Pay-Per-Call Rule Review: Reponse to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016 #9

Submission Number:
Direct Marketing Association
Initiative Name:
Pay-Per-Call Rule Review: Reponse to Notice of Proposed Rulemaking: 16 C.F.R. Part 308, FTC File No. R611016
Matter Number:


Before the

Pay-Per-Call Rule Review - Comment

FTC File No. R611016


The Direct Marketing Association, Inc., ("The DMA") supports the Commission's efforts to combat fraud and deceptive practices in connection with pay-per-call telephone services, and to prevent abuses, such a "cramming," of the telephone billing system. The DMA membership, comprised of more than 3500 direct marketing companies ranging from multinational corporations to individual entrepreneurs, uses virtually every form of direct marketing technique. Telephone-based marketing and services are keystones in marketers' ability to communicate with customers, and to provide them the most valuable and efficient service. Preserving the integrity of telephone service as a marketing tool is absolutely vital to the success of DMA members' businesses and, therefore, The DMA agrees with the goals underlying the Commission's proposed rule modifications. Assuring that pay-per-call services and goods and services billed through the telephone billing system are promoted and billed truthfully and accurately will generally work to the benefit consumers and marketers alike.

At the same time, efforts to halt abuses must not impose unfair burdens or restrictions on legitimate marketing. The DMA's comments are thus focused primarily on the scope of the Pay-Per-Call Rule and, in particular, the proposed revisions to the definition of pay-per-call services. In broad terms, the Commission's proposed definition reflects the type of balance necessary to allow legitimate, non-deceptive marketing efforts to succeed and provide valued services to consumers. For example, The DMA has always stressed that calls that are in fact free to consumers - the caller is not charged for either the information or the call transport - must not be subject to the Rule. We are grateful that the Commission's proposed expansion of the Rule continues to recognize that an information or entertainment service is a "pay-per-call service" only when a call "results in a charge to a customer."1 This ensures that traditional toll-free service (e.g., via the 800, 888, and 877 service access codes), a fundamental component of so many businesses' customer service, is not inadvertently and unnecessarily swept into the pay-per-call regulatory regime. We also support the Commission's recognition that calls for which the provider may receive de minimis compensation do not invite the fraud and abuses the Rule and the proposed revisions are designed to combat.

The DMA believes, however, that the Commission should clarify the proposed expanded pay-per-call service definition in one respect. The new definition would treat as a pay-per-call service an information or entertainment service where the customer's action "results in a charge to a customer, and where a portion of such charge results in a payment, directly or indirectly, to the person who provides or purports to provide" the service. The DMA agrees that this type of "anti-kickback" restriction may aid in preventing unscrupulous service providers from evading the Rule by burying charges for information in the fee for call transport. The Commission should make unmistakably clear, however, that the Rule comes into play only when a portion of the charge the consumer pays is shared with the service provider. Payment from other sources, even it could be correlated with the number of calls a provider handles, should not trigger application of the Rule. The Rule should apply only where there is a material link between the charge paid by the consumer and the compensation received by the service provider.

A hypothetical example illustrates the importance of making the distinction clear. Assume that a computer software supplier, "Seller," hires a local call center or service bureau, "Call Center," to provide local customer service. Seller pays Call Center to establish and promote a traditional local telephone number, answer incoming calls on that number, and provide technical support and other service to software purchasers who call. Many, and perhaps most, customers who dial the local customer service number - (301) 123-4567 - will pay nothing for the call, no matter how often they call or how long they remain on the line. Yet some consumers, based on their geographic location or the local calling plans they have selected, may pay a toll charge to one or more telecommunications carrier(s) for calling. Call Center would not receive any portion of the charge billed to the customer. Moreover, Call Center would not -- indeed, could not -- know whether any individual consumer will pay a toll charge, since that will depend on the customer's calling plan and location. Call Center also would have utterly no control over the amount of the toll charge, which would be set by the common carrier(s) that transports the call. Yet, assume also that Call Center, like many service bureaus or telemarketers, is compensated by Seller, in whole or in part, based on the number of information inquiries that Call Center handles, and receives $.65 per call handled. Thus, Call Center provides "audio information," a consumer may be assessed a toll charge by virtue of having placed the call, and Call Center is compensated on a per call basis in an amount that exceeds the proposed de minimis threshold.

The DMA believes that this scenario quite properly falls outside the proposed expanded definition of a pay-per-call service, because the compensation Call Center receives is not "a portion of such charge," i.e., the charge to the customer. And, because it would not be a "pay-per-call" service, it should not run afoul of proposed section 308.12, which would prohibit the offering of a pay-per-call service that results in the assessment of a toll-charge.

This type of situation simply should not be governed by the Rule. It does not invite the fraud or abuse the anti-kickback provision is intended to prevent. Call Center, for instance, would have no incentive to keep consumers on the telephone for long periods of time. There are any number of services for which a marketer's compensation could be correlated with an identifiable number of telephone calls (many of which are more properly viewed as business-to-business transactions): The number or duration of calls a telemarketer handles is one way that both the telemarketer and a seller or other client can measure and value the telemarketer's performance, costs, and revenues. But, these business compensation agreements generally have no bearing on whether, or how much, consumers pay for a local or long distance phone call, and the telemarketer or service bureau does not receive a portion of the consumer's payment for the call. This Commission, like the FCC, should acknowledge that "there may be some truly free information services that callers might wish to access through a toll call."2 Thus, if the Commission ultimately determines to adopts an expanded definition and include an anti-kickback provision, it should clarify that only when the information or entertainment service provider's compensation is derived from the charge assessed against the customer can a service be considered "pay-per-call."

The Commission also must avoid premature assumptions about what sort of knowledge or liability on the part of different participants in the pay-per-call industry can be assumed, especially as the Commission considers expanding the Pay-Per-Call Rule. For instance, the Commission boldly suggests that "[i]n some circumstances, a service bureau will always be in position where it should know of a vendor's violation. . . . service bureaus should know if they are providing services to vendors of pay-per-call services that result in toll charges."3 The Commission does not and can not point to any basis for its conclusion, or for assuming it will "always" hold true. Such pure speculation is all the more troubling when the Commission is simultaneously proposing to broaden the definition of a "service bureau," for example, to draw common carriers into the mix. Even leaving aside very significant questions about whether this agency has jurisdiction over common carriers engaged in "call processing" or the like, the Commission can not presume that a service bureau that transports or processes a call between two points, whether or not it is a common carrier, will ever know anything about the content of the call, or that it involved a "pay-per-call service," much less that a service bureau will "always" know. Both this Commission and the FCC have noted the growth in complaints about audiotext services and cramming, and some of these practices may pose difficult obstacles to enforcement. Nonetheless, the Commission can not overcome those problems by resting on bootstrapping theories grounded on baseless assumptions about the role of different participants. The Commission must, as has been its strong tradition, consider each situation and participant individually, and base allegations of liability on evidence, not speculation.

We also urge the Commission to heed carefully the comments of common carriers, which operate in a wholly different industry and regulatory environment, concerning the impact of the Commission's proposals on the provision of telecommunications services and billing to all telecommunications users, not only providers of pay-per-call type services. Again, the benefits of added measures to combat cramming or fraudulent billing must be balanced against the burden such measures will impose on other telecommunications users.

Finally, the Commission should make plain that the examples of "express authorization" described in the Notice are simply that - examples. The alternatives the Commission identified should not be interpreted or applied as an exhaustive list, but as illustrations of possible means by which consumers may "indicate some intent or desire to make the purchase."4 As a practical matter, the requirement for "express consent" may be redundant and, thus, unnecessary, since the Commission's proposal elsewhere makes clear that relying solely on automatic number identification (ANI), except in the case of blockable calls, is insufficient. Nonetheless, the Commission should not limit providers to tape recording or signed statements. There may be other means for consumers to express their desire to make a purchase, and in some cases a totality of circumstances will provide ample, reliable evidence of consent. The Commission should therefore clarify that the examples it has provided are not intended to be an exhaustive list of the only means by which service providers may obtain or demonstrate consumers' consent.

Respectfully submitted,

The Direct Marketing Association

By Counsel

Ian D. Volner
Heather L. McDowell
Venable, Baetjer, Howard & Civiletti, LLP
1201 New York Avenue, N.W.
Washington, D.C. 20005
202.962.8300 (fax)

1 Section 308.2(g)(2) [proposed].

2 Policies and Rules Governing Interstate Pay-Per-Call and Other Information Services Pursuant to the Telecommunications Act of 1996, Order and Notice of Proposed Rulemaking, 11 FCC Rcd. 14738, ¶48 (1996).

3 FTC Notice of Proposed Rulemaking, Pay-Per-Call Rule, 63 Fed. Reg. 58548, n. 252.

4 Id. at 58548.