Pay-Per-Call Rule Review: 900 Number #5

Submission Number:
Michael T. Elliott
TeleServices Industry Association
Initiative Name:
Pay-Per-Call Rule Review: 900 Number

Before the
Washington, D.C.

900-Number Rule Review -- FTC File No. R611016

Comments of the TeleServices Industry Association

Glenn S. Richards
Stephen J. Berman
Fisher Wayland Cooper
Leader & Zaragoza L.L.P.
2001 Pennsylvania Ave., N.W.
Suite 400
Washington, D.C. 20006
(202) 659-3494
Michael T. Elliott
9200 Sunset Boulevard
Los Angeles, CA 90069
(310) 724-6761

Dated: May 9, 1997

The TeleServices Industry Association ("TSIA") respectfully submits these comments in response to the Federal Trade Commission's ("FTC"or "Commission") request for public comment on the Commission's Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992 ("the 900-Number Rule"), 16 C.F.R. § 308, released March 11, 1997, in the above-captioned proceeding. 900-Number Rule Review, 62 FR 11750. TSIA appreciates this opportunity to offer its views on the overall economic regulatory impact of the 900-Number Rule. TSIA believes that the timing for this review is just right -- while enough time has passed since the implementation of this rule to allow a comprehensive assessment of its costs and benefits, it is early enough in this rule's history that necessary and appropriate corrective measures can be taken without disrupting entrenched industry practices. In these comments, TSIA urges the FTC to initiate a number of such necessary changes. In addition, TSIA also responds to the Commission's request for comment on the potential broadening of the 900-Number Rule's definition of pay-per-call services.


TSIA is a national trade association with more than a thousand members representing a wide range of U.S. and international companies engaged in the information and electronic commerce industries. The membership of TSIA includes service bureaus, carriers, information providers, clearinghouses, billing and collection, publishing and marketing companies. TSIA has been an active participant in all legislative and regulatory proceedings concerning pay-per-call information service proceedings since its formation. TSIA representatives have met on numerous occasions with the Federal Communications Commission, the Federal Trade Commission, the Department of Commerce, and various Members of Congress in a proactive effort to address the issues of the information services industry. TSIA also has requested an opportunity to participate in the hearing scheduled June 19-20 to discuss the comments filed in this proceeding.

The TSIA believes that industry self-regulation should govern the structure of the audiotext industry as much as possible. However, TSIA recognizes that appropriate federal government regulation can help protect consumers, and provide, in the long run, a level playing field for legitimate industry participants. Most recently, TSIA's support played an important role in Congress' decision in the Telecommunications Act of 1996 (the "Telecom Act") to eliminate the tariffed rate exception from the definition of "pay-per-call services."

Five years ago, Congress passed the Telephone Disclosure and Dispute Resolution Act ("TDDRA"), which required the Federal Trade Commission and Federal Communications Commission to adopt regulations specifying billing and collection procedures for the 900 number pay-per-call industry. TSIA believes that the requirements established by FTC in its 900-Number Rule have benefitted consumers and enhanced the fairness and credibility of the audiotext industry. Since the implementation of these regulations in November, 1993, most companies providing these services have adjusted their procedures to comply with the law.

The Chargeback Problem

Unfortunately, the TDDRA, the pay-per-call provisions of the Telecom Act, and applicable FCC and FTC regulations have together failed to yield what all parties had hoped for: an ideally functioning pay-per-call industry that is equally fair for consumers, carriers, and information service providers ("IPs"). Simply, the FTC's rules do not adequately protect the rights of IPs. In particular, TSIA has grown increasingly concerned with the rapid growth in the rate and amount of consumer "chargebacks." A chargeback occurs when the consumer fails to pay for the 900 services provided by the IP. More than 80% of all chargebacks involve consumers who deny any knowledge of the 900 call or claim that the call was unauthorized.

Many consumers appear to be purchasing 900 services without any intention of paying for such services, encouraged in this effort by the TDDRA's prohibition on the termination of local or long distance service as the result of non-payment of 900 charges, as well as LECs' failure to enforce the FTC's rules, discussed below.

The providers of these information and entertainment services, the IPs, are left to suffer the consequences of this delinquency. In 1996, chargebacks were estimated at $179 million, or 18% of customer billings. Moreover, unlike refunds associated with consumer durable goods, IPs are not able to resell lost calls. Thus, IPs are unable to recover the costs associated with providing these calls to the end-user, including costs associated with voice recording and delivery, transmission, and billing.

Inevitably, of course, IPs do not bear this cost alone. With less revenue, the industry's ability to develop new technologies and products is diminished. The prevalence of chargebacks thereby limits the range of information and entertainment services available to honest, paying consumers. In addition, IPs are forced to compensate for this revenue loss by raising their 900 rates -- TSIA estimates that the chargeback phenomenon has forced IPs to raise the price of their services almost $1.00 per minute (or as much as an extra $5-$10 for an average call). As a result, legitimate consumers are forced to pay more for those services that are available. In addition, chargebacks have encouraged IPs to seek out alternative billing mechanisms and dialing patterns (e.g., 011) that are less susceptible to fraudulent non-payment, but that may not afford the same consumer safeguards as 900 services. Finally, chargebacks decrease the amount of revenue collected by the federal government through federal excise and corporate income taxes. (Certain elements of the industry do receive full payment, even in the case of these fraudulent callers; these elements include the underlying carrier and the local exchange carrier ("LEC"). Obviously, these parts of the industry may view this problem very differently.)

The Billing and Collection Process for 900 Calls

TSIA believes that the chargeback phenomenon is largely the result of problems associated with the billing and collection process for 900 services. In particular, TSIA has focused on the role of LECs in this process. TSIA believes that stricter enforcement of the FTC's 900-Number Rule, in combination with several key changes to this rule, would substantially alleviate the growing chargeback problem. Before identifying these provisions and outlining these proposals, however, it is necessary to describe the billing and collection process for 900 calls.

When a consumer places a call to a pay-per-call information or entertainment service, he or she can select from any number of different payment methods. He or she can place this call using a prepaid card, or debit card, that is specifically designed for information services. He or she can arrange to have the call charged to his or her credit card, or to a LEC, long distance carrier, or private calling card. Alternatively, he or she can establish a system of direct payment, pursuant to which the IP sends him a private bill containing all relevant charges. Or, he or she can arrange for the information or entertainment charges to be automatically deducted from his or her checking account. Finally, in the case of 900 number calls, the consumer's LEC includes charges for the call on the consumer's monthly telephone bill. The LEC's bill also includes the consumer's monthly local and long distance telecommunications charges. Of course, under the TDDRA and FCC regulations, a customer's local and long distance telephone service cannot be terminated as a result of a customer's failure to meet his or her pay-per-call obligations. The inclusion of 900 charges on a customer's monthly phone bill assumes the existence of a billing and collection agreement with the relevant LEC. In the vast majority of cases, IPs do not establish billing and collection agreements with the LECs directly. Instead, IPs contract with billing "aggregators" or "clearinghouses," which typically have formed billing and collection agreements with all willing LECs.

Typically, LECs use a "single balance due" billing and collection methodology that initially treats all charges alike, whether the services provided were basic, toll, or pay-per-call. In this system, any payment from the consumer simply reduces the overall amount due to the LEC.

Some state jurisdictions, however, require that customer payments be applied first to basic services. After basic services have been fully covered, any remaining payment is then applied to toll and pay-per-call services.

A LEC's billing statement typically includes a customer's charges incurred during the most recent "billing cycle." The billing cycle is typically 30 days in duration, and concludes with the "bill pull" process, which yields a mix of basic, toll, and pay-per-call charges for that 30-day period. The LECs typically mail billing statements to customers approximately 30 days after the end of the previous billing cycle. The LEC normally will take no action to collect these charges until 24 days after the mailing of the billing statement. At this stage, LECs typically do not differentiate between basic, toll, or pay-per-call charges.

On the 24th day, notices are typically sent to non-paying customers. These customers are advised that in order to keep their accounts current, they must make payment or call to make payment arrangements. Some states require that consumers be advised that regulated toll charges and charges for pay-per-call services are treated differently for billing purposes. LECs may be required to inform consumers, for example, that in order to prevent the termination of basic telephone services, consumers must only cover their basic service charges.

Typically, if the consumer has not tendered payment by the 30th day, the LEC will attempt to contact the consumer by telephone. If the consumer pays his or her basic service charges only, basic service continues, while 900 charges continue to be carried forward, potentially growing month after month. Again, non-payment of 900 services does not lead to the termination of local or long distance service, nor does the IP receive any notice of the non-payment at this time.

If the consumer has not tendered payment for basic services by the 40th day following billing, the LEC typically terminates basic services. Most LECs pursue the remaining balance for basic services through a collection agency.

With respect to unpaid 900 charges, some LECs write off the remaining 900 balance after 4 to 8 months of unsuccessful collection efforts. At that time, these uncollected charges are returned to the billing entity or carrier. This write-off process might not be completed until 8 to 14 months after the actual call date. Other LECs write off unpaid 900 charges at the point at which the unpaid account is turned over to a collection agency. In those cases, the write-off process is usually completed within 3 to 6 months following the call date.

When a LEC returns uncollected charges to a billing aggregator, it can provide the billing aggregator with information about the 900 calls at issue, or "call detail," although there is currently no requirement that the LEC do so. Call detail includes the billing name and address ("BNA"), the number billed, the specific 900 number dialed for each call, the charge for each call, the date of each call, the billing date for each call, and any amounts collected on each call. When a LEC provides the billing entity with call detail, this information is then forwarded to the IPs, who can then use information to block abusers from future access to their services. Without this information, the IP and the billing entity are blind to the amounts due and other specific information relating to consumers who refuse to pay for services rendered.

The FTC's Dispute Resolution Procedure for Pay-Per-Call Billing

Of course, as the result of the TDDRA, a consumer who does not want to pay his or her 900 charges can do more than simply withhold payment. The FTC's 900-Number Rule provides consumers a mechanism for contesting 900 charges which they believe are invalid. Under 16 C.F.R. § 308.7, a consumer has 60 days after billing to give notice to the billing entity, typically a LEC, that it is contesting a particular 900 charge. The LEC then has up to 90 days to review the disputed 900 charge and inform the customer of the results of its investigation. If the LEC determines that the consumer has a valid claim, the FTC requires the LEC to promptly notify the IP concerning the dispute, but does not require that this procedure be completed within a specific time frame. If the LEC determines that the consumer's claim is invalid and that the consumer is obligated to pay the full amount, and the consumer continues to refuse payment, the "write-off" process described above ensues over the following months.

Responsibility of the LECs

TSIA believes that LEC conduct in the billing and collection process is primarily responsible for the magnitude of the chargeback problem. First, the LECs often fail to comply with the time requirements established by the FTC to accept a dispute. The LECs frequently fail to limit consumer-initiated billing reviews to the 60-day post-billing window established by the FTC. Under Section 308.7, consumers who did not provide notice to LECs within 60 days should not be afforded the FTC's dispute resolution process. In addition, LECs often fail to complete their 900 charge investigations within 90 days of receiving the consumer's request. In fact, a review of 900 charge "adjustment" data provided to MCI from a major RBOC during the May-July 1996 period indicated that 38% of these reviews took longer than 90 days.

In addition, LECs often fail to provide information about these disputed calls to the carrier/billing aggregator or IP within a reasonable period of time. It is true that LECs are not required to do so; as stated above, the FTC's rules only require that the billing entity notify these parties "promptly" if some portion of the disputed 900 charge turns out to be erroneous, and provide the reasons for this conclusion. There is no reason, however, why LECs could not much more efficiently provide carriers or IPs with the critical "call detail" described above, even where the LEC concludes that there was no billing error. Such action would be quite beneficial, as the consistently early receipt of call detail would permit IPs to move more quickly to place a 900 block on the delinquent caller or subscriber. In addition, such information might also facilitate an IP's collection efforts for those charges.


I. In Order to Reduce the Incidence Chargebacks, the FTC Should More Strictly Enforce Its Existing Rules and Implement a Number of Key Regulatory Changes

TSIA believes that clarification and stricter enforcement of current FTC rules and the enactment of certain key regulatory changes together would reverse the growth of chargebacks, with minimal costs. First, the FTC should clarify its current definition of "billing error." This definition includes "a telephone-billed purchase that was not made by the customer nor made from the telephone of the customer who was billed for the purchase." The FTC should make clear that this definition does not encompass charges for 900 calls about which a customer merely "denies all knowledge," or calls which the customer claims were unauthorized. TSIA believes that if a call is made from a customer's subscribed line, the customer should be responsible for that charge; the IP has provided its service, and it should be compensated for that service. Accordingly, if a LEC's investigation shows that a customer is withholding payment on either of these bases, it should inform the customer that it not entitled to any credit, and that full payment of the 900 charge at issue is required.

Second, the FTC should more strictly enforce the time requirements for its dispute resolution mechanism. The FTC must ensure that LECs consistently deny a consumer's request for a billing adjustment where this request is made more than 60 days after the consumer receives his or her billing statement. In addition, the FTC must work to ensure that LECs complete the investigatory process within the required 90 days. A system of periodic audits by the FTC would help to ensure LEC compliance with the agency's regulations.

The enactment of additional regulatory requirements is also critical to any effort to reduce the chargeback problem. First, the FTC should require that a LEC do more than merely "promptly notify the appropriate providing carrier or vendor, as applicable, of its disposition of the customer's billing error and the reasons therefore . . ." The FTC should establish a more comprehensive notice rule, requiring that a LEC provide the billing entity with the billing name and address of the subscriber to that telephone line, as well as other significant "call detail," such as the 900 number dialed for each call, the charge for each call, the date of each call, and the billing date for each call, within 30 days of a consumer's Section 308.7(b) notice. The LEC should also be required to apprise the billing entity of the results of its billing investigation, no matter the outcome of that inquiry, within 30 days of its conclusion. As a return benefit to consumers, the FTC could also require that the LEC provide the subscriber with the name, address, and customer service number of the IP within 30 days of the consumer's initiation of the billing review.

By enforcing the time requirements of its dispute resolution procedures and adding the rule outlined above, the FTC would enable IPs to more quickly obtain BNA and other key information on outstanding pay-per-call charges. As mentioned above, with this information in hand much earlier in the billing payment process, IPs could more efficiently identify consumer fraud and abuse, and could more quickly implement call blocking on the subscriber's line to prevent further loss of revenues. In addition, the earlier receipt of this information could facilitate the IP's collection efforts. Overall, therefore, the measures described above could significantly reduce the revenue loss attributed to chargebacks.

In its effort to alleviate the chargeback problem, however, the Commission should do more than just further refine its dispute resolution procedures. In addition, the FTC should require LECs to accelerate the "write-off" process for unpaid 900 charges. Specifically, the Commission should mandate that LECs write off all charges that are more than 60 days in arrears and charge these calls back to the carrier or billing entity. (This write-off might occur 60 days after the initial payment due date, or 60 days after the new payment due date established at the conclusion of a LEC's billing investigation.) Where the customer's BNA and other call detail has not yet been provided, the LEC should at the time of this write-off be required to provide this information and all call detail to the carrier or appropriate billing entity. This measure, like those above, would facilitate IP line blocking and collection efforts.

In addition, the LECs themselves should be subject to certain line blocking and collection requirements. The FTC should also require LECs to make a good faith effort to collect all outstanding 900 balances prior to write-off. Collection letters should emphasize the consumers's responsibility with regard to 900 debt and make clear to the consumer the provider's right to collect all sums owed in accordance with TDDRA. Once these sums are written off, consumers should have to sign a written request to be unblocked and accept potential termination of service if any future unpaid 900 charges are deemed valid under TDDRA.

TSIA believes that a more comprehensive disclosure of consumers' rights and liabilities would also help to reduce the incidence of chargebacks. In addition to the current disclosure requirements, TSIA believes that LEC billing statements should place a greater emphasis on the 60-day notice window and the potential effect of an undisputed non-payment of a 900 charge on a subscriber's credit rating. Accordingly, TSIA proposes that LECs be required to include the following language on a separate page of a customer's phone bill:

This bill contains charges for calls from your phone to 900 numbers that provided information and/or entertainment services. If you wish to dispute any specific 900 charges that appear on this bill, you must call the number at the bottom of your itemized call page within 60 days, otherwise the charge(s) will be presumed to be valid.

Neither your local nor long distance service will be disconnected if you do not pay the disputed charges. Even if the disputed charges are removed from your bill, the 900 service provider has the right to pursue the collection of these disputed charges.

Your failure to pay undisputed charges timely may be reported under the Consumer Credit Reporting Act to a third party credit reporting agency, which may adversely affect your credit. You can call your local telephone company to have 900 calls blocked from your line.

In addition, TSIA believes that the FTC should require that, once every three months, LECs send consumers a bill insert that states that third party providers have the right to enforce collection and/or civil procedures against consumers who knowingly and willing engage in the theft of telecommunication services.

A revision of the Commission's rule on credit reporting, 16 C.F.R. § 308.7(i), would also serve to deter chargebacks. Currently, once a consumer has notified a billing entity that it is disputing certain 900 charges, the FTC prohibits that billing entity from reporting information about those unpaid charges to any third party until it has conducted its investigation and determined whether or not this refusal to pay is legitimate. TSIA believes that this rule is overly restrictive. In particular, the IP needs this information to proactively determine the cause of the dispute and potentially to resolve the dispute on behalf of the consumer. In many instances, the consumer seeking the billing adjustment has a chronic history of submitting baseless requests. The Commission should establish a standard which would allow the billing entity in those cases to inform a credit bureau about this non-payment. This right would help to deter further abuse of the Commission's dispute resolution mechanism.

TSIA strongly believes that all of its recommendations would help to reduce the incidence of chargebacks, perhaps the most significant problem currently facing the audiotext industry. The alleviation of this problem would stimulate the growth of the pay-per-call industry and help assure the technological advances that will ultimately improve product delivery and enhance the audiotext billing process. Moreover, these solutions will assure the presence of a 900 call platform that the consumer can utilize with confidence and the industry will utilize simply as a matter of good business sense.

II. Other Issues

A. Advertisement of pay-per-call services

TSIA believes that the FTC's regulation of the advertisement of pay-per-call services has provided important protections to consumers, and TSIA strongly supports the continued enforcement of these rules. TSIA agrees with the Commission that IPs must fully disclose the terms of their services in all advertisements and promotional materials irrespective of the dialing patterns or payment method. The TSIA itself has issued a "Code of Ethics" which prohibits members from using any promotional materials or methods that mislead consumers through inaccuracy, ambiguity, exaggeration, or omission. TSIA requires that its members' advertisements be clear, honest, and complete, thereby enabling consumers to know the exact nature of the service offered, as well as the price, the terms of payment, and the commitment involved in requesting this service.

One advertising issue that particularly concerns TSIA is IPs' use of the word "free" in their promotional materials. TSIA believes that an IP should not be permitted to describe its service as "free" unless it is totally free and without any obligation. Thus, pay-per-call services which incur any charges (including local, intra or interLATA, toll, or international) immediately upon connection cannot be allowed to advertise their product as "free" under any circumstance. TSIA strongly believes that the FTC's advertising rules should be applied uniformly, including to advertisements for pay-per-call services appearing in new media like the Internet.

TSIA recognizes that the industry's use of the Internet raises novel questions, but remains confident that the Commission's existing rules can be adapted to this new advertising environment. Accordingly, TSIA opposes the enactment of any new regulations with respect to the advertisement of pay-per-call services.

Finally, TSIA believes that the Commission's rule governing the solicitation of calls to pay-per-call services is sufficiently flexible to be applied to messages left on telephone answering machines and telephone numbers left on pagers. The Commission does not have to enact new regulations in order to clamp down on these new solicitation techniques; it can do so under its existing authority. The Commission must continue to pursue such abuses with diligence.

B. Presubscription agreements

The Commission has asked for comment on its current definition of "presubscription agreement," contained in Section 308.2(e)(1) of its rules. TSIA believes that the FTC shows insufficient flexibility in its designation of billing arrangements which, if made during the course of a call to a pay-per-call service, are considered to constitute a presubscription or comparable arrangement. Currently, the FTC provides that only the use of a credit card or charge card number functions as an acceptable alternative to a contractual agreement. In contrast, TSIA believes that eight different methods of payment should be viewed as establishing a "presubscription or comparable arrangement." In addition to the two methods identified by the Commission, TSIA believes that use of any of the following methods should be accepted: prepaid account card; debit card, calling card; direct remittance; pre-authorized draft; and direct billing.

The first three of the additional methods identified above -- prepaid account card, debit card, and calling card -- were all deemed acceptable alternatives to a contractual agreement in Section 701 of the Telecom Act, and again in the FCC's pay-per-call rules, 47 C.F.R. § 64.1501(b)(5). Thus, at the very least, the FTC should harmonize its definition with those of Congress and the FCC, and expand its list of acceptable alternatives to include these well-established methods of payment.

In addition, TSIA strongly believes that direct remittance, pre-authorized draft, and direct billing should be added to the list of acceptable alternatives to a contractual agreement. Each of these methods would increase consumer flexibility. At the same time, consumers would remain fully protected, as the inclusion of these forms of payment would subject these options to the same disclosures as those applied to the already acceptable alternatives.

In addition, TSIA believes that the FTC's definition of presubscription agreement may need to be broadened to encompass a newly developing commercial arrangement, the telephone "club." The operator of a typical "club" offers a continuing supply of some product or service through a 900 or toll-free number, and arranges to bill the customer a monthly recurring charge for this product or service through the customer's LEC. Thus, every month, the club member includes payment for this product or service along with his or her payment for local, long distance, and other pay-per-call services. One of the services offered by the club may be discounted minutes of a 900 service, but a club can just as easily offer a product or service entirely unrelated to telecommunications.

The FTC's rules do not address entities such as clubs which impose a recurring monthly charge on customers through their telephone bills. The FTC should make clear that advertisements for clubs should provide disclosure of all club policies, and that clubs should allow their members to cancel their memberships at any time. In addition, TSIA believes that the FTC should treat these "clubs" as presubscription arrangements, and should revise its rules in order to subject clubs to the requirements laid out in Section 308.2(e). Accordingly, the FTC should require that, in order to form a valid membership, a customer must enter into a written contractual agreement with the club operator, or, alternatively, utilize one of the billing methods ultimately identified by the Commission as an acceptable alternative to such a contract.

C. Disclosure and preamble requirements

TSIA believes that the FTC's disclosure and preamble requirements have been an important safeguard for consumers, and strongly supports their continued application and enforcement. In particular, TSIA believes that the preamble requirement has helped to decrease the volume of 900 calls not authorized by a telephone subscriber.

TSIA believes that the preamble requirement provides consumers with sufficient protection in any "variable rate" billing context. The existing preamble rule for calls billed on a variable rate basis, 16 C.F.R. § 308.5(a)(2)(iii), requires that ". . . the preamble shall state . . . the cost of the initial portion of the call, any minimum charges, and the range of rates that may be charged depending on the options chosen by the caller." Where the first portion of the call is free, this rule requires that the IP disclose this fact, and clearly indicate when during the call charges will begin. Thus, in view of this requirement, it is not necessary to provide an additional audible tone or some other alert mechanism during the call to signal the beginning of such charges after any "free" period has expired. This mechanism would inevitably interfere with the flow of the information or entertainment service, and should not be required by the Commission.

In TSIA's view, the consumer must take responsibility for determining when charges begin, just as with any long distance call. TSIA also believes that the existing preamble requirement provides sufficient protection to consumers where an IP charges different rates for different time periods within a single call.

While the issue is of no real import, TSIA believes that the $2.00 threshold for "nominal cost calls," where no preamble is necessary, should be raised to $3.00. Given the cost structure of the audiotext industry, there are very few nominal cost calls (e.g., polling or television contests) because the retail price is exceeded by the IPs' transport and billing costs. Few if any IPs offer such revenue losers, and the Section 308.5 nominal cost exemption is basically irrelevant.

TSIA opposes any effort to mandate the lengthening the preamble or require billing in less than one minute increments. A long preamble may be unnecessary and will increase the industry's costs of doing business in those cases where a long preamble is not needed. In addition, while less than one minute billing is possible, the underlying 900 transport provider generally bills IPs in one minute increments.

Finally, while TSIA does not believe that there is any need to add to or strengthen the Commission's preamble requirements, TSIA does believe that the fundamental principles underlying these requirements should be applied to any new pay-per-call environment, including the Internet and any and all dialing and/or billing methods, to the extent possible.

D. Jurisdictional overlap with FCC and states

As described above, TSIA urges the FTC to act aggressively to modify LEC conduct during the billing and collection process. Such action will require the FTC to assert greater regulatory control over LEC activities, and will likely result in increased jurisdictional overlap with the Federal Communications Commission. Given the magnitude of the chargeback problem, however, TSIA believes that this additional regulatory oversight is necessary and beneficial, and that greater overlap in this area is unlikely to have any significant harmful effects. TSIA also urges the FTC, where possible, to harmonize existing federal laws and regulations with those applied by states and municipalities. Audiotext services, which are typically offered through 800 or 900 numbers, are available nationwide and advertise predominantly in national media. Subjecting the industry to the varying state laws, as well as federal regulation, inevitably leads to inconsistent billing practices and creates confusion for IPs, carriers, and consumers alike. Little consumer benefit is gained in return. The FTC should work now to address the problems resulting from this regulatory patchwork.

E. Definition of "service bureau"

The FTC defines a "service bureau" as "any person, other than a common carrier, who provides, among other things, access to telephone service and voice storage to pay-per-call service providers." TSIA believes that the Commission should eliminate this common carrier exemption. AT&T and other carriers are clearly functioning as service bureaus in many instances, and should be subject to the same regulatory requirements as all other entities providing these services. Moreover, under the current rule, any service bureau can avoid FTC regulatory or legislative oversight by becoming a common carrier. The Commission should move to establish a level playing field, removing the competitive advantage made available by this artificial and unwarranted distinction.

III. Extension of the Definition of Pay-per-call Services to Other Services

TSIA agrees that the FTC must address the status of non-toll free information services that utilize non-900 dialing patterns. In particular, the Commission needs to examine all services which can be reached over a "plain old telephone service," or "POTS" line. Some newspapers, for instance, offer POTS line information services that may yield local usage, local-toll, or long distance charges when accessed. In addition, many IPs now offer information and entertainment services over international dialing patterns. Thus, TSIA believes that the Commission should establish a new category of pay-per-call for these information services, with regulations tailored to the technical realities of the toll-based environment.

For example, TSIA proposes that the Commission should regulate those alternative dialing pattern information services if the rate on calls to that service exceeds by more than 20% the dominant carrier rate on such calls. Moreover, the FTC must recognize that any rules pursuant to this expanded authority will have to be adapted to this new context. For instance, it is not technically possible to implement a requirement that a free preamble precede the initiation of charges for such service; on local, intraLATA, interLATA, long distance, and international calls, charges begin to be incurred as soon as there is a connection.

At a minimum, advertisements for these services should clearly state that local or long distance charges may apply to calls to these numbers. The TSIA strongly opposes any advertisements, either directly by country name or indirectly by providing country code of the to-be-called country, stating that calls are being terminated in one country (and, thus, charged long distance rates for that country), when in fact the calls are actually terminated in a different country (with a presumably lower rate).

It is also instructive to understand why alternative dialing patterns have developed. The primary reason is that high chargeback rates for 900 calls have driven IPs to find alternative billing mechanisms. In addition, foreign IPs have set up programs in other countries that have international appeal to a transient global population. Also key to this development are the high transport rates in the United States. Indeed, 900 transport rates are typically three to five times higher than 800 transport rates. Thus, consumers are able to get similar or comparable services for lower rates.


For the above-described reasons, TSIA respectfully urges that the Commission adopt the proposals provided herein.

Respectfully submitted,


Glenn S. Richards
Stephen J. Berman
Fisher Wayland Cooper
Leader & Zaragoza L.L.P.
2001 Pennsylvania Ave., N.W.
Suite 400
Washington, D.C. 20006
(202) 659-3494
Michael T. Elliott
9200 Sunset Boulevard
Los Angeles, CA 90069
(310) 724-6761

Dated: May 9, 1997