by the Act.").

Likewise, in Section 228(c) of the Communications Act, Congress clearly endorsed the use of calling cards to bill for calls placed to toll-free telephone numbers in the absence of a written pre-subscription agreement and PIN. Rather than require a written agreement, Section 228(c)(9) of the Communications Act requires only the oral disclosure of certain information at the commencement of all calls ultimately billed to calling cards. 47 U.S.C. § 228(c)(9). Accordingly, the FTC's proposed Rule, requiring a written agreement and PIN before permitting the use of calling cards to charge for 1-800 dialed enhanced and information service calls, reflects an attempt by the FTC to proscribe conduct that Congress expressly intended to permit. The FTC is not authorized unilaterally to invalidate laws expressly passed by Congress through the implementation of inconsistent regulations.

C. The FTC May Not Substitute Its Own Judgment For That of Congress.

In support of its proposed Rule, the FTC reasons that because calling cards are not subject to the protections of the Truth in Lending Act ("TILA") and Fair Credit Billing Act ("FCBA"), they are not entitled to exemption from TDDRA regulation. The FTC explains: "To allow a calling card, a debit card, or other means not within the ambit of both TILA and FCBA to substitute for an actual agreement with the person to be billed for the service would undermine the entire purpose of the pre-subscription agreement exception to the Rule." NPRM at 58538. In advancing this rationale, however, the FTC impermissibly substitutes its own judgment for that of Congress and thus clearly exceeds the scope of its rule making authority.(6) As revealed by the express language of the Act, in enacting TDDRA, Congress envisioned two separate schemes related to billing for informational and enhanced services provided over toll-free telephone numbers. Specifically, Section 228(c)(7) of the Communications Act, 47 U.S.C. § 228(c)(7), permits information and enhanced service providers to bill for services accessed through 800 numbers if either: "(i) the calling party has a written agreement (including an agreement transmitted through electronic medium) that meets the requirements of paragraph (8)" or "the calling party is charged for the information in accordance with paragraph (9)." Section 228(c)(9), 47 U.S.C. § 228(c)(9), allows completion and billing for telephone-billed purchases accessed through 800 numbers charged to charged to a credit, prepaid, debit, charge, or calling card.

Clearly, through the establishment of these two distinct billing mechanisms, Congress intended to provide alternative options to callers desiring access to pay-per-call services. By refusing to acknowledge the calling-card exception, however, the FTC essentially renders Section 224(c)(9) of the Act meaningless. The FTC may not usurp Congress's authority to effect policy by implementing regulations that disregard whole provisions of the Act. Rather, irrespective of the FTC's own views, the FTC's regulations must further those policies clearly and specifically declared by Congress as reflected in the enacted language.

D. The FTC May Not Ignore Policies Embodied In Other Legislation And Misconstrues The Scope Of Authority Provided By The Act.

The FTC contends that, unlike the FCC, it need not comply with the calling card exemption appearing in Title I of the Act because the Act mandates only that it implement regulations consistent with Titles II and III of TDDRA. Specifically, the FTC explains that because Titles II and III require it generally to "prohibit the use of unfair or deceptive practices in the provision of audiotext services," it essentially may ignore those provisions appearing in other sections of the Act. NPRM at 58540 (citing 15 U.S.C. § 5711(a)(1)). To the contrary, however, agencies that implement regulations must consider both those policies embodied in their own organic statutes in addition to those contained in other legislation. Moreover, the FTC misinterprets the scope of authority provided to it by Congress through the TDDRA amendments.

In McLean Trucking Co. et al. v. U.S. et al., 321 U.S. 67 (1944), the U.S. Supreme Court explained the duty of administrative agencies to consider those policies contained in all legislative enactments. The Court stated: "in executing those policies [contained in the agency's organic statute] the Commission may be faced with overlapping and at times inconsistent policies embodied in other legislation enacted at different times and with different problems in view. When this is true, it cannot, without more, ignore the latter." Id. at 80. To the contrary, an agency facing seemingly conflicting statutory policies must implement its own organic statute so as to minimize its impact on other legislative provisions: "an agency, faced with alternative methods of effectuating the policies of a statute it administers, (1) must engage in a careful analysis of the possible effects those alternative courses of action may have on the functioning and policies of other statutory regimes, with which a conflict is claimed; and (2) must explain why the action taken minimizes, to the extent possible, its intrusion into policies that are more properly the province of another agency or statutory regime." New York Shipping Association, Inc. et al. v. Federal Maritime Commission et al., 854 F.2d 1338, 1370 (D.C. Cir. 1988).

Accordingly, in implementing regulations pursuant to TDDRA, the FTC may not wholly disregard the policies embodied in Section 228, but rather, to the extent possible, must implement regulations that minimize the impact of the FTC's Rule on the policies and provisions included in Section 228. The FTC's obligation to incorporate the policies embodied in Section 228 into its rule making is especially true given that Section 228 is part of the same overall statute, the TDDRA, implemented by the FTC. See Kmart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988)("In ascertaining the plain meaning of the statute, the Court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.")

Contrary to the FTC's interpretation of the Act's mandate, notwithstanding the expanded definition of "pay-per-call" established for purposes of determining the scope of FTC regulation, the FTC may not wholly ignore Sections 228(c)(7) and (c)(9) of the Act when alternative regulatory options are available. Specifically, in contrast to the definition of "pay-per-call" applicable for purposes of FCC regulation, Section 5713, expands the definition of "pay-per-call services" in the context of FTC regulation to include certain long-distance, international and non-900 number calls:

The term 'pay-per-call services' has the meaning provided in section 228(i) of the Communications Act of 1934 [47 U.S.C. § 228(i)], except that the Commission by rule may, notwithstanding subparagraphs (B) and (C) of section 228(i)(1) of such Act [47 U.S.C. § 228(i)(1)], extend such definition 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 prescribed pursuant to section 201(a) [15 U.S.C. § 5711(a)].

15 U.S.C. § 5715(1). Section 228(i)(1)(B) refers to "any service, including the provision of a product, the charges for which are assessed on the basis of the completion of the call." 47 U.S.C. § 228(i)(1)(B). Section 228(i)(1)(C) refers to calls accessed through 900 numbers. 47 U.S.C. § 228(i)(1)(C). Although Congress specifically authorized the FTC to impose regulations to apply to certain calls not otherwise subject to FCC regulation, this general authorization is not so broad as to permit the FTC to override the specific details of the statute enacted by Congress with respect to calling cards.

Moreover, not only does the FTC's Rule disregard Section 228 of TDDRA, but it fails to further the policies and goals expressly encouraged by Congress regarding the provision of new services and technology to public consumers. Specifically, Section 157(a) of the Communications Act states: "It shall be the policy of the United States to encourage the provision of new technologies and services to the public." 47 U.S.C. § 157(a). Rather than promote the provision of increased services, however, by facilitating the purchase of informational and enhanced services through electronic commerce, the FTC's Rule, in fact, impedes the provision of these services. By disallowing the use of calling cards to purchase telephone-based services via toll-free numbers in the absence of a pre-subscription agreement and PIN, the FTC imposes unduly burdensome restrictions on the ability of many consumers to access these services. For example, although credit cards could be accepted for callers dialing from home, credit card billing is not available for the 34% of the population that does not carry credit cards. Statistical Abstract of the United States 1998, U.S. Department of Commerce, Bureau of the Census (October 1998) (estimating that in 1995 thirty-four percent (34%) of households did not have general purpose credit cards (Table 823)). Moreover, the Commission's rule will frustrate access to informational and enhanced services by consumers traveling away from home in locations that do not permit 900-numbers or accept credit cards (e.g., some hotels, motels, coin phones, and office locations). The FTC should adopt rules which implement the Congressional mandate while affording sufficient consumer protection. The FTC's concerns about the calling card exception may be ameliorated by applying Regulation 2 to Calling Card Purchases.

IV. The Application of Regulation Z to Calling Cards
Would Protect Consumers Consistent with the TDDRA.

Through Regulation Z, codified at 12 C.F.R. Part 226, the Board of Governors of the Federal Reserve System adopted regulations designed to implement TILA by protecting consumers engaging in credit transactions. Section 226.3 of these regulations, however, exempts from the scope of Regulation Z "public utility credit," defined as "an extension of credit that involves public utility services provided through pipe, wire, other connected facilities, or radio or similar transmission (including extensions of such facilities) if the charges for service delayed payment, or any discounts for prompt payment are filed with or regulated by any government unit." 12 C.F.R. § 226.3(c).

Traditionally, the FTC has interpreted this exemption to exclude all calling card purchases from the scope of regulation. The traditional interpretation is inconsistent with modern purchasing practices. The FTC should reconsider its interpretation of the "public utility credit" exclusion, in light of recent consumer behavior.

Contrary to the FTC's interpretation of "public utility credit," consumers do not rely on calling cards only to purchase pure tariffed common carrier services. Rather, calling cards routinely are used to bill for a wide range of information services, including time and weather reports, sports updates, directory retrieval and other casual information calls. Consistent with this practice, numerous local exchange carriers ("LECs") which issue calling cards have entered into billing and collection agreements with information and enhanced service providers to accommodate calling card purchases of non-tariffed telephone-based services.

TDDRA requires the FTC to promulgate regulations "that impose requirements that are substantially similar to the requirements imposed, with respect to the resolution of credit disputes under the [TILA] and [FCBA]." In order to ensure consistent treatment of all types of billing disputes and to satisfy consumer expectations, the FTC should adopt the billing dispute procedures established by the Federal Reserve Board in Regulation Z, in their entirety. Given the widespread use of calling cards to purchase non-tariffed telephone services, it is no longer appropriate to exclude these types of credit arrangements from the scope of Regulation Z. By including calling cards within the scope of Regulation Z, the FTC may bring calling cards within the scope of the reliable consumer protections afforded by TILA, FCBA and Regulation Z. Accordingly, Pilgrim supports the FTC's proposed rule concerning handling billing disputes, to the extent that it mirrors Regulation Z procedures, but disagrees with any deviation from Regulation Z procedures.

V. Billing Disconnection Notices on Telephone Bill and Investigation of Complaints

Pilgrim also notes that the amendments made by Congress to TDDRA in 1996 expressly provides billing disclosures and prompt investigation and termination of service when written presubscription is used, but not when calling cards, credit cards or other charge mechanisms are implemented. Section 228(c)(8)(B) states that billing disconnection disclaimers are to be used for written presubscription. Section 228(c)(8)(E) requires prompt investigation of complaints and termination of service by the service provider each when call charges under written presubscription are disputed.

Neither of these are required when calling cards and other charge mechanisms are used. See Section 228(c)(9). It is clear that Congress did not intend for these restrictions to apply to calling cards and other charge mechanisms, as Regulation Z and Truth in Lending restrictions were meant to be applied to them by the FTC by rule. The FTC should amend its rules reflecting and giving effect to these amendments by Congress.

VI. Confirmation of Presubscription Agreements

In the proposed revisions to the rules, the FTC suggests adoption of a definition of the term Personal Identification Number ("PIN") to be used in connection with a Presubscription Agreement. Most significantly, a PIN must be "delivered to the person to be billed for the service simultaneously with a clear and conspicuous written disclosure of all the material terms and conditions associated with the presubscription agreement.…" NPRM at 35. The NPRM proposes that the PIN be delivered in writing before services are provided. NPRM at 36. In proposing the written and mailed PIN requirement, the FTC specifically eschews as subject to abuse "presubscription agreements that were formed orally during the course of a telephone call in which the consumer is issued an "instant" calling card.…" NPRM at 36.

Pilgrim objects to the imposition of the requirement that issuance of a calling card be confirmed by delivering the PIN in writing before services may be provided. If the FTC imposes the written confirmation requirement on the Presubscription Agreement, the requirement must be sufficiently flexible to allow for the immediate provision of service, if not the immediate billing for charges arising from the provision of service. The prohibition on provision of services, pending customer receipt of the written confirmation of the PIN and other written disclosures, is not rationally related to the FTC's consumer protection goals. A prohibition on billing for services, pending the customer's receipt of the PIN and written disclosures is more closely related to the FTC's consumer protection goals. Pilgrim proposes that the proposed rule be revised to prohibit billing the charges to a customer's account until ten days from the date on which the PIN and written disclosures were mailed by First Class U.S. Mail, postage prepaid ("Confirmation Period"). If the carrier receives an objection from the subscriber before the end of the Confirmation Period, any service provided during the Confirmation Period cannot be billed and upon the date of receipt of the objection from the subscriber, the carrier must cancel the relevant Presubscription Agreement. If no objection is received from the subscriber before the end of the Confirmation Period, the carrier may process the charges for the services rendered to the subscriber for inclusion on the subscriber's local telephone bill.

VII. Three Second Dial Tone

In its original adoption of rules pursuant to TDDRA in 1993, the FTC considered the imposition of the three second tone requirement. At that time, based largely on its adoptions of Pilgrim's comments in that proceeding, the FTC correctly realized that either being provided a three second tone or entering a calling card or credit number were both event sufficient to let a consumer note they were about to be charged. No reasonable consumer gives someone their calling card or credit card number unless the expect to be charged. Once a service provider provides the proper disclosures and a consumer grants its credit information, sufficient is provided to consumers.

Calling card entry protection is even greater than that provided by the three second tone and there is no consumer based reason for eliminating the calling card or credit card entry notification in lieu of the three second proposed by the rules. Pilgrim requests the FTC to revisit its reading of this issue in the 1993 comments submitted in rule making, and permit either the provision of the three second tone or the provision of charging information, including but not limited to calling card number, credit card numbers and checking account numbers, as an event sufficient to notify consumers that billing is about to begin. To impose the three second tone as the sole means of providing this notification imposes unnecessary burdens on carriers with no benefits to consumers.

Pilgrim also submits that for many service providers and carriers, the insertion of a three second tone can be expensive and burdensome and can place unnecessary technological restrictions on the provision of full disclosure and information and services to consumers. If a carrier or service provider provides a series of prompted menus to walk a consumer through a variety of options and disclosure, provision of the three second requires the carrier provider to maintain some kind of monitoring control over the course of the call prior to billing and to retrieve the call for purposes of insertion of a three second tone prior to permitting charges accruing. Provision of a three second tone after the consumer enters a calling card or credit card number is burdensome, duplicative and unnecessary. The FTC should not adopt a rule which requires a three second warning tone to consumers billing purchases to calling cards or credit cards.

VIII. The FTC Can Ensure that Consumers Are Protected.

The FCC recently asked for comments in its Truth in Billing rule making proceeding, CC Docket No. 98-170. Like the instant proceeding, the Truth in Billing proceeding is designed to produce amended rules which afford greater consumer protections while fostering competition and consumer choice. Pilgrim has attached its comments in the Truth in Billing proceeding to this filing as Exhibits C and D, and incorporated there herein. Although the jurisdiction of the agencies is somewhat different, the rules adopted by each agency must compliment the rules adopted by the other in order to provide clear and consistent protection to consumers and clear and consistent direction to service providers.

Among the issues most directly impacted by this interfacing between the FTC and FCC is related to the FTC's legitimate concern that customers be permitted to adopt blocking choices and to have those choices honored by the various providers. Consumer blocking choices are most often invoked by customers notifying their local exchange carrier ("LEC") of their desire to prevent access to information services. Traditionally, this block has been known as the 900-number block, which permits prohibits the completion of a 900-number call once the block is in place. Blocking information is resident in two places on the LEC network, in the local serving central office, which recognizes when a 900-number is attempted to be dialed by a customer line and terminates the call, and in the line information database ("LIDB") or OMB maintained by the carriers.

A. The FTC Should Mandate Availability of 900-Number Blocking Information in LIDB

In the NPRM, the FTC found that a Vendor may assume that a call from a consumer's telephone to a 900-number service (and the resulting charges for the call) have been authorized if the consumer does not have a 900-number block. Pilgrim notes that 900-number blocking information, however, is not available to Vendors. Pilgrim asked the FCC to order that 900-number blocking information be included in LIDB. Pilgrim reiterates its request before this Agency.

The FCC's rules require LECs to institute 900-number blocking and only to the extent such blocking is technically feasible. The blocking regulations were adopted at a time when information services were provided primarily by a 900-number type platform and at a time when access could not be had through any competitive access provider. The blocking rules can and should be changed in recognition of the new technological and competitiveness environment. Through a change in the blocking rules, the FTC and the FCC ensure that consumers' blocking choices are equally recognized regardless of the service delivery platform. In so doing, however, the FTC and FTC must ensure that blocking options and service provisions are competitively neutral.

Recognizing that 900-number blocking information is resident in both the central office serving switch and in the consumer propriety network interface ("CPNI") database maintained by carriers, the FTC should require all LECs and original dial tone providers to make this information available, on a call by call basis, to all the carriers and service providers which may be providing either service or platform access to any information service or telephone billed purchase providers. Provision of this data on a real-time basis would permit carriers and service providers to ensure that they properly recognized and honored service blocks requested by consumers, and consumers could avoid the frustration of not knowing when or if their block will be honored. Carriers and service providers would also be able to verify whether or not a customer had requested a block both prior to providing service and in the resolution of any consumer complaint taking place at a later point in time.

Traditionally LECs maintained an absolute bottle-neck monopoly control over information services delivery by controlling all 900-numbers and controlling the blocking information to the exclusive of all other competitive service providers. Now that information services can be provided on a number of other platforms, including 800-based written pre-subscription or calling cards, the LECs' continued insistence on exercising monopoly control by withholding this blocking information simply can no longer be tolerated by the FTC and FCC.

Pilgrim also wants to bring to the FTC's attention the fact that it is possible to dial 900-numbers off a 0+ dialing pattern, that is, dialing off a 1+ dialing pattern is not required. In fact, several years ago AT&T filed a tariff with the FCC for the provision of "0+" 900-services, and other carriers and service providers have provided the same service. These 0+ services can be provided by either dialing the 10XXX code, 00 to a pre-subscribed carrier, 1-800 code or receiving a call-back dial tone from the carrier or service provider. Through any of these access methods the customer can receive dial tone other than the local exchange carrier's dial tone and then commence dialing a 900-number from that point. While these dialing patterns are permitted under current law, service providers are not afforded the opportunity to honor blocking requests, because the LECs wrongfully withhold this information to their own competitive advantage and to the detriment of consumers.

B. Billed Name and Address

Likewise, LECs have been refusing to provide real time billed name and address ("BNA"). For most casual calling services, like collect calling, the consumer is not the pre-subscribed customer of the service provider. Even when the service provider takes detailed billing information from the person making each call, the service provider may not be able to accurately confirm that the information obtained from the caller is correct because the LECs deny Vendors access to accurate real-time BNA information.

This denial of access to information thwarts and frustrates the FTC's and FCC's interests in ensuring that when written pre-subscription agreements or calling card are entered into with customers that the identity of the customers can be fairly ascertainable. Although this information is available through LIDB and could be easily accessed on a real time basis through a LIDB or other CPNI inquiry, the LECs have refused to make this information available through an anti-competitive play which is ultimately harmful to consumers. The FTC, in consultation with the FCC, should require LECs to make this available to all service providers, and require all casual access carriers and information service providers to check this database when initially interfacing with consumers in either issuing calling card, credit card or entering into written pre-subscription agreements. Without this information, a valuable verification and anti-fraud tool is denied all competitive carriers, other than LECs, to the detriment of consumers.

C. Required Billing

As set forth in comments Pilgrim made to the FCC, the specific provisions in Section 228(c)(7)-(c)(11) are null and void without a requirement that LECs must provide billing and collection to all parties for whom, pursuant to Section 228(e)(2), it does not have a good faith belief that it is in violation of TDDRA. Failure of the LECs to provide billing and collection is anti-competitive, and makes the permission in Sections 228(c)(9)(c)(7)-(c)(11) illusory and null and void. Failure of the FTC and FCC to ensure that LEC billing and collection is available to all casual calling service provider and information service providers encourages those providers to move to dialing patterns which are beyond the reach of the jurisdiction of the FTC and FCC to the ultimate detriment of consumers. As LECs deny billing and collection in order to force customers to either dial their proprietary 900-networks or highly lucrative long distance and international dialing patterns in a competitive play to eliminate independent service providers, consumers are harmed by taking the provision of services beyond the reach of the FTC and FCC in manners not otherwise prohibited by the rules of either agency.

D. First Amendment

Pilgrim also cautions the FTC that any rules is promulgates must not only be consistent with the statutory mandate as set forth by Congress but must also be in compliance with the U.S. Constitution. In particular, the FTC needs to ensure that its restrictions on the provision of information services are not so onerous as to constitute a total denial of service to individuals which would be in violation of the First Amendment.

In particular, one of the services Pilgrim provides is a group access bridging or personal teleconferencing service in which private parties may discuss any issue of interest between them. These discussions are fully protected discussion under the First Amendment. Whether under the guise of consumer protection or indecency regulation, the government is proscribed from adopting regulations which effectively prohibit speech between private parties, when the regulations are not narrowly tailored to meet the specific concern of the government.

Pilgrim draws the FTC's attention to Bolger, et al. v. Youngs Drug Products Corp., 463 U.S. 60 (1983) and 44 Liquormart, Inc. et al. v. Rhode Island and Rhode Island Liquor Stores Association, 517 U.S. 484 (1995), which demonstrates the applicability of First Amendment restrictions over consumer protection regulations. In this regard, the discussions and findings of the Court in Fabulous Associates v. Pennsylvania Public Utility Commission, 896 F2d 780 (3rd Cir. 1990) are instructive. In Fabulous Associates, an indecency statute adopted by Pennsylvania was struck down as a violation of the First Amendment when the regulations were not narrowly tailored to meet the legitimate government purpose and the regulations effectively prohibited large groups of consumers from being able to access the service. In Fabulous Associates the plaintiffs were able to demonstrate, and the Court found that, "the imposition of access codes unconstitutionally burdens the exercise of some adults First Amendment rights." Id at 785.

The limitations of access codes (like PINs) were that they required self-identification which violated a consumer's right to privacy, imposed substantial additional capital and operating costs on the providers of message services and imposed cost on potential patrons of these services because access was denied to some consumers without the purchase of additional and very expensive equipment. Id. The Court found that "the statutory requirement of access codes to hear sexually suggestive telephone messages imposes a burden on the exercise of the caller's First Amendment rights . . . ." Id at 787.

The written pre-subscription agreement to which the FTC would limit access absent dialing a 900-number suffers from the same infirmities as the access code program in Fabulous Associates. Even considering the three permitted access methods - 900 number dialed, access code (written pre-subscription agreement) or credit card (Mastercard or Visa), these restriction together constitute a impermissible restriction of First Amendment rights because of the large classes of customers still are not able to access grouped access bridged and other First Amendment protected communications. Only through the provision of an anonymous calling card issuance and use process can the first amendment rights of consumers be protected - it is the duty of the FTC and FCC to adopt regulations which properly balance consumer protection interests with First Amendment protections. The proposed regulations in this rule making would prevent the 34% of the United States population that does not have credit cards from not having access to information services when they are not calling from their home,(7) and otherwise imposing significant cost burdens on service providers.

No carrier or service provider will provide service for free. A viable means of billing and collection must be available for each service offering and type of access. In addition, in order to provide full competition among service providers and non-discriminatory access to all customers, each service must have dialing and billing patterns associated with them that permit all callers to freely access all competing service providers.

While each of the services can be billed through a variety of means, the available billing mechanism is limited by (1) the relationship of the carrier or service provider to the customer, or (2) the type of access used by the consumer. The elimination of LEC billing prevents several classes of consumers from having access to casual services and information services. Consumers who do not have credit cards are prevented from using these services while away from home or traveling. Consumers are prevented from using information services while traveling if information services are limited to 900 dialing. The only access means universal to consumers for electronic services, and for traveling usage, is the telephone calling card, particularly in light of the nearly 100% saturation of the telephone today.(8) The issuance requirements for calling cards cannot be so onerous as to interfere with the privacy rights of consumers as well.

IX. Conclusion

For the reasons stated herein, Pilgrim endorses the effort by the FTC to update its regulations to reflect the changes made by Congress in 1996, and to provide better protection for consumers. Likewise, Pilgrim requests that the FTC also adopt regulations that are consistent with Congressional intent and language and the Constitution, and encourages the development and growth of information and enhanced service delivery and availability in a pro-competitive market.

Respectfully submitted,

Walter Steimel, Jr.
Marjorie Conner
Hunton & Williams
1900 K Street, N.W.
Washington, DC 20006

March 10, 1999

1. Casual access services refer to any service provided by a carrier or service provider that is neither the local exchange carrier ("LEC") or the presubscribed carrier to the consumer. Examples of casual access or casual calling services include 1-800-CALLATT; 1-800-COLLECT; 1-800-TRUEATT and 1-800-382-5624.

2. Pilgrim is a Vendor, as contemplated by the NPRM.

3. Parties, including Pilgrim, filed extensive comments in this proceeding. Pilgrim has attached a copy of these comments to this submission, and incorporates them herein as Exhibit A.

4. Most of the material charges were made to the FCC portions of the TDDRA.

5. Section 228(i) of the Communications Act of 1934, as amended, 47 U.S.C. § 151 et seq ("Communications Act") states that a pay-per-call service, regulated under the TDDRA, is one in which audio information or entertainment is provided to consumers on by per-call or per-time interval charge greater than the charge for the transmission of the call, (47 U.S.C. § 228(i)(1)(B)), which is accessed through the use of a 900-number or other prefix designated by the FCC (228(i)(1)(C)).

6. The FTC's insistence on substitution of Congress' judgment with its own will render the rules adopted in this proceeding subject to attack. In American Federation of Government Employees, AFL-CIO, Counsel of Locals No. 214 v. Federal Labor Relations Authority, 798 F.2d 1525 (D.C. Cir. 1986), the D.C. Circuit reviewed a Federal Labor Relations Authority ("FLRA") decision regarding a federal agency's obligation to bargain under the Federal Service Labor-Management Relations Statute, 5 U.S.C. §§ 7101-7135 ("FSLMR"). The Court invalidated the FLRA's interpretation of FSLMR because it "ignore[d] the familiar canon that statutes should be construed to give effect, if possible, to every word Congress used" and effectively repealed a provision of the statute. Id. at 1528. The Court stated: "The deference due to the FLRA's interpretation, however, cannot be allowed to slip into a judicial inertia which results in the unauthorized assumption by an agency of major policy decisions properly made by Congress. . . . Where an agency's interpretation would deprive a statutory provision of virtually all effect, a court should not affirm the agency's interpretation absent legislative history of exceptional clarity." Id. (quotations omitted); See also Earth Island Institute et al. v. Mosbacher et al., 746 F. Supp. 964, 973 (1990) ("The Agency does not have the authority to operate under policies which violate the clear dictates of statute.").

7. The Bureau of the Census estimates that this, in 1995 thirty-four percent (34%) of households did not have general purpose credit cards (Table 823), and thirteen percent (13%) had no transaction accounts (Table 798). Statistical Abstract of the United States 1998, U.S. Department of Commerce, Bureau of the Census (October 1998).

8. On the other hand, census records show that 93.9% of all households have access to a telephone. Id. at Table 915 Calling cards can be issued, over the telephone, to any one with access to a residential line. Real time BNA and 900 blocking information are the most reliable ways to verify and authenticate these transactions.

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