FEDERAL TRADE COMMISSION

I N D E X

AGENDA: PAGE NO.:

Defining Pay-Per-Call 304

Cost Disclosures & Consumer Protections 388

Miscellaneous Issues 506

Nominal Cost Exception 517

Modifications to Preamble 522

New Technology 554

FEDERAL TRADE COMMISSION

In the Matter of: )

Workshop on Pay-Per-Call )

Rulemaking ) Volume 2

------------------------------)

Friday, June 20, 1997

Room 432

Federal Trade Commission

6th Street and Pennsylvania

Ave., NW

Washington, D.C. 20580

The above-entitled resumed on for conference,

pursuant to notice, at 9:00 a.m.

APPEARANCES:

ON BEHALF OF THE FEDERAL TRADE COMMISSION:

EILEEN HARRINGTON

ALLEN HILE

MARIANNE SCHWANKE

MARK HERTZENDORF

ADAM COHN

FROM THE INDUSTRY:

PETER J. BRENNAN, TPI

R.J. GORDON, R.J. Gordon & Co.

LINDA A GOLDSTEIN, Hall Dickler

J. ALAN TAYLOR, Florida PSC

BARBARA MAJESKI, SNET

ALBERT J. ANGEL, ICN Limited

JON W. SHAUB, AT&T

JAMES H. BOLIN, JR., AT&T

DAVE GILLIS, NAAG

JILL SANDFORD, NAAG

REBECCA G. BOWMAN, NAAG

SUSAN GRANT, National Consumers League

KIM WILLIAMS, Southwestern Bell

WALT STEIMEL, JR., Pilgrim

JOEL R. DICHTER, Klein Zelman

DON KLUG, MCI

RONALD S. GOLDBRENNER, PMAA

GARRETT L. PASSON, NTS, Inc.

PHILIP MELLO, Telecompute Corp.

IAN K. EISENBERG

P R O C E E D I N G S

- - - - -

MS. HARRINGTON: As soon as the coffee is ready,

our trusty assistant is going to give us the thumbs up,

and we will let you know, and we can all stampede out to

the pot.

Announcements is what the agenda says. I don't

have any. Does anyone else have any announcements that

they would like to make this morning? Any birthdays or

anything, anniversaries?

I want to tell you that our reporter said this

morning that you all are doing an exceptionally good job

of identifying yourselves and speaking in a way that she

can hear and get into the record, so you can be assured

that all of your gems from yesterday are now

memorialized in the official record of this rulemaking

exercise.

This morning we are on to a subject that is

raised both by the experience that we have had in the

law enforcement area here at the FTC, the experience

that the states and the National Fraud Information

Center and others have had, and that is trying to deal

with the problem of defining pay-per-call in an era

where many different dialing patterns are used to access

audiotext services.

As you may know, in the Telecommunications Act

of 1996, the Congress gave the Federal Communications

Commission the authority to broaden the definition of

pay-per-call if the Commission believed that there are

other deceptive or problematic practices which should be

bought within the definition, so that the same kinds of

regime and protections might be created for those.

This is intellectually a hard issue for us. We

have -- before we opened this rulemaking -- had a number

of conversations with a number of you and others who

have an interest in this issue trying to learn ourselves

what the practices are and also to understand what

consumer experience is in this area.

I think that it's fair to say for the record,

and then we can have some elaboration on it, but it's

probably not terribly necessary, let me say for the

record that consumer complaints and incidences of fraud

using other than 900 number dialing patterns to access

audiotext services have been a very significant problem

for consumers and for law enforcers.

We at the Federal Trade Commission have brought

enforcement action in actually a couple of instances

involving dialing patterns to international destinations

that resulted in charges to the consumers for

essentially audiotext kinds of services. In those

cases, we have alleged violations of Section 5 of the

FTC Act and made it very clear that the Commission

believes that these sorts of deceptive acts and

practices are subject to the Federal Trade Commission's

jurisdiction no matter where the call is routed to. If

the advertisers of these services come into our market,

they are required to comply with our law under Section 5

of the FTC Act.

At the same time, because the definition in the

TDDRA of pay-per-call service is limited to 900 number

dialing patterns, in effect, the rule has not applied,

and an important question is should it. And if it

should, how do we alter the definition of pay-per-call

service to provide consumers with the basic protections

of disclosure both in advertising at the point of sale

and with the rights that consumers have to dispute

charges?

So, this morning we are going to -- with that

backdrop -- focus on the definition of pay-per-call. I

am going to be turning things over to Allen Hile for a

time this morning, because I have another commitment in

the building, and then I will be back, and we will just

continue to run as we did yesterday. We will take a

break when the coffee is done very briefly so that you

can all stampede back, and then we will sit back down

and take a more formal break at 10:45.

Let's lead with the first question. How can a

definition of pay-per-call be crafted that incorporates

services that are susceptible to unfair and deceptive

acts or practices that otherwise are prohibited by the

current 900 number rule?

Alan?

MR. TAYLOR: Just for discussion purposes, just

for definition --

MS. HARRINGTON: Could you speak right into the

microphone, please?

MR. TAYLOR: Just for discussion purposes, I

took the definition that's in the Communications Act,

and as bureaucrats tend to do, I just did a type and

strike type thing, but basically reading the definition

as it exists now, I think -- and my -- well, maybe some

of you have the rule that you can follow along with me,

but I am looking at 308.2, Definitions, and the footnote

where the -- where the FTC says, "Pay-per-call service

has the meaning provided in Section 228 of the

Communications Act," and it includes in its footnote

that definition.

That definition, "The term per-pay call services

means any service," and so forth, down to paragraph B,

which says, "for which the caller pays a per-call or

per-time interval charge," strike the rest of that part

B, except the "and," and includes, "which includes the

use of any 900 number which includes the prefix or area

code," strike the rest of that or just put a period

there.

And in paragraph 2, "Such term does not include

directory services provided by a common carrier or its

affiliate or by a local exchange carrier or its

affiliate." Strike "or any service the charge for which

is tariffed."

And then in paragraph -- in the following

paragraph (e), I would say, "Presubscription or

comparable arrangement means a," insert, "written

contractual agreement in which," insert, "prior to the

call, the service provider clearly," et cetera.

That would be just for discussion purposes.

MS. HARRINGTON: And have you marked up your

document with those --

MR. TAYLOR: Yes.

MS. HARRINGTON: Well, why don't we -- if you

don't mind, why don't we borrow it from you and copy it

so that everyone -- if we are going to discuss your

idea, then everyone can eyeball it. Would that be

acceptable?

MR. TAYLOR: Yes, certainly.

MS. HARRINGTON: All right, we have one proposal

on the table.

Richard?

MR. R. GORDON: If I may -- is this working? I

don't think so. If I may, I would like to refer right

now to Ian Eisenberg. Ian is with the TSIA. He has to,

unfortunately, leave to head back to Seattle this

morning. Ian is probably the most expert person in our

arena on this issue.

MS. HARRINGTON: Sure.

MR. R. GORDON: And I would like to give him the

opportunity.

MS. HARRINGTON: Good morning, Ian.

MR. EISENBERG: Good morning.

One of the fears of the TSIA is to have any sort

of a rule or to broaden the definition of pay-per-call

so that it affects other types of telephone services it

is not intended to affect.

A proposal like Alan made would also limit -- a

lot of newspapers have services where you call up and

get mortgage rates or get sports scores, a variety of

different information. All of these would then fall

under, under Alan's proposal, under the definition of

pay-per-call and thus be somewhat having to abide by the

TDDRA rules, which would seemingly force them on to a

900 service.

So, when callers right now for the vast majority

are used to getting services at a very fair or very

cheap rate, like a regular phone call, the industry

would be forced to charge, you know, upwards of ten

times what they are paying now, instead of a 10 cent

call, $1 a minute if it's a 900-type of application.

If it's a free call, there is no way that the

industry can put the proper price disclosures in the

ad. If the person is dialing a local POTS line, a plain

old telephone line, and they are calling from outside of

that area the newspaper, so if you have a copy of The

New York Times and you're in New Jersey and you want to

call that line to get the mortgage information or the

sports scores, you are going to have long distance

charges for that call.

There is no way the industry can --

MS. HARRINGTON: But are those charges, Ian,

greater than the charge for transmission of the call?

Go ahead.

MR. EISENBERG: As I understand it, yeah, that

would be stricken, and as long it's the tariffed

service, it would be part of the definition, if I

understood Alan correctly.

MS. HARRINGTON: You're right.

MR. TAYLOR: I'm not sure I agree with that, but

let's get my -- my proposal, then let's talk about it.

MS. HARRINGTON: Okay.

Jon?

MR. SHAUB: Yeah, I would appreciate it if I

could have someone sit in for this part of the

discussion, because these discussions principally or

very likely have implications on other parts of AT&T's

business.

MS. HARRINGTON: Sure.

MR. SHAUB: Mr. Jim Bolin, one of our attorneys,

will represent us.

MS. HARRINGTON: Don -- Jim, did you want to say

something right now?

MR. BOLIN: Not at the moment.

MS. HARRINGTON: Okay, Don?

MR. KLUG: I haven't seen Alan's copy, but I

just want to clarify something. It sounds like part of

your proposed language would require a presubscription

associated with pay-per-call, or did I misunderstand

that?

MR. TAYLOR: Well, that language already

exists. I'm just -- the only change I made was to

suggest that it be written presubscription and that it

be in effect or provided before the call was made.

MS. WILLIAMS: He is just changing

presubscription language.

MR. COHN: As I understand it, that wasn't a

change to the definition of pay-per-call, it was a

suggested change to the definition of presubscription.

MR. TAYLOR: I guess I made two suggestions.

MR. KLUG: I guess I will have to take a look at

it.

MS. HARRINGTON: Well, is the coffee done?

Richard, is the coffee done?

MR. R. GORDON: Yes.

MS. HARRINGTON: The coffee is done. While

we're waiting for copies, why don't we get some coffee,

since no one wants to speak. Come right back.

(Pause in the proceedings.)

MS. HARRINGTON: All right, we are back.

Kim?

MS. WILLIAMS: Yeah, I think the point that was

raised about the newspaper-type services or I know

another point that always comes up is the local weather

line services that people call, and if you tried to call

from another state, you'd get a toll charge for it.

Obviously that's one of the problems with trying to

change this language, and somehow it seems like we need

to be able to include that the provider of that

information is making money off that call. I mean, that

to me is the basic element.

MS. HARRINGTON: Well, we have raised that in

the second bullet under this agenda section. That is

raised as one possible limiting or defining term.

David?

MR. GILLIS: My understanding, though, from the

example was that the newspaper is getting some

consideration for people calling?

MR. EISENBERG: In the example like that, the

newspaper could be getting consideration in one of

several ways. One would be they provide the service as

a service to the readers of the newspaper, but in

today's competitive LEC environment, if you have a bank

of phone lines with the log traffic coming in, like the

free sports information or weather, if you go to one of

the new LECs, like Teleport or TCG, whatever, it's very

often when you get those lines, they will give you

consideration, because they like the high efficiency of

their network usage coming in on those circuits. So,

they will give you a discount in the price of the line

or give you a marketing commission for generating the

traffic over those lines.

While I have -- is it okay if I continue?

MS. HARRINGTON: Sure.

MR. EISENBERG: What the TSIA would like to see

and I think it addresses some of the concerns is that

the definition of pay-per-call be expanded to include

any type of situation where the IP is determining the

price of the call and there is a high premium placed on

it, regardless of the dialing pattern. If it's 800

line, if you're charging something in excess of the

network usage, it would be part of pay-per-call, and

this sort of coincides, I believe, with the ISA's de

minimis test of I believe it was 10 percent -- 5 percent

-- over the prevailing dominant carrier rates.

MS. HARRINGTON: But that doesn't deal with

Muldova. The IP is not saying that the rate on calls to

Muldova, for example. Isn't that -- isn't that

correct?

REPORTER NOTE: Setting that rate.

MR. EISENBERG: No, the carrier is setting the

rates for calls to Muldova, but we do recognize that

being a problem, especially Muldova, because that's one

of the -- we have been very effective at moderating and

controlling the advertising and adhering to TDDRA

wherever possible through various associations' code of

practices and ethics. We have been successful in

getting the newspapers and almost all of the magazines

to take out "free," which was a huge cause of concern,

and by regulating the advertising, I think those

problems will all go away.

What's important from a regulatory standpoint,

it is very important to make the distinction between a

Muldova and an 011-dialed number and an 800 redirect

number that shows up on the phone bill looking like a

direct-dial 011 call but, in fact, is an 800-originated

call or 10XXX-originated call where the caller is not

paying the normal long distance, the rate is, in fact,

being determined by the IP, and instead of being charged

50 cents for a call, they are being charged $5 per

minute for the call, and I believe that's what the

TSIA's proposal would take care of.

MS. HARRINGTON: Jim?

MR. BOLIN: One point I would like to make sure

that gets addressed here today, there was a mention of

LEC discounts or LEC commissions. These discounts or

commissions get paid out of access charges. In AT&T's

view, this is really nothing more than a kickback.

Access charges are generally levied by monopoly LEC

providers. There is no choice but to deal with the LEC

terminating access in those cases.

We think it's a misnomer to refer to services

that are done on this sort of so-called "commission

basis" as free. Consumers eventually pay for them. If

access charges get raised to pay for information

services, then LD carriers are going to be forced to

raise long distance rates again. We think that

commission type arrangements in situations not where

real savings or efficiencies are created, but where

access charges are diverted for side payments, we don't

think by any reasonable construction that should be

considered something that's not a pay-per-call service.

All that is is hiding a payment.

MS. HARRINGTON: Susan?

MS. GRANT: I'm wondering whether the concern

about local calls and domestic long distance calls for

things like sports calls and so on could be dealt with

by the threshold for exemptions under the rule, the $2

threshold, or if it was raised to $3, how likely would

it be that those types of calls would be taken care of

essentially under that threshold?

MS. HARRINGTON: I am going to ask Ian if he has

an answer to that.

MR. EISENBERG: If I understand the question,

the question was if by lowering the threshold of the

permanent rate?

MR. HILE: No, raising the threshold of the

coverage of the rule.

MS. HARRINGTON: There is a de minimis

exemption.

MR. EISENBERG: That's only for the preamble,

though. I have heard two questions now. I think AT&T's

comments -- let me respond to those first, then yours,

that might clarify it.

MS. HARRINGTON: No, actually, I wanted an

answer to Susan's question, and I will come back to you

if you want to respond to AT&T's comments.

MR. EISENBERG: Okay.

MS. HARRINGTON: Does anyone have a comment on

Susan's question?

MR. BRENNAN: I do.

MS. HARRINGTON: Okay, Peter, Warren and Allen.

MR. BRENNAN: That only deals with the preamble

and to the extent that the provider doesn't have to

provide the preamble.

MS. HARRINGTON: Would there be a cost to the

provider of any significance in complying with the

advertising requirements of the rule?

MR. EISENBERG: For the newspaper type of

example?

MS. HARRINGTON: Yes.

MR. EISENBERG: It wouldn't be possible in a lot

of cases, because if you're dialing a local POTS line

and it terminates in New York and you're calling from

New York, it's a measured service or in most cities it's

a free call, but if you're dialing that from outside

that local calling area, the advertiser has no idea

where you are calling it from or who your long distance

carrier is. The most they can say is long distance

rates apply or check with your operator.

MS. HARRINGTON: Mark?

MR. HERTZENDORF: But would these services

typically be advertised to someone who has to make a

long distance call? I mean, the weather for Washington,

I am not going to have to call long distance for that.

There would be some other local number, wouldn't there?

It might be different for newspapers, though.

MR. EISENBERG: In newspapers, yes, you would

have -- some cities have measured service, and even in

California, if you're in LA and you're calling a line in

San Bernadino, there would be long distance involved.

Intrastate long distance is usually, as we all know, is

usually more expensive than interstate, which makes it

very difficult to put exact rates in the advertising.

MR. GILLIS: I just would like to follow up with

that, but in the cases where you're using long distance

to access a local number, I mean, that's clearly the

cost of transferring the call. The relationship where

the Commission's involved is between the local exchange

and the newspaper. So, there -- it's the local call and

that is the full -- so, the cost of the long distance

call wouldn't have to be disclosed under a pay-per-call

scenario.

MR. EISENBERG: But it wouldn't be possible to

disclose the cost of the call. From an industry

perspective, we just don't know what that call is going

to cost.

MR. GILLIS: What I am saying is that you are

holding out to offer this service for local -- as

available through a local call, and if someone wants to

call from the other side of the world, that's up to

them, but the access number that you're providing is a

local call, right?

MR. EISENBERG: Well, when you advertise --

let's go back to the newspaper example. You have to put

in an area code, because in New York, you might be in

Long Island, you might be in 212, you might be in 718.

So, you have to put in the full ten digits.

MR. GILLIS: Is the newspaper getting any

consideration related to the long distance call that was

made?

MS. HARRINGTON: If someone calls from outside

of that area code or in a toll call situation to that

number?

MR. EISENBERG: Very possible, either a direct

monetary commission or reduced rates. The -- can I

comment on AT&T's -- AT&T -- it is a very timely comment

they make, that it raises the cost of the call to the

consumer.

The way -- just so everybody understands it, the

way international really started audiotext was AT&T

viewed traffic coming in from Europe to the U.S., AT&T

and MCI will pay you a commission for generating that

traffic, but in a sense, by increasing that traffic and

the efficiency of the network usage, it does lower the

cost eventually to the consumer.

MS. HARRINGTON: Well, we are not going to have

a little dispute here about various, you know, pricing

schemes to -- that create incentives for using

carriers. We understand enough to know that there are

very many different views of that that relate to

competition issues really.

Let's move on to Kim.

MS. WILLIAMS: I wanted to address the issue

that was brought up about the 800 redirect and that that

I guess was what you were concerned about addressing in

the rule from the -- I guess the TSIA perspective, but I

think what -- when we see that occur, when there is an

800 redirect and what's really showing up on the bill is

the international number -- is that what you are saying

--

MR. EISENBERG: Yes.

MS. WILLIAMS: -- when really an 800 call was

dialed, I think that's a situation where a provider or a

carrier who's got a contract with a LEC is doing

something that is not within the rules of the LEC's

billing contract. They are, again, evading the contract

issues. I think we heard a little bit of it yesterday,

Well, we have to format a call that way because the LEC

billing system limits us. Well, it limits them for a

reason, because we don't want those kinds of calls on

our bills.

However, some people circumvent those rules just

like we see people circumvent the FCC and FTC rules to

try to get things on a bill. So, I don't know that -- I

think that's an issue that needs to be addressed by a

LEC when we see it happening, and also I think the law

should require that you don't -- you know, that a

provider can't show some other number dialed, that they

have to show the number dialed to reach that service,

and I think the real issue is should we address -- that

we need to address is how do we set up these rules to

deal with international calls. When you look at ATM and

the rules to Guyana, clearly they think they are outside

of the rules and the rules needn't be addressed, and I

think those are the rules that need to be addressed.

MS. HARRINGTON: Joel, you had your card up, but

now it's down.

MR. DICHTER: But I can comment on this last

issue. I think really in dealing with these issues, you

really do have to be careful. You can't just adopt a

definition or expand a definition to -- because you

perceive one matter that needs addressing, because when

you do that, you really are affecting services that are

available -- that may be available today or may be

available tomorrow due to changes in technology. So,

you do have to be careful.

For example, if you just said -- took out all

references in the definition to any charge which is

premium-type based services, you would be affecting not

only international, but you would be affecting provision

of Internet access services, as those are provided

through those types of arrangements, as well. So, I

mean, you have to be very careful in that regard.

There are ways we believe to deal with these

issues and address them from -- really from a disclosure

standpoint. That can be done, that industry is willing

to do so and is here today to adopt codes to conform as

best they can to the U.S. regulations, and I know that's

somewhat down on the agenda, so I won't go into the

details of that now, but there are ways that we can deal

with this Muldova-type instance.

If that kind of matter, it's believed to be a

problem, could come to the ITA, the ITA would work to

address that situation. We have come in, we have

approached the National Fraud Organization, as well, to

try and relay those types of comments, as well, and set

out guidelines -- industry would welcome guidelines from

the FTC and say here are the practices that you have to

conform yourself to, and I think those would be

effective.

It's not an industry -- you know, I remember

back in the early days of 900, and you go to the

audiotext forum trade show, and there would be 2000

people who would be sort of looking to get into the

business. Now you go to those same audiotext forum

shows, and you see a group of a couple hundred people.

You look around this table, you see the same people you

saw four years ago.

This is a more mature industry, an industry

that's looking to continue to be a long-term business

and wants to address these issues in a way that they can

continue to provide business in the future and meet the

needs rather than trying to do quick fixes. The

industry can, indeed, and it has taken certain measures

of self-regulation, and I think you have to give us an

opportunity to work together, to provide more guidance

to the industry in how to do that.

MS. HARRINGTON: Okay, Adam.

MR. COHN: Well, so far, I think we have heard

two proposals or type of proposals, one from Alan and

the other from the TSIA, which was basically, as I

understand it, to sort of hinge the definition on

whether or not the IP could determine the rate. Well,

sort of on that issue, since what the 1996 Act asks the

Commission to consider is to try to define pay-per-call

in a way that identifies the audio-entertainment and

audio-information services, which are susceptible, I

think the quote is, susceptible to the unfair and

deceptive trade practices prohibited by TDDRA, and I'm

not -- I want to put out the question as to how do we

identify which practices are susceptible?

Is the correct approach to identify those

practices -- those services where the IP can determine

the rate, or is it more that where the IP profits? And

I haven't -- I don't think either of these suggestions

really get at that -- at that, which the Muldova issue

is touched by, which is that the IP is profiting. How

would a definition be crafted that addresses that in

some way?

MS. HARRINGTON: Answers to Adam's question?

So, you are saying, Adam, where the IP has a

financial incentive --

MR. COHN: I would say that a financial

incentive may be a key to finding susceptibility to

fraud.

MS. HARRINGTON: Jim, do you have a comment on

that?

MR. BOLIN: I do. I think that that gets at a

piece of the puzzle but not all of it. I'm not sure in

a market changing as fast as telecom is that any

definition is going to capture any possible instance of

fraud unless it's very flexible. A situation where an

IP profits would potentially cover, for instance, state

and government applications that have TSAAs set up,

because in that case, you have a state or government

entity acting as an access provider, AT&T is paying --

terminating access payments to that entity rather than

the local LEC. That could be defined as profit. I

don't think that's the sort of practice that Congress

intended to prohibit in this case. I think that as

markets get increasingly competitive you are going to

see more and more kinds of arrangements like that in

which everybody benefits, because there are real

efficiencies created.

I think that what we need is a standard that

captures whether or not side payments are being made,

whether or not consumers or other players in this chain

are ultimately paying more than they would otherwise, so

that what we have is side payments to an IP.

On the issue of whether or not the IP determines

the price, I don't think that's adequate, because in the

Muldova situation, an IP can arguably say, we don't set

the price for termination of the call. We don't deal

with the a PTT that's determining what the settlement

rate is. We're just taking a piece of the settlement

rate from the PTT. So, I don't think that's broad

enough either, and I think any standard is going to have

to be flexible, it is going to have to evolve over time,

and I think that although it's less efficient, there is

no way to get around a sort of case-by-case

determination in a lot of these situations.

MR. COHN: Well, about the -- is it TSAA, is

that what -- there are so many abbreviations going on

there, I sort of lose track, but the TSAA -- now, why

would those not be -- I don't have greater knowledge

than what you put in your comment, but why would those

not be susceptible to the same sorts of abuses that

constitute the -- if they are not, is there a way to

craft a definition around situations that are not

susceptible?

MR. BOLIN: We tried to suggest a definition in

our comments. Let me start with briefly explaining how

TSAAs a work. These are something that I believe AT&T

pioneered but other long distance carriers are also

offering now.

When a long distance call is transmitted, the

interexchange carrier pays an originating access charge

to the LEC on the originating end of the call and a

terminating access charge to the LEC on the terminating

end. In a TSAA arrangement, the entity to which the

calls are being terminated, it can be a catalog provider

using an 800 number, a lot of state colleges and

universities have these setups. I know at least one

state government that has this set up. Many federal

agencies and federal entities use these set-ups, as

well. They have a high volume of incoming calls.

What we do, to oversimplify, because I don't

understand the full network issues either, is we provide

a direct line to that entity, bypassing the local LEC,

so that they are no longer paying terminating access

charges to the LEC at the terminating end. Instead we

are paying, in effect, terminating access charges to the

entity that's terminating the call.

Now, under TSAA arrangements, in all cases,

terminating access charges that we pay are lower than

the charges we would pay to the terminating LEC. So,

there is an efficiency created, and what we do is we pay

terminating access to that entity that's receiving the

calls rather than to the LEC. The reason -- I don't

think such a scheme could be susceptible to an abuse.

The reason TSAA arrangements as practiced by

AT&T and the other carriers in the industry are not is

that the caller pays whatever the tariffed rate is for

that call. If the caller has a 10-cent-a-minute rate

from AT&T, the caller pays 10 cents a minute. That's

true in every case. It makes no difference; the rate is

unaffected. The access charges by the interexchange

carrier, in this case AT&T, is in all cases lower than

it would be otherwise.

The party that's receiving the call on the

terminating end is receiving an access payment, but

again, it's lower than would be paid in any case. So,

no one pays more. There is a real efficiency created

there. What we have is an innovative way around the

system of access charges that I think everyone agrees

needs to be reformed, and the FCC is in the process of

reforming it. So, I think constructed that way, that's

a situation in which everybody benefits.

MR. COHN: Would the customer or would AT&T's

customer profit -- have a greater amount of profit based

on the volume of calls that it received and would that

be --

MR. BOLIN: That's a good question, and there is

no way around that. The more calls that come in, the

greater the number of access payments that are going to

be received, but I think we also need to consider that

if we craft a definition that prohibits all of these

revenue-sharing arrangements, then a state college or

university that has a number that you can call in to

find out course schedule information, a state or federal

entity that has information about regulations that you

can call in, in some cases applications like tech

support lines offered over 800 numbers, if there's a

TSAA in place, then I don't see how these suddenly come

under the definition of pay-per-call, and I don't see

how State University X isn't going to have to start

using a 900 number to convey these offerings, and I just

don't think that's what Congress intended, and I think

if possible we need to find a way to craft a definition

that allows these type of arrangements, because they do

create efficiencies.

MS. HARRINGTON: Question from Mark?

MR. HERTZENDORF: I was just wondering whether

the idea of focusing on remuneration to the IP as part

of the definition, would that also be susceptible to the

problem that there could be vertical integration in the

future, for example, if Guyana purchases -- was to start

providing -- if that was the way the definition was

constructed, maybe Guyana would just start offering

their own information services?

MR. BOLIN: I think that's a great point, and

AT&T has already seen some situations like that

domestically in which a LEC either owns or has a very

tangled corporate relationship with an information

provider or with an entity that purports to be a

competitive access provider. We have had situations

like that cropping up.

I think unless something is done by the FTC and

FCC to crack down on this practice, it is going to

become more common in the future. These schemes are

transparent to customers. I mean, where there are side

payments made by a LEC, say, the caller doesn't pay any

more than he would otherwise.

So, if I'm a caller looking to call a chat line,

some other service, I am going to be more prone to call

these arrangements where there are side payments,

because I don't bear the cost directly. It also means

that I don't get the benefit of preambles and other

requirements designed to protect consumers. So that I

think unless something is done to try to stop these side

payment arrangements, then I think they are scams, and I

think we are going to see them proliferate.

MR. HERTZENDORF: How is the FTC supposed to

determine which side payments are efficient?

MR. BOLIN: Well, the standard AT&T proposed --

and again, it is going to require some case-by-case

adjudication, but I think there is no way around that,

where there is remuneration to an IP, that should create

a rebuttable presumption that the call in question is

pay-per-call. We had imposed a three-part standard that

could be used to examine these situations. Let me see

if I can remember them all.

First we proposed at looking at whether or not

similar arrangements exist with non-IPs. If the same

arrangement exists, say, with the Federal Government,

then I think that's a fairly strong issue in favor of

maintaining the arrangement.

We proposed looking at whether or not there's an

actual payment for a service rendered. In the case of

TSAA, there is a payment for providing terminating

access. That's a service that is not free. We have to

pay for it. If we get it from one entity or another,

someone gets paid for terminating access under the

current regime.

The third issue we proposed examining is whether

or not there are real efficiencies created, whether or

not there is a side payment or there are actually

avoided costs somewhere in the system so that no one is

paying more and someone is, in fact, realizing some

savings.

Now, I think that while I agree that proposing

this sort of case-by-case standard could create some

headaches, I think that one factor that's going to

mitigate against those potential headaches is that it's

only going to be necessary to resolve disputes when

there is a complaint, and I don't believe anyone is

going to complain if the IRS sets up a help line with

the TSAA arrangement with AT&T or another carrier. It

seems very unlikely. I think --

MS. HARRINGTON: If they don't answer the phone,

there might be some complaints.

MR. BOLIN: That's a different complaint. One

point I would like to address, and I am monopolizing the

time here, and I apologize, but an issue that was raised

from my right, at that end of the table, this issue of

increasing traffic on the network being of benefit.

That's true to a point, but if AT&T is providing a

10-cent-a-minute rate to its customers and paying 47

cents a minute and terminating access, we don't make

that up in volume, and this notion that I hear floated

occasionally that while we're increasing traffic on your

network, that's a good thing, that only works to a

point. We don't make up losing situations by losing

more money. So, I think that's a point that we need to

keep in mind, that increasing volume is not the answer.

MS. HARRINGTON: Warren?

MR. MILLER: Thank you.

The ISA has been spending about the last two

years on this issue of what it defines pay-per-call long

before this proceeding began, and some -- I won't

comment specifically or repeat our definition, it's on

page 26 through 28 of our filing, but I want to respond

to some things that have been said.

Yesterday Susan Grant brought up that this is a

consumer protection rule, and we recognize that there

are some unique circumstances with international calls

that call for protection. We also recognize the fact

that AT&T may be placed into a position sometimes where

it's at a disadvantage because of its inability to

negotiate in a specific area, but we believe that's a

complaint to take up with the FCC.

The main thing we are looking to preserve in

this -- in this movement into the area of electronic

commerce that's been so talked about is -- and the

information age is, for example, Frost & Sullivan

predict that interactive voice response equipment or

IVRs will make up a $5 billion market by the end of this

century, and $5 billion is a number that's been put out

for all of the 900 industry collected by EXEs and not.

So, there is a tremendous market for free information.

My company just put in, for example, a system, a

system for Target Department Stores to put in free

information for all of the schools in the Washington

metropolitan area. Now, a call from Woodbridge would

cost some money. The problem with the proposed

definition change from Florida, Bell South is relatively

an area with flat-rated calling plans, whereas

Ameritech, the opposite situation pertains, and you have

to pay a message unit. So, under that proposal, the

free schools -- the free system for all the schools

would become pay-per-call, and we would have to offer it

900, and it would cost a lot of money.

So, the main thing we're looking at is we

recognize -- we want to -- and Adam brought up the very

key point, which is deception. In areas where there are

exceptions, where this agency is not the lead agency,

where consumers are not being deceived or are already

protected, we think those industries should be allowed

to flourish, and there is a lot of free calls going on

out there that would somehow get sucked into this

definition if we aren't careful.

MS. HARRINGTON: Adam, question?

MR. COHN: Yes, I wanted to -- in response to

that and also just in response to the general

conversation, I know in the comment filed by -- I think

it was the Alliance of Young Families, they had

mentioned a proposal to create a threshold payment to

the IP as a -- as the definition of pay-per-call to

include a percentage threshold or perhaps a per-minute

threshold. Would that help to -- if there was a low

threshold, would those types of numbers -- presumably

there would be less risk of consumers being defrauded in

calling these numbers to create a profit if you had,

say, some sort of percentage or per-minute threshold

under which it would not be pay-per-call. Would that be

a possible solution?

MR. MILLER: Well, we are -- our definition as

proposed called for an exemption for de minimis

payments, and that appeared to in some ways confuse the

issue more than we intended. We were -- we were just

trying to indicate -- I think it's too complicated an

issue to try to look into everybody's pocket in an

unregulated environment as to where pennies may be

exchanged for interconnect agreements, but what we were

trying to accomplish there was if the consumer does not

appreciably pay more -- and we were only trying to

strike out a measure for defining if they paid more. I

-- we are open to any definition that adequately

defines that. If the consumer doesn't pay more, we

don't think there is a harm, and we don't think there is

a need for regulation.

MS. HARRINGTON: Okay, I would like to hear from

Don Klug on that question, and then Don, you have been

waiting for a while.

MR. KLUG: Oh, I'm sorry, I zoned out here. I'm

not sure what the question is.

MS. HARRINGTON: We will come back to you, Don.

MR. KLUG: I do have a comment, however.

MS. HARRINGTON: That's okay. I think that's a

-- you know, there is something to be said for honesty

and candor here, and I have to tell you, there are

moments when I've zoned out here, so does someone have

an answer to Adam's question and following up on

Warren's answer? Let's hear -- Jim, I'll come back to

you, but I want to give some other folks a chance.

Kim?

MS. WILLIAMS: I don't know if mine's a complete

answer as much as it is a question along the same lines,

but it seems that the incentive for the IP is not to set

up their service in St. Louis, Missouri where somebody

can dial across Sprint and pay 10 cents a minute or AT&T

and pay their 15 cents a minute. The incentive is to go

outside of at least the 48 states here that are all

connected where you have to pay more, where you can't

just get your 10-cents-a-minute rate.

I mean, is there some way to craft a definition

that would include those factors, that would say, I can

go across my picked carrier and stay within, you know,

the continental -- I don't know if continental United

States is the right term, but stay within this area,

then it is not -- it doesn't fall under those rules? I

mean, what kind of problems does that present?

MS. HARRINGTON: Alan?

MR. TAYLOR: First of all, I want to clear up a

couple of misconceptions. I have heard it said a couple

of times that my proposal would require the use of a 900

code, and the way I read it, it would not, it says other

codes. The other suggestion -- and I don't want to lose

sight of the fact that we have the Muldovas, and I can

understand and appreciate all the concerns. What if we

said -- left the language in that says, "or any service

the charge for which is tariffed on an interstate

basis"?

MS. HARRINGTON: That's in 2.

MR. TAYLOR: That takes care of all

domestic-dialed calls, it leaves the international

included.

MS. WILLIAMS: I think it needs to include, too,

that you can reach it through your picked carrier. I

think some interstate services require that you go

around your picked carrier to get to them. You might

call it on a local number and they require a call back

of some kind or they require something else to get you

on their network to use their service, then it's their

tariffed rate, but -- and it's their interstate tariffed

rate, but you are not on your AT&T or your Sprint or

your MCI plan anymore. Sorry, Don, sorry to keep

leaving you out.

MR. TAYLOR: I just have one other point, and

that is that failing that, I think Kim's raised a good

point, but failing that, I think even the mom and apple

pie local exchange directory services would seem to be

included, except that there is an exception, and I think

maybe the way to deal with what we're talking about is

through an exception, if you don't like anything I have

said so far.

MS. HARRINGTON: We are going to go to Ian and

then come back to Jill.

MR. EISENBERG: Southwestern Bell is right on

target about being able to make the call on your picked

carrier. The de minimis test, what we tried to do with

that, is to force -- you can't say you have to use your

picked carrier. We have all gotten things in the mail

for dial-around service, little stickers to put on your

phone. It's an industrywide marketing practice now for

dial-around long distance that's not using your picked

carrier. You might want to have AT&T for your picked

carrier to call your cousin in England, but you might

want to use dial-around to call your friend out of

state.

But the de minimis test does solve what you're

trying to -- the same thing you're trying to do with

forcing a person to use a picked carrier. You wouldn't

be able -- with a de minimis test, you wouldn't be able

have services any more like collect call-back, where you

call on an 800 line or POTS line and they call you back

collect at four times the normal tariffed rate.

MS. WILLIAMS: That would be great.

MR. EISENBERG: In our proposal, it solves a lot

of these problems that we are trying to get at. You

know, as an industry who tries to self-regulate

ourselves, we tackle and deal with the same problems you

are. We know there are rogues out there that have

services that may be in the gray area, probably aren't

definitely against the FTC rules, but they are

definitely deceptive.

Like Muldova is a great example, it is

definitely deceptive. There are no preambles, no

advertising disclosures, clearly deceptive, and we have

tackled all these issues, and the only thing we came up

with is if you are charging more than -- if the IP is

determining cost, and by having a collect call-back or

redirect or instant calling card, the IP is determining

the cost. So, it's not a normal collect call from New

York to LA; it's a collect call that's being charged at

five times the rate.

I think that our proposal does a pretty good job

of that, and by limiting POTS information services to

the 48 states or 50 states, I'm not sure how you can

exclude industry from competing outside the U.S., in

Canada. I mean, I live in Seattle, and you have a lot

of companies that do business back and forth between

Seattle and Vancouver with information lines going back

and forth. It's fairly common. We have TV stations

that go to Seattle and Vancouver, the same stations, and

it just kind of worries me that in the global economy

which we have today that we try to limit ourselves to

excluding the rest of the world from participating in

the information age.

MS. HARRINGTON: Jill?

MS. SANDFORD: I think in taking a look at this

issue, this definition seems to raise even more

questions than we had initially thought when we

submitted our comments. One of the problems I have,

though, with Ian's proposal is I'm still not satisfied

that we can deal with the Muldova situation, and Mark

made this point, that what if the IP is not setting the

rates and it's set by the settlement agreements? We

really would be failing to address a problem that we

identified in coming here today.

In our comments, we took a stab, instead of

focusing on the financial aspects of it, we took an

approach at the type of conduct and not the tariff or

the provider. What our definition -- we looked at two

salient characteristics. One was the purported sale of

goods or services is accomplished by completing a

telephone call to a particular telephone number and

payment is combined with the cost of the transmission of

the telephone call.

I have been listening this morning to many of

the concerns, and government and universities have been

offered as examples of where this may be

over-encompassing. I don't see why certain entities can

be excluded, including government entities and

universities, and how we could address those

over-reaching concerns by exempting those particular

entities, the way the rule already exempts the directory

services.

MR. HILE: Joel?

MR. DICHTER: First of all, on the definition

thing, on the suggestion of limiting it to interstate, I

think I should point out that in the Telecom Act of '96,

that language concerning "or any service the charge for

which is tariffed," was removed from the statute, and

that was done for a specific reason, and that was to get

at companies from filing tariffs with exorbitant charges

that would then be the basis -- to bring it back to what

the intent of Congress was, was to target this towards

premium-based rates and services, not at services for

which you pay the normal transport rate, and I think

that theme carries forward here.

I think when you start trying to talk about

carving out exceptions for universities or for companies

you like or don't like, you like the content, you don't

like the content, then we also have First Amendment

issues we have to be concerned about and discrimination

ramifications that one has to consider, as well. So, I

think it's a very dangerous road to start going down

that path.

For example, if you carved out simply

universities, you could -- you would cut into situations

like Apple Computers that has a help line, an

information line that is a POTS-type service where you

call up on a regular phone number. In that type of

situation, they have TSAA arrangements, they have other

arrangements where they for generating traffic receive

discounts and stuff. So, it's not an easy situation.

I think what you are really looking at and I

think what Congress was looking at in expanding a

definition was to try and find ways where those

premium-type services were escaping the rules and trying

to bring them back in. I don't think it was a situation

where they said where you make the call from one place

to another, and when you are calling your family, you

are calling an information service, if those rates are

the same, now we should somehow rope that in to the

definition. I do not believe that was the -- you can

read that into the congressional language.

I think what you do have, though, and you can

have and the FTC has done numerous times, I have CFRs,

Code of Federal Registers this long, and it's got

guidelines for particular industries on ways to conform

itself, and those guidelines provide guidance to those

industries on ways to respond and ways to advertise,

ways to deal with various issues. I think certainly

that can be done here, because the FTC, as it has done

in the Muldova incident, has enforcement powers. It has

instances -- but I think you will find that if you lay

out ground rules for an industry to follow, that you --

those incidents will be far and few and in between.

People will try and comply, and where they don't, you do

and will have enforcement powers, rather than putting in

place provisions that prohibit innovation, prohibit use

of new technologies in unforeseen circumstances.

MR. HILE: Don?

MR. KLUG: I think the ISA de minimis test makes

a lot of sense. That raises the question, though, how

do you take care of international pay-per-call where

there is no premium charge? And I would suggest that in

the FTC -- and one of the questions is what are the

consequences of restricting pay-per-call to specific

dialing patterns. I think that the needs of the

industry can be accomplished by restricting pay-per-call

to the 900 and 800 exchanges as provided in the Telecom

Act of '96. International calls could be handled

through a 900 gateway, as they are today in some

situations.

MR. HILE: Is that true? Can 900 numbers be

international?

MR. KLUG: There is no restriction to placing a

900 call and terminating it at an international

location.

MR. BOLIN: It could only be used

internationally if the terminating PTT would agree to

assist in providing things like free preambles and so

on. Otherwise, it would just be an ordinary

international call, and I actually learned this morning

from one of our international guys on a phone call, and

all I know is what I learned this morning, but the ITU

is apparently currently working on an international

pay-per-call arrangement, pick an extension, 899, 999,

something like that, and they would get IPs to agree to

preambles and so on, and it is in the FCC's bailiwick,

but it is being considered. Absent that kind of

agreement, there is no way to offer the 900 consumer

protection as it exists now on international calls.

MR. KLUG: I respectfully disagree, Jim. Why

couldn't you terminate a 900 call in a U.S. gateway and

provide all the preamble protection and then originate

off the back side?

MR. BOLIN: It is technologically possible, and

it would cost a fortunate, and it would have to be set

up and someone would have to pay for it.

MR. KLUG: I think we need to set the record

straight. It is technologically possible, but it is the

foreign PTT's decision to do that. It is an economic

decision and not a technological decision.

MR. BOLIN: I think economics becomes a

technological issue. It couldn't practically be done in

a way to make the service doable, in my opinion.

MR. SHAUB: It is technically possible and we

think it is economically feasible, I agree with Don, but

it does he --

MR. KLUG: But we are talking about consumer

protections, and there was a lot of discussion yesterday

about the Muldova/Guyana situation, where someone calls,

they have no idea where the call is terminating. I

think this proposal would provide equal protection for

consumers, at the same time a lot of calls be

terminated.

MR. HILE: So, technologically there is nothing

that would prevent forcing all pay-per-call through the

900 dialing code. Is that what I'm hearing from people

who know here?

MR. BOLIN: That's not my understanding. Jon

Shaub, who is on the 900 business side, disagrees with

me. The international people tell me and our comments

state not. Maybe AT&T needs to clarify this and submit

something further for the record now that there is some

confusion.

MR. HILE: Warren, you were just very eager to

say something.

MR. MILLER: Well, the -- it can and it has been

done, and, in fact, more of it is going on. We -- two

-- when Windows 95 was introduced, a company called

Stream International, which makes software add-ons,

wanted to provide a customer support line for that

application, and they wanted to use 900 for it, but they

didn't want to bring support people into the United

States. So, we just took the 900 call and sent it to

England.

Now -- of course, it was expensive, and the --

the people in the United States that called the number

were protected. They got appropriate disclosures. What

Don and I both learned at breakfast this morning is more

and more people are using off-shore terminations for the

economies of scale, and in -- and these -- those same

discount rates that we talked about being reduced when

the transfer payment rates are renegotiated, they are

still -- there are plenty of people doing it.

There is -- whether or not -- that's their

business, whether they are making any money or not, but

it certainly can be done, and the protections are

offered in the United States if they give the preamble.

MR. HILE: We have three staff here that have

questions. Do they carry us into different areas or to

clarify where we are?

MR. HERTZENDORF: Mine does not carry us into a

different area. I just wanted to make the point that

even if hypothetically all pay-per-call could be forced

on a 900 number prefix, dialing pattern, that doesn't in

any way remove our need to come up with a definition of

pay-per-call, because we want to know whether someone is

using their own prefix and throwing out the definition.

MR. HILE: Marianne?

MS. SCHWANKE: I would just like Dave or Jill to

elaborate a little further on their proposed

definition. You indicate that you would propose that

one of the characteristics is that there is a charge

included with the charge for transmission of the call.

Can you explain whether that means that there is somehow

a charge greater than the transmission or how you would

determine whether there was a charge included in the

charge for transmission?

MR. GILLIS: We prepared the proposed definition

that appears in our comments based on the information

that we have obtained in enforcement actions against

some inter -- against an international pay-per-call

service that was advertising a job line from the

Dominican Republic and charging normal international

rates, but the PP -- PTT -- the foreign phone company

was kicking back, according to one report, $800,000 --

$800,000, I believe it was a month, to the pay-per-call

provider.

Our view was that in that situation, the

pay-per-call provider clearly had an incentive to put

out deceptive ads to get people to call about local

employment opportunities and call the Dominican

Republic. We -- when we prepared the definition, I was

not familiar with the arrangement that -- we were not

familiar with the arrangement that AT&T has advanced

relating to discounts on access charges where they

terminate calls to a university.

So, how you distinguish between the two in the

context of that -- of a definition is extremely

difficult, as we're finding today. The problem with

hinging the definition on the deceptive -- on whether or

not the ad is deceptive, as I seem to hear from that end

of the table, is that no information provider is going

to regard their ad as deceptive. Every case that I've

brought, I have received an explanation, most every

case, from the advertiser how their ad is literally true

and nondeceptive, no matter how egregious it is. So,

that's -- that type of approach isn't going to work.

The -- the approach advanced by AT&T, I think,

offers some merit, because it looks to the marketplace,

it tries to compare the pay-per-call service and

distinguish that from a service that people consider to

be consistent with ordinary usage. And after all, one

of the real problems with pay-per-call complaints, one

of the reasons that these complaints come to attorneys

generals' offices is that typically they involve

extremely high charges, and people don't expect these

charges when they use the phone.

Now, the difficulty in keying the definition to

price is -- especially in this market, is a real

problem, because the market is changing, and it's

changing very quickly. I don't think, though, that

these problems should stop us from trying to implement

what Congress has asked the Commission to do, because we

have seen and continue to see real problems associated

with international dialing patterns concerning

pay-per-call services, and these are -- result from ads

that are placed in the -- in the marketplace, in the

United States, and people are responding to those, and

we clearly have jurisdiction to deal with those -- the

Commission clearly has jurisdiction to deal with those

issues.

So, generally speaking, if we look at the

definition that the attorneys general proposed, it was

an attempt to focus on what's being offered by a

pay-per-call service and the financial gain that is

obtained from the provider. I think as it's currently

set out, it would include the situation that AT&T

presented in its comments, and I don't have a solution

for you right now in how to distinguish it other than

working with -- I think the idea of a presumption is one

that would work at least if you were enforcing it,

because I'm confident in the case that we had where we

were dealing with a work-at-home scheme, we could show

clearly that the payments being made to the provider

were not consistent to standard arrangements that AT&T

had with others.

Now, maybe that -- maybe they would be

consistent with the arrangements that the Dominican

Republic phone company had with other -- I'm not certain

of that. So, it presents real proof problems down the

line, but that's the background of the -- of the

definition that the attorneys general proposed in our

comments.

MR. HILE: Adam?

MR. COHN: I have a -- I have two questions.

One is to sort of follow up on a question I asked

earlier in the context of this rebuttable presumption

idea raised by AT&T. Would a rebuttable presumption --

presumption of pay-per-call rebuttable by proving that

the payments were under a certain threshold, would that

be a workable solution?

And the other question that I had was -- also

it's raised in the agenda, which is what are the

consequences, excuse me, of expanding the definition of

pay-per-call to include the international services

without any corresponding exceptions for those

services? And would that create an incentive -- a ban

on non-900 services or how would that work?

MR. HILE: You are directing your question to

Jim?

MR. COHN: The second question generally but the

first question about the rebuttable presumption to

AT&T.

MR. BOLIN: I think that the threshold will not

work, and I -- the agenda is -- I think it suggests that

AT&T suggested a 5 percent threshold was like TSAA, and

we don't think that's right. A couple of reasons.

One, if you have a 5 percent threshold, then

that effectively blesses scams like these access side

payments. What it says is it's okay to gouge people as

long as it's only 5 percent. I don't think that makes

good sense just from a common sense approach.

I also think it's inconsistent with Section 228

of the Telecom Act. Congress enacted a standard that

says pay-per-call if there is a charge in addition to

charge for transport. Now, arguably, a de minimis

standard is within the FTC's enforcement discretion.

You could announce that as a matter of your discretion

you are not going to enforce scams that are only a

little bit gouging --

MR. COHN: Section 228 is also -- the new 228

has a provision where the FTC can revise the definition

of pay-per-call entirely.

MR. BOLIN: I agree, and I think you have got --

I think you would withstand a judicial challenge, and

I'm not proposing that that's not the case, but I think

it's clear that Congress didn't want to enact a standard

that allowed gouging in slight amounts. Reasonable

minds may disagree about that, but I think that's fairly

clear.

MR. COHN: But if a threshold was -- I see your

point, it's a good point, but if the threshold was below

a certain amount, presumably people would not use them

for those frauds anymore, because they couldn't make a

profit. Would this threshold basically -- I'm asking

basically would it preserve the ability of universities

and governments to use these TSAA agreements but then

take away the profit incentive for an IP to abuse them?

MR. BOLIN: Well, in some cases TSAAs could

potentially exceed 5 percent of the call. You would

have to do the math. Rates varies so widely by time of

day, by carrier, it is awfully hard to say is one

problem.

I think a second problem is don't assume 5

percent isn't enough incentive. If you have someone

terminating a few million minutes at 25 cents a minute,

a million here, a million there, pretty soon you are

talking real money, as Will Rogers said. I think 5

percent of AT&T's long distance revenue for a year is a

couple million dollars, and that's not peanuts in

anybody's book.

I think the other issue that you are going to

have with a threshold requirement is threshold based on

what? Every caller that calls potentially has a

different rate. They are going to have a different rate

through their picked carrier, it's going to vary with

time of day, it's going to vary according to whether or

not they are using a dial-around scheme.

MR. COHN: A threshold for the amount of money

that an IP makes per minute.

MR. BOLIN: An absolute 5 percent threshold?

MR. COHN: I don't have a specific number in

mind, but would a threshold work conceivably?

MR. BOLIN: I don't know, again, that that would

exclude all TSAA arrangements. In some areas where

access charges are high, it would not. I am not at

liberty to discuss specific TSAA contracts with our

customers in any event. I also think that, again, to

suggest 5 cents a minute or 10 cents a minute, Congress

asked the FTC to revisit this, true, but I just don't

see anything in the legislative history or in the text

of the statute to say that Congress wanted to create

that kind of threshold above and beyond the $2 or $3

limit that's in place now for nominal cost calling. If

we left the table today with a 5 cent limit on what

charges could be in terms of kick-backs, then I don't

think AT&T would be too unhappy with that, but I don't

think it would be consistent with Congress' intent

here.

On the international side, maybe I'm wrong about

technological issues, that's not what I was told coming

into the meeting, but I think that the consequence of

expanding pay-per-call to international, if the FTC

crafted a rule that said that side payments were illegal

from a foreign PTT, that would potentially put AT&T and

other interexchange carriers in a terrible bind in this

respect. If a rule were crafted that said that it's

pay-per-call and it's illegal to make these side

payments, AT&T is bound under 47 USC Section 228 not to

enter into arrangements that violate TDDRA and violate

FTC regs. So, we would be in a situation where if we

had terminating minutes or a foreign PTT were sharing

revenue, we arguably would be forbidden from making

those settlement payments.

MR. HILE: Jim, it is unlikely that that would

happen. The more likely scenario would be that the FTC

would say this falls under pay-per-call, not that it's

illegal.

MR. BOLIN: What do we do when we have six

months of terminating minutes in Muldova, we find out

side payments were being made? If AT&T could be

permitted to make the settlement payments or ordered not

to make the settlement payments but then we could avoid

the international incident that's going to result, that

would be fine, but I worry that you are going to put

interexchange carriers in a bind, where they are going

to violate the law if they make settlement payments but

they are going to have a problem if they don't make

settlement payments, that's my concern, and I think that

to the extent that we want to start talking about

settlement payment regimes, it's critical that the FTC

and FCC coordinate their efforts, because I think that's

a real potential for creating a double line for the

carriers.

MR. COHN: Would those payments be illegal if

they were included in the definition of pay-per-call

necessarily, or would it mean that people who use them

have to comply with all the aspects of TDDRA? I mean,

how would that put AT&T in a bind if an IP wasn't

providing -- and we know that some of those provisions

of TDDRA probably are not technologically possible to

provide, but how would that put AT&T in a bind rather

than the IP?

MR. BOLIN: The situation I'm envisioning is one

where four or six months into operation of an ordinary

POTS number, AT&T learns that that POTS number is being

used to make these side payments from a foreign PTT.

When it comes time to make settlement payments, AT&T

then has a situation where this was an illegally

operated pay-per-call scheme if it wasn't being offered

over whatever the designated international pay-per-call

SAC was.

So, if AT&T makes the settlement payment, it is

participating illegally, depending on the regs, in an

illegal pay-per-call scam. If it doesn't make the

payments, we have a hornet's nest of issues if -- is

that clear? Maybe I misunderstand the question.

MR. COHN: Maybe it is a misunderstanding,

because I was suggesting that there would not be a

required -- a required SAC but rather that this would be

included in the definition of pay-per-call and the

obligations would be on the IP and the other parties to

use proper advertising. So, the arrangement --

MR. BOLIN: The arrangement would have to be

900, wouldn't it?

MR. HILE: We changed that. That's what we were

talking about.

MR. COHN: No, it would not be required.

Typically it would not be required to be under 900 but

just that any payment, you know, such as the Muldova

payment system would be included in pay-per-call and

would require the preambles and require all the other

things. Whether or not those are provided is another

issue, but how would that affect AT&T?

MR. BOLIN: That takes us back to the same

issue. If we remove the SAC concern, assume we had a

POTS number that wasn't offering preambles. We have got

the same situation. Four months in, if we find out this

has been going on, are we prohibited from making

settlement payments then or not? If we make settlement

payments, are we participating in the scam? Does that

make sense?

MR. HILE: Jim, you still have your thing up.

Did you have other points?

MR. BOLIN: I think that takes care of it,

thanks.

MR. HERTZENDORF: Couldn't these issues be

handled by your contract negotiations with the foreign

carriers? You sign a contract that says -- and then if

we find out six months later that this number was

operated in violation of FTC rules, we are not going to

deal?

MR. BOLIN: I do not do international, so you

are taking me fairly far afield, but my understanding of

those negotiations, they are hardly negotiations between

equals. Foreign PTTs in almost every case are

monopolies. That's one reason settlement rates for

calls in bound to the U.S. are so much lower than for

calls terminating -- maybe I have got that backwards.

At any rate, there is a settlement rate disparity in a

lot of cases.

I mean, the reason pay-per-call scams are being

set up in places like Sao Tome is because of settlement

rate disparities. If it were as easy as -- if contract

negotiations would fix that, it would have been fixed a

long time ago. There are a number of issues that enter

into these, and in some reasons intergovernmental

relations, as well, because many of these foreign PTTs

are actually state entities, and a lot of small

countries are using PTT revenues to fund their telephone

utilities.

So, it's not as simple as that. I wish it

were. The FCC is trying to drive it towards a more

commercially reasonable kind of scheme, but that's on

ongoing process. It's not going to happen immediately.

MR. HILE: Todd, you have had your tent up for

quite a while.

MR. LESSER: I'm Todd lesser from the TSIA, and

I think we need to look at this from an overall scope of

what the problem is, and I think initially we need to

look at where the attorney generals, where the FCC and

where the FTC are getting complaints, and I think part

of what we touched on yesterday is that there are

services like 800 redirect, where calls are being placed

on the bills that people think are direct-dial calls,

which truly are not.

I think we can set up some guidelines that stop

services like that and require a presubscription. So,

you know, when an attorney general has a problem or, you

know, a person at a convalescent hospital, someone walks

up to their phone, uses their phone for five minutes and

sets up a calling card, well, things like that -- and

then they go and use phones elsewhere, there's a

problem. And then the calls show up as direct dialed.

The attorney generals don't know how that call was

really made, and I think we can adjust things to stop

things like that.

But --

MR. HILE: How?

MR. LESSER: How?

MR. HILE: How?

MR. LESSER: Okay, I'm glad you mentioned that.

Basically when we set up -- when you set up an 800

calling card that's used for information-type services,

you can require a pre -- a written presubscription

agreement. That would stop something like that, you

know, where the difference is someone does not sit on

the phone for five hours in this lady's room and make

the phone calls. You know, I know that the attorney

generals are getting complaints as far as a house sitter

coming in and making all these long distance calls or

these clip-on frauds.

Well, the thing is I think we need to look out

for something like that, but that is not specifically

just for information-type calls. You know, I can go

into your house and make phone calls to my girlfriend in

London or I can call New York. I can steal your TV. I

can use your power. Now, those are different criminal

problems that are not specific to our industry. So,

setting up specific guidelines for just our industry

doesn't seem appropriate where existing laws cover fraud

or cover theft of service.

And, you know, trying to make information

providers responsible for that, that seems like going to

Sony TV and saying, Look, this person's Sony TV was

stolen, you have to replace it, or going to Circuit City

and saying he bought the TV at Sony, so you have to

replace it. But I think the thing we need to look at

here is over 5 million information-type calls are made

to the international market every month. The attorney

generals, the FCC, are not getting that many complaints

when you look at the scope of that. Forcing something

to 900 would be devastating to the industry.

For example, our company uses software for our

backup software from a New Zealand company. Now, to

make us for tech support -- now, just as AT&T has TSAA

agreements in the U.S., maybe the foreign PTT has a TSAA

type of agreement on their end, and now all of a sudden

you look at a situation here where the U.S. is saying,

well, we can do it, but the foreign country can't.

I think what we need to do is when we're looking

at a definition, as Congress is concerned when they --

when the FCC states that Congress specifically sought to

end service arrangements in which the telephone

subscribers are charged with high prices for the

transmission of calls, and so I think where we put in a

test, where we say -- and this won't address everything,

and that's why the advertising guidelines do -- is you

say something, that you can only charge reasonable and

customary long distance charges. That way you don't

have a $10 charge per minute to call, you know,

Muldova.

You know, but those issues are something that I

think is a secondary thing that we need to be concerned

with, and where the attorney generals are saying

deceptive advertisement, we can't put in guidelines for

that, I think we have looked at every other industry,

and you can look at people in prison, and what everybody

says is I didn't do anything wrong. So, to not pass

laws saying that you don't allow deceptive

advertisement, it's not the IP or the deceptive person

who is placing that advertisement that chooses the

criteria that's deceptive, it's the Federal Government.

So, the Federal Government sets up guidelines of

what is deceptive advertisement, and that's not my area

of expertise, but there are clearly rules of what they

consider deceptive advertising, and you stop those. You

are going to reduce problems.

We heard from Nick Loader that he said, you

know, when you set up guidelines for information-type

calls, as industry guidelines, when you have preambles,

it stopped complaints by 70 percent. That's something

the FTC has control on, rather than trying to sit there

and say, okay, how much money is being paid? Maybe AT&T

can afford to only pay a penny a minute. Well, a small

long distance carrier does not have the huge overhead of

AT&T, so they can afford to pay a penny and a half.

So, now we're sitting in here getting into an

economic issue, which is really not the core of the

problem. The core of the problem is we have got

deceptive people out there placing deceptive ads for job

lines. We have people going and breaking into people's

homes, that doesn't apply, but we have people setting up

these calling cards. Those are the issues that we need

to stop, and I think that is going to stop a lot of

problems.

MR. HILE: Okay, Peter, you have had your tent

up, and then we will hear from Kim and then Sue.

MR. BRENNAN: Thank you very much.

I would like to circle back and express a point

about a few things that were said this morning. First

of all, Muldova keeps coming up. Six months ago, most

of us didn't know where Muldova was. The -- fraud is

fraud, and it -- whether it occurs on the phone, on the

Internet, on the street corner, in the nursing home,

wherever, fraud is fraud, and we -- it's ambitious to

expect that we are going to be able to solve every

circumstance of fraud today. In fact, I'm not even

convinced at this point that it's a settled matter as to

whether or not fraud occurred in that case, but I don't

think that this is the place to dispatch that issue.

And so I think what we need to keep -- we need to keep a

little bit more of a broader perspective about these

issues.

Secondly, we have been talking about access

charges, and it seems to be the AT&T position that

access charges -- that it's a scam if it's done by

somebody else, but it's not if it's done by AT&T,

and I -- and I am sure -- I would throw this in, that

this is not the forum to settle the access charge

issue. We could sit here all day, we could sit here for

weeks, and there are other people who are charged with

that responsibility, but I don't think this is the forum

to do that.

And two final things. First of all, I am going

to borrow the prerogative as the chair of the

Interactive Services Association for a minute to try to

prevent a little bit -- present a little bit of a vision

about the global -- the global business for

communication, about the fact -- remind the table of the

fact that we live in an increasingly global marketplace

for information and for entertainment services, and

that's exemplified by what's happening on the Internet,

it is exemplified by what's happening in -- on

television and other media and exemplified by telemedia,

and this is a media, and it is -- I would strongly

suggest and advocate that we keep in mind a -- a vision

that -- that allows for global communication, that

allows for a vast and rich array of information

available to all customers.

MR. HILE: How? How, Peter?

MR. BRENNAN: Well, let me make some -- amplify

on some suggestions.

The ISA has advocated the de minimis and the

threshold idea, and it has also advocated that the

standards -- the TDDRA standards be applied in those

cases, for example, in international calling.

MR. COHN: It's a different threshold than the

one we are talking about before. This is where someone

pays an additional amount of money over the normal cost

of the call rather than a threshold for how much is paid

to the IP.

MR. BRENNAN: Yes, that's correct, that's

correct. And if you look at the various protections of

the TDDRA, which have been demonstrated and would work,

it seems to me -- it seems to us that there is really

one that is problematic in an international call

environment, and that's the preamble because of some

technological restrictions. And -- but cost disclosures

in advertising, appropriate billing notice and billing

dispute procedures are all things which could be

extended reasonably to international calls that meet

whatever standard, whatever threshold is -- is applied.

MR. HILE: Is it the preamble that's a problem

or the free preamble that's a problem?

MR. BRENNAN: The free preamble is a problem.

The preamble can certainly be offered, and if it's

offered in the first 18 seconds, then the damage is --

is lessened still, but the dispute resolution and in

terms of -- in terms of the issues that have been raised

about knowing what the price is, about being able to

advertise a price and the fact that various carriers

will have various prices for a call to a foreign

country, what we suggested is that the language in the

advertisement, where now you say this call will cost you

X per minute or X per call, say please dial 00, and your

carrier at that point will tell you what it costs you to

call wherever you're calling.

So, it's -- in that -- it's manageable as an

advertiser, that this an advertisement. And frankly, it

also may serve to train the public to make the public

increasingly aware of the fact that -- that they can

find -- find out what calls are costing them --

international calls are costing them or just plain calls

to Grandma in Sweden, as well. So, this is not a

perfect -- a perfect solution, but I think that in good

faith it is the best that could be done, and it has --

we acknowledge that it has some limitations, but to take

other more draconian suggestions would seem to be

throwing the baby out with the bath water.

MR. HILE: Kim?

MS. WILLIAMS: Yes, first, a couple of items

from earlier when I talked about the picked carrier

versus -- you know, the issue was brought up about

10XXX. I guess the better term would be the customer's

carrier of choice, then, whoever the customer wants to

use versus making them use a particular carrier I think

is the difference.

Also, I think someone felt like I was excluding

international from playing in this game, and I'm not.

I'm saying if it is going to be on the international and

if that's where the incentive exists to put -- to drive

these services, then that's where we need to focus our

rules.

I am concerned, though, that Congress' intent --

and that's what keeps coming up here, is what was the

intent of Congress. I don't think their intent was

everybody to jump ship on 900 and go to international.

I think pay-per-call should be on 900 unless there is a

presubscription agreement, and it seems like that's what

we should be trying to focus on, is getting this stuff

off of international if we can't clean it up.

If we do find a way to clean it up, it will just

go somewhere else next, and it takes three years of

problems and everybody has made all their money off of

all these consumers before we get it fixed and drive it

back to something else.

So, I think the concern needs to be with who,

right or wrong, just may not understand what $5 bucks a

minute really adds up to when they make these calls,

and, you know, I know that puts a lot on, you know, on

the people who are providing these services, because it

happens with 900, also, but a consumer doesn't always

understand how much that's going to add up to until they

get their phone bill.

MR. HILE: Sue Grant?

MS. GRANT: That was my concern, as well. We

have to go back to the original intent of the law, which

was to make sure that consumers understood how much they

were going to pay for these calls before they incurred

any charges, and the reason why we have the double

protection both in the advertising and the free preamble

is to make certain that people know how much these

charges are going to be.

I'm wondering if we can get some more technical

information about the international calls. Yesterday,

we learned, I think, if I'm remembering it correctly,

that it is possible for certain phone numbers to be

allocated by international carriers to be used for

audiotext services, and if that's the case, then it

seems to me that IPs could be required to use numbers

only that were designated for that purpose, and if a

country doesn't offer that, then they wouldn't deal with

that country.

And further, that if those numbers are

specifically designated, that those -- information about

what those particular numbers are could then be made

available by the IPs to the domestic long distance

carriers at the long distance carrier's request so that

they would know that these are the numbers that are

being used for audiotext services, something that they

say they presently have difficulty knowing.

We also heard yesterday that --

MR. HILE: Can I stop you just -- can anyone

respond to Susan's point there about the foreign phone

companies providing a list of the numbers that -- can

you respond to that, Joel?

MR. DICHTER: I can respond that there is no

general practice to my knowledge of that being done or

specific numbers set out --

MR. HILE: But could it be done, could it be

done is the point.

MR. DICHTER: I think --

MR. LESSER: It can't. I mean, just for --

MR. HILE: Can or can't?

MR. LESSER: Cannot.

MR. HILE: Why?

MR. LESSER: Just by the fact that we are having

a hard time defining what an information call is. Let's

assume, you know, there is Microsoft here in this

country, there may be a big software manufacturer in a

foreign country. Now, is that -- their tech support all

of a sudden considered an information-type call?

Because we are playing around with that definition, it

can continue to happen, and I think forcing them to 900,

especially even on our domestic market where we don't

have 900 portability, we don't have --

MR. HILE: That's not the issue. The issue is

just whether numbers that are going to be devoted to

audiotext could be supplied to the American phone

companies.

MR. LESSER: No, no.

MR. HILE: Okay, back to Susan.

MS. GRANT: I don't understand why not. If --

and I'm talking about the numbers being provided by the

IPs, not by the foreign carriers. The IP knows what

number it is that it's using. So, I don't understand

why that information could not be provided, and I do get

back to Kim's point, and that is if we can't solve this

problem, I think we just shouldn't -- we shouldn't allow

these kinds of charges via international numbers at

all.

Yesterday, the speaker who alluded to specific

numbers being designated said that they were being

designated specifically for audiotext services. So,

someone is defining it. I don't know what the

definition is, but that would be helpful to know.

The other point that I was going to inquire

about was preambles, because the statement was also made

yesterday that it is possible, in fact, to provide a

preamble on an international line. I -- the speaker

didn't mention whether that's a free preamble or not. I

recognize that even if it was a free preamble, if that

was technically possible for designated numbers, that

the preamble might not be able to tell the consumer the

exact cost of the call, because that depends on where

the call is originating from and how long it is, but

certainly valuable information could be provided in a

preamble that would ultimately help the consumer

determine whether or not to go on with the call.

A lot of the complaints that we get are from

consumers who are direct-dialing these calls, and they

don't know that they are international calls. When all

is said and done, I think it harkens back to the

presumption that these calls are more expensive than

regular domestic calls that one might make, and it

doesn't matter whether they are tariffed or not. The

fact is that the consumer suffers from bill shock when

he or she discovers how much these calls were.

MR. HILE: Walt, I think you want to respond to

that, and then I want to get Linda down here, because

she has been waiting a while, then Joel.

MR. STEIMEL: Right, I have a specific response

to Susan.

Actually, it is possible for foreign PTTs to

designate an NPA or XX equivalent that the audiotext is

driven to, and I have specifically worked in a situation

in which a country that I won't name had more than one

PTT. They were moving to a competitive marketplace, and

all the PTTs designated a specific NPA and XX type

equivalent in a numbering scheme for that country and

drove all audiotexts to that particular number, and they

had to do it for proportionate return.

MCI and AT&T are requiring that to keep track of

the traffic going down and the traffic coming back so

that they wouldn't get hammered on the settlement

rates. So, it is possible, it is being done by some.

The places where I see it being done, it's where you've

got a country that's moving to a competitive

marketplace, you have multiple PTTs that are competing,

and then you have got audiotext routing, and the U.S.

carriers are trying to protect themselves. So, I know

that it is being done in some places and it is

possible. The problem might be in countries that only

have one PTT, they may not be particularly responsive or

interested in doing this sort of thing to -- to help

your concerns out.

MS. GRANT: My response to that would be -- I'm

placing the burden on the IP, that the IP would then not

provide services through that country.

MR. STEIMEL: Well, the -- when you have got a

proportionate return country, the IPs are forced by the

carriers in that country to go to that audiotext

exchange, and without being on that exchange, they

cannot be paid the commissions by the in-bound

carriers. Whenever you have a paying scheme, you have

to have a tracking mechanism. The tracking mechanisms

are almost always number-based, and in a country where

you have got more than one PTT and you have an audiotext

exchange for proportionate return tracking, that is part

of the transmission. Then the audiotext providers are

forced to comply with that, otherwise they can't get

paid and it completely destroys the entire arrangement.

MR. HILE: Linda?

MS. GOLDSTEIN: I just really -- it's been up

for a while, so it may not be that timely, but I really

wanted to go back and respond to some of the comments

expressed by AT&T and really just make a further point

in support of the de minimis threshold, that I think we

really have to recognize and I think this conversation

illustrates that it's going to be -- it is almost

impossible to craft a definition that will cover every

possible instance, but I do believe that the de minimis

threshold almost more than any other solution I have

heard is really consistent with what Congress -- with

what the intent was, which was to target practices that

may have the potential for --

MR. BOLIN: Can you tell me what threshold you

are talking about?

MS. GOLDSTEIN: I am talking about the ISA

threshold.

MR. HILE: The ISA's suggestion in its written

comments?

MS. GOLDSTEIN: Yes.

MR. HILE: That's what you are speaking in

support of?

MS. GOLDSTEIN: Yes, because that -- if -- if

you cap that amount, that in -- I think it will

necessarily follow that the potential for abuse would

not -- will be diminished significantly, and I think

that there is precedent even in AT&T's own policies for

that type of approach.

Four years ago when there was a large incidence

of abuse in the sweepstakes industry, AT&T went to a

price cap as a means, believing that by imposing a price

cap, the potential for abuse would be diminished and

that the margin basically that the IP could get would be

reduced. So, I -- and I think that history shows that

that did have a significant impact in reducing abuses in

that category.

I think the approach of the ISA in terms of it

being a percentage is more appropriate given the nature

of that type of transaction, obviously, than a

particular price cap, which certainly wouldn't work in

this instance, but I just -- just for the record, I

wanted to indicate that I think there is some precedent

for that, and I think history has shown that that type

of approach does tie into a goal to target abuse.

I also just wanted to make the point that to the

extent that we keep having discussions about whether

all, quote unquote, "pay-per-call" should be directed to

a 900 platform, I think that's a very circuitous route

to take. From a compliance standpoint, we are going to

be back facing the same issue of having to determine

what is pay-per-call, and it just seems to me to be a

very -- a very circuitous approach which will make

compliance and frankly advising clients in terms of

compliance difficult down the road. So, I would rather

see us focus on that -- on that definition.

MR. HILE: Jim, I presume you want to respond?

MR. BOLIN: Briefly.

MR. HILE: And then I would like to get to

Joel.

MR. BOLIN: We have been talking about two de

minimis thresholds. To the extent we are talking about

the proposed ISA's comments, I would like to state one

scenario that I think points out vividly why that won't

work. If I'm an AT&T customer with an AT&T calling plan

and say I get 5 cents a minute for all my calls as my

rate, under ISA's proposal, to be able to charge the

highest rate tariffs for that time of day, one of the

big three carriers, plus 10 percent, the highest rate

for any time of day is usually the pay phone rate,

that's usually 55 cents a day -- 55 cents a minute.

That spread is not de minimis and that spread is going

to come as a shock to consumers when they see it on

their phone bills.

If a consumer has got a rate plan from an AT&T

or a Sprint as a flat rate or that's a given low rate,

that's the rate they expect to see for interexchange

calls, and they are going to come to us when they get

their phone bill and all of a sudden it's 70 percent

more than they expected to pay. This so-called de

minimis threshold in ISA's comments is not de minimis in

my practice, can't be de minimis in any practice. The

highest rate for any given time of day is going to be a

higher rate than the caller pays. I would even come

back to say if we say the caller's own rate plus 10

percent, I don't think Congress wanted to put that kind

of situation in the statute.

MR. HILE: Joel, does your comment respond to

that?

MR. DICHTER: Yes. I think the point is a good

one, and it shows, once again, the difficulty one has in

trying to craft a specific limitation or prohibition

that there are so many different variations. You know,

international is not something -- I think there is an

impression that the 900 rules were created, and then

international arose to get around the 900 rules. That's

really not the case. International has been around

since the 1980s, before TDDRA existed. It's been around

-- actually came from AT&T in one respect, because AT&T

had an arrangement where calls from outside the U.S.

came in to the U.S., and they paid a commission for

tracking that information business. Other countries

then saw this and went into create more global

competition in this regard.

MR. HILE: Was there a -- was this a common

thing before TDDRA?

MR. DICHTER: It was a common thing before

TDDRA, yes, and you have got to realize, also, that

these providers, providers of this traffic are not

specifically targeting U.S. customers. They target, you

know, customers and IPs from around the world. These

calls to Guyana and Sao Tome and others come from

countries all over the world, not just the U.S. Part of

the problem you have is that in disclosures is that

regard and the price of the calls can come from

different locations.

Nevertheless, I would like to point out that the

ITA and its members, including Guyana, Sao Tome and

others, have adopted appendixes that set forth as best

they can to comply with the TDDRA premise. There are

preambles for most of these services that do advise of

-- that it's an international call and that -- asks,

you know, parental permission, are you over 18, et

cetera, as well as advertising requirements.

MR. HILE: Are you heading at all toward

workability of the de minimis kind of threshold?

MR. DICHTER: Yes, we would support that.

MR. HILE: Warren?

MR. MILLER: Our attorney wanted to make some

remarks about the de minimis threshold.

MR. HILE: Could you identify yourself?

MR. LAVERGNE: Ed LaVergne, public policy

counsel for the ISA.

As the author of the ISA's written comments, I'm

a little frustrated with the discussion of de minimis,

because I think there is way too much emphasis on that.

The ISA's position, which focused on domestic consent

calling, was that the cost not be higher than the usual

cost to the same location.

Now, we attempted in a footnote essentially to

define what that content call cost is as something that

didn't exceed a de minimis amount over the rate charged

by the three major carriers, but we could take that off

the table. Your point was a good one, AT&T's point,

about the fact that there -- there are different rates.

There are direct-dialing rates, there are friends and

family rates that MCI has. We can set it, the

Commission can set it, we can work together to set it at

whatever rate makes sense, but the de minimis is just an

effort to try to set, you know, to try to define this

really.

And two other points that relate to that. We

segregated international away from domestic, because

there are clear consumer protection problems in

international. Domestic, there really have not been

problems that we have identified from a consumer

standpoint, and I think the only real difference between

the ISA and AT&T is I think that AT&T has some specific

problems with access charges, but we think that's best

an FCC issue.

MR. HILE: Can you hold right there?

Would you agree, Dave, that there is not a

problem with domestic calls, that it's mostly with

international?

MR. GILLIS: Well, to the extent that domestic

pay-per-call services comply with the 900 rule and do

not permit access through 800 numbers other than through

presubscription that's concluded prior to initiating the

call, in other words, if there is compliance with the

law, which we haven't seen, I mean, that -- part of the

purpose of this is to bring the Commission rules into

conformity with the 1996 Act that should we hope resolve

those problems, so...

MR. HILE: We are only --

MS. SANDFORD: May I add one thing to that?

MR. HILE: Sure.

MS. SANDFORD: I think in addition, though, we

are seeing a problem with these recurring membership

fees on consumers' phone bills, and those seem to be --

MR. HILE: Are these 900 numbers?

MS. SANDFORD: What's happening, they are mostly

with psychic lines, where -- no, they are 800 numbers

where consumers will call up, they will hear the

preamble. Often times a consumer may even consent to

the cost of that particular call and stay on the line

but are not authorizing these $9.95 monthly charges

which then become recurring charges on a consumer's

phone bill, and I think the rule has to address that

problem, as well. And then there is the issue of the

failure to comply with the 800 number presubscription

agreement.

MR. LAVERGNE: And my comments do not go to

that. They go to direct-dial calls domestically.

MR. LESSER: Can I just ask a question, just to

kind of clarify? So, you are saying but you are not

having problems with domestic direct-dialed calls.

MR. HILE: Are you experiencing consumer

complaints about that, either you, Sue -- is NIFC

getting that or --

MS. GRANT: By that do you mean 900 numbers?

MR. LESSER: No, just POTS, regular 1-plus

calls.

MS. GRANT: I am not familiar with any.

MR. HILE: Domestic pay-per-call that's using

some other scheme besides --

MS. SANDFORD: Actually, we are seeing some

problems with the 10XXX where a consumer may make that

one phone call and then is also put in a recurring

charge situation.

MR. LESSER: So, just the recurring charge, not

the isolated 1-plus call to a domestic number?

MR. BOLIN: AT&T does have several complaints

pending at the FCC over POTS numbers from the ISC's

point of view.

MR. LAVERGNE: But from a consumer's standpoint,

that's what the question was.

MS. GOLDSTEIN: This has come up several time,

and I know we will get into it later this afternoon, but

there seems to be some confusion, and this really --

with this lady's comment evidencing it as far as the

recurring charges, and the recurring charges and the

monthly charge issue is not really relevant to this

discussion, because the way those plans work, that

caller is not being assessed any charge for that call.

The charge that appears on the bill is for

something other than information that was provided

during the course of that call. So, it's really a

separate issue, and I don't think it should be confused

with or made a part of this discussion.

MS. SANDFORD: However, I do think, though, that

the rule needs to address these recurring charges.

MS. SCHWANKE: And I think we plan on discussing

that probably in connection with the presubscription

agreements discussion later today.

MR. HILE: We are at the end of the allotted

time for this, but will your question generate a whole

new round or is it --

MR. HERTZENDORF: Well, I think it's important

and it might help to bring to closure, but it's possible

it could also generate other questions.

We have been focusing a lot on international,

because that creates problems as far as a definition,

and before we wind up crafting a new definition that has

some other loophole that we didn't think about, it might

be helpful to sort of understand the economics as to why

international is profitable.

I've seen one ad for a service, I don't know

whether it's typical or not, but it said that their

remuneration to the IP was only 60 cents a minute, and I

was under the impression that for most domestic 900, the

payments to the IP tend to be much higher than that,

although I realize for maybe personal ads it might not

be so high.

So, if we -- I'm just wondering, is this

international service, did it arise to avoid costs of

complying with TDDRA or is it more profitable because it

generates so much volume compared to domestic 900? If

we knew the answer to this, it might help us, you know,

avoid future loopholes.

MR. HILE: Anyone care to respond to that

question?

MR. LESSER: Well, I think the industry would

appropriately best answer that --

MR. HILE: Speak into the microphone.

MR. LESSER: I think the industry would be the

best to respond to something like that. I think we need

to look at that these international calls have been

around, you know, prior to 1988 without any TDDRA

rules. So, it wasn't to get around these applications.

That's not to say that some scam artists are not using

the international to try to get around TDDRA rules, but

that wasn't the core of what international was set up

for.

A lot of times, as far as information providers

--

MR. HILE: What is that?

MR. LESSER: International? Well, I think the

best thing to look at is hearing that -- we hear that a

lot of times they provide services not just to the U.S.

but they provide them to all countries around the world,

and that's why it also makes it kind of difficult to

say, Well, we will have an international 900 number for

calls from here to New Zealand, but maybe Chile cannot

support their phone system, the international 900

number, so how are you going to have those calls? So, I

think there is a lot of technical problems concerning

that.

Does that answer your question?

MR. HILE: Yes, I think so.

MS. SCHWANKE: Can I ask just a follow-up to

your statement that international calls were around

prior to TDDRA? Do you know what the revenues for

international calls were prior to TDDRA and what they

are currently?

MR. LESSER: Well, as far as that, that's kind

of settlement rates, and settlement rates have been

continuing to drop. That's --

MR. HILE: If you have that kind of information,

would you be willing to supplement the record?

MR. LESSER: Sure, I mean --

MR. HILE: Pre-TDDRA revenues for international

pay-per-call and post-TDDRA.

MS. SCHWANKE: Or if anybody else does.

MR. LESSER: There is one other thing. As far

as a revenue base, you actually can make more money for

900. For example, psychic calls, you see calls that

were $3.99 a minute, if you make a ten-minute call on a

psychic line, that's $40. There is a lot of market.

AT&T charges 33 cents a minute for transport, 10 percent

for billing. There's a lot of mark-up there. When you

talk about international, the same psychic call may cost

you $6 to $15, because you could pay as little as 50

cents a minute to international companies.

MR. HILE: I think if we are going to have a

break, we are going to have to take it now. If you have

something on this topic, we can start it in the next

session. We will start again at 5 after 11:00

promptly.

(A brief recess was taken.)

MR. HILE: Could we please reconvene? The

subject for this afternoon's or the rest of this

morning's discussion are cost disclosures and other

consumer protections that would be appropriate for

non-900 number dialing patterns.

The questions that we have here on the agenda

start with what should an advertisement for an

international pay-per-call service be required to

disclose?

Before we get into that, I think, Adam, you had

a question about the material that we were finishing

last hour.

MR. COHN: Yes, I did. I wanted to sort of

focus -- at least draw some focus into the fact that,

you know, even though there might not be a tremendous

problem with 1-plus dialing domestically at this point,

I think the issue really is are there services that are

susceptible to the same sorts of practices. Are there

audio entertainment and information services that are

susceptible to the same sort of abuses that we saw?

Even if there aren't those abuses in huge

numbers now, the issue is are they susceptible, are they

possible. And in an effort to gather more information

regarding that, I would like to hear some more

information specifically from AT&T telling us what these

TSAA agreements are, and if they are proprietary and you

can't give specific information on what the payments

are, then it makes it very difficult for us to craft a

rule. If we were to modify the rule, how could the

Commission change the rule if we don't know what they

are?

I think I would really like to see specific

information as to what -- in terms of trying to discover

whether a threshold percentage or threshold payment to

an IP is feasible, we need to know what those are, and

if --

MR. HILE: Are you asking AT&T to supplement the

record or are you asking him to respond right now?

MR. COHN: I am asking for both.

MR. BOLIN: I can give a brief response now.

The specific terms of our TSAA agreements are

proprietary information with our customers. I may be

able to provide you a sample black-lined agreement to

give you an idea of how they are structured. I will

look into that.

MR. COHN: How about more generally?

MR. BOLIN: I can describe them more generally

now. I think that in terms of creating a threshold, one

reason that is going to be very difficult is the FCC is

seeking to drive access rates down to competitive levels

now and that even if there were a percentage threshold

that would work today, it may not work next year. It

almost certainly won't work five years from now, but if

it will help, I can give you a one-minute description of

TSAAs again. If it would be better just to supplement

the record, I can do that. Whatever you prefer.

MR. HILE: Why don't we do that.

MR. COHN: You mentioned a percentage. What

about a per-minute -- would a per-minute threshold be

more feasible? Could an IP be discouraged from

committing fraud if the per-minute payment was so low

that it would just not be feasible?

MR. BOLIN: The FCC is moving away from

permanent access fees, at least it has proposed to.

The SBC has just challenged it. I don't know how that

will turn out, but the way TSAA payments are calculated

is based on a weighted average access rate for the

terminating location, and then there is a percentage

negotiated in terms of based on that weighted average,

some percentage of that weighted average will be paid

for terminating access.

MR. COHN: But conceivably a person could -- you

could just figure out afterwards, you know, how many

minutes were called and how much was paid to the IP.

MR. BOLIN: Access rates vary from location to

location and the agreements we have with consumers vary

from location to location. So, in terms of the kinds of

rates that are being paid for access under TSAAs are

going to vary widely, the volumes of calls are going to

vary widely. I don't know the answer, but I doubt that

you could craft a percentage amount that would capture

all of those.

MR. COHN: Couldn't the TSAA agreement include

some sort of floor or ceiling? Doesn't that -- that

there could be no payment back to the party to the TSAA

agreement that would exceed a certain percentage or a

certain amount per minute?

MR. BOLIN: We absolutely could craft them that

way. What I don't know is whether, say, we picked 5

percent as a threshold, I don't know if that 5 percent

threshold would represent three times what we currently

pay for access under TSAAs or 1 percent of what we

currently pay under TSAAs, and if it's the latter, then

you may suddenly make TSAA uneconomic, so you may in

effect be killing them by doing that anyway.

MR. COHN: Can you provide us some information?

MR. BOLIN: We will provide what we can.

MR. HILE: Kim, could you give us the last word

on this issue before we move on to the next issues?

MS. WILLIAMS: Yes. First I wanted to address a

question you had posed earlier about complaints on

domestic traffic.

MR. HILE: Yes.

MS. WILLIAMS: We had seen some for just regular

domestic calls to Kansas or a few other states, and

although it was at the picked carrier's rate, you know,

there were a lot of calls generated to get into certain

information services, and I think the money made was in

selling them other services once they got on the phone,

you know, versus being made from that call.

MR. HILE: So, it was more like telemarketing

than pay-per-call?

MS. WILLIAMS: Probably, or selling them a

monthly fee once they got there or selling them a

voicemail service. I would say I was a little less

concerned about those, because at least they were at a

low rate. I don't have as much sympathy with a customer

who makes 20 calls to Kansas as opposed to customer who

made 20 calls to Guyana who didn't understand the rate.

Secondly, to address the international things

that have been around for a long time, back in '89, we

saw a lot of calls to the Netherlands, but the scope of

the problem was nothing compared to once TDDRA was

passed, and the evidence is in the advertisements. I

have looked at many ads in many magazines that went as

soon as TDDRA passed from 900 to 800, every ad in there

just about had 800.

Once 800 was fixed, it went to international.

So, to say that this has been around for a long time

isn't quite true. Yes, it was there. It wasn't used

until people tried to in my opinion get around the

rules.

MR. HILE: Thank you.

Okay, now we are going to move on to the late

morning set of issues, and the first question that I'm

going to throw out for discussion, I am going to ask my

friends from the states to respond, what should an

advertisement for an international pay-per-call service

be required to disclose? Should the rule require

preambles for such services? Do you have thoughts on

that?

MR. GILLIS: We do, and thank you very much.

Putting aside the question of what is an

international -- how you are going to define

international pay-per-call service and assuming we have

resolved that, we think that an international

pay-per-call service should disclose what a domestic

pay-per-call service discloses, and that is the cost of

the call and what's involved in that cost and so on.

We do appreciate that there may be some

technical problems associated with providing a free

preamble, but we believe that a preamble is important,

that when a -- an information provider is providing

pay-per-call service at the initiation of the call, that

ought to be disclosed and the cost associated with it

and how it's computed.

We also believe that if adult entertainment

services are provided that an appropriate disclosure

ought to be made and that specific services that are

described in the rule relating to sweepstakes promotion

and federal -- federal employment opportunities and so

forth, that information providers, international

providers, ought to comply with those aspects, as well.

So, that's -- the difficulty, of course, is in

determining the definition.

MR. HILE: It definitely is in the details.

Marianne, would you like to seek elaboration

there?

MS. SCHWANKE: Yes, I would.

How would you respond to some of the commenters'

positions that disclosing the actual cost of an

international call is virtually impossible, because it

depends on the calling plan and other factors? Is there

some way to disclose something that would still be

valuable to consumers?

MR. GILLIS: Well, I appreciate that there may

be difficulties with that and perhaps with -- and those

arise from the reliance on now the tariffed rate for

international calls and the variations there.

I do think that there are disclosures that would

communicate useful information to people that aren't

being made by international pay-per-call services

currently. I do think that the disclosure

"international toll," abbreviated, doesn't convey

meaningful information to people, and I have seen it

shorter than that. So, there could be formulations

other than the total cost that's going to be incurred,

because it varies, that could be used.

MS. SCHWANKE: Do you think the phrase

completely written out, "International charges apply,"

something along those lines, would be helpful?

MR. GILLIS: I think it would be helpful. I

think it is going to depend upon the context, especially

in a newspaper ad and magazine ad and so forth, but I

certainly think that would be useful and in some cases

isn't provided.

MR. HILE: Do you think it would be enough to

just say, "International rates apply"?

MR. GILLIS: Well, I -- I don't know if that

alone is going to be sufficient to put people on notice

that these rates are going to be much more than they

expect.

MR. HILE: Adam?

MR. COHN: I have a question about that. I

wanted to -- many people might -- here might be familiar

with the FTC and Wisconsin versus Daniel LaBell, and

that was actually under the telemarketing sales rule,

but as far as the FTC, there was a provision in the

final order that provides for some disclosure, mandatory

disclosure for that defendant. I wanted to get -- well,

generally input on what people thought about those

requirements, and if people don't have copies, maybe I

should have some copies made, but --

MR. LESSER: Can you just summarize what they

are?

MR. COHN: Basically it required that a

statement in ads that international long distance

telephone charges to blank apply, and the blank would be

filled in by the call -- the country of the termination,

and either a statement that this call may cost you as

much as blank per minute, and the blank being the

maximum possible per-minute charge, or in -- in lieu of

that, a range of possible costs for the call where the

maximum charge and the minimum charge are displayed with

equal prominence, and followed by a statement that to

determine your exact per-minute charges, contact your

long distance carrier.

MR. GILLIS: Certainly Wisconsin supported this,

and we think we would be very pleased if those were

adopted, and in the case of information providers, for

example, who are -- who at least we have experienced in

our enforcement actions, that information is readily

available to them. They know the length of the

audiotext message that they are furnishing to people to

receive under the call, they have an understanding of

what international rates are going to apply. They --

all this information is available to them when they set

up the advertising for this service.

So, if we take a step back and we look at this,

part of the difficulty is that the Federal Trade

Commission is approaching the industry from the outside,

the state attorneys general have to do that. The

industry has very good access to its costs and the

incentives associated with it. Certainly -- certainly

information providers have that. In the case I referred

to earlier involving the job line from -- in the

Dominican Republic, that was actually being run out of

Los Angeles, and the financial incentives there were

significant. We ought to be able to deal with these

issues in a way that should provide protection for

people who are responding to these ads.

MR. HILE: Kim, do you want to respond to that?

MS. WILLIAMS: Yeah, I did want to say that I do

support, at a minimum, what Adam's suggesting, that

"international dialing rates apply" is not enough, that

most customers don't understand what that means. I

think you have to disclose the country being called, you

have to disclose the maximum rate charged, at least, if

not saying a range, minimum to maximum, for customers to

understand.

Also, that hold times mean -- when I have called

any of these international numbers, the hold times are

tremendous, and at $5 or $6 a minute, I might have spent

$30 without even having talked to anybody, or more. So,

I think that customers need to understand, if it's in a

recording, that while you're holding, you're being

charged a certain amount a minute is important. And,

you know, especially since there is no preamble that's

free on those calls, that there is no understanding of

that. But I think the rate disclosures in the ad is a

must for international.

MR. COHN: Would you support a nonfree

preamble? Would you support a requirement that there be

a preamble, even though it was charged?

MS. WILLIAMS: I think they need a preamble no

matter what. If it was free, it could be better.

MR. TAYLOR: You would think you could do that

while they are holding, right?

MS. WILLIAMS: You would think so.

MR. TAYLOR: Make use of the holding time.

MR. KLUG: From an IAC perspective, I would

certainly support Kim and Dave's comments. I think that

if the industry is going to continue to grow, that the

same standards from a customer perspective need to apply

to the international calls, and that is to disclose the

rates in a preamble, that the best preamble is free, but

lacking that, certainly a short preamble so that while a

person is on hold, they aren't paying too much.

MR. HILE: Is it technologically possible to

provide a free preamble in these international numbers?

MR. KLUG: I don't believe so.

MR. HILE: Peter?

MS. SCHWANKE: Why not?

MS. WILLIAMS: Yeah, I was going to ask that.

MR. HILE: Sorry.

MR. BRENNAN: In terms of the hold time, I

believe that that issue was kind of asked and answered

in the last proceedings, and that was that was

considered for TDDRA, and having to publish hold times

is problematic from the point of view of some people in

some types of services spend a little time on the

service, for example, in the personals, you could spend

a few minutes, you could spend ten minutes, and again,

our chargebacks and level of complaints is so small that

I don't think there is a lot of dissatisfaction in that

regard.

But I do want to talk again and reiterate the

suggestion that perhaps wasn't clear this morning that

the ISA and others have made, and that is that in lieu

of saying international rates apply, which has been

somewhat controversial, I suppose, and given the

difficulties in determining what the precise

international rate is in every case, or even what the

range is, because those are negotiated by a variety of

carriers all over the globe, and this -- that's just

problematic even -- even to make the best good faith

effort at it, that what we would suggest is to train the

consumer and to publish in the advertising that they can

press 00 on their phone, they will be forwarded at that

point to the carrier that would complete the call if

they picked up the phone and dialed it, and they can say

what is the rate that I am going to have to pay to dial

blah-blah-blah-blah-blah.

They will get very precise information about

what the per-minute rate is. They will understand that

they have this option -- over time, they will understand

that they have this option not only to get the rates for

pay-per-call services but for all international

services, and the consumer will be better served.

MR. GILLIS: The problem with that is, you may

get immediate access to some carriers. Other carriers,

it could take you a long time to get that information.

I don't think it satisfies the need that the consumer

has to have a clear understanding from the ad as to

what's involved in this pay-per-call service which he

would get from the disclosures alluded to earlier.

MR. BRENNAN: What you are saying is that when

they dial that code, that someone is not going to answer

the phone, a carrier we are talking about, is not going

to answer their phone? And if a -- and you are assuming

that if a consumer gets that far and no one answers the

phone to tell them what the rate is, and we encourage

them to check what the rate is, and then they don't get

-- they don't find out what the rate is, that they are

going to go and make the call anyway? And I'd suggest

that that's -- doesn't seem --

MR. GILLIS: My basic concern is that the

information ought to be in the ad.

MR. BRENNAN: But that information -- that

information is -- is problematic, putting it in the ad,

notwithstanding any good faith effort. I think there is

agreement among responsible players in the industry that

people should know what they are paying for.

Unfortunately, the people who disagree with that are not

at the table, okay? And those of us who -- those of us

who are responsible players suffer as much from abuse of

the marketplace, perhaps more, than anyone.

So, please accept this as -- as a good faith

argument, but the fact that there are many carriers

involved, that the rates change depending on

negotiations which change on a -- on a rapid basis, and

that the consumer -- I bet most consumers don't know

that even to find out -- I didn't until it came up in

one of our meetings -- that to find out what your --

what the rate is for an international call, you simply

press 00 and you ask your carrier, and if your dial 1

carrier -- if you have used Joe's Phone Company or some

carrier, determined some carrier that does not readily

give you the rates, well, that's a consumer issue and a

consumer has to make a decision then whether or not

perhaps they should designate a different carrier, but

we need to -- we need to -- again, this is part of a

global approach to better educating consumers in a

global environment for interactive media, and telephone

is one of those.

MR. HILE: Kim, I think you had a follow-up for

what we had just done before.

MS. WILLIAMS: Yes, I think I raised it when I

-- I think I just talked about it a second ago, but my

follow-up now is just in response to that, that I don't

understand about what is so problematic about giving the

consumer a range of rates, and for the information

provider industry to educate the consumer through their

ads in Hustler magazine isn't really the way most

consumers need to find out about how to use their

telephone. So, I think a rate clearly displayed is what

needs to occur.

MR. BRENNAN: Are we -- let me make something

clear. Are we going to pursue this discussion today on

a content-neutral basis or not? If we are going to get

into distinctions about where advertisements --

MR. HILE: I don't want to squabble about things

like that, because that will just eat up our time.

Todd, did you have --

MR. LESSER: I think I can kind of help that.

First of all, our association does support the initial

guidelines of the attorney general. I think those will

solve a lot of our problems. As far as the overall --

all these little words is the thing I'm concerned about,

because the thing is we don't want to cause confusion

with the consumer, and when we start putting in how much

hold time -- I have seen ads with, "Hold times may

vary." So, basically, you are getting information that

doesn't even apply and may even confuse the consumer.

When you do range of rates, someone may be in a

rural country or town, and they may have high rates, and

all of a sudden you say this call may cost -- if you

have the friends and family plan, it may cost you 50

cents, but if you have Sprint direct-dial rate, it may

cost you $2.99 a minute.

Now, the problem is the consumer is going to be

really confused, but if you say that international toll

charges beyond that, you know, apply, you know, maybe

dial 00 for rates, you know, that's something that's

clear, it's concise, it's not -- I mean, clear, you

know, from an advertising standpoint.

When you put too much information in there,

people don't read the ad, you know, the fine print is a

clear example of that, but I think if we put things in

there that are clear, that are not upside down, some of

the existing guidelines that TDDRA has, I think that

solves the problems.

I think one thing we need to address here is

international calls aren't, you know, they are not $5 or

$6 a minute, and I think as far as the free preamble, it

is not really technically possible, because many

carriers can't support that, but I think, you know,

Congress was really concerned when there was a $25

call. That's why, you know, for a one-minute call,

that's why they wanted a preamble, but when a call costs

89 cents to call the Dominican Republic, as long as you

have a preamble, as long as you have advertisement

guidelines and there is nothing deceptive in that

advertisement --

MR. HILE: So, you would favor a preamble?

MR. LESSER: Oh, yeah, wholeheartedly. That

stops the problems, you know, these isolated problems

that the FTC is already going off, and that makes a

clear distinction instead of trying to work with a

definition saying, Hey, these guys many in Muldova are

not having a preamble, hey, let's go after that. Let's

stop trying to worry about little financial issues, how

much money is being made. Let's go for deceptive

advertisement, no preamble, things that are so easily,

readily identifiable that when the FTC does want to act,

they can act harsh, get it taken care of right away and

stop consumer problems.

MR. HILE: Joel, do you want to enlarge on

that?

MR. DICHTER: Just quickly again on the concept

of a range and how difficult that is, in that -- and

under the new competitive regime at the FCC, you can

file an application to become an international carrier,

there are probably 50 of those filed a week. There are

probably -- there are many hundreds and possibly

thousands of carriers all with tariffs on file, all can

be changed on one day's notice. It makes with a myriad

of different rates, plans, time of day, et cetera, it

makes it really difficult to give any kind of meaningful

range. I think you have to be concerned that -- I think

Todd made the point that you don't want to confuse the

customer any more. That's why I think Peter's

suggestion is a good one, that if you dial 00 to get

that information, it's available.

The ITA supports a preamble and requires a

preamble in its code. Its members generally comply with

that. They have a disclosure that in an international

call, the ads would read, "International long distance

rates apply," spelled out, and I think these are better

ways that you can put the consumer on notice that he

knows he is making an international call, and it does

help educate them in that regard as to what he's doing.

MR. HILE: Warren?

MR. MILLER: I want to support what Peter said

and TSIA in that the ISA's position is certainly that we

think additional consumer protections and advisories are

a good thing, and to the extent that they are

technically feasible, they should be provided. The idea

of saying what the exact price is becomes problematic,

because, as I was advised before the session started

today from someone in the business, that more of the

international traffic is moving to live operators, and

that is not something you can measure.

So, it would be -- it would seem to be less than

helpful to put -- to populate ads with unfacts about

what prices are, and I would just point out as an aside

that you see in an ad for a McDonald's promotion that

says, "Dealer participation may vary," and, in fact,

there is -- there would be more information available by

dialing 00 for free. They are in lots of ads for things

that cost money.

MR. HILE: What about programs that can be

determined as far as length goes in advance?

MR. MILLER: Well, even if the length is

determined, what --

MR. HILE: Like if you listen to the entire

program, it's ten minutes, for example.

MR. MILLER: Oh, if it was possible to say what

the total duration of the program was, you still -- I'm

not sure that would be helpful, because I still won't

have the multiplier. What's the rate?

MR. HILE: Marianne, do you have a question?

MS. SCHWANKE: Yes, I would like to follow up

with Don on something you said earlier. Earlier this

morning you indicated that it might be possible to use

900 access for international numbers. If that were the

case and if -- if you did -- if that was a way consumers

could access international number, could a free preamble

be put on that kind of call?

MR. KLUG: Sure, and you also asked the

question, Marianne, why free preambles couldn't be put

on international calls, I guess that's the flip side of

it, and the reason is that the IXE carriers have, with

900 -- who provide 900 service today have invested in

their networks so when a 900 call is delivered to them,

they know that they need to provide timing only after a

preamble is provided. If they were to do that on an

international side, first of all, there would be no way

to differentiate between international pay-per-call and

someone who wanted to call their grandmother in Italy.

MS. SCHWANKE: But earlier people have

indicated, I think, that a lot of countries have

designated certain area codes within their country as

audiotext services. So, if that's the case, then why

can't they tell?

MR. KLUG: Okay, assuming that there were

specific codes for international pay-per-call programs,

then the EXEs would need to invest development dollars

to handle that and provide free preambles the same way

they do on 900 today, and I would just posit that at

least from an MCI perspective, we would not offer that

service, because we wouldn't think we would recover our

investment.

MS. SCHWANKE: So, is it more of an economic

issue than a technical issue?

MR. KLUG: Yes, to the extent that specific

countries can separate out -- designate prefixes for 900

calls is a technical issue.

MR. HILE: Kim, did you have something?

MS. WILLIAMS: On the issue of international

calls, first, I rarely see anything that's 89 cents a

minute, I think more often I do see $3 to $6 a minute,

and that is common.

MR. LESSER: I think I want to directly address

that. I think that's something -- that's why it's very

important why the TSIA supports reasonable and customary

rates. Now, a caller from Florida showed me a $95 call

for 20 minutes to Canada, that some carrier that we have

talked about that filed a tariff rate charging $5 a

minute to call Canada. I know AT&T charges -- I've got

the plan, it costs 10 cents a minute to call Canada.

MS. WILLIAMS: I think some countries, though,

whether AT&T or not, Guyana, maybe AT&T's is $3 a minute

and somebody else's rate might be $5 a minute, but both

rates are high rates from the consumer perspective, and

at least in the advertisement, if they saw that this

might cost them anywhere from $3 to $6 a minute, and you

could include the suggestion to dial 00 to check the

rate from your carrier, but that price range first, I

mean, a dollar sign is certainly going to attract a

customer's attention in the ad, and I think that's

what's important, is that they see some dollar sign

there that they understand that this is going to cost

more than what they are used to paying domestically.

MR. HILE: Adam, do you have a question?

MR. COHN: Yes.

My question is basically, we heard a lot in the

comments and also here today and yesterday about

technological innovation, and I'm wondering whether or

not -- and maybe we're trying to look at the FTC too

much to sort of determine what the innovation will be or

should be, you know, what do people think about the

notion of, you know, creating a definition that's broad

enough to encompass all of the problem areas that we may

or may not see, and then leaving it up to industry to

sort of figure out ways to comply with the rules

required in TDDRA, whether that be cost disclosures, and

not making specific requirements for how a disclosure

look, but -- or how a preamble should work but sort of

relying on the industry itself to figure out a way to

make international calls include a free preamble.

I'm not convinced that that's impossible, you

know, if all the parties were notified in advance that a

number was -- was a pay-per-call number, I'm not 100

percent convinced that it wouldn't be possible to create

a free preamble. And if industry can figure out a way

to do that, I believe, you know, it's in the power of

industry to come up with new solutions. I mean, what do

people think about that, you know, just sort of

broadening the definition and then leaving the door open

for people to figure out ways to comply with TDDRA as it

currently works?

MR. HILE: Anybody care to respond to that

specific question?

Peter?

MR. BRENNAN: I applaud the spirit of it, but

possible and feasible are two different things, and

there is a -- you know, look, technology -- technology

is a wonderful thing, and technology can be made to do

almost anything, and I know when a customer comes to us

with something, the first thing we say is yeah,

technologically we can do it. Here's what it will

cost.

And on a feasibility basis, I think we have to

balance the value of that and the present reality, the

present state of the technology. I think on a

going-forward basis, that's something we should aspire

to, but the -- but I'm not sure that that would be --

I'm not sure -- I don't know what exactly it will take

to insert the mechanism for a free preamble in every

telecommunications company in the world. I don't know

what that will take, or even in the handful of companies

-- of countries that do this.

And I suggest that perhaps in the long run that

that -- although it's a commendable idea, that might be

anti-consumer, because it will cost more than some of

the other solutions which would have much the same

effect.

MR. COHN: Well, the flip side to what I was

saying would be that -- that this is sort of TDDRA as it

stands now was what was determined to be fair in the 900

number context in light of the technology that was

available, but why should -- why should international or

other formats be treated any differently merely because

it's not currently technologically or economically

possible? If this was thought of, you know, three years

ago as to be a fair disclosure and a fair way of

handling this instant billing situation, why should

exceptions be made?

I know that -- that there may be really good

reasons for having international over 900, and I'd like

to -- I'd like to hear some, you know, some reasons why

exceptions should be made for specific new preamble

requirements, nonfree preamble -- you know, exceptions

for international numbers. I mean, I haven't really

heard any --

MR. HILE: Are you basically saying what is the

rationale for treating international pay-per-call

different than 900 pay-per-call?

MR. COHN: Exactly.

MR. HILE: Anybody care to answer that?

MR. HERTZENDORF: Just ad-libbing, I don't know

if they are stating that it's a particular advantage or

disadvantage for the pay-per-call.

MS. GOLDSTEIN: Let me comment that I don't know

that it's so much creating an exception except that

recognizing that there are certain jurisdictional

limitations in terms of the agency's jurisdiction. In

the domestic arena -- I'm sorry.

In the domestic arena where we didn't have the

technological problems with the preamble, I mean, there

was certainly this discussion four years ago as to

whether the preamble should be, you know, dealt with in

this particular rule, but we weren't faced with those

technological problems, because we were talking about

things happening here in the United States.

I don't think anyone here would disagree that

certainly in terms of the advertising that's

disseminated here, it's appropriate for the FTC to set

standards to ensure that the advertising is not

misleading and deceptive, but I think to try to tackle

those technological problems, which seem to be rather

significant, coupled with the jurisdictional issues, it

may be a more prudent approach to try to deal with what

technologically can be done and really what fits within

the framework of the FTC's jurisdiction, which is really

to focus more on the advertising.

MR. COHN: And not on billing, billing for free

preamble time?

MS. GOLDSTEIN: I'm not sure I'm --

MR. COHN: You are suggesting that only

advertising is what's at issue, but I would suggest --

MR. HILE: That is what we have been talking

about so far, but we are going to have to enlarge the

discussion to the other aspects of the rule.

MS. GOLDSTEIN: I wasn't suggesting -- I was

focusing on really what we're discussing here, which is

should, you know, the issue of whether we, you know, the

industry should be forced to take the steps necessary to

try to somehow impose free preambles --

MR. COHN: Not that they should be forced but

that they shouldn't be given an exception to what's

already required.

MS. GOLDSTEIN: And that's what I was trying to

say. I'm not -- I think it's an exception that comes

out -- that comes out of almost necessity.

MR. COHN: I'm not sure I understood your

jurisdictional argument. I just -- I mean, I know some

of these calls are apparently -- well, we are led to

believe that they are going to other countries, at

least, but why -- why should a billing issue, someone

who is being billed for preamble that in other contexts

is required to be free, they are being -- the bill is

being sent to an address in the United States, to a

customer who lives in the United States, and the

advertisements that they see are -- are being shown

in the United States, that call is coming in to the

United States stating something to a consumer listening

on a phone in the United States. I don't -- how is that

not --

MS. GOLDSTEIN: Because I think -- and I'm

really picking up on what Don Klug said, that the

infrastructure -- the infrastructure to do that would

require -- I mean, there would be a tremendous amount of

cost involved to implement that. If that's not -- I

mean, I'm building on that, and I don't have personal

knowledge of that, but if that is the case, that's not

the same situation that existed when we were talking

about instituting a preamble domestically.

MR. BRENNAN: It seems to me that what -- what

you are proposing in terms of the assumption that this

is what was fair, what was thought to be fair four years

ago when we went through this before, and -- and the --

the extrapolation to that -- to this environment seems

to be almost to me consistency for its own sake.

In that environment four years ago, there were

those of us who prior -- who prior to the TDDRA, prior

to even consideration of the TDDRA, had offered

preambles and always did, because we thought it was good

business and because it was possible and because, you

know, and -- but this is not that situation now, and in

terms of what the problem is exactly that we're trying

to solve, we might agree that if there could be

preambles if it went -- if it weren't burdensome, overly

burdensome, that that would be a usable option, but

let's look at the problem that we are trying to solve.

If a preamble other than a free preamble -- if a

preamble is provided, if all of the other stipulations

of the TDDRA apply, cost disclosure, billing notice and

billing dispute procedures, in a realistic sense, how is

the customer or the telephone subscriber hurt when --

when with all those billing dispute procedures, they

could still charge back the call? They still have

rights to all kinds of due process. They still have

the cost disclosures in advertisements and in all of

those other protections. The free preamble was one part

of an -- of a mosaic of consumer protection.

MR. LESSER: Can I amend what you were saying,

Allen, because maybe this would work. Just say

technically feasible and reasonably enacted, and that

gives you a little ability to maybe change things and

maybe in the future something would be able to be

adopted, but not any sort of guidelines, because

technically, would we send a man to the moon to go get a

glass of milk? It is not always worthwhile to do it,

but I think we go from a standpoint of technically

feasible and reasonably enacted and assume there are

people out there to follow that.

MS. HARRINGTON: Susan, you have got your card

up. What do you think about that?

MS. GRANT: What I am really hearing is it is

probably technically feasible to give consumers the same

types of protections but it is not currently

economically feasible, but nobody is forcing information

providers to use international numbers to provide their

services. That's a choice that they are consciously

making. We're being asked essentially to countenance

this choice to use these numbers and to not give

consumers the same protections that we felt so strongly

they were entitled to with 900 numbers, because it would

be too expensive for the companies to do so, resulting

in what -- what we have seen as tremendous harm,

economic harm, to consumers.

I don't think that that's fair. I don't think

that that is in the spirit of the law and the -- and the

recent law that is obliging us to review the rule in

that light, and I would suggest that if it's not

economically possible at this point to give consumers

the protections that they need, then those numbers

should not be used to provide these services until and

unless it is.

MS. HARRINGTON: Question from Mark?

MR. HERTZENDORF: Following up on that point, a

question for the EXEs, how difficult would it be for

them to block access to all international audiotext

services? Is that feasible?

MS. HARRINGTON: EXEs, Don?

MR. KLUG: We don't do it today. I guess we

could do it. I don't know about costs. I'm not sure we

would want to do it.

MS. HARRINGTON: That's not the question. Just

is it feasible?

MR. KLUG: It is feasible. I don't know what

the cost would be.

MS. HARRINGTON: Okay.

Jim?

MR. BOLIN: I'm sorry, I was talking with

someone.

MS. HARRINGTON: The question is is it feasible

for the EXEs to block access to international

audiotexts.

MR. BOLIN: Once we know that's what they are,

yes. If it's an international POTS number, we can't

know to block it until we get complaints coming in, and

that's actually what I was just talking to Jon Shaub

about, until we are getting complaints, the issue is are

we operating in violation of TDDRA, the issue is could

we have known or should have known, at least, and they

can also migrate once they have been identified.

MS. HARRINGTON: We are going to go to Kim and

then back to Todd for his follow-up comment or

question.

MS. WILLIAMS: The whole issue of identification

of these is a problem. Unless you can identify them

when they are billed, then you can't afford consumers

any protections for these numbers. I mean, I hate to

say it, but I know we're denying local service for

nonpayment of these charges over and over again. We

don't know what they are.

We are getting used to the countries, we are

getting used to seeing the Guyanas and Sao Tomes, and so

we are probably a little better at offering adjustments

for them, but I can't say that it happens all the time.

I think we're holding customers responsible for payment

because these are toll charges and not 900 charges.

MS. HARRINGTON: Todd, we are going to get back

to you, but I am going to go to Joel first.

MR. LESSER: No problem.

MR. DICHTER: I am really following up to

something that Linda said. I think you have to be

careful here that from an FTC perspective, we are

talking about -- this is a law entitled the Telephone

Disclosure and Dispute Resolution Act, and we are

talking about disclosure information. Can the FTC as an

advertising agency, disclosures you put into

advertising, dispute resolution, it gets back that the

FTC jurisdiction is not common carriers. What we are

talking about is rates charged, filed by and billed by

international common carriers, and there is a

jurisdictional problem there that has to be considered.

Industry is willing to come forward with

advertising guidelines, provide more dispute resolution,

to provide more disclosures on costs, to try and work

with the agency on that, but you have to try and get to

this concept of it must be our 900. It is really a

narrow perspective and ignoring the fact that we are in

a growing global economy, not just for telephone

services, for Internet, for everything, which obviously

uses telephone lines, and you have to be -- you know,

trying to narrow it in or saying we are going to adopt

regulations and it is up to the industry to figure out

how to comply with them is really not, I don't think,

what Congress intended.

It is not what we went through four years ago,

and before TDDRA, where there were hearings on TDDRA and

we talked about these issues, and there were discussions

about 900 preamble and free periods and where it was

feasible and wasn't feasible, rather than enacting

regulations and expecting someone to figure out unknown

costs and unknown complications of how to comply with

it.

MS. HARRINGTON: I think if I may just interject

with the staff view, our view is that we absolutely have

jurisdiction. The FTC is more than an advertising

agency. We have very broad jurisdiction to act to

prohibit deceptive and unfair trade practices, whether

they occur at the point of sale or in advertisement or

in connection with billing and collection. Our mandate

is to protect consumers from these kinds of practices,

and our position is that when marketers or advertisers

or sellers come into our marketplace using any

technology, that we have jurisdiction over those

transactions and the marketing activities and the

advertising and the billing and collection activity.

Now, whether or not we can reach companies that

are based outside of the United States for purposes of

executing our judgments, satisfy judgments, is a

different issue, but we would dispute any assertion that

we do not have jurisdiction.

Secondly, whether or not we have jurisdiction

over common carriers, I would submit, is an open

question in an era when the meaning of "common carriage"

has changed dramatically. And so I don't think that we

would even concede on that, just so you know, for the

record, where we're coming from here.

Finally, Joel, I think that several years ago

the only audiotext services that were widely available

to consumers were available on the 900 or 976 platform.

I think it's probably not quite accurate to say that the

Congress intended these rules to apply only to audiotext

services offered on 900. It's just that nobody knew

that anything else was possible.

I think what the Congress intended was for

United States consumers to have certain protections when

they purchase audiotext services. Certainly that's what

we intended. I don't know about the Congress. I am not

in it, but -- but I'll just sort of, you know, pour a

little gasoline on by -- by saying that's the staff

view, and I want to be, you know, up front about that.

Now, we are going to hear from Jim and then

Warren.

MR. LESSER: I think he wanted to answer one

quick question.

MS. HARRINGTON: Or Joel, you still have your

sign up?

MR. DICHTER: I think we have a dispute about

that, actually. I think especially in dealing with what

you are saying, you're regulating in essence what the

tariffed rates are of AT&T by saying that there is a

first 30 seconds of AT&T's time is now -- is now free

time. I think you have a jurisdictional problem.

You talk about blocking issues, also, now you're

talking about not just U.S. telecommunications laws but

international telecommunications laws and providing

access to services, and I -- and I understand these are

open issues and issues for discussion, but that's just

something that I want to put on the table that has to be

considered.

MS. HARRINGTON: Todd?

MR. LESSER: I just wanted to say you know we

have a lot of carriers in our association, and something

as far as, you think, as AT&T was saying, knew or should

have known, on an information type call, that definition

is a little tough, is that carriers can block

international calls, just specific numbers are a little

bit harder.

As far as the economic costs, and this is

something I'm -- I'd like to try to see what Adam was

going at, what we are hearing a lot from attorney

generals is problems with economic costs. As long as

there is a preamble and disclosure in the advertisement

and people are charging reasonable rates and customary

rates, is there going to be such a big economic cost if

someone calls a number and goes, oh, I find out this

call is a high number, I didn't read the ad first, and

then they hang up, and maybe they are charged for a

20-second call to Guyana. Is that as much of an issue?

Aren't you more concerned about calls that are $100,

because they stay on the phone beyond having no idea

what the call costs at all?

MR. HILE: That's if you have fractional-minute

billing.

MR. LESSER: Well, then a full minute, so it

costs a person even as high as $3 for that first

minute. Aren't you more concerned, just like, you know,

they don't have preamble requirements for a 976 Lotto

number in California, because it's only a $2 call?

Aren't you more concerned about the huge dollar volumes

and the complaints, that's what you're receiving?

MS. SANDFORD: Todd, what we're concerned about,

we're concerned about both a particular bill that has a

very large dollar amount but also a volume of bills

which might have a more de minimis amount. You could

have a situation where an ad is run in the classifieds

in The New York Post and 10,000 people call up or 20,000

people call up, you know, we have a very high population

area, especially in the New York metropolitan area. So,

even though the particular charge to an individual

consumer may be low, the volume of consumers and

ultimately the volume of complaints we see may be very

high. So, I just wanted to be clear that we're

concerned about the scope of a problem as well as the

dollar amount for each individual consumer.

MR. LESSER: But if Adam's guidelines were

followed, you know, as far as reasonably trying to adopt

this in the advertisements, would that be a -- I mean,

could you give me an example -- you are giving an

example of an ad in The New York Post, but if we sat

down and had the consumer protections that have been

suggested, wouldn't that stop not having the slew of

calls that someone -- there was no deceptive

advertisement?

MS. SANDFORD: Well, there are different

consumer protections that have been proposed on the

table, and I don't think there is consensus at this

point as to what we believe and believe as a group is

the proper consumer protection.

MR. LESSER: Okay.

MR. HILE: Jim?

MR. BOLIN: Just briefly to respond to Jill,

AT&T agrees wholeheartedly that a small charge to a lot

of consumers makes consumers unhappy and is unfair, and

a small charge to AT&T or MCI or Sprint over the base of

their rate base is not a small charge in the aggregate.

So, I think arguments about de minimis issues mask

what's really going on, but also I'd like to say while

I'm not going to wade into the jurisdictional arguments

in full, common carriers are certainly obligated to

ensure that their customers abide by the FTC's

relations.

So, in effect we are going to be able to get

them to comply with whatever the FTC promulgates,

whether or not the FTC steps in directly, and the issue

I want to dispute, too, Jon Shaub informs me that on the

issue of blocking international pay-per-call, we have

the technology to block international lines certainly.

I think we need to get back to you on whether or not we

have the network capability to block all international

pay-per-call lines that are out there now. That's a

large volume and I need to investigate whether we can do

that.

MR. HILE: Did you want to follow up?

MR. HERTZENDORF: Yes, with regard to the

preamble, as an economist, I would assume that if the

preamble is free that ultimately the consumer is going

to wind up paying for it or at least the consumers who

-- who don't hang you during the preamble are going to

wind up paying for it, some consumers are going to have

to pay for it, or maybe those costs will be distributed

out of the profits of the company and out of the

consumers' costs for using the service.

So, I'm just wondering, from the consumers'

point of view, for the ones who are going to use the

service, really does it -- it may not matter to them

quite so much whether the preamble is free and they pay

a slightly higher charge per minute or whether they pay

a lower rate but don't get the preamble for free. So,

the only consumers we need to focus on, it would seem to

me, would be the consumers who want to hang up on the

preamble.

So, I just want to throw out the alternative of

possibly forwarding chargebacks for maybe the smallest

increment you bill for, you know, if you bill in

one-minute increments, is it possible to say, well, if

the consumer hung up during the first minute, we are

going to forward that chargeback all the way, you know,

to Guyana? Do you follow that? Because only the

consumers who hang up are -- I think those are the ones

who are really benefitting.

MR. BOLIN: Technologically feasible,

identifying which of those calls should be subject to

that chargeback, coming up with those is difficult.

Most difficult of all is, you know, again,

jurisdictional issues aside, how we or the FTC can

enforce a judgment in Guyana against a pay-per-call

provider there. Effectively what you would be doing, I

think, is ordering EXEs to eat that charge in most

cases. AT&T has a few chargeback arrangements, they are

far from universal. I doubt we could ever make them

universal.

MR. HILE: Warren, and then Linda.

MR. MILLER: Yeah, I was just passed some

information that is specific as to some of the general

things that were mentioned before. We believe in

educating and empowering the consumer, and TSIA

mentioned that international call blocking is

available. I have a printout here from the Bell

Atlantic web page, and they have a product called

Callgate. It allows international calls to be blocked.

So, I would suggest that --

MR. HILE: All international calls or

selectively?

MR. MILLER: All international calls. That's

what it says. The --

MR. BOLIN: That's not a free service, either,

is it?

MR. MILLER: No, it is not a free service. The

suggestion is that -- well, in talking to Bell Atlantic,

for example, on another matter, more of this kind of

individual empowerment at the local level will be

available as the AIA, Advanced Intelligence Network,

rolls out, and I would invite the other LECs here to say

what they can do about this.

MR. HILE: Linda, did you want to add

something?

MS. GOLDSTEIN: No.

MR. HILE: Barbara?

MS. MAJESKI: Yes, I just wanted to respond to

the blocking issue. The LECs currently have instituted

an international blocking option in their network, but

this only applies to direct-dial international calls

only, and it blocks all international calls. It's not a

selective pay-per-call -- in other words, you can't

block selective pay-per-call services.

MR. HILE: Is it truly all or none? In other

words, can you block, say, all calls to Guyana?

MS. MAJESKI: No, no, it's all international

calls.

MR. HILE: You have to block all countries?

MS. MAJESKI: Right, and one other thing. The

block is good for only direct-dial. Callers that access

international services through 800 number or 10XXX will

bypass the LEC blocking option.

MR. HILE: I see.

Jill?

MS. SANDFORD: Yes, I just want to address the

blocking issue. Often times when we see consumer

complaints on 900 numbers as well as international

calls, we will advise the consumers of the blocking

option. In terms of 900 numbers, the consumers say, oh,

that's great, we don't want to make 900 number calls, we

don't want calls being made from our phone.

The problem is that it is an all or nothing in

the international arena, and in New York, we do have a

diverse ethnic population, and people want the ability

to make those international calls, and so international

call blocking is really not an option for many people

who enjoy and like making international calls.

And I was also going to highlight the problem of

circumventing the block. We have seen for those

consumers who have opted for the international block

that they are still getting international calls being

billed to them because of the 800 redirect problem.

MR. HILE: Kim?

MS. WILLIAMS: Yeah, just to further that, and I

can't speak for Pacific on this, only for Southwestern

Bell, but we don't even offer international blocking to

end users. I know we were -- we have to affirm an

access site, and I don't know enough about it to speak

to it. I just know that a regular residential end user

or business end user cannot subscribe to international

blocking from Southwestern Bell. We don't have it.

MS. MAJESKI: Just as a follow-up, I just wanted

to mention the international block does not block calls

to Canada, the Caribbean and I believe Mexico. So,

these are problematic areas for pay-per-call, which are

not covered under the international block.

MS. SCHWANKE: Do you --

MR. HILE: Joel, and then I would like to have

Jim.

MS. SCHWANKE: May I?

MR. HILE: Go ahead.

MS. SCHWANKE: Do you know why that's the case?

Is it because it's a different -- you can dial an area

code to get to the Caribbean and not 011?

MS. MAJESKI: It is covered under a different --

they call them world zones.

MR. BOLIN: It is the North American Zone, you

just dial a regular area code.

I just wondered while we are on this subject,

does the international block work for dial-arounds? Can

you dial around and still get international calls out?

MS. MAJESKI: No, right, right.

MR. HILE: Joel, the floor is yours.

MR. DICHTER: Just in response to something Jill

said, I think that's an example where they said they

wanted to be able to make international calls and be

able to block international audiotexts. It's an

instance there where the consumer is an educated

consumer. He knows what an international call is. He

knows that an international call costs money and can --

and has that information available to them. It

shouldn't come as a surprise to them.

MR. COHN: So, only the uneducated consumer

would need to call their phone company and bill

international collect calls? Is that --

MR. DICHTER: I'm not talking about that

instance. In other instances, globally, international

blocking is available.

MR. HILE: Jill?

MS. SANDFORD: But those people who make

international calls regularly may also have a particular

calling plan with a carrier at rates much less than

these pay-per-call rates.

MR. DICHTER: But those --

MR. HILE: And they may have children who are

not as sophisticated about international calls.

MR. DICHTER: I was going to point out on those

calling plans you would pay the calling plan rate to the

international carrier. For example, there are special

rates that AT&T has under its Reach Out -- what's it

called, Reach Out Worldwide --

MR. BOLIN: We have country-specific calling

plans, as well.

MR. DICHTER: That's right.

MR. HILE: Adam, do you have a question?

MR. COHN: Yeah, I wanted to make sure that

before this discussion closed that we had some

discussion about other aspects of the -- of the rule

other than the free preamble and the advertising

requirements. TDDRA requires a lot more than just that,

and the rule requires a lot more than just that. So, I

want to make sure that when we're talking about

international audiotexts and whether the rule should

apply or can apply, that we also discuss these other

aspects, you know, including billing dispute

resolution.

We have heard a lot about the LECs, at least,

needing to know in advance that a call is an

international audiotext and whether that was feasible.

I'm curious as to -- to know, if there really was some

sort of way to notify in advance the LECs of every

international call that was audiotext, would it be

feasible to -- to create blocking and create all the

other protections of TDDRA, including a free preamble or

the billing block option that was suggested by one of

the commenters?

MR. HILE: What about the dispute?

MR. COHN: Including the dispute --

MR. HILE: In other words, instead of going back

to the advertising and preamble, let's enlarge this.

Kim?

MS. WILLIAMS: If I were -- if the calls were

identified to me on the bill, meaning, you know,

international would all be sent in on a particular EMI

record, I could at least afford consumers some

protections as far as denial of service and issuing

adjustments goes. As far as providing blocking and

whether it's technically feasible, I don't think we have

the network capacity to provide it on a

per-dialing-pattern basis.

I mean, I think it -- even with 900, you know,

it's an all or nothing kind of thing, and you take up so

much network capability, and I'm -- I know very little

about this, but the little bit I do know is it's very

difficult to keep creating, you know, a new kind of

blocking. If it were all international, that's one

thing, but to say different dialing patterns on

international, that's I think nearly impossible.

MR. HILE: Barbara, would you like to respond?

MS. MAJESKI: I just wanted to go back to the

FCC 1992 order allows involuntary blocking for carriers,

EXEs and IPs, for 900 number type calls. I'm wondering

if this type of involuntary blocking would be applicable

here.

MR. HILE: Do you want to respond to that

question, anyone?

MR. LESSER: What specific question was that, as

far as the involuntary blocking?

MS. MAJESKI: Um-hum.

MR. LESSER: One thing I just wanted to -- you

know, I'm a little concerned with difficulty to

enforce. You know, basically we can have a foreign PTT

that moves a number as soon as we, you know, a carrier

finds out about it, and that's why I'm more emphasizing

trying to stop it rather than trailing behind potential

fraud problems.

And, you know, second, as it comes down to the

definition, as a child -- maybe that's why I got in the

phone industry -- I ran a dial-a-joke line for free. I

got six lines, got thousands of calls a day.

If I'm in a foreign country and that number got

out in the U.S., I could have theoretically gotten

thousands of calls from there, or Europe. So, it

becomes a muddled issue where I think we should really

concentrate our attention on the fraud or the

advertising control, and I really can't answer your

question, because I didn't hear the full question.

MS. MAJESKI: Well, I said in the 1992 FCC order

for 900, the FCC allowed EXEs and IPs the option to

invoke involuntary blocking for consumers that

constantly abused the service or were deemed not to

pay. I'm wondering if that type of solution would be

applicable here.

MR. LESSER: There are clearly carriers on a

regular basis who do involuntary blocking. If they have

someone -- I'm sure AT&T has a lot of abusive people

that, you know, they love the phone but don't want to

pay that bill, so AT&T blocks them from their network,

so clearly that has happened. A lot of carriers we have

have carrier limits that, you know, I will give an

example. Sprint, did a good job, had a calling card

that I hadn't used for about a year. I made a $1 call,

and they cut me off, because they interpreted that was

high fraud, because they saw a huge percentage increase,

and that's what they did, and a lot of carriers are

doing that. As the economy and there is more

competition and rates are dropping, we have to come up

with these technologically advanced systems, because the

margins are so little. So, we are going to see a lot

more of that.

MR. HILE: Joel?

MR. DICHTER: A couple of things. On the

billing dispute, again, that's handled by the carrier,

and the carriers have become much more responsive on the

international issue, as have the foreign telephone

companies in handling the -- passing back the

chargebacks, which is happening more and more, which

then has resulted in the -- in the international

exchange carrier being more forgiving on it, as well.

So, you have a method, you have someone to deal with who

can answer -- who will answer the phone.

On the --

MR. HILE: I'm sorry, I don't fully understand.

What's your point?

MR. DICHTER: The point is that when you are

charged for international audiotext that appears on your

telephone, you can contact your carrier and dispute that

charge, and you can resolve that dispute with them. You

have a mechanism for responding to it, and the carriers

have become much better in dealing and handling those

and recognizing those and giving people forgiveness to a

great extent for when they dispute those charges.

I was also going to say, also, on the other

side, I think, you know, when we had this four years ago

and we came through this, as Eileen said, we came

through with really almost a consensus position at the

end, which really helped to address many of these

things. Here we have had a willingness really around

the table really to talk specifically about advertising

disclosures, to make sure the consumer when he sees an

ad for an international call or other call has

information available to make a decision on that.

You know, if we have that information and we

have no objection I have heard to a preamble, to this

preamble, so if we have clear advertising and we have

this preamble, then you have an informed consumer, and

you have a way to deal with the situation.

MR. HILE: You also have a consumer who has paid

for a preamble, perhaps on the basis of a misleading

ad.

MR. DICHTER: But the point is, there is not an

objection --

MR. HILE: How do you handle the chargeback?

MR. DICHTER: -- but there is not an objection

to having clear advertising disclosure which would

provide the consumer with the information that it is an

international call, and under Peter's suggestion,

advising him how to find out immediately what the rates

are for the call. If you provide all that information

to the consumer and the consumer decides to still make

the call at that point in time, then that's a choice of

that consumer. It's not something that we all should be

saying let's undo.

MR. HILE: Kim, and then Barbara.

MS. WILLIAMS: Well, I --

MR. HILE: And then Sue.

MS. WILLIAMS: -- I think as far as that dispute

resolution process goes, again, the LEC is in the dark

on what charges are these pay-per-call international and

which ones aren't. There is also an issue of, again,

and I think Alan brought it up, kids using these

services, and unfortunately, it's a very real problem

that a lot of consumers thought they took care of when

they subscribed to 900 blocking, and although I would

have never made a 1-plus call when I was a kid without

my father's permission, plenty of them do today, and

their kids get access to services that, you know, really

they shouldn't have access to, and I think we don't have

a good answer for those consumers, that they have to

experience it at least once before they block it, you

know, we are back where we were several years ago before

we had 900 blocking.

MR. HILE: Barbara?

MS. MAJESKI: Just to address the billing

disputes, 900 numbers are clearly separated from regular

direct-dial calls. The LEC billing system also

generates the message that failure to pay for these

charges, the consumer will not be disconnected. When

they are lumped in with every other direct-dial call, we

have no way of knowing which are legitimate calls and

which are pay-per-calls. I mean, someone's grandmother

must live in Sao Tome. So, there may be legitimate

calling to these areas, but until we get customer

complaints, and many customers for one reason or another

don't complain, just refuse to pay the bill, and

suddenly they are disconnected.

MR. HILE: You are disconnecting consumers who

refuse to pay these international charges?

MS. MAJESKI: Well, we have no way of

identifying them as being any different than a

directly-dialed called to their grandmother in Italy or

whatever.

MR. HILE: Marianne, you want to ask a

question?

MS. SCHWANKE: I would like to follow up

directly on what Barbara just said and what Kim had said

earlier. If, as was suggested earlier today, that

international calls could be accessed through 900

numbers, would that solve the problem of, number one,

LECs being able to identify that they are international

-- that they are pay-per-call, therefore, they could

separate them on the bill, not disconnect for failure to

pay and also maybe block access?

MS. WILLIAMS: Definitely. I mean, that 900 to

me is an answer.

MS. SCHWANKE: Barbara, do you have a response?

MS. MAJESKI: No, that's fine. Even if -- even

if international or -- international pay-per-calls can

be identified by a specific record type, the same as

900, our billing systems can recognize that and bill

them on a separate page, even though they are not

labeled as such.

MS. WILLIAMS: True, right.

MR. HILE: Sue?

MS. GRANT: I just wanted to point out that it's

been our experience that the long distance carriers have

become less forgiving of disputed international calls

than more forgiving. For instance, MCI was initially

just removing the total amount of those charges, and

recently adopted a policy of splitting them with the

consumer. And that was because of -- as I was told by

MCI -- because of the tremendous losses that the company

was suffering because of consumers' demands that -- that

the charges be adjusted.

MR. HILE: Do you have a follow-up question?

MR. COHN: I do have a follow-up to that. This

sort of -- this brings me back to something that came up

yesterday, which was are the IP -- aren't the IPs -- why

are the phone companies suffering from -- from the

chargeback problem? I mean, in 900 numbers, it's clear

that when -- when there is a chargeback, it goes back to

the IP, the IP eventually suffers, perhaps more than

they should be, but that's another issue, but when a

consumer refuses to pay one of these international

numbers, why aren't the IPs -- why isn't it going back

to the IP? Why does MCI have an incentive to stop

giving refunds when a consumer has been defrauded and

tricked into calling a number they didn't know would

cost them money?

MR. HILE: Jim, can you respond to that?

MR. BOLIN: In these international pay-per-call

schemes that are done over ordinary POTS lines, there is

no direct payment from the carrier to an IP. If the

call is completed over AT&T's network to Sao Tome, we

never write a check to the IP, so we can't withhold

money from the IP. What we do is we eventually have a

settlement payment that we have to make to the foreign

PTT, and then the PTT kicks back some percentage of that

money to the IP. We don't know what that percentage is,

and we have other obligations to pay the settlement

payments.

So, the issue becomes then if -- if consumers

have a right to just write off international charges

that are deemed to be pay-per-call, and right now we

forgive these on a case-by-case basis, if you do that,

you make EXEs ultimately the folks who bear the charges

in the last resort, unless -- unless and to the extent

that they can negotiate recourse arrangements.

MR. COHN: Could you just correct me if I'm

wrong, then, in saying that if a -- if theoretically you

had a 900 number call that was, say, $2.50 a minute and

a number, just random number, if the IP were making a

profit on that of let's say 25 cents a minute and the

consumer charged that back, my understanding is that the

-- the IP suffers the whole $2.50 cost, because they

still have to pay all the charges that they are required

to pay, and they lose their 25 cent profit, but if you

have a $2.50 international call and there is a 25 cent

fee going to an IP, that the IP is only really losing 25

cents and other parties are losing the remainder of

that. Is that right?

MR. SHAUB: I think that's essentially correct.

MR. BOLIN: I think that's right. That sounds

correct to me.

MR. COHN: Or some people are saying that they

wouldn't be -- the IP wouldn't be losing anything on

that chargeback.

MR. SHAUB: They may not be.

MR. COHN: But assuming they did lose something

on the chargeback, it would only be the 25 cents?

MR. BOLIN: In the international context? Well,

the payment to the IP is whatever payment they are

getting from the PTT. The cost of transport is AT&T to

the PTT.

MR. COHN: Other parties are bearing the cost of

that --

MR. HILE: The American telephone companies are

bearing the cost. Is that right?

MR. BOLIN: Right, and another thing to keep in

mind, the interexchange market is very competitive, and

when you add costs on to the system, they are ultimately

borne by the consumers. There is not a lot of fat to

cut out at this point. I think that's a consideration

to keep in mind. In a competitive market, ultimately

the costs get borne by the folks who buy the services.

MR. HILE: Am I hearing that there is no way

that AT&T and its counterparts can actually reverse

these charges back to the -- to an IP? You can't

withhold the money from the IP, because you don't pay

the IP?

MR. BOLIN: In the international context?

MR. HILE: And you have got to pay the foreign

telephone company?

MR. BOLIN: I don't know the specific regime

governing settlement payments. That's not really my

bailiwick. And I don't know what repercussions exactly

would be felt if we withheld settlement payments. I can

find that out and get some more information for you.

MR. COHN: But even if you did withhold

settlement payments, aren't you still incurring costs?

I mean, I think that -- from what I understand, I hope

someone will correct me if I'm wrong, but that in a 900

number context, the entire cost, everything, is borne by

the IP if someone refused to pay a charge, let's say

legitimately refuses to pay a charge, and if someone

legitimately refuses to pay a charge in an international

context, no matter what, as far as settlement payments,

someone else is bearing the cost.

Is there ever a circumstance where a person has

paid $2.50 for an international call, they don't have to

pay that anymore because the costs are forgiven, and the

IP itself suffers the entire cost of that $2.50

chargeback?

MR. BOLIN: I don't think so, barring some

arrangement between the IP and PTT that AT&T wouldn't be

involved in. I think that in the instance of -- if AT&T

were to withhold settlement payments, AT&T would still

be on the hook for the cost of transcript. I think the

difference is that these schemes would dry up pretty

fast, because there is no margin in it for the IP

anymore. So, there would still be some losses to the

interexchange carrier. I think that they would be --

they would fairly quickly start to trail off.

MR. COHN: But the disincentive for fraud

created by chargebacks, we heard yesterday from

Tele-publishing that a low chargeback rate is an

indication in some circumstances that -- of true and

correct advertising, the incentive to create true and

correct advertising is reduced to the extent that you

don't -- that that IP does not suffer the full

consequences of a chargeback. That's a question. If

I'm wrong about that, I hope someone will correct me.

MR. BOLIN: That strikes me as a penetrating

analysis.

MR. HILE: Joel, you don't have your tent up.

MR. DICHTER: I think if the IP can't get paid,

he is not going to have any incentive to do any

advertising that's improper, and again, I mean, it still

comes back to having advertising that is proper and

working it from that. I think the solution of Marianne

of going through 900, then let's face it, you have

closed off the international methodology as an option,

as a way of doing things. Maybe that's what you want to

do, but I don't think that's the proper way to do it.

What you are doing is resulting in, in essence,

a double charge to the consumer, going through the 900

number, paying for the 900 number, then forwarding the

call international, there is another cost for that. So,

you have raised costs for consumers in that context to

reach the international destination, rather than

providing the advantages of international, which many

times are lowering rates to consumers and providing

global access to information.

MR. HILE: Marianne?

MS. SCHWANKE: Well, it's just that I haven't

heard any solutions for protecting consumers by

providing things like blocking, by ensuring that phone

service won't be disconnected for failure to pay, for

providing free preambles. I mean, I'm open to, you

know, other dialing patterns, but I would like to hear

some ways that we can address a lot of those consumer

protection issues, and I haven't heard any real

solutions yet, I don't think.

MR. HILE: Sue?

MS. GRANT: I just want to remind people that

it's not only the domestic long distance carrier who is

taking a hit, it's the consumer, because consumers

cannot legally at this point, since they are not covered

under the rule, dispute these charges without fear of

losing their phone service, and if a company like MCI

makes them pay half of that bill or if AT&T deals with

it on a case-by-case basis and they don't come to some

agreement, the consumer loses a lot of money by having

to pay for these charges.

MR. HILE: But if the consumer doesn't have to

pay it, then the American phone company eats it. Is

that right, Jim?

MR. BOLIN: That's right.

MR. HILE: Kim?

MS. WILLIAMS: I just wanted to address the

issue of 900 again that -- I mean, I would think if it's

more expensive to route the call from 900 through to the

international country, and if you don't think a customer

is going to call that number, then you are probably

going to find a way to lower your rates, meaning

terminate in the U.S. or whatever it takes. You want

customers to call your number and pay the bill. They

can block the 900. There must be some incentive on

international to keep customers calling it, even if

there are some chargebacks taking place. Obviously more

customers are paying it.

MR. DICHTER: Do we really want to be in the

position of isolating the United States? I mean, if you

want to provide audiotext services, you must be in the

United States or you must only be able to access --

MS. WILLIAMS: They don't have to be. It's

their choice.

MR. DICHTER: If you limit it through 900,

that's in essence the results.

MR. COHN: Joel, isn't it only natural that it

should cost more to call another country? In the

marketplace of calling your grandmother, as the example

is often used, it does cost more to call your

grandmother in another country than if she lives, you

know, next door. Why -- why is it cheaper to call an

audiotext service that's located supposedly in Muldova

rather than one that's right across the street? I mean,

if you do -- if everything was under 900 and it's more

expensive to call international numbers, that doesn't

surprise me at all.

MR. DICHTER: I think you have restricted

competition for one thing. If you have competition --

MR. COHN: How is it a restriction of

competition? It is only natural that --

MR. DICHTER: Because you have competition

between 900 and other methods -- other dialing patterns

that will result if you took them away and have it on

900, you would have a limitation then on that and relate

it to the cost structure of 900.

MR. COHN: Maybe I should try to rephrase that

as a question. Why should -- wouldn't it be natural to

expect that a 900 -- that a 900 number call or an

international audiotext call should be more expensive

than a domestic one, and isn't it the market itself that

determines that rather than -- rather than government

regulation, and wouldn't it on the converse of that,

wouldn't it also be the case that if you had lesser

restriction or lesser disclosure requirements or other

requirements on international, so that the costs could

be cheaper than domestic, the government in a sense

would actually be interfering with the natural

marketplace, which would be domestic cheaper than

international?

MR. DICHTER: No, it would be mandating domestic

as opposed to international, where in turn if your

assumption is correct, that you would expect domestic to

be less expensive than international, and you've

disclosed to the consumer the international nature of

the call, then you've notified the customer that to

expect a charge that will be more than if he made a call

across the street or across the country, for that

matter.

MR. COHN: That doesn't -- I'm not sure that's

really addressing the question that I had, because I

hear an assertion that the government, the FTC, would be

interfering with the national marketplace if we were to

apply the same rules across the board, where it seems to

me that the opposite would actually be the truth, that

if you apply different rules to different groups, you

would actually be interfering with the natural

marketplace, which in all other contexts has always

meant that domestic is cheaper than international.

MR. HILE: Warren?

MR. MILLER: Yeah, I want to answer the

question, and I don't want this to be perceived as an

anti-consumer answer, we are very much pro-consumer, but

there is complete, as AT&T attested, complete

competition in the international market, and in the 900

market, there is not complete and full competition. The

portability has been restricted, and so there are two

sides to that issue.

One is in the 900 business, the carrier pays

when it's billed, and then if they don't collect, they

take it back. I am presuming -- we are not in the

international business, but I'm presuming in the

international they get paid when they get paid. So, the

losses are the same, so information providers, whether

you rent the money and give it back or whether you just

don't get the money, you still don't get the money.

MR. HILE: When you say they get paid when they

get paid, what do you mean? You mean it takes longer,

and it is not paid until it's collected?

MR. MILLER: I don't know, but I'm saying in the

900 business, you only got that money as an advance

against expected payment anyway. So, the difference

between being temporarily paid and being not paid to me

as far as I'm concerned are the same thing.

MR. HILE: Is that really the choice? It seems

to me the choice is between getting paid and maybe

losing some of it back in chargebacks on the domestic

900 number side, or getting paid and getting to keep it

on the international side.

MR. MILLER: Well, he was talking about if a

refund is made, that the -- that the loss to the IP was

somehow less in the international business. I'm just

suggesting not paid is not getting paid, whether it's --

there is an advance payment that comes back or whether

there is not any advance payment. Not payment is not

payment.

MR. COHN: But under 900, you still have a lot

of costs that the IP would have to cover that he would

not have to cover in international.

MR. MILLER: And that's why people are using

international, because it's a more efficient medium.

MR. COHN: And someone else is bearing those

costs?

MR. MILLER: No, because prices are artificially

high, because there is no portability, and prices for

labor are less offshore from the United States. Now, it

may be true that some of these countries were attracted

to high rates, but, in fact, they say now that some of

them are attracted because of low labor rates, and if 85

percent of the traffic is live, you can see why they

might expect to pay someone less in a foreign country.

MR. HILE: Is this a labor-intensive industry?

MR. MILLER: That's what I'm told.

MR. COHN: Warren, I think your point is very

important, that there may be some arguments that 900

numbers are not working in a -- you know, are not the

open and fair market that would bring down their costs,

but I would like to know if anyone else has opinions

about the question that I had asked before, you know,

and on that issue that Warren raised, that, you know,

that different rules for different -- for the different

services and whether that -- whether that's fair or

whether it's more fair to have a -- the same rule apply

and whether that would be fair to international number

users.

MR. HILE: We are rapidly drawing close to the

end of this morning's session, but I would like to give

those who have their tents up a chance to go. So, let's

do -- Walt, you haven't had much to say, so let's go

with you first and then Kim and then finish with --

MR. STEIMEL: One of the things I'm seeing here

is Congress set up a scheme where you can have various

domestic dialing patterns, 800, 800 written

presubscription, 800 calling card, credit card, and on

those, the FTC and FCC knows who the providers are, they

are here in the United States, there is no question of

jurisdiction. You can call them at any time. They have

to give free preambles, the chargebacks get -- they get

hit, the IP or the IXE, whoever is providing the

particular audiotext service gets hit with that.

It's clear what all the consumer rights and

responsibilities are, and you all can change those rules

whenever you want to and call carriers and IPs in. On

international, you know, what I'm hearing and what it

seems like Todd was saying earlier is let's restrict all

domestic 900, but let's not touch international.

International, the consumer has to pay for the preamble,

the IP in most situations -- and I have done some

international work before -- in most situations, the IPs

get paid no matter what, and someone like AT&T ends up

eating the bill when the consumer doesn't have to --

doesn't have to eat the bill.

The consumer gets cut off all the time because

Southwestern Bell can't figure out what's audiotext and

what's not. If you have dialing -- U.S. dialing

patterns, whether they are 800, 900 or whatever else and

you provide blocking options, you provide all the

blocking information through LIDB and require the EXEs

and IPs to check that information before clearing the

calls, and the local exchange carriers know that it's

all audiotext, it -- that's an easily containable

program that you can manipulate, massage, to protect

consumers, but the international scheme is completely

outside of that, and you're basically setting up, and if

you're not careful, you are going to set up an

arrangement in which more and more IPs are going to go

to international, because hey, it's a great deal.

We are outside of the United States, we always

get paid, we don't have to give free preambles. I mean,

as you go down the line -- and then we have also got

deniable billing that the LECs can't figure out if it's

really supposed to be deniable or not. It's a great

deal. If we are too restrictive on the domestic side,

eventually everything is going to be international, and

there just won't be any 900 or 800 or any other

pay-per-call in the United States. It will all be

overseas, and I would actively encourage my clients to

go overseas and handle someone else to handle those

arrangements for them from now, because it's a great

deal.

MS. WILLIAMS: I never thought the day would

come, but I agree with Walt. I think what Adam said

earlier is right, that there is not a level playing

field if you continue to allow international under the

rules that they are under today, which is basically no

rules, and that that has to be leveled out. And I also

don't buy the agreement of portability -- portability

being the issue on 900, because it's always been that

way, and nobody -- international was not the big place

to be before TDDRA.

So, I still think portability isn't really the

issue, and I'm not saying I don't support portability.

I do if you are going to use it, but if you are not

going to use it and you are just going to go to

international because 900 has all the protections that

the consumer needs and international doesn't, then why

make it portable?

MR. HILE: Todd, you get the last word on this.

MR. LESSER: Okay, perfect.

First thing I just wanted to, you know, stress

here is that I think Adam's concern that the information

provider does not benefit from the fraud, and, you know,

it's come to my attention that there has been over the

last 15 months $2 million in chargebacks that AT&T has

passed on to the Dominican Republic firm. So, in

situations like that, the IP is not benefitting when

there is a chargeback. They are the ones --

MR. BOLIN: Assuming the $2 million is right,

which I have no idea, do you know what percentage of

actual charges that represents, because that's a number

to throw around, but what does it really mean?

MR. LESSER: That's important, too, but when you

are talking about the number of calls out there to these

direct-dial international where they are not set up in

some sort of strange dialing scheme, that there aren't

the number of complaints, you know, and when you look at

something as far as portability with 900 and the cost to

the consumer, which does bear a cost when you look at

the overall disadvantages here, I gave the example of a

$40 psychic call would usually cost $6 to maybe $10 or

$15 if it was done on international direct dial. So,

there is a direct incentive.

Now, I realize AT&T and a lot of domestic

carriers would like it on -- on the domestic market,

because one, it stops, like, foreign countries to be

able to have a single number that's advertised

nationwide. It's just only available to route it, you

know, you have to have the worldwide market and you have

to have the U.S. market, and then a situation where like

AT&T has a domestic monopoly on 900, there is no

portability. I'm sure a lot of carriers would like

that, you know, but I think once portability is

addressed, you are going to have lots of problems like

that, and as international accounting rates drop, this

is going to have less of an impact.

As we have seen, the long distance rates alone I

had heard -- the last statistic had dropped 40 percent

since the breakup of AT&T. Competition works. That's

even before you saw all this 10 cents a minute. So, I

think international rates are going to drop, it is going

to be less and less of a problem, and there are TDDRA

problems that, you know, I think the industry should

attempt to be reasonably possible can adopt. Some, of

course, can't, but the impact of that, of trying to make

them and force them to do everything, would be so great

that it would be -- the few people it would help, it

would end up hurting most people, just for the reason

that we have direct-dial calls.

Now, obviously if we didn't have direct-dial

calls and had to go through an operator for every single

call, I'm sure there wouldn't be any problems, like any

time you wanted to make a call to New York, an operator

came on and says, you know, do you really want to call

your grandmother now, do you know how much it will

cost? Yes, but the cost of doing that would be too

great, and it's sort of our industry's policy that if

you set up guidelines, you punish the people up front,

although they didn't get the money. Those people that

did this thing, their money was frozen.

So, when you have got situations like that, here

the FTC was going after them criminally, then their

money was frozen, you are going to tell me people are

going to benefit from fraud? I don't think so.

MR. HILE: Well, that's going to be the last

word. We have gone five minutes over, so we will start

five minutes late at 1:35 sharp, unless the boss says

that we are going to start at 1:30.

MS. HARRINGTON: No, no, no, we need a full hour

for lunch.

(Whereupon, at 12:35 p.m., a lunch recess was

taken.)

AFTERNOON SESSION

(1:40 p.m.)

MR. HILE: The subject for the first discussion

this afternoon is presubscription agreements, but before

we get into that, I was having a side discussion with

Walt during the break, and he had some interesting

information or interesting thoughts on 900 number

blocking that I asked him to share with the group here.

I am going to ask him to put that in, and if anybody has

any response to go ahead before we start with the

presubscription agreement discussion.

MR. STEIMEL: Thank you.

In addition to other problems that we have noted

before about 1-900 blocks and the reasons why we would

like to see them available in LIDB, it dawns on me that

currently and even more so as we go more to competition

in the local exchange, 1-900 blocks will become less and

less effective and less and less available.

The 1-900 block only works if you are at your

home telephone number, pick up the phone, you have 900

blocking, the software is operational in the CO the

moment you make the call, and you make the call through

your LEC CO out on just traditional 900 dialing. That's

the only time it works.

There are a variety of other dialing patterns

under which the block does not work. Some carriers have

0-900 access. I do not believe that the block works on

the 0-900 access. We have CLECs, competitive local

exchange companies. They will be picking up their own

calls and taking them out on the network, and they won't

know about the 900 blocks. So, if you have a CLEC as

your local exchange carrier, the block won't be

effective.

I don't believe it works on 10XXX dialing. If

you use 10XXX to get to your long distance carrier and

they permit you to dial 900, you can get on the platform

there without blocking. There is nothing illegal about

carriers providing dial tone off 800, such as 1-800 call

AT&T, Pilgram has one, 1-800-duck AT&T, it's a

collect-calling platform, and -- or, you know, a number

of other platforms, 1-800-operator.

Those don't go through the 1-900 block, and also

with all the new Internet phone possibilities, you can

make Internet phone calls, those will not go through the

block. So, we are developing more and more platforms,

all of which we don't have that, and it seems like an

easy way to solve part of this problem is to have an

information service or a -- allow consumers the option

to say no, I do not want premium services. I only want

basic telephone service. I don't want any premium

billed services.

So, you would have a premium-billed service

indicator that would be like a 900 block that would go

onto LIDB, and then there would be regulations that

would require the EXEs and the information providers to

pull that LIDB digit for completing and billing any of

these calls.

You could also have another digit in there for

people that said I don't want any adult services,

however we want to define adult services, so people

could decide if they wanted premium billing but no

premium adult billing, if they had children in the home

or something like that. So, I think those are options

that maybe we should look at and resolve some of these

problems at least on the domestic side.

MR. TAYLOR: I join Kim and would agree with

Walt for the first time.

MR. BOLIN: I don't know to what extent we want

to go into this, but I think a few of those are red

herrings. I think that CLECs are going to offer 900

blocking, unless it will be technologically prohibited.

MR. HILE: CLEC is competitive local exchange

carrier, so that --

MR. STEIMEL: Right, they just won't have the

information.

MR. HILE: They will be going into the territory

now held by Bell Atlantic.

MR. BOLIN: I think they will have the

information. So, when you sign up with service with a

CLEC, they are going to ask you if you want blocking

presumably. So, I don't think that one is a real

issue.

MR. STEIMEL: But then you are not going to have

the same blocking -- I still think it's a problem,

because then you have multiple blocking platforms

anyway. Why not just put it all in one place?

MR. HILE: That place should be LIDB, is that

what you are saying?

MR. STEIMEL: I think LIDB makes the most

sense. It is easily polled. All the interexchange

carriers, companies like Pilgrim, they have to poll LIDB

anyway, and it gives you that measure of privacy. We

were concerned about privacy yesterday. On LIDB, a call

is coming in, they screen LIDB, and it is not like they

are going to screen every phone combination in the

country and take down all this LIDB information and

build their data base. LIDB is not generally available

that way.

MR. HILE: Does every phone call go through

LIDB, every 900?

MR. STEIMEL: No, they have nothing to do with

that.

MS. WILLIAMS: LIDB was set up for calls as far

as what the receiving party has blocked, whether a

calling card is a good card, a LEC-issued calling card,

that's what really LIDB started as, and that was the

issue I was concerned about yesterday, when you are

talking about dialing out from that number and making a

1-plus call out, there is no LIDB query usually done.

I had talked to our LIDB person last night, and

although every LEC is not at this stage, I think

Southwestern Bell is one of the few that are, we have

something in LIDB called OLNS, which is a different type

of query, which tells you whether that line will receive

certain types of calls, versus -- no, can make certain

types of calls versus receive certain types of calls,

and I don't think we would be opposed to adding 900 to

it.

I think our concern is do we go to all that cost

and expense to add it if nobody is required to use it.

I think that would be what we would like to see first,

before you require all the LECs to spend the money to do

this, that you also require every 900 or every

pay-per-call or information service provider to

validate.

MR. STEIMEL: I clearly think those would have

to go hand in hand, the requirement and then even

looking at industry funding of the cost for the query.

MR. HILE: Is there any more that you wanted to

add on that?

MS. WILLIAMS: I don't -- I know the FCC is

looking at the issue right now with the other LECs, and

I think they are looking at requiring LECs to provide

all of this information for free, and I think that's

where there is a stand-off right now between the LECs

and everybody else. That's why I think no other LEC has

gotten into the OLNS piece of it yet, because they don't

want to spend the money to develop it if nobody is going

to pay the charge to query it to start with.

MR. BOLIN: Two quick points. The first is that

you have got to decide what it is you are going to

market LIDB as. You still have to define pay-per-call,

which is what has occupied most of the day. The second

issue is the LIDB solution has some promise, but I think

before the FTC took any action like that, there is a few

more technical issues to be explored, because I think a

number of the issues that were just suggested are red

herrings, and on the technical side, I think there are

other issues that none of us here are really competent

to address. I would just encourage someone to look into

it before something like that were mandated.

MR. R. GORDON: Excuse me --

MR. COHN: I am going to pass around a copy of

701 of the 1996 Act, which modified Section 228.

MR. HILE: Richard, did you have something?

MR. R. GORDON: Yes, I want to comment on the

suggestion about LIDB, if I may.

MR. HILE: Sure.

MR. R. GORDON: I think Eileen said it about

four times yesterday, maybe five times. We're here to

find some common ground and some common solutions, and

one of the things that's very beneficial out of a

meeting like this is that we get to intellectually

exchange ideas, perspectives, concepts and things of

this sort.

I agree with AT&T that I don't know that we at

this table are technologically astute enough to look at

all the ramifications of the LIDB solution; however, I

can tell you from the TSIA perspective what's coming

across to us very loud and clear is that we do need to

have some form of a central source of information --

again, I'll probably get nailed for it, but I am going

to thank the Attorney General from Wisconsin -- teaching

us about our customer. We need to know as much as we

can about our customer and then serve that customer

accordingly.

This morning, there was a lot of dialogue on the

international issue, and I believe that the solution for

a lot of the problem with the international issue is in

hand, and it's here today, the technology is available,

but we have restrictions from the carriers who do not

want to provide us as an industry with the information

we need to know our customer.

At lunch I had the opportunity to talk with

several of the major international carriers, and they

would love to be able to have access to the ANI that is

making the call, because if we had that information and

we knew that that ANI was someone that wanted a 900

block or had prior problems, then that call would be

denied right on the spot.

That technology is here. I understand the major

carriers do not want to release the ANI, and one of the

things I'd like to do would be to have the Commission

look at whether or not that's something that we should

really have as a method to further reduce fraud and

abuse in the industry.

MR. HILE: I don't want to spend any more time

on this issue. If you have something really quick --

MR. BOLIN: Very briefly.

MR. HILE: Then I want to move on to

presubscription agreements.

MR. BOLIN: Again, just a plea that I don't

think that there is enough information in the record to

make an informed decision here. CPNI and privacy issues

are covered extensively in FCC regs, it's a very complex

regime, and I would encourage working with the FCC in

exploring this further before any kind of data sharing

is mandated by the FTC.

MR. HILE: Thank you.

Okay, it seems to me that there was a fairly

broad consensus in the comments that the FTC -- that the

rule ought to be brought into conformity with what the

FCC is doing now and have them in writing. So, if

anyone would like to start sharing views on that.

Dave?

MR. GILLIS: Our comments certainly support

having written presubscription agreements be

incorporated as part of the FTC rule. The National

Attorneys General Association has long advocated that

charges should not be imposed for calls to 800 numbers

without a written presubscription agreement. We further

support or urge that the Commission require that

subscribers, the person who is going to be billed for

the call, receive, be provided a copy of the written

presubscription agreement. We believe that -- I think

it's consistent with the Act that the agreement has to

be provided before any charges are -- appear on a

subscriber's phone bill.

I would like to point out two things in addition

to general support for that that are somewhat of a

concern with respect to presubscription agreements and

800 number usage. The first is some of the comments

seem to suggest that there remains a mechanism for

information providers to impose charges on callers for

calls to 800 numbers without a presubscription agreement

in place in advance of the call. And it's the state's

position and I believe it's consistent with the Act that

for a charge to be placed on an 800 number call,

assuming implementation by the Commission, there must be

in place a presubscription agreement.

Now, the other thing is that we have had

complaints with respect to 800 numbers where a person

who has called an 800 number for a pay-per-call service

has asked whether or not they have a credit card, and on

the basis of an affirmative response, in this case -- in

the complaint's case from a minor -- this is the second

point -- the pay-per-call service provided the service

and proceeded to charge the subscriber -- presumably

using ANI -- for that call.

In other words, they were reading -- as we

understood their position, they said that what they had

to do to comply with the law was make certain that the

caller had a credit card number, and then they billed

the telephone -- they submitted the charge on the

telephone bill for that call. I think the proper way to

construe the law is to say if you're going to acquire

pay-per-call services using a credit card, the charge

ought to appear on the credit card. If you're going to

require pay-per-call services using a calling card, it

ought to be consistent with the requirements for the

calling card.

So, in summary, we support -- strongly support

the adoption of a written presubscription requirement

that is communicated to the subscriber so that no

charges appear on phone bills without such an agreement

in place.

MR. HILE: I notice that you say "communicated

to the subscriber." I presume that you say that because

you would allow electronic --

MR. GILLIS: Yes.

MR. HILE: -- presubscription agreements?

MR. GILLIS: Well, so that the subscriber would

be able to obtain the agreement, could download the

agreement and have a copy of it, have access to it.

MR. HILE: Richard, I believe you were next.

MR. R. GORDON: Thank you.

The TSIA is in basic accord with the attorney

general here in that provided that the billing is going

to be via the official phone bill, the phone bill that

has the basic service attached to it, we support this

position. The thing that we want to make sure about is

that other forms of billing, where the billing data is

generated from the ANI but not specifically added to the

phone bill, i.e., a private bill.

Many of our members have extensive customer

lists of people that have done business with them for

years, and they offer a private billing arrangement

where they are extending credit directly to that

particular individual. Those bills are not submitted by

the phone company, they are not submitted via any of the

classical billing systems. They produce an invoice, and

it's a commercial transaction between the information

provider and the consumer, and we do not believe that

those should be or are, in fact, covered by the embrace

of the presubscription rule.

MR. HILE: Richard, what role does the ANI play

in that scenario?

MR. R. GORDON: It identifies the source of the

call. Many, many, many of our members have people call

in, the first time they call, they are asked for their

name, address, their telephone number, their age. There

is -- many of our members go through doing Social

Security verifications. They want to know, again, in

support of what -- what my colleague from Wisconsin

said, they want to know as much as they can about the

customer.

In those instances where they -- where the

information provider or the service provider wants to

make the service available on a credit basis, a direct

credit basis, they will -- many of them establish a

threshold, $50 or $100 or $200, and as soon as that

threshold is reached, a an invoice is sent, and it is

tracked just like your Woodward & Lothrop card or your

Sears card. Many of them extend revolving terms, et

cetera. In those situations, again, we do not believe

that that should require a written presubscription.

MR. HILE: In that scenario, what is the

security device that is used to keep somebody who is not

the subscriber from making calls on that line if the ANI

is used as the basis for billing?

MR. R. GORDON: The ANI is used --

MR. HILE: I understand it is not on the phone

bill, but I want to know what --

MR. R. GORDON: There is no more security than

there is in a credit card transaction, okay? Somebody

could pick up a credit card number -- the waiter from

lunch could have picked up the credit card number and

used a pay phone to make a call; however, what we have

is we have a direct merchant-consumer relationship.

There is -- it's clear, because there is no third

parties in between who have to take the call and say,

Well, I don't have the data. No, you have to go call so

and so, and then so and so says you have to call

somebody else. This is a direct commercial

relationship.

MR. HILE: Adam, do you have a question to

clarify?

MR. COHN: Yes, I have a question specifically

on that. If it's a direct relationship between the

merchant and the consumer who's being billed and you

have an agreement of some sort, there doesn't seem to be

any potential for a problem, but -- but my question is,

how does that -- how does -- how would you deal with the

situation where a person comes into someone else's

house, signs out someone else for one of these separate

agreements, not on the phone bill, and from that point

forward proceeds to bill the -- the subscriber to that

line.

MR. R. GORDON: They would have to be in the

house using the phone. This is not a calling card.

MR. COHN: Right, wait, wait, let me just

finish. I mean, in the other circumstance where the

phone bill is actually the bill for that service, where

presumably you believe that a presubscription agreement

would be required in writing, at least if this rule was

changed, then, you know, there are arguments to be made

that any call made from the house is subject to that

agreement, but now you're talking about something that

has -- apparently you believe has nothing to do with the

rule, has nothing to do with the presubscription

agreement requirement, has nothing to do with 900

numbers.

How could a person come into someone else's

house and make an agreement in their name and then have

a bill come to them just because they used their phone?

I mean, if you are not using the -- the telephone bill

system to bill someone, how could a third party make an

agreement in my name and legitimately have charges come

to me? Why couldn't the unauthorized use just be an

absolute excuse to payment on something like that in all

circumstances?

MR. R. GORDON: I'm sorry, I don't understand

your question. I mean, I think it's a rather far-out

situation where someone is going to come into your

house, set up an account, and then every time they want

to use it the call has to come from your home.

MR. COHN: If someone were to come into my house

and make an unauthorized call to a 900 number, we all

know the problems associated with that, but if someone

were to come into my house and make a call to one of

these 800 numbers and sign me up in my name for a

service that is not going to be billed on my phone bill

and make a lot of charges in my name and then you were

to send the bill to me on the basis of the fact that it

was my ANI and my phone and the person gave my name,

under what basis am I being billed for that? Under what

authority -- no one can -- I'm not --

MR. HILE: What you are saying is it's not

authorized.

MR. COHN: It's not authorized. How can you --

how can anyone do that, bill me for something like

that?

MR. R. GORDON: Well, again, I have to say I

think it's a pretty far-out exception, but the same

thing as Pay-Per-View. How about somebody breaks into

your house and orders down a movie --

MR. COHN: It is not the same thing, but if it

were pay-per-call, if it was a presubscription agreement

and it was appearing on my phone call, then I can

understand there may be an argument in favor of me being

held responsible for that, but if it's not -- you said

it's a completely separate transaction between a

merchant and a consumer. How can a third-party consumer

hold me liable for --

MR. R. GORDON: A third-party consumer?

MR. COHN: How can a third party cause a

contract to arise between me and you, the merchant, that

would make me liable for something just because he used

my telephone if you are not using the telephone bill?

MR. R. GORDON: The industry standard was if you

were to say I didn't make that call, there would be a

credit issued, the invoice would be cancelled, and you

would never get another call through the company that

you did that with. I mean, we recognize that there is

an occasional opportunity for this to happen, but with

this type of a private billing arrangement, it's the

same thing as somebody coming in and ordering COD

merchandise. I mean, if you pick up the phone and you

call Land's End and you order a pair of slacks COD, they

are reading your ANI, they are confirming that you are

you, they are using the same data bases that the

industry is using, saying, okay, the name that I have

got is the same name that I'm pulling up in this

informational data base, so I'm probably doing business

with a legitimate customer here. When those pants come

in COD and you say, I didn't order these, I never did

this, they are going to give you credit. That's the way

the industry has responded.

MR. COHN: But the merchandise would be returned

in that situation.

MR. HILE: Richard, in the scenario that you're

describing, is there a LIDB dip performed so that you

know you are not dealing with a hospital or a school?

MR. R. GORDON: Most of the people in the

industry do do a LIDB dip, yes.

MR. HILE: I would like to go to Alan Taylor

now.

MR. TAYLOR: Okay, basically I want to support

the written and, in fact, the signed agreement, and I'd

be happy to share an example of why, and we will make

copies later. Basically one of those occasional

problems happened when a doctor found it necessary to

communicate with us that apparently his son or some of

his son's friends called a number late at night, and lo

and behold, on his phone bill, he is charged for all

these services. I think clearly that in that case

perhaps the billing entity involved here or the provider

assumed they were dealing with Dr. whatever his name is,

but apparently not. They were dealing with a guest in

his home or perhaps his son.

And I think it's wrong for the subscriber to be

held responsible in this case just because the call

originated from his phone, and I continue to wait

anxiously for Pilgrim to provide me the cite where any

subscriber is obligated to pay for every call from --

even unregulated pay-per-calls from their home.

MR. R. GORDON: You did say phone bill, though.

Did you mean phone bill, sir? Was this billed on the

phone bill?

MR. TAYLOR: Yes.

MR. R. GORDON: I am talking about a private

bill.

MR. TAYLOR: I thought we were talking about a

phone call.

MR. R. GORDON: No, I am talking about a private

bill.

MR. WILLIS: Alan, where in the rule -- when I

read the prohibition concerning billing a caller for an

800 number, it doesn't say those prohibitions only apply

if it's billed on a LEC bill. Of course, my concern is

only if they are billed on a LEC bill, but when I read

this, I don't see what you are referring to here

anywhere. It says in any manner that would result in a

charge from calling the 800 number, you have to have a

presubscription agreement first.

MR. R. GORDON: And that's what we are trying to

get clarification on, because we think that it's over

reaching if that is the interpretation, if somebody

wants to set up a commercial relationship and they agree

to pay for something outside the telephone billing

system. I mean, the basic fundamental concept here is

pay-per-call is being regulated by the Federal Trade

Commission because we don't want people to lose their

lifeline basic service. We don't want to abuse a very

valuable asset, which is an instantaneous communication

system. This is completely outside that system.

MR. COHN: We also don't want people to be

billed for services they didn't ask for. That's another

concern.

MR. R. GORDON: I understand that, but I

challenge the Commission to identify any significant

instance of fraud or of complaints in this venue. This

is -- this is --

MR. HILE: You mean in the area of 800 number

pay-per-call?

MR. R. GORDON: In the area of 800 number

pay-per-call where the customer has entered into an

oral, private agreement for billing not going through

the LEC. It just -- we just don't see it as an area

that there are complaints in. We may have missed

something, we may be wrong, but we don't hear of that.

MR. HILE: What concerns me is that we're sort

of riding over one of the elements of a presubscription

agreement here, which is that the service provider

provides the use of an identifying number or other means

to prevent unauthorized access to the service by

nonsubscribers, and that's the same thing that's lurking

at the back of Adam's question here, is what are we

doing to prevent people who are not -- not -- the ANI

alone is not sufficient to prevent fraud. Billing by

ANI, whether it be on the phone bill or whether it be by

some other separate bill, is still not tough enough to

have this kind of additional security.

MR. R. GORDON: So, let me just understand the

question. Is what you are saying you would be

comfortable if there was a PIN code associated with

this?

MR. HILE: Well, that's what the rule

contemplates, I think.

MR. R. GORDON: I don't --

MR. HILE: It contemplates the use of an

identifying number or other means to prevent

unauthorized access to the service by nonsubscribers.

The ANI is going to get the subscriber. It is not

necessarily going to get some third party using the

subscriber's number.

MS. WILLIAMS: I think I --

MR. HILE: We had a case that -- that rested on

this problem here with American Telenet, the first

enforcement case under the 900 number rule.

MS. WILLIAMS: Wasn't there an additional

concern about 800 and preserving the toll-free nature of

800 and that consumers understand that normally an 800

call is free, and if there is an understanding outside

of that, meaning they understand they are going to be

charged for whatever service they are getting over that

800 number, if that presubscription arrangements exists,

then it's okay to charge them? Isn't that what the

basis of the whole 800 piece of this was?

MR. HILE: I don't think I better respond to

that. I think I'll just let someone else.

Jim?

MR. BOLIN: I think it is also important that

the 800 presubscription requires it to be in writing. I

mean, an oral agreement doesn't meet the plain terms of

Section 228, unless the FTC is prepared to change its

rules. I think Congress clearly contemplated that

services wouldn't be billed over 800.

MS. GRANT: I wanted to point out that we do

receive complaints from consumers who are being

direct-billed usually by billing aggregators for calling

800 numbers that they said that they did not know that

there would be a charge for, and to me, it's just

creating another means of identity theft, which we have

all been concerned about for some time and which

legitimate industry members are concerned about, because

they end up, if they have to make adjustments, losing

money on the deal.

Since we have been spending so much time talking

about knowing your customer, I'm confused by why you

wouldn't want to take modest steps to ensure that, in

fact, you are dealing with somebody who's -- the person

who's prepared to pay the bill by at least confirming in

writing the agreement before any charges can be made.

MR. R. GORDON: If I may, that's not a modest

step in the world of electronic commerce, where people

seek, want and demand immediate fulfillment. That's the

problem here. This is an instantaneous type of consumer

service.

MR. COHN: Aren't presubscriptions

instantaneous? I thought you had to presubscribe to

it. How can it be instantaneous? How is it

distinguished from 900 numbers if a presubscription

agreement is instantaneous? I thought the whole notion

was you had an agreement ahead of time to sort of plan

out the billing situation.

MR. R. GORDON: You don't have to do that if you

use a credit card, as an example, and if you dial an 800

number, you went to your credit card number, and under

the Helms amendment, that's an authorized transaction

right there, and you know that you are paying for the

information or the entertainment you're receiving.

You're not paying for the 800 call, per se; you're

paying for the value in addition to the transport that

you're receiving.

The way that a private-billed transaction is an

instantaneous service is exactly the same thing.

Instead of hitting 16 digits and the pound sign, then

hitting 08 and 97, the pound sign, an operator comes on

and says, "May we have your name, address and your date

of birth?" It's a live situation. Because there are

data bases commercially available where we know the name

and address that's associated with that ANI, they will

confirm that, and then they will say, "Thank you for

calling us, we are going to give you up to $50 worth of

services, an invoice will be received at your home

within 14 days."

Those invoices, when they are received, alert

you to the fact that somebody -- and we think that it's

you in most instances -- has used your telephone to

obtain services. If you disagree with that, you call

the 800 number there, you're dealing directly with the

merchant at that point in time. There is no third

party. You say, this wasn't me, I didn't do this, trust

me, that merchant is going to turn your ANI off, because

at that point in time, someone -- maybe it wasn't you --

but somebody has used that ANI fraudulently. It's a

very clean, simple transaction.

MR. HILE: Jim, did you want to -- sorry, Jill,

go ahead.

MS. SANDFORD: Be more assertive here.

Actually, what I was planning on saying Kim has already

underscored. First, I don't see anything in here that

distinguishes between LEC billing and other third-party

collection or direct collection on the part of the IP.

I don't think that distinction should be made. I think

that's a dangerous distinction to make.

The intent was if an IP is going to use an 800

number that there be a presubscription agreement. If

you take a look at our comments and the appendix to our

comments, we do include examples where consumers believe

that if they are calling an 800 number, it's free.

That's an overwhelming belief among the public, and if a

consumer wants to partake in a pay-per-call service

where there is an 800 number, there should be a

presubscription agreement, regardless of the billing.

In terms of the direct billing, one of the

problems we have seen is direct bills that mirror what a

local phone company's bill looks like, deceptive bills

that create the implication that they are coming from

the local telephone company, and along with that, the

impression that if a consumer fails to pay the bill,

that their local service will be terminated.

So, the whole area of direct billing is

troublesome, and it has been ripe for certain deceptive

practices and should not be wholesale excluded from

consideration under the rule.

MR. HILE: We hear next from Linda, then

Barbara, then Jim.

MS. GOLDSTEIN: I'm back a point. I really was

just -- had put up my tent to respond to the additional

comment that the presubscription agreement also needs to

be signed, and we would -- we would strongly oppose that

requirement for a number of reasons, most significantly

its inconsistent with the current FCC rules, and that

issue was very seriously considered at the time those

rules were promulgated. I think it would wreak some

havoc on the industry to have inconsistent rules.

And secondly, even in the context of the

telemarketing sales rule, there was a lot of discussion

concerning the difficulties associated with requiring an

agreement to be signed and sent back, and the failure of

someone to sign and send back an agreement is not

necessarily indicative of a lack of desire to utilize

the service. So, while we support harmonizing the FTC's

rule with that of the FCC, we would oppose the

imposition of a signed requirement.

MR. HILE: Barbara?

MS. MAJESKI: Just to address Adam's concerns,

the FCC has defined that a presubscription agreement is

a contractual agreement, one that can only be entered

into by the billed party to that telephone service,

someone who has to be 18 years or older, and all the

panoply of rules that apply to contracts apply to

presubscription agreements.

MR. HILE: Jim?

MR. BOLIN: I would say first I agree that no

signature requirement should be imposed. I think

Section 228 is pretty clear about that in allowing

electronic form agreements. I do think it requires

agreements to be in writing, though.

On the issue of direct billing, I think that

another issue working here, the intent to analogize

direct billing and credit card billing again is already

addressed in the Act. It allows credit card billing but

provides specific requirements for credit card billing.

For direct billing, you are going to enter into some

sort of written agreement with your customer. Credit

card billing, presumably there is already an underlying

agreement that sets up a credit card, and if it's a

credit card, it's generally applicable to the Fair

Credit Act, as well, so you have requirements there. I

don't think it's fair to make that analogy.

MR. HILE: Peter?

MR. BRENNAN: Thank you.

I would just make a couple of observations.

Those of us who rely on 800 numbers because 800 numbers

support a large part of the service that we do, and they

are, in fact, free, as 800 numbers or 888 numbers, would

amplify the concern that the intention going back was

that the numbers which were intended to be understood as

free should be free.

On the issue of signatures being required, I

would just remind us that in every case that I'm aware

of, you don't need to sign a document in order to have

telephone service at all. You don't need to subscribe

to telephone service unless, perhaps in Southwestern

Bell they require it --

MS. WILLIAMS: I agree with you.

MR. BRENNAN: -- but you do not need to have it,

and in terms of making -- of the ANI being used as an

identifier and the phone number being used as an

identifier, I know the other night when I ordered a

pizza, the minute they answered, they said Mr. Brennan,

would you have the pepperoni you had the other night?

They are obviously using my ANI. I know when I called

to have the carpets cleaned in my apartment while I'm

here this week in Boston, which will cost me $300 or

something like that, that will be done on the basis of

an agreement made over the telephone with no signed

agreement whatsoever.

MR. BOLIN: I'm not so sure the statute applies

to carpet cleaning, unfortunately, but -- Section 228

doesn't apply to carpets, so --

MR. BRENNAN: Unfortunately.

MR. BOLIN: The rule might be broadened,

though.

MR. HILE: Mr. Alan Taylor?

MR. TAYLOR: Let me just say that I have no

problem with the ordering of the pizza. I am sure that

the University of Florida has no problem with Domino's

delivering pizza to its students based on the ANI and

the address. What they have a problem with is that

students dialing an 800 number and the university being

billed.

Now, if you were billing the university for the

pizza, therein lies the problem, and that's why I think

a signed agreement is -- is appropriate, because

obviously there are many, many ANIs that are out there,

and people are using those phones who are not authorized

to incur pay-per-call services or other services.

MR. HILE: Jill, and then Marianne, I think you

have a question.

MS. SANDFORD: I just want to respond to

something Richard said. I don't think it's a fair

analogy to use a credit card analogous to an ANI. I

mean, ANIs -- this is published in the phone book. This

information is out there. Obviously you can have credit

card fraud with a waiter in a restaurant, but where else

do you have a situation where account numbers for

consumers are so readily available, and then relying on

that information without having authorization from the

consumer becomes very troublesome.

MR. R. GORDON: I think we may have a solution.

We were just --

MR. HILE: Go ahead.

MR. R. GORDON: We were just caucusing back here

for a moment, and the issue is -- is really the billing,

as I understand it, that we're discussing here. I'd

like to open dialogue on the concept of the industry

wants to provide services immediately. So, in your

case, Adam, you call -- somebody comes into your house,

calls in, gives your name, gives your identification,

and the call is made. How about if a minimum of five

business days before a bill was sent you received a

written presubscription agreement in the mail that

didn't require your acceptance but did require your

immediate notification to deny billing?

MR. COHN: Sort of a negative option?

MR. R. GORDON: Sort of a negative option, but

laying out all of your rights, saying a call has been

placed from your phone at 11:32 p.m. on such and such a

night for nine minutes. There will be a charge rendered

unless you call and say that this was not you.

MR. COHN: That's a very interesting suggestion,

and it seems to address a lot of the concern, but I

still have a problem with the idea that what if I didn't

enter that -- I mean, I just -- the basic problem I'm

having is I don't think that under any circumstances I

would want someone else to be able to make a contract in

my name, just because they made a phone call from my

phone. I understand that 900 numbers are a special

arrangement and that there is a certain thing behind 900

numbers, but I just -- I just as a personal view, I just

have a problem that somebody else could make a contract

in my name, but receiving something in the mail would,

you know, be better than not -- that the --

MR. R. GORDON: Before the billing, so there is

notice prior to billing.

MR. HILE: Dave, would you like to respond to

that?

MR. GILLIS: The -- what we're dealing here with

is charges for calls placed to 800 numbers. Someone

wants instantaneous access to pay-per-call service, you

can provide that through a 900 number, no

presubscription requirement. They can pay for it with a

credit card. We're dealing here with charges to 900

numbers. What Congress has said, before you charge

anyone for an 800 number call, you have to have a

presubscription agreement. An agreement means a meeting

of the minds between the service provider and the person

that is acquiring the service.

MR. HILE: And paying for it. And paying for

it.

MR. GILLIS: -- and paying for it. You have to

have that in place before you charge people for calling

800 numbers. This industry, this -- this recent Act of

Congress, just doesn't come from no place. It comes

from a track record that this industry has had where

people keep on getting exorbitant, high charges for

calls that they thought were supposed to be without

charge, and now you have the reaction that you do, where

there -- as I read the law, and it's pretty clear to me,

there ought not be a charge for a call to an 800 number

unless there is a presubscription agreement in place

before the call is made.

MR. R. GORDON: I guess that's where I'm having

difficulty. Does it say before the call is made or

before the charge is rendered?

MR. HILE: The part of the rule that we're

talking about is 308.5-I, "Prohibition concerning a

toll-free number. Any person is prohibited from using

an 800 or other telephone number advertised as or widely

understood to be toll-free in a manner that would result

in (1) the calling party being assessed, by virtue of

completing the call, a charge for the call; (2) the

calling party being connected to an access number for,

or otherwise transferred to, a pay-per-call service, (3)

the calling party being charged for information conveyed

during the call unless the calling party has a

presubscription or comparable arrangement to be charged

for the information; or (4) the calling party being

called back collect for the provision of audio or data

information services, simultaneous voice conversation

services, or products."

MR. R. GORDON: And I guess not trying to split

hairs what the industry does try to do is to demonstrate

to the consumers what the services are, and I believe

most of the companies in the industry, in a good faith

effort, would be prepared to give away a free phone call

to someone in order to attract them to the service if,

at the end of that call, they got a notice that said in

the mail, a call was made for ten minutes, 12 minutes,

from a certain phone number, at a certain time, with

specifics. If you did not make this call or if you do

not want to pay for this service, please dial the

following 800 number, free, and automatically the bill

will be stopped.

MR. HILE: Do you have something further?

MR. GILLIS: I just want to point out again that

900 numbers are available for that, and the concern is

with the integrity of the 800 number and people's

expectation that no charges flow from that absent, clear

understanding of a presubscription agreement.

MR. R. GORDON: The problem with 900 numbers --

and I know this was discussed this morning, so I won't

make a big issue of -- until there is portability, there

have been tens of millions of dollars lost by

information providers and service bureaus whose carrier

suddenly decided to change their practices, and then

there is not even a transfer available when a carrier

decides to turn a 900 number off. It's dead.

There is not even a referral to another number.

So, millions and millions of dollars of good will and

advertising are lost. That's the reason portability is

an issue, and that's the reason that people need to have

access in the industry other than an 800 -- other than a

900 platform.

MR. HILE: Jim, do you want to respond to that?

MR. BOLIN: Just briefly. The FCC has

considered portability in the past and has declined to

grant it. Portability is not an issue for the Federal

Trade Commission, and nothing in Section 228 directs the

Federal Trade Commission to assess the existence or

nonexistence of portability in issuing consumer

protection legislation. Portability is just not on the

table here.

MR. R. GORDON: I was responding to his question

as to why 900 is not the only platform that works here.

MR. BOLIN: I don't know why the FTC should have

to take that into account. Congress didn't ask them

to. I don't think that structure is relevant to the

application of the statute in this instance.

MR. HILE: Alan Taylor?

MR. TAYLOR: Just going back for a moment to

Adam's concerns, I don't think the sending of a notice

that charging is going to begin in the mail is

necessarily adequate. The same folks that -- who would

surreptitiously use the telephone might also, you know,

take the mail from the -- or the information provided,

too. So, I still advocate written and signed

presubscription agreements.

MR. HILE: Carol, did you have a question that

you wanted to add here?

MS. DANIELSON: Yeah, and it's right on point.

I, too, would oppose I think a written notice in the

mail, but for slightly different reasons. We just

finished bringing a whole series of cases that dealt

with magazine subscription sales, and in many of those

instances, the magazine sales company would send some

type of a verification through the mail to the consumer

with a negative option.

Unfortunately, the -- those particular

verifications would sometimes be lost in the mail, they

wouldn't arrive until, you know, two weeks after the

time period that the consumer had been allowed to

cancel. There is a whole bunch of problems in providing

that type of a notice with a negative option. So, that

kind of thing just I don't think would work.

MR. HILE: Sue Grant?

MS. GRANT: And it also shifts the burden onto

the consumer to defend his or herself against a bill

that he or she didn't think that they were going to get

to begin with for an 800 number call, and the reason why

there is such strict prohibitions on -- and requirements

in the original act and the rule is because of the

special nature of 800 number calls of 800 numbers.

MR. HILE: Marianne?

MS. SCHWANKE: Before we finish this discussion,

I would just like to get to the issue of monthly charges

that have been appearing on consumers' bills, and I

wonder whether the presubscription agreement is a way to

deal with that kind of charging arrangement.

MR. HILE: Jill?

MS. SANDFORD: Well, to answer your question,

Marianne, I think a presubscription agreement needs also

to have the terms and conditions of the contract between

the consumer and the IP. Included in that would be

what, if any, recurring charges will there be, what are

the permanent rates, if that is the billing structure.

So, the presubscription agreement needs to fully explore

the terms and conditions of the agreement, and hopefully

that will alleviate what we see with these recurring

membership fees.

I mean, the problem we have been seeing with 800

numbers is a consumer believing that the call is free,

will make the 800 number call. As a result of that

call, may now incur monthly membership fees, often times

it's psychic lines but not exclusively. We see quite a

bit in $9.95, and I know we have included that as an

appendix to our comments. And having the

presubscription agreement that spells out the

obligations of the contract hopefully would address

those issues.

MS. SCHWANKE: Are there any services provided

in connection with these monthly fees?

MS. SANDFORD: That's a question we've always

wondered, you know, what are these fees, and I would

actually be curious if industry spoke to that.

MR. HILE: Kim?

MS. WILLIAMS: Yeah, I can address at least the

ones that have been presented to me. Many of them are

simply provided discounted rates on a 900 call that is

made. So, for instance, some of the psychic lines

you're talking about, for $10 a month, the consumer is

supposed to be getting a $2 a minute rate instead of a

$4 a minute rate when they dial the 900 psychic line.

MS. SANDFORD: So, is that debited off of the $9

or the $9 just entitles them to the lower rate?

MS. WILLIAMS: Just entitles them to the lower

rate, and my understanding of many of these is that they

compare it to a calling plan for regular, traditional

long distance. So, I think that's how most of them are

occurring, but I would say most of them or none of them

that I know of have any kind of an arrangement, a

presubscription arrangement.

MS. SCHWANKE: And the monthly charges have

resulted from a call dialed to an 800 number.

MS. WILLIAMS: Some yes, some no. Some I think

result from a call to a 900 number. I think a lot of

them I've seen, you call the 900 psychic line and

somehow start being billed the monthly fee. I don't

know if you agree to it on that initial call, to be

honest, I don't know, but I know supposedly you are

getting this better rate when you do continue to call.

Many of the consumers, though, that I have seen

complaints from don't make any further calls, they have

only made the one call, and all of a sudden they are

being hit with a monthly fee for that call.

MR. HILE: Linda?

MS. GOLDSTEIN: I did want to make a number of

comments relating to this issue. The first is that

there -- I think there has been some confusion and now

might be the appropriate time to clarify it in terms of

what happens with the recurring monthly charges, and it

is -- it is distinct from a call to an 800 number which

results automatically in the consumer being charged. At

least in the recurring charge situations that I'm

familiar with, that call to the 800 number is more

analogous to any direct response call to an 800 number,

meaning the call to that number itself is free, and

during the course of that call, the consumer is asked

whether they want to enroll in the club, and only if

they respond affirmatively to the request to be enrolled

in the club do they then become obligated to pay the

monthly fee.

And I say that because I think while we would

not have any objection to a requirement and, in fact,

the clubs that I'm familiar with do follow this practice

of sending a written confirmation to the person

explaining all of the terms and conditions, you can't

wholesale adopt the presubscription requirements as they

currently exist or as they exist under the FCC rules to

the club billing arrangement.

The necessity for the unique PIN number may be

different, again, because the consumer is not being

billed for information services on the call. It's

really a different type of service. It's a monthly --

it's a club membership, and I am sure -- I don't think

we can generalize about -- I'm sure that there are many

clubs out there, and they may all differ in terms of

what they offer, but typically most club memberships

will offer, in addition to discounted rates off of 900,

which I would submit still has a legitimate value, I

mean, it is not uncommon in any club membership

situation to have a members-only rate, and that's a very

legitimate club benefit, but they will also typically

have newsletters, may have premiums, may have other

premium items or information -- written information or

materials that go along to the member with each month of

the membership.

And in our view, as long as the terms of that

agreement are set forth, first of all, on the call when

the consumer is asked whether they wish to enroll, and

then secondly, in a written document that is sent to the

subscriber before they are actually billed, I think that

should be sufficient. So, my short summary would just

be that I think we have to be a little bit careful about

wholesale adopting the presubscription rules as they

exist currently to this situation, because it is a

slightly different animal from a consumer calling an 800

number and being billed for information services

delivered during that call.

MR. HILE: Marianne?

MS. SCHWANKE: How do -- I assume the charges

appear on a telephone bill. How do the charges appear

on the phone bill? What does it say on the phone bill?

MR. HILE: How does it look on the phone bill?

MR. TAYLOR: Turn to page 4 on the handout I

gave you, and you will see some of these charges for

what appear to be services. Here I would point out to

you that here it's responsibility that we need to be

concerned about. You cannot obligate the subscriber of

the telephone to these services. You know, it is one

thing if you want to bill them on a credit card, but

it's another thing if you want to bill them on the phone

bill of somebody else's phone.

MR. HILE: Your position would be that they need

a presubscription agreement in order to do that?

MR. TAYLOR: Yes. I see no reason why Dr.

Stewart should pay for messaging, dial-up and telephone

use if he didn't order it.

MR. HILE: Kim, and then this is the last on

this, because we were scheduled for a break five minutes

ago.

MS. WILLIAMS: I commented a little bit

yesterday, these monthly fees are submitted on a

particular type of record different from the call

records. Our company had stopped billing for them, and

again, we saw them, 900 calls being sent in just to get

the monthly fee bill, versus sending them in on the

record type that we didn't want to receive them on.

And I would question, under presubscription or,

excuse me, under the pay-per-call definition, I would

think that you could apply presubscription to these

monthly fees. The customer is receiving entertainment

or access to entertainment services on a per-time-

interval basis. If it's monthly, it's $10 a month and

they get access to pay-per-call type services.

And I guess another issue, just to question it,

on presubscription is how do you actually get a

customer's agreement if they don't respond somehow to

what you've mailed them? I mean, if -- just because you

mail them a written agreement, where's the agreement on

the customer's point? You don't start charging until

you have got the customer's agreement. How do you get

that if he doesn't respond?

MR. HILE: Do you have a response down there?

MS. GOLDSTEIN: Yeah, I have a -- I have two --

I would first -- I would -- I would disagree with the

conclusion that the membership fee is itself a

pay-per-call service, because that -- the $9.95 fee is

not for the information services. The information

services themselves are accessed generally via a 900

number, and to the extent that the consumer makes that

call, they are being charged accordingly, and all of the

pay-per-call protections would apply.

In terms of ensuring that the person has, in

fact, agreed to accept the service, let me back up first

and say, again, you have to look first at what happens

on the call. The person is not simply by virtue of

placing the call to an 800 number enrolled in this

monthly club. They have to affirmatively assent on the

telephone to be enrolled in that club.

Now, I --

MR. HILE: But that assent falls short of a full

presubscription agreement?

MS. GOLDSTEIN: That may not -- you may not

necessarily have the person on the phone who is the

subscriber to the phone bill. One of the problems is

that the -- what I have been told is that the

information provider cannot get access to the billing

name and address for about 60 days. If the LECs would

agree to expedite that process, I think we could come to

some agreement whereby the information providers would

agree to send the written confirmation directly to the

subscriber if they can get access to that information on

a timely basis, but right now, the information I have is

that that information is not available for about a

60-day period, but certainly -- I mean, but there is a

fulfillment packet that's sent.

That packet does contain all of the information

about how to cancel if you want to get out of the

program, and the customer is not billed -- billing does

not appear generally for the first 30 days. So, the

billing does not appear until after the written

confirmation is sent.

MR. HILE: I misspoke a moment ago. We don't

really have a break scheduled now, but if everyone would

like to just stand up for a moment before I turn this

over to Eileen and take up some miscellaneous issues for

the rest of the afternoon.

(Pause in the proceedings.)

MS. HARRINGTON: Let's sit down, please. We

really just meant to stand up and stretch. Kim has to

leave to catch a plane, and I want to thank you very

much for your participation.

MS. WILLIAMS: Thank you.

MS. HARRINGTON: The rest of you are -- none of

the rest of you may leave. We are now heading down the

final stretch and everybody looks, you know, pretty

good. Pupils are not red and dilated. This is a very

good sign. We are going to deal with some what we call

miscellaneous issues, which doesn't suggest that they

are not important, but they are kind of not exactly

closely related either.

And I am going to really watch the time on this,

because we do have a break scheduled, and it will -- and

it is very important to us that we have some full

discussion in the last 45 minutes on the impact of new

technology. We really want a record on this. So, if we

can sort of breeze through these miscellaneous issues,

I'd appreciate your help. That gives us more time to

talk about new technology and drink coffee.

So, let's start first with the issue that's

listed first, and that is should additional measures be

taken to protect consumers from misleading sweepstakes

offers which use pay-per-call services as basically a

method of entry. And then we ask a series of questions

about specific alterations that might be made.

Does anyone want to talk about that? Does

anyone have to say about that? Linda?

MS. GOLDSTEIN: I was -- I was just going to be

responsive, but we can make it real quick if everyone is

in agreement that we should keep the rules as is. I am

happy to move on.

MS. HARRINGTON: Your answer to that is no?

MS. GOLDSTEIN: My answer to that is no.

MS. HARRINGTON: Okay.

Dave?

MR. GILLIS: Becky Bowman from Maryland Office

of Attorney General is going to represent NAAG for the

moment.

MS. BOWMAN: I just want to add for the record,

in Maryland currently it is prohibited to offer any kind

of a sweepstakes or tell anybody they are eligible to

win anything if they have to pay any money in order to

do that, and we would certainly take the position in

Maryland -- and I think other states may do similarly --

that a 900 number charge in order to enter into a

sweepstakes would, in fact, be prohibited under our

state law.

And just to, you know, just for the purpose of

letting you all know that, in terms of whether that

should be incorporated nationwide or not, obviously, is

not our decision, it's yours, but it's, you know,

something that we certainly would see as consistent with

our understanding of the law.

MS. HARRINGTON: Susan?

MS. GRANT: We noted in our comments that of 900

number calls, which have gone down overall, we continue

to get --

MS. HARRINGTON: Complaints you mean?

MS. GRANT: Right, sorry, complaints, we

continue to get complaints from consumers about

sweepstakes, and it does appear from their calls as

though they still think that they need to call the

number to -- to enter and that the free method of entry

is not clear to them.

MS. HARRINGTON: Is there anything about the

rule that needs to be changed, do you think, or is that

an issue that can be dealt with under ordinary authority

to deal with deception?

MS. GRANT: We suggested that the rule make more

clear some guidelines for disclosure of the no-entry-fee

option, especially in print solicitations, which is

where we see this the most. We suggested that the fact

that you can enter without having to call the number be

prominently disclosed right adjacent to the number

itself and not on the back of these things, which is

where you would usually find it.

MS. HARRINGTON: Okay, Linda, and then a

question from Adam.

MS. GOLDSTEIN: One -- two responses to both

comments. First, as to the Maryland comment, PMAA will

willingly concede, I don't think there is any question

that any promotion that would require a call to a 900

number is illegal under both federal and virtually all

state lottery laws. So, I don't believe there is --

there is any issue there, and I don't think there are

any changes to the rule that would be necessary to

reinforce that point. That's established federal and

state lottery law.

As far as disclosure of the alternate method of

entry, to be candid, we don't really see this as a -- as

a problem with our members, all of whom generally follow

the principle that the alternate method of entry needs

to be clearly and conspicuously disclosed. That is,

again, required just under general advertising

principles.

Most states now, frankly, over 36 states now

have specific prize and gift notification statutes, many

of which specifically address that requirement -- in a

more detailed fashion than we would probably want to get

into in this rulemaking.

I will offer, however, because I don't think

this is something that would be inconsistent with what

PMAA members would do in the ordinary course of

business, that the rule currently provides that the free

method of entry can be disclosed either in the preamble

or in the advertising. If the Commission sought to

revise the rule to require that the alternate method of

entry be disclosed in the advertising and not afford the

option to have it disclosed only in the preamble, that

is something that we would not object to.

MS. HARRINGTON: How about the other way

around?

MS. GOLDSTEIN: That we would object to.

MS. HARRINGTON: Require that it be disclosed in

the preamble?

MS. GOLDSTEIN: We would object to that.

MS. GRANT: I was going to say or both.

MS. GOLDSTEIN: We would object to that, too. I

mean, I -- we just don't really, to be honest, see this

as a continuing problem. Most of our members that --

that utilize 900 numbers in connection with a

sweepstakes see a fairly high rate of response via the

mail-in entry, which would suggest that consumers do

understand that there is a free method of entry.

To the extent that there have been abuses, it

may have to do with other issues that may fall just

under general deceptive and misleading advertising

principles but aren't really unique to the use of 900

numbers.

MS. HARRINGTON: I'm sorry, Adam, you had a

question, but could you wait until Becky responds to

Linda?

MS. BOWMAN: Just a question, and that is what

would the objection be to requiring it in the preamble?

What's the problem from the industry point of view from

putting it in the preamble?

MS. GOLDSTEIN: I think there are really two.

One is that it is already difficult at this point to

deliver the preamble with the proper cadence and speed

and include the information that's got to be disclosed

up until this point. I think the repetition of the fact

that no purchase is necessary at that point would make

it -- would increase the difficulty of keeping the

preamble within the time limit and delivering the

information in a -- in a proper speed, but secondly, I

just don't see, again, from our own data that there has

really been an abuse or a consumer misunderstanding on

this issue, and the advertising is what drives the

consumer to pick up the call.

The purpose of the preamble was to make

disclosures relative to the use of the 900 number, the

cost of the call, the parental advisory to make sure

that the consumer knows that they have reached the

correct information provider. The alternate method of

entry is something that is not a unique issue to 900.

It's -- it transcends any type of a sweepstakes

regardless of the medium in which it's advertised, and

industry practice has been that the alternate method of

entry should be disclosed clearly and conspicuously in

all advertising, and I don't see any reason to treat 900

differently in that regard.

MS. HARRINGTON: Adam had a question.

MR. COHN: I just had a question regarding

sweepstakes and 900. What is the -- is the service

being promoted or -- I have never actually called one of

these myself, so I don't know. What is the service

that's being promoted in a sweepstakes call? I

understand that when you get the Ed McMahon packet, you

are being asked to subscribe to magazines, and the

sweepstakes is to encourage you, but what is the service

that is actually being promoted by the sweepstakes?

MS. GOLDSTEIN: I mean, that depends on who the

information provider is.

MR. COHN: For example.

MS. GOLDSTEIN: You can't really generalize.

For example, last year, Burger King ran a 900 number

sweepstakes which was part of a multi media campaign.

Also, tied into the NC -- it was one of the -- it wasn't

the NCAA, it was a different basketball tournament.

So, obviously the purpose there was to drive viewership

of the tournament and also drive traffic to Burger

King.

It really depends on who the service provider is

and what the nature of their product or service is. So,

I couldn't really answer that in an abstract.

MR. COHN: Are there services that -- are there

sweepstakes on 900 where there is not a service being

sold and the only service is the sweepstakes?

MS. GOLDSTEIN: If you gave me an example of a

sweepstakes, I could try to answer that question, but I

think there are some sweepstakes where, yes, where the

primary source of revenue has been derived from the 900

number as opposed to the sale of some other product or

service, but the question of whether there is another

product or service being promoted has been a question

that has been very much at the heart of the issue of

those programs. So, I wouldn't presume to provide an

answer to that. I don't think that would be fair to the

individual providers.

MS. HARRINGTON: Okay, Mark, you had a

question.

MR. HERTZENDORF: Yeah, two quick ones. I was

wondering, Linda, if you could be a little bit more

specific in terms of the high rate for the mail-in

return, the alternate means of entry, if you could be a

little more specific on that.

I was also wondering whether you thought that

putting the alternative means of entry in the preamble,

whether that would serve sort of as an invitation to

hang up and if that was a concern of yours.

MS. GOLDSTEIN: I'm sorry, what's -- someone

just passed me a note. What was the first part of your

question? Oh, the response.

I have seen it range anywhere, frankly, from 35

percent up to 65 percent, and it really -- it really

depends on the nature of the offer, the medium in which

it's advertised, the nature of the price. Frankly, in

many cases, it will depend on whether the sweepstakes is

picked up by one of the publications, like Contest

newsletter or something like that, which will promote

the mail-in entry as opposed to the 900. So, it will

really vary by promotion, but I can tell you that I am

not aware of any instances of 900 number sweepstakes

programs where there have been virtually no mail-in

entries.

As to -- and your second question?

MR. HERTZENDORF: I was just wondering if maybe

you were concerned that if you had to put the

alternative means of entry in the preamble that you

might have a hard time selling the 900 number call,

because it kind of serves perhaps as an invitation to

hang up. You are trying to get them to enter the

sweepstakes by paying, and if you tell them how they can

do it right while they are on the phone in such

proximity to the point where they have to start paying,

maybe it serves as an invitation for the consumer to

hang up. I was wondering if that was one of your

concerns.

MS. GOLDSTEIN: Well, I don't think -- I don't

think we have any data for me to speak on that, because

I'm not aware of any preambles in which it's currently

included. I will say that at the point that the

consumer is already calling, it could potentially be

confusing to just say no purchase or telephone call

necessary once the person is on the phone, particularly

if you've got a multi-purpose call, where the

sweepstakes is part of an information service or there

are other things being offered, perhaps a premium.

There are many -- there are various 900 number

sweepstakes which are overlaid with a premium, and there

may be no purchase necessary to enter the sweepstakes,

but there may be a purchase necessary to obtain the

premium. So, I think just sort of throwing that out in

the preamble, which is a very short statement by its

nature and doesn't give you the opportunity to get into

a lot of explanation, could be potentially confusing.

MR. HERTZENDORF: Okay.

MS. HARRINGTON: Okay, the coffee is done, and I

would invite you to grab a cup quickly, because we have

some very compelling additional issues to talk about

during the short time that we have here. I'd like

everyone to think about this nominal call question,

because we would like to move through that very quickly

and get to this free time issue, which I think is

probably the one that is deserving of the most time

during this particular segment. So, get coffee, come

right back, please. Thank you.

(Pause in the proceedings.)

MS. HARRINGTON: Now, let's talk about nominal

cost exemption.

Mark?

MR. HERTZENDORF: Do you want me to just start

off firing questions?

MS. HARRINGTON: Yes, I want you to just start

off.

MR. HERTZENDORF: I have four questions. I will

ask two at a time. Question one, is the most common

application that falls under the nominal cost exemption

a polling application?

And the next question, which is directed toward

ISA, is the chargeback rate for polling applications 24

percent as indicated in attachment 1 to Exhibit B to

ISA's comment?

MR. MILLER: Well, the answer to the first

question is predominantly, yes. My company -- one of my

companies, a publishing group, maintains a data base of

all 900 numbers. Of the 40,000 900 numbers that are

there, we only found 740 under two bucks, and

predominantly those are polling. There are a few

applications for one-trick ponies, like I can get one

lottery number only or things like that.

The other part of your question, I cannot -- I

can't answer specifically. Everybody believes that the

lower the price, the lower the chargebacks, but I have a

program that's 35 cents, and it gets chargebacks. It's

a polling program for the TV station -- an NBC

affiliate, and if there are people who won't pay 35

cents, which is the lowest you can charge and not lose

money with AT&T, there are people who charge back

anything. Generally they are lower.

MR. HERTZENDORF: Does anyone else have any

information about their chargeback rates for nominal

cost calls and any other examples of applications?

MR. ANGEL: Albert Angel, ICN Limited.

We provide lottery results for four or five

states as the official lottery provider, and in many

instances, these charges are 50 cents or 75 cents, and

the chargeback ratios rarely exceed 1 or 2 percent.

MR. HERTZENDORF: I guess an open-ended

question, then, for everyone at the table, do you have

any thoughts about how high the nominal cost exemption

should be and why?

Okay --

MS. HARRINGTON: Warren?

MR. MILLER: Yes, we do, and I want to answer

that in a -- in some of the points that the Commission

seems to be concerned about, I want to address two

particular issues.

One is legislative history, and the other is

cost to consumers. The -- as I understand it, the

legislative history of what constitutes a nominal

amount, both $2 and $3 were discussed, and one cannot

argue with taking a more conservative position in

establishing the rule.

Our response to that -- what we have learned

over the last four years is there isn't any mischief

going on at $2. We have also -- we also do know that it

costs 12 cent to deliver a preamble, and by way of

example, I want to show you how a program that we do for

The Washington Times costs consumers more money that it

needs to.

We have a program called the mortgage

calculator, 99 cents a minute, average transaction takes

two minutes. Now, sometimes people might want to do

another mortgage calculation -- it's principal and

interest using your touch tone phone. They want to do

one more calculation, in which case they would have --

if we timed it out under -- at two minutes, they would

have to hang up and call again and incur another

charge. So, we have to give that preamble.

But since the average call is two minutes, it's

pretty easy to see that it's costing my customers and me

6 cents a minute. So, if I could reduce my price by 6

cents a minute, the average customer could get the same

thing, and those people who wanted to stay on longer

could stay on -- the few people that wanted to be on

three minutes could stay on and get another reading for

the same lower price, and there doesn't seem to be any

evidence whatsoever that there is any mischief going on

at under the $2 rate.

MR. HERTZENDORF: Is the preamble reducing

chargebacks, though, for these calls? Are most of them

first-time callers or repeat calls? You said that --

MR. MILLER: Well, as we said, it doesn't even

-- well, people will charge back anything given the

right opportunity. The -- I don't think there is a

preamble -- one thing we do know. We did some research

before the preamble was required, my company did some

research long ago, and we found that with the identical

material and the identical market, the identical

advertising, identical product, you will get a 17

percent higher hangup rate with a preamble than without

a preamble. The only thing you can be absolutely sure

of, a preamble at low-cost rates, is it causes more

people to hang up.

MR. HILE: Would those people who hang up turn

into chargebacks?

MR. MILLER: Well, no, because they are not

charged.

MR. HILE: That's what I'm saying. With the

preamble, they hang up. If they didn't have the

preamble, they would go through it. Would they be more

likely to ask for a chargeback?

MR. MILLER: There isn't any indication that at

the -- you are talking about not only notification but

price elasticity of demand at the lower levels, and the

other work that we have done shows that it is relatively

inelastic at the lower price levels, and consequently

there is very little remorse and there is very little

correlation between the notification and the

chargeback.

MR. HERTZENDORF: Are you willing to put

something on the record regarding that, the chargeback

rate and the hangup rate --

MR. MILLER: It's a long time ago I did it, it

will have to be an approximation.

MS. HARRINGTON: That's fine, if you could

supplement the record.

Anything else on this issue?

Okay, let's go on to the next one, and that

concerns the issue whether there are needed

modifications to the preamble requirements to deal with

offers of free time should an IP have to provide a tone

or other signal which informs the consumer when free

time has expired.

Warren?

MR. MILLER: Yes, there are two causes for

concern here. One is there are members who would use

free time as a marketing -- as a marketing tool, and I

know that's an area of concern for the Commission. Our

position is an informed consumer is a good customer, and

educating consumers to look at their watch and things

like that do set the tone and enable our society to move

into an electronic transfer of payments kinds of

society, and I will let others speak to that issue as to

how specifically they want to do that. We think that

there is probably a place for them to do that.

The other area I want to address, though, is the

portion of the market that, once again, that would be

closed out, that could be closed out by a specific rule

that required the tone. And here I'm referring to a

product -- AT&T offers a product called Express, and

it's a local delivery 900 service, and my company does

the same thing through another trade name, but we

redeliver the 900 call to professionals to consult,

whether they be doctors, lawyers, auto repairmen. We

did one for car wash repair, how to unstuck the hot wax

button or whatever.

So, any way, they were using the 900 for

support. These people had the physical plant installed

at 1700 locations in the country, and there were

engineers working, and when a call would come in on 900,

we would relay it to then, and they would tell people

how to unstick the hot wax button.

Now, the thing about this low-tech solution is

that we liked to give a free time option to allow them

to find the representative, and the fastest-growing area

in per-per-call is consumer in business, and these are

the ones that are nonentertainment, they are provided by

single operators, they have the most numbers. In other

words, instead of in the entertainment side, you might

have a single operator operate a hundred numbers, in the

low end, you have a single number and a single operator,

and they may be a small business or a professional.

There is not a lot -- they can't afford a lot of

technology. They rely on this system to bill.

Sometimes they rely on the system just to convert people

over to a regular package of support services for

software. But my point being, if you -- if you want to

give this free time option and you want to give people a

reasonable period to know that they are not paying but

they are paying later, it means that they would have to

go through -- they wouldn't be able to use Express, they

wouldn't be able to use any other services.

They would have to employ a technology that

involves supervision, which means the tone would be

inserted and so forth. And I'm not trying to cloud the

two issues. I know they are two separate issues. One

is using it for marketing with those people who have the

technology, but there is a group of people who don't

have the technology that are not doing any harm.

MS. HARRINGTON: I just want to comment that I'm

the director of marketing practices, and I like

marketing. We think it's a good idea, marketing, in

response to your comment, Warren.

Walt, and then Linda?

MR. STEIMEL: Right, I was just going to

mention, this reminds me of your recent letter that I

believe was the Cohn letter about the three-second tone,

and some parties that are -- I have had some clients

that were providing some period of free time that was

longer than three seconds, and the problem is the way

technologically they handled that, especially when they

have got multiple people, like this gentleman's

situation, that they hand the call off to for servicing,

once they release it, there is no way to get that call

back to insert the tone at two minutes.

And so what they have had to do was follow the

other suggestion in your letter, for the first couple of

minutes are a penny each or some ridiculous number,

where I don't see where that really serves any purpose,

and it causes additional timing and costing problems and

I think probably additional confusion for the consumer.

I'm not sure that any purpose is served by

requiring three seconds or letting you have variable

billing where it's one penny and then it goes up to the

normal rate after the first, you know, minute or two

minutes or whatever, but the problem from the industry

side, from my client's side has been when they have the

calls coming in on one platform that services it and

then they hand the call off to another location, is they

can't get the call back later to insert the tone, and so

there is a technical problem there that at least those

clients would like to see some other solution that makes

a little more sense.

MS. HARRINGTON: Linda, and then Jill?

MS. GOLDSTEIN: We wanted to really address it

from the marketing perspective and pick up the debate

that began with the exchange of letters in the spring.

Really three points I'd like to make. The first is that

we really continue to believe -- I'm sorry -- we really

continue to believe that an offer of some period of free

time as a marketing technique, whether it's to go

through a sampling program or simply because the

information provider wants to provide some additional

incentive to a consumer to try their service as opposed

to someone else's by making some free offer of time

available, is not -- without placing a tone at the end

of that free time is not inconsistent with the current

rules, and I would -- I would refer you again to Section

308, 308.5, Subsection 3, which basically says that the

preamble informs the caller that charges for the call

began and that to avoid the charges, the call must be

terminated three seconds after a clearly discernible

signal or tone indicating the end of the preamble.

And what that says to us is that the intent here

was to have a tone indicating the end of the preamble

but that that does not necessarily mean that any

additional offer of free time likewise has to have a

secondary tone. We think that there is an important

distinction between the free introductory message and a

free period of time which may be offered, which really

is just simply the equivalent to free product or

service. It's simply an additional incentive that the

marketer has elected to make available to a consumer.

Where I do think, perhaps, the Commission might

want to focus its direction and is something we would

not oppose is to be certain that the advertising that's

directing the consumer to call the number and that is

containing the advertising of free time not be

misleading or deceptive. There may be some advertising

practices out there that may not fit within traditional

FTC and other state law requirements regarding use of

the term "free," and if the Commission wanted to look at

additional requirements in the rule that would regulate

use of the term "free" to ensure that it's not being

used in a misleading manner, that's something that we

would not oppose and would, in fact, welcome the

opportunity to work with the Commission on that.

I think, for example, that there is a real

difference between advertising that may simply indicate

that you can get the service for free without indicating

a time limitation and advertising that indicates

precisely what period of time is being offered. If you

-- if you tell a consumer, for example, that by calling

this number, they will get two or three minutes of free

time, then I think a reasonable consumer knows that the

free time period they are getting is a very short

duration, and I don't think any information provider

honestly is offering that free time with the expectation

or hope that the consumer simply is going to take that

free time and hang up.

Obviously, it's the information provider's

desire to have the consumer stay on the line, and that

free time is really an added incentive to the consumer

to choose that sponsor's product over someone else's by

virtue of getting something additional, much as when

Proctor & Gamble adds 25 percent more to the bottle of

Prell for the same price, they are hoping that the

consumer will pick that bottle rather than a competitor,

because now they are getting more value for their money,

and that's really the purpose that we're trying to

preserve behind the request that there not be additional

technical restrictions on the use of this free time, and

we don't think it's inconsistent with the spirit of the

rule to require the information provider to tell the

consumer.

When that free period of time is up, as long as

the advertising clearly indicates to the consumer what

the length -- what the duration of the free time period

is and indicates that again in the preamble, we don't

think it's an unnecessary burden on the consumer at that

point to keep track of the time.

I also think it's consistent, frankly, with the

recent multi-state decision in connection with the line

service providers, and there is also a concern that the

tone at that point might be confusing to consumers, as

well.

MS. HARRINGTON: Thank you, Linda.

Jill?

MS. SANDFORD: The basis of our comments and

concerns are derived from the consumer complaints that

our offices receive, and this use of the free time is

something that has cropped up in our complaints. The

area we particularly see it, it seems to be in the

psychic lines and the entertainment services. Consumers

will respond either to a written solicitation, a

newspaper advertisement or, as I've seen on late-night

TV, you know, free psychic reading, call this number.

Now, the consumers will call and later on then

have a significant charge for a call that they were led

to believe was free. I am actually encouraged by some

of the things Linda has just mentioned, because I think

some of the problem does lie in the deceptive marketing

and advertising of these services, and I'm further

encouraged, Linda, with your observations that if the

information provider discloses the amount of time

provided in the free service, the consumer can then be

aware of when the clock starts to be running. And that

is consistent with some of our online discussions that

are ongoing and some of the agreements that have already

been signed by the states with the online providers.

I don't see, however, if there is already the

requirement for the tone after the preamble, at which

point the clock starts to be running, why there couldn't

be another tone. I still don't see why the expense

would be that much greater to have a secondary tone when

there already is the requirement to have a tone after

the preamble, which it seems you've just explained.

MS. HARRINGTON: Linda, do you want to quickly

respond to that?

MS. GOLDSTEIN: Yeah, I mean, you -- if you took

-- if you take that analysis to its conclusion, one

could argue that maybe there should be a tone at the end

of every minute or at the end of every two minutes to

begin to tell the consumer, you know, so they can keep

track of how much time they are spending. I think -- I

think the point is that in drafting rules, we have to

agree on concepts and principles.

The principle of the preamble is that that's a

disclosure message. It's free to the consumer. The

purpose of the tone there is to let the consumer know

that that free introductory, that disclosure message, is

over, and the information which they have subscribed to

by virtue of placing the call is now beginning.

I think the logic of our position is underscored

by the fact that if you charge a penny after that tone,

no additional -- after the preamble, no additional tone

would be required. And certainly, a consumer is not

unduly burdened by having to pay -- there is not a

significant difference between a penny and zero. So, in

our view, once that preamble is over, you are basically

at a zero cost. It's a variable cost call, zero for the

first whatever time, and then continues on thereafter.

And I would go back to the position, and I think

you really reinforced the position that we're taking,

which is that, yes, if an -- if the advertising simply

says, you know, free reading, free reading, free reading

and the consumer calls expecting that the whole

transaction is going to be for free, well, I think under

general advertising principles there may be a problem,

because the short time limit on the free -- on the free

offer is a material term and condition, and FTC rules

require that any material terms or restrictions on the

use of a free offer need to be disclosed.

On the other hand, if an information provider

freely discloses in the advertising that they are

offering two free minutes, that's the same thing as an

AOL saying ten hours free or one month free or whatever

it is. The consumer knows when they place the call that

it's for a limited duration, and if they truly expect to

get a full psychic reading, they know by virtue of

seeing that advertising that they are going to have to

be incurring some costs.

MS. HARRINGTON: Mark, question?

MR. HERTZENDORF: Yes, this just is directed

towards NAAG and National Consumers League. Are there

any examples of complaints where a company advertised,

say, two, three minutes of free time but maybe only

offered consumers one minute of free time?

MR. GILLIS: Well, I do recall a complaint that

we received or I reviewed where the offer was for three

minutes of free time, and the customer said they were

timing themselves, and they were billed for charges

related to that. Now, I don't know whose clock was

wrong, but the -- I think the problem is that if the

free offer is being used to attract someone to make the

call, there ought to be clear notification to the caller

when they are going to incur charges.

MS. GRANT: I don't have any data on that.

MS. HARRINGTON: Gary?

Linda, is your sign up?

MS. GOLDSTEIN: No, I just forgot to put it

down.

MR. PASSON: A number of people in our

association do use this as a marketing tool, and there

is a fair amount of experience that's gone back, and

certainly anything that's done by anybody is subject to

abuse. I mean, I think that almost goes without saying,

but I think really this issue somewhat pivots on at what

point do we presume consumers to be somewhat responsible

for what's going on here.

Presuming that there is clear and conspicuous

terms that are provided to the consumer in its

advertising and in the preamble, whether you're AOL for,

you know, use that for ten hours or you're a

pay-per-call for use after three minutes, it seems to me

that it's not unreasonable for them to take some

responsibility in this specific issue.

We have been running, you know, free lines at

our own company for years -- not free lines, but giving

away free minutes as part of marketing incentives to get

users, and to the best of our knowledge, we have never

had a single complaint on that issue, but, you know, we

are very conspicuous. At the end of the three minutes,

you know, we always use per-minute billing, and it seems

like it's working pretty well. So, I would hope we

wouldn't expand this, you know, to the point where we're

-- where we're thinking the consumers really aren't

capable of taking some responsibility for their calls.

MS. HARRINGTON: Adam, question?

MR. COHN: I just wanted to ask, to clarify, it

sounded like most of the objections to the tone were

technological objections about the feasibility, but it

didn't sound like there was much objection -- in fact,

it sounded like you were at least endorsing, Linda was

endorsing, the idea that there should be in the case of

free offers some additional requirement in the rule that

that be spelled out in more particularity. Am I

correct?

MS. GOLDSTEIN: You are half right and half

wrong. The objection to the tone is not just from a

technological perspective. The objection to the tone is

-- really goes to the motivation of making any kind of

a free offer. Purely from a marketing perspective, and

I think this is somewhat distinct from the scenario that

Warren described, but typically when a marketer offers

some additional product or service for free, it's doing

so not because it, you know, the marketer is Santa Claus

and wants to distribute free items all over the place.

It's doing that as an incentive to get the

consumer either to try the product or service or

purchase the product or service versus a competitor's

product or service, because it's a better value. The

free offer -- the free time, no matter how you cut it,

makes the offer a better value, because the total cost

to the consumer, the net total cost, will be less than

it would be without the free offer.

The tone, to the extent that it may provide an

additional reminder and perhaps encourage people to hang

up, is contrary to the marketing purpose behind the free

offer of time, and I don't think there is anything

sinister about wanting to make this kind of offer or,

frankly, admitting candidly that you're making the offer

because you hope the consumer will stay on and purchase

the product.

I think the issue is has the consumer been

misled at any point along the way. As long as the

consumer clearly understands the terms of the offer, I

don't think there is a necessity to take that additional

responsibility and say to the consumer, now let me tell

you, your free time is up, so, you know, please let us

encourage you to hang up now. We have already got that

happening once at the preamble stage, and if the

consumer has been sufficiently motivated to make the

call, I guess to be -- to be candid, we would oppose the

additional potential of encouraging the consumer at that

point to hang up and not continue with the product or

service.

MS. HARRINGTON: Allen, question?

MR. HILE: But you are reluctant to rely on the

product to sell itself, because if the free sample

really does the job, the consumer would willingly stay

on after the tones.

MS. GOLDSTEIN: That's not necessarily true,

because, you know, one experience that we have heard

around this table is that some solutions that we adopted

in 1992 to solve certain problems also led to certain

consumer abuses, and yes, there will be consumers who

may call up ten times to get the two free minutes with

no intention of becoming a customer of the sponsor, but

they simply want to keep taking the free time, the free

time, the free time. We're not saying they can't.

I mean, if a consumer wants to do that, they

can, and they can certainly keep track of their watch,

but I don't think that the marketers should be required

to structure their program in a way, frankly, that may

encourage that type of conduct.

MR. COHN: What about the second half of the

question, which was the requirement -- my understanding

was that you were accepting the notion of additional

requirements, disclosures, perhaps, in the advertising?

MS. GOLDSTEIN: What I'm saying is that -- I

don't feel, frankly, that there is anything additional

that needs to be done. I feel based on the rule -- I

think the rule is clear that the tone relates back only

to the preamble, and I don't read the rule as requiring

a tone at the end of the offer, but what I'm saying is

if the Commission feels that some additional regulation

in this area is necessary, we would propose that it be

addressed through advertising rather than require that

an additional tone be placed in the call.

MS. HARRINGTON: Okay, Peter and then Jon.

MR. BRENNAN: Thank you.

In the interest of an overall healthy business

and marketing environment in the industry, it's

Tele-publishing's position, A, that the use of the word

"free" in advertising should be closely guarded and

should -- and should be closely monitored, and I cite an

example in our marketplace where an advertisement

regularly appears in the Boston newspapers for a

550-free service, it's called 550-free, but 550 costs

you money, but it's called -- they ordered the number

that gets you 550-free, and that's -- and that's not

fair and that's deceptive and that activity hurts us

all.

But also in the interest of a fair marketplace,

I don't think it's unfair, and I think it's positive,

for us to expect and for us to try and encourage

consumers, wherever we can, to watch their watch when

they are using any of these services, whether the first

few minutes are free or whether they cost or whether

there is a price differential for the first minute

versus subsequent minutes, and I don't think that that's

an unreasonable -- an unreasonable expectation, you

know, in terms of building a healthy marketplace going

forward.

MS. HARRINGTON: Thank you, Peter.

Jon?

MR. SHAUB: Just to answer a question that was

asked earlier, one of the things that led us to look at

that interpretation that was in use late last year were

some complaints from people coming into the inquiry

center who felt they had not gotten the free period that

they had -- that had been advertised.

Upon investigation of those, they had, in fact,

got the proper free period. It was one of awareness.

The situation that was typically used was a call

termination to a point and then a call forwarding

arrangement. The call forwarding arrangement can add a

half a minute or even up to a minute, depending on ring

time and everything, and the timing, in fact, the free

period started when they had -- at the end of the tone,

when they went to the first termination.

Some of the -- some of the customers calling the

lines assumed that the free period started when they

actually connected to the live party. So, you know, it

was technically done correctly. There was no

misleading, but there was a perception of incorrect

timing, and that's what led us to question it. There

was some degree of confusion.

MS. HARRINGTON: Walt?

MR. STEIMEL: Yeah, I just wanted to ask NAAG,

did you want me to go into the technical reason of why

the insertion of the tone is a problem? There seemed to

be some reason of technically why it's difficult for

some parties to do that. The situations I've been aware

of --

MS. HARRINGTON: I think that was Adam's

question or observation.

MR. STEIMEL: Yeah, the situations that I've

been aware of, the party advertised, you know, you get

two free minutes. They told you that when you first

dialed in, and then because I think a lot of consumers

have gotten, especially like these chat and interactive

or -- calls, they get in and they don't like the service

or there are long delays where nothing happens. The

client group wanted to let consumers know that, yeah,

that they are actually going to get conversation or

whatever it is, you know, psychic readings, whatever

they are calling in for when they get on, and they give

them the first two minutes free to let them interact and

decide whether they like the service and then begin to

charge them.

The problem is they are buying 900 transport

from someone like AT&T or MCI. It comes in to them,

they give the preambles, it says if you hang up in three

seconds, you won't be charged, your first two minutes

are free, and they forward the call. When they forward

the call, they don't have the call anymore at all. It

is not in the switch, they have no idea how long the

call goes on, and it is transferred at that point.

From that point in time, the call is going from

the consumer straight over to Marianne and she is

telling them about trade production, and she hangs up.

At the end of the month, the person who has the

platform, who inserts the disclosure and the tone, they

get a call timing tape from the carrier saying here are

all the calls that completed through your platform,

here's how long they are. They take the first two

minutes off, take the preamble time off, the first two

minutes off, because they are free, and just bill the

remainder of the time.

And if they are required to have variable

billing instead, then what -- then instead of having the

first two minutes free, they just can't provide any free

time at all. They have to insert a penny a minute or

whatever for the first -- for what would have been the

free period -- free time period, but technologically,

they just lose the call, so they can't go out and grab

that call back and put the tone in. That's the

problem.

MR. HILE: So, what you are saying is a consumer

who calls is not really getting free time. They are

getting switched around for a certain amount of time.

MR. STEIMEL: No, no, they get free time. Let's

say you call me --

MR. HILE: Not the free time that they have been

promised.

MS. HARRINGTON: Are they getting free

information service?

MR. STEIMEL: No, no, then they switch to the

other side, and it stays wherever they are going for two

minutes, and there is no charge for the first two

minutes they are connected someplace else.

MS. HARRINGTON: Do they get any value for that

two minutes? Do they get audiotext services?

MR. STEIMEL: They get dropped straight on the

audiotext line. I hit the conference button.

MS. HARRINGTON: It just wasn't clear.

MR. STEIMEL: I hit the conference button, the

person comes on the line and starts chatting, I hit the

conference button again, and I drop off directly. I'm

not in anymore.

MS. HARRINGTON: Mark, question?

MR. HERTZENDORF: A few questions. If this

forwarding is messing up the timing, does that suggest

there needs to be maybe some grace period for some of

these -- some of these free -- offers of free time?

That's one question.

The second question would be, are all these

offers of free time in conjunction with a service where

somebody is forwarded to a live conversation or are some

of them offered in the context of a tape recorded

message? And in the case -- I assume there is no

objection to offering a beep, except that it might

encourage people to hang up.

The third question, is there any empirical data

about the degree to which inserting a tone will

encourage people to hang up? And lastly, I just make a

point. It would seem to me, except for the

technological difficulties, which could be pretty

significant in some cases, that it would be more

efficient to have the computer equipment, which is

receiving the call, to do the timing than to have 10,000

people grab a stopwatch when they make one of these

calls.

MS. HARRINGTON: Any responses to Mark's

observations?

Warren and then Peter in response, and then we

are going to go to Susan, Jill and Allen -- not Allen,

his card is down.

MR. MILLER: In response to both his and

Allen's, I want to just clear up one point in that this

perception that maybe somebody's not getting what they

pay for, it's -- because of these transfers --

MR. HILE: Not what they paid for, what they

were promised.

MR. MILLER: Well, one of the ways in which this

works is the supervision is the term, and it works a

little bit like three-way calling. In order to put the

tone on the call after it's gone to a live person, there

has to be the equivalent of a line -- another line open,

and that's the technical requirement that it takes more

expense and a higher-level bureau involvement than call

forwarding would, for example, to send -- to send the

call to somebody else to let them take it.

Now, one of the ways that -- in the example I

explained, there is no intention of -- of shorting

anybody of their time. In fact, what we would like to

be able to do is to say, calling -- charges will begin a

minute from now. So, we had 30 seconds and then some

extra time to send them off to this guy on the car wash

line. Rather than suggesting it's free, we just like to

say, it is going to take some time to get to the place

you want to go, and that's when billing will begin, but

if it's already transferred, we can't supervise that

call.

MS. HARRINGTON: Quickly, Peter, and then we

will come back to Susan and Jill and then move on.

MR. BRENNAN: Perhaps you misunderstood my

point. It may indeed be more efficient for one central

place to keep track of the timing and, of course, we do,

because the billing is based on that, the carrier's

billing.

The point I was making is it seems to us to be

reasonable that -- to expect consumers to be aware of

the time that they are spending and be aware of the

money they are spending, just as you would in any other

mercantile environment, any other commercial

environment. You would want people to know what they

are spending as they are spending it.

Furthermore, the idea of -- whether a beep

tone's needed every minute was considered at great

length the last time around in these hearings, and the

Commission, I think, in its wisdom decided that that

wasn't appropriate.

MS. HARRINGTON: Susan?

MS. GRANT: I have to confess to being really

confused here. If you're calling a service where

inevitably you're going to be connected to somebody and

it's a question of who the right person is to connect

you to, you would think that there would be an average

time that you all would know that that would take and

that that would be built into the cost of the call

rather than considering some initial part of the call to

be free. So, I really don't understand why that whole

call is not just treated as a normal pay-per-call

situation where the cost is averaged ought over -- over

the length of the -- the foreseeable length of the

call.

For a recorded situation, which a lot of these

seem to be, if the freeness of it is described as some

sort of bonus or extra added, you know, you are

ultimately going to pay less for this than you would

have otherwise, I don't understand why the free time

wouldn't be added on the back end rather than the

beginning, for things where it's a sample, where

essentially you get to sample it for a while, and then

charges are going to start.

It's kind of like going into the supermarket and

being handed a little sample of something to eat to

decide whether or not you want to go and buy the whole

thing. You're not invited to just kind of take a bite

of it and then depending on how large of a bite you

took, you know, you are sort of required to -- to

pay.

I mean, I just really don't understand what the

problem is for part of the preamble to explain that, you

know, initially X amount of minutes is going to be free,

and then you will hear a tone that will signal you that

-- that the charges will start, and I still don't

really understand what the problem with that is.

MS. HARRINGTON: Jill?

MS. SANDFORD: First off, what I've learned from

this conversation concerning the transfer and hold times

being accountable as part of the free time I find

disturbing. The implication to me is when the consumer

is told that there is free time that it's free audiotext

services.

Also, Linda said something that I found

interesting that everybody knows that a psychic reading

takes more than two or three minutes --

MS. GOLDSTEIN: That's not exactly what I said.

MS. SANDFORD: I didn't -- I was not aware of

that, and one of the concerns I have is the free

representation made specifically with the psychic

services on cable television and newspaper implies a

completed service, that you will get a sample of a

completed reading, and what I'm hearing is that the

consumer will call up but only get the partial reading,

and the representation is made to the consumer that they

will get a full reading and get to sample the service.

And then going farther, if they on another occasion

would like further readings, they can become a

subscriber or part of that service.

And I think that's deceptive when a service is

promised in completion when, in fact, it's just a small

piece, and the consumer needs to stay on the line and

pay for the service to receive what the consumer

believes they are getting for free.

MS. HARRINGTON: Okay, we are going to hear

Warren and Linda, and I would ask you both to keep your

comments very brief, because that's the end on this

issue. We are going to get into -- well, we are just

going to hear from Warren, then.

MS. GOLDSTEIN: No, no, no, since you had

recognized me.

MS. HARRINGTON: Okay.

MR. MILLER: Okay, I will try to be brief.

Susan had a lot of that right about what we

should know and the ability to measure and how long does

it take, but she doesn't -- I think what we want to

avoid is the unintended consequences of what I think is

going to be the next subject now, and we can know that

it's going to take us around 30 seconds to transfer the

call to the guys on the car wash line, and AT&T now has

a feature called a free-time option. It wasn't

available when the law was originally enacted, but you

can tell the carrier how much free time you want.

So, we know it's going to take 30 seconds, so

I'll tell AT&T to give me another -- give me a full

minute of extra free time that's not going to show up on

the bill. So, I'm forced then to -- if I want to -- if

I -- what I would like to be able to say is this call is

going to take about 30 seconds to connect, and it's

going to take -- you are not being billed for that

whatsoever, just take time to transfer the call, and

please stand by, something like that.

Instead, I have to say, to avoid violating the

rule, billing will begin in three seconds when, in fact,

it's not beginning at all, and then it can be misleading

to the customer. The customer thought billing was

beginning in three seconds, it took 30 more seconds to

transfer, I was gypped out of something. He wasn't

gypped out of anything, because we gave him the minute

for free, but we can't tell him that.

MS. HARRINGTON: Linda?

MS. GOLDSTEIN: First of all, I wanted to

clarify that I don't think I meant or I didn't mean to

say that everybody knows how long a particular reading

will take. I think that that's a very individualized

issue based on the consumer's understanding of that

particular reading and how long it will take, but I

don't -- I again think it gets back to the advertising.

If the advertising properly represents that you're going

to get a certain amount of time free --

MS. HARRINGTON: Yeah, that -- I think we have

made that point in this session.

MS. GOLDSTEIN: What I want to say -- what I

wanted to say is that irrespective -- even if there is

some hold time, and I am told that on average it may be

20 to 30 seconds, there is still a value to that free

time. It's -- it's really virtually analogous to the

covenant laws on free, which is just as you can't

inflate the price of an underlying product, I would

agree that if an information provider artificially

inflated the hold time to eat up the free time, that

would be a deceptive practice, irrespective of this

rule, but if the hold time is constant but in essence

you're getting two minutes free, it's still a value to

the consumer. It's like a discounted rate really is

what it is. It's costing you less than it otherwise

would without that offer.

MS. HARRINGTON: Now, in terms of deception and

time, we said at this time we were going to begin

discussing the impact of new technology, but we still

have one issue remaining, and Mark, these were your

questions, I think.

MR. HERTZENDORF: All right, we will do this

quickly. I just want to know -- I'm not asking anyone

to implicate themselves or anything -- but what is the

typical industry practice with regard to the parental

permission admonition when an adult services -- adult

service is being offered? Is it, like, 99 percent of

the services are saying, you must be 18 to use this

service, if you are under 18, get your parents'

permission, is that what, like, 99 percent of the adult

services are doing, or is there -- are there a large

fraction of services which are just saying you need to

be 18 and if you're not hang up?

MS. HARRINGTON: Okay, quick answers on this.

Gary?

MR. PASSON: There is a lot of services doing

both, but I think the strict reading of the rules would

require you to say at this point, if you're under 18,

please get parental permission. I think that that, in

fact, is the area where I think a number of players are

saying leads to confusion, because it might imply to

someone under 18 that possibly they really could use

this service. I think there is a general feeling that a

much stronger single statement, you know, you must be 18

to use this service, stands by itself as a better

solution than having the parental advice admonition.

MS. HARRINGTON: Okay, Peter?

MR. BRENNAN: With the caveat in the question

that when I am referring to adult services in this

section, I am talking about services which are geared

and promoted to people above the age 18, not necessarily

services that might be construed as obscene, indecent,

salacious in any way, because those are the bulk of the

services that make up the most successful application,

which is personals, which we have some experience in.

In our experience, what we have been compelled

to do, after making specific inquiry to the Commission,

is say, you must be 18 -- to say -- we want to say, you

must be 18 to use these service. What we are compelled

to say, but you also must have parental permission if

you are not 18. Clearly, on its face, that is an abuse

of consumers, because it's confusing. It's an abuse of

us. We have a very valuable 18 seconds -- and I am

trying not to take any longer than 18 seconds when I

answer this question -- a very valuable 18 seconds with

which to dispatch this preamble, and we hope that you

will advocate with us for a change.

MR. HERTZENDORF: Is there any indication that

this confusing preamble message encourages minors to

hang on the line?

MR. BRENNAN: I have nothing statistical, but I

can tell you anecdotally that in circumstances where,

for example, parents have called, typically a -- in --

in the inquiry process, when it's rooted, and in my

company, when we get inquiries that come to my desk or

my assistant on days when I am not there, like today,

and I have had conversations with parents, and I say,

let me play for you the preamble. Let me tell you first

of all your son or daughter who may have been a minor

has called the service for the personal ads in The

Milwaukee Journal, for example, and I call the Milwaukee

Journal, and we play for them the preamble. And they

say, You just said they could do it if they had my

permission. And I say, No, sorry, it's a dumb law,

Congress decided that we have to do this. So, it is

confusing, and I can relate that on an anecdotal basis.

MS. HARRINGTON: Thank you, Peter.

Warren?

MR. MILLER: Just the same thing. We have

services that are nonsexually explicit that are targeted

at adults, in some cases might even have fulfillment

where some material has to be sent afterwards that's for

an adult, and we would like to encourage those people

not to waste everybody's time if the service is not

targeted there, and we would like to see a change in the

law.

MS. HARRINGTON: Well, let me just quickly ask a

question. Would anyone object to the kind of change in

the rule that Peter has suggested so that the message is

hang up instead of you have to get your parents'

permission?

Okay, the record reflects that no one raised

their hand to object.

Now, we have moved on to the 4:45 -- Mark, are

we done with that?

MR. HERTZENDORF: Yeah, we're done.

MS. HARRINGTON: Good, we're only five minutes

behind, and we are going to make it up now by talking

quickly.

We are very interested in this next discussion,

and so even if you're not, we would really like you to

humor us, because we want to do a forward-looking job on

whatever modifications we make, and so we would like to

have some record indicating what kinds of technology

we're likely to see in the near future that are going to

extend opportunities for audiotext services.

We would like any guidance that you have for us

on how we can craft a rule that has provisions that are

broad enough to avoid becoming obsolete as new

technologies are developed, and likewise, that don't

completely hinder or even partially hinder or chill the

development of new technologies. We're concerned both

ways, and the floor is open for discussion on this.

Peter?

MR. BRENNAN: I'm sorry, my flag was up from the

last time.

MS. HARRINGTON: Okay, I thought you were

humoring me.

Gary?

MR. PASSON: I think there is two areas that I'd

suggest you all want to take a look at. One of them, of

course, is Internet telephony, the ability from your

computer desktop to essentially connect to audio

services, while today is probably not technically a very

good product and, you know, but I'm sure there's a lot

of people testing in that specific area, and someday it

will become a good product, and just like for long

distance it's a challenge, later on in the market, it is

going to become much more useful.

MS. HARRINGTON: Now, when Internet telephony

becomes a viable means of accessing audiotext services,

should we have a similar type of advertising point of

sale disclosure regime for it?

MR. PASSON: There is going to be a lot of

discussion on that. You know, the medium is very

different, you know, it's not a television set, it's not

a -- it's not a magazine, it's not a newspaper. So, my

suspicion is that it really needs to be looked at in it

-- in its context, and rules that seem consistent and

common sense for that medium should be applied.

I think to just broad brush say it has to be

exactly the same is probably premature. I think another

set of sessions and seminars with people that are more,

you know, that are more attuned to the specifics of that

would be more valuable than trying to lock it in at this

point.

MS. HARRINGTON: Okay, Peter?

MR. BRENNAN: We are one of the companies that

does offer in some areas exactly the same service on the

Internet that you can receive on the telephone, and we

also --

MS. HARRINGTON: How does that work?

MR. BRENNAN: Well, the way it works is that if

-- if, for example, you were a personals advertiser in

one of the newspapers in Washington, and you had a voice

reading on a file that one could access using a 900

number and dialing it, we provide it on the Internet.

We take the -- that voice file, make it available, when

you click a real audio button on the Internet. We don't

charge for it on the Internet.

What we charge on the Internet for is for users

to respond to you, respond to your ad, because the

Internet is a different marketplace, because the -- the

-- the time -- the time to base charges on the Internet

in general -- well, the time to base charges on the

Internet are problematic from the point of view that you

can't with any legal specificity or regularity predict

how long it's going to take to download a file, for

example, depending on how fast a computer you have or

how much traffic there is on your network or what is

going on at the server at the time you're making the

transaction, and a whole myriad of other complications.

So, we have offered this -- many of the same

services in just -- with just an entirely different

regime, and typically we bill those by a credit card,

although we do advertise a 900 number that you can call

to buy time or you can call to buy a stamp, which is the

coin of the realm in our Internet product, like a book

of stamps, and then for me to send you an E-mail costs a

stamp, which is 50 cents.

And if -- in fact, it works out in -- in this

particular product, it works out to be less expensive

for consumers to communicate with each other than it

does -- than do 900 numbers in general. That is to say,

you could communicate with more people buying stamps

more cheaply than you could on the telephone, really

because of the high rates of -- high transmission rates

and the high cost of provisioning 900 number service.

MS. HARRINGTON: A question from Allen?

MR. HILE: Could you just elaborate a little bit

about the stamps? I don't know what you mean by that.

MR. BRENNAN: Yes. What we do is when you

become a member of the personals online network, the

personals network dot comm, please don't hesitate, the

-- you have a number of things which you can do for

free. You can browse ads. You can place a profile.

You can say I'm a single man who's 35 years old and good

looking and this is my educational background and this

is what I'm seeking, and you can go through many of the

same sorting criteria that we also provide on the

telephone and on the telephone for free, by the way,

okay?

So, you can place your profile there. And then

when you've sorted through and you have found someone to

whom you would like to respond, who you would like to

send an E-mail to, you press, I want to send an E-mail,

and the system tells you, well, now you have to buy a

stamp or you have to buy -- you have to buy a stamp.

You can buy stamps a number of ways. You can buy them

with a credit card, you can send us a check, you can

call our live operators, you can buy them using a 900

number. And those stamps then are credited to your

account, and you have an accounting of those, and you

can spend them --

MR. HILE: They are electronic stamps?

MR. BRENNAN: Yes, yes, and you can spend them

on the net. You can use them -- you can send stamps

collect, so that -- I could have Jill respond to my ad

if I wanted to, send her collect. You can use them in a

variety of ways.

MR. HILE: It's E-money.

MR. BRENNAN: Yes.

MR. HILE: Electronic script.

MR. BRENNAN: Yes.

MS. HARRINGTON: Thank you.

Dave?

MR. GILLIS: In discussing this issue with our

colleagues, there are two points that we wanted to make

in the context of this proceeding.

First, charges associated with 800 numbers ought

to be prohibited unless there is a presubscription

agreement. That's in the context of pay-per-call

services, also in the context of other services, online

services.

MS. HARRINGTON: Ought to be prohibited by means

of this rule?

MR. GILLIS: We believe that the prohibitions --

yeah, the prohibitions with respect to charging for 800

number services apply to online services, as well.

MS. HARRINGTON: So, if there is a charge for a

call on an 800 service number, is that what you have in

mind, for example?

MR. GILLIS: Yes, yes.

MS. HARRINGTON: That ought to be prohibited by

the pay-per-call rule?

MR. GILLIS: I don't think that the pay-per-call

-- I don't think you have to do anything other than

conform the pay-per-call rule to the -- to the

Telecommunications Act, and I think it covers it, but I

wanted to make explicit that our view is that charging

for 800 number calls would be prohibited if they relate

to online services, as well.

MS. HARRINGTON: Okay.

MR. GILLIS: Second point is that further

elaboration of the clear and conspicuous requirement may

be appropriate but we believe should be the focus of a

-- of a further proceeding dealing directly with the

online medium. So, we're not prepared in this

proceeding and it's not our position that that should be

further defined for pay-per-call services that are

advertised online.

MS. HARRINGTON: It sounds, Dave, as though

you're agreeing with what Peter said about the need for

a separate forum to discuss online issues and the

application of relevant law to them.

MR. GILLIS: Yes, right.

MS. HARRINGTON: Gary, I'm sorry, what were you

saying?

MR. PASSON: That was actually my comment.

MS. HARRINGTON: Oh, I'm sorry, that was Gary's

suggestion, but Peter thought it was a good idea, too.

MR. BRENNAN: I thought it was a good idea, if I

may.

MS. HARRINGTON: Sure. Let me just make sure

that Dave was finished. Are you finished?

MR. GILLIS: Yes.

MR. BRENNAN: Regarding the clear and

conspicuous, the reason for that is that unlike

television where, you know, there is a requirement that

the type must be adjacent and half the size, on the

Internet, it is not as possible to do that because of

variances in browsers and the technology, some have the

text-only browser and may format text differently, so it

is a technological issue, not a philosophic one.

MS. HARRINGTON: All right, Alan?

MR. TAYLOR: I just want to perhaps ask a dumb

question, but if I understand what you're saying, the

only charges that will in any way end up on a telephone

bill will be generated if you purchase these electronic

stamps through a 900 number. Presumably, there is not

going to be any charge to dad because the son is using

AOL or whatever, and in any case, it's not going to come

back to the AOL account, or will it? And if it doesn't

go to the AOL account, it's not going to come back to

the telephone bill just because a kid is connected to

AOL through the telephone number, is it?

MR. BRENNAN: All that's correct. We don't do

that kind of business with AOL at this point.

MR. TAYLOR: Or anybody.

MR. BRENNAN: Or any online -- actually, we do

on Prodigy. Yeah, the transaction for the payment of

the stamps is entirely different from whatever

arrangement you have made to reach the Internet. You

are paying for your Internet access however you are

paying for it, depending on what your circumstances

are.

MS. HARRINGTON: Jim?

MR. BOLIN: I just had a question for the

attorney general. I wonder if you could clarify what

you mean about the prohibitions on 800 numbers when

online. I can imagine a couple of meanings on that. I

wondered if you could clarify.

MR. GILLIS: Well, the concern would be where

you are accessing a server through an 800 number and

subsequently you're charged for that call on your phone

bill, and that call has been placed without a

presubscription agreement having been reached in

advance.

MR. BOLIN: Are you thinking in terms of

Internet providers that are using 800 access but still

charging a monthly fee or I think in some cases,

Worldnet, AT&T's service actually charges a higher fee

for 800 access than non-800 access. I think we have a

subscription agreement and are fully compliant, but is

that the situation you are thinking of?

MR. GILLIS: Yes, that is the type of

situation.

MS. SANDFORD: If I could just add --

MS. HARRINGTON: Jill?

MS. SANDFORD: -- this issue really has erupted

within the last six months. What happened and why we

feel so strongly about this issue does relate to the AOL

situation. When consumers started having access

problems at the end of last year to AOL, particularly in

New York, and actually this was on the front page of The

New York Times, people discovered that using 800

numbers, they were able to get on AOL where their local

access numbers were not allowing them access to AOL.

And kids were telling their friends, colleagues were

telling each other, here is this 800 number, and you can

get on AOL.

And because there is this tremendous presumption

on the part of consumers that an 800 number equals

toll-free, equals free, you literally had thousands of

consumers accessing AOL via this 800 number who were

then subsequently charged for the call on a pay-per-call

basis. So, I think what Dave is saying is we don't feel

that for the 800 number presubscription agreement there

should be any distinction or exception because it's an

Internet provider, that if it's an 800 number call,

there should be a presubscription agreement, whether it

is to access the Internet or whether it is to access any

other pay-per-call service.

MS. HARRINGTON: And is it the attorneys

general's reading of the current regulation and the

TDDRA that that is what the law requires? Do you read

the current regulation to incorporate that position?

MS. SANDFORD: Yes, we do.

MS. HARRINGTON: Okay.

Jim?

MR. BOLIN: Just briefly again, I actually

forwarded that front page article from The New York

Times to my Worldnet clients, too, believe me. We have

made an effort to make our presubscription agreement

compliant with TDDRA because of this gray area. One

request I would make of the FTC in crafting its

regulations, arguably the definitions of pay-per-call

now could be applied to the Internet in a number of

respects. AT&T wouldn't oppose the attorneys general's

proposition about 800 numbers and accessing the Internet

via 800.

We would ask, though, that to the extent the

regulations address the Internet in the context of

pay-per-call that the Commission make very clear what it

is intending to cover and what it's not intending to

cover, because I think right now that could break either

way depending on how the rule gets crafted, and I would

rather not have it a gray area, because I think the

Internet is gray enough right now.

MS. HARRINGTON: A question that we have had is

whether the video advertising disclosure requirements in

the current rule apply to solicitations for 900 number

calls on the Internet.

Dave, were you going to comment on that?

MR. GILLIS: No, I was going to ask another

question.

MS. HARRINGTON: Do you want to ask your

question before I ask my question? I will take my

question back. Dave has a question.

MR. GILLIS: You had mentioned various scenarios

where the 800 number could come into play, and I'm

interested in what other situations might present

themselves.

MR. BOLIN: Well, I haven't thought it through

fully. I was thinking of 800 number access for issues

like AOL and Worldnet. Is everyone clear on why there

are charges in that situation? I mean, for 800 access

to those services?

MS. HARRINGTON: I'm not.

MR. BOLIN: I can't speak for AOL. In the case

of Worldnet, we have local access numbers in a variety

of places. If like me you live in a very rural area,

like I do, where Worldnet may not come for the next

hundred years, I have the option of dialing in via 800,

but 800 isn't really free, somebody pays for it. The

called party pays for it.

Worldnet's arrangement, and it is spelled out in

our presubscription agreement, fully compliant with

TDDRA, the way the agreement works is that because

access via 800 costs AT&T X amount of dollars, we are

essentially passing that cost on. We are telling

consumers we will give you a way to access it so it

won't show up on your phone bill, you can use all the

services, it is an 800 charge, we are giving customers a

way to dial in to Worldnet, but it is not cost-free to

us, so we can't make it cost-free for our consumers.

We have made every effort to make those costs

explicit, and my understanding is where consumers are

confused by that, we are forgiving the charges. In

terms of where else it might apply, I'm not sure I can

give another example. I am thinking of bulletin boards

and other types of services on the Internet. I am

really not conversant enough in the online world to give

you any other specifics in the area.

MS. HARRINGTON: Okay, Gary?

MR. PASSON: Well, I think one of the areas that

we really should look at very quickly on the Internet

though is really advertising, and I think you touched on

it a minute ago, whether the video rolls or print rolls

or radio rolls, because on the Internet we have all

three of these media to actually communicate to the end

user.

So, you know, I think our -- we have talked

about this a lot in our industry, and I think we feel

that, you know, there -- maybe what needs to be done is

looking at the elements of the Internet and applying the

rules based on how the information is presented to the

consumer. If it's presented to the consumer in a video

frame, then maybe it should meet the television class of

communication rules. If it's a more static picture and

the, you know, the price should be maybe displayed in a

consistent manner to the print world. See if it comes

across in an audio stream, coming out of an Internet

terminal, then maybe it should meet those radio rules.

For the want of being able to come up with a

better definition or a starting point, we -- I think we

think in the industry that that might be a good place to

go until we have had a chance to have this more

substantive meeting that focuses more on that as a

medium in its totality at this particular point in

time. That, at least, I think, would provide to the

consumers the, you know, set of -- the set of

informations and disclosures consistent with what they

have today if they weren't using the Internet.

MS. HARRINGTON: Peter?

MR. BRENNAN: The problem, with due respect, the

problem to that is that those of us who are putting

services on the Internet don't have control or even

awareness in most cases as to what your particular

browser can be -- is set at and how you are going to see

that information. So, while we would wholeheartedly

support a very rigorous, clear and conspicuous standard,

we -- we would suggest that you don't get much more

specific than that, because it's not going to be

workable.

I mean, we are -- philosophically, that's

exactly the right place to be, and as, you know, as a

player in the 900 industry who wants to learn from the

transgressions of not -- not of mine but of my industry

counterparts from that era, nothing is more important to

us in developing Internet interactive television and

interactive radio technologies, all of which we are

involved in, than to see that the consumers fairly

understand and advertising is clear and conspicuous, but

to be -- to deal with any level of specificity, even the

way that the law does about the television rule, the

type has to be half the size and adjacent to, is a

problem, because we don't know what browser you are

going to be using. Philosophically it's good, but --

MS. HARRINGTON: The Commission recently

proposed an order in a case that basically said that for

Section 5 purposes, a clear and conspicuous disclosure

on the Internet, among other things, has to be

unavoidable. That is, the consumer, you know, must

unavoidably come across that disclosure in a clear --

and it has to be displayed in a -- in an otherwise clear

and conspicuous manner.

Would that kind of flexible standard for

purposes of 900 number pay-per-call disclosures work

that are -- that are solicited on the Internet? Would

that --

MR. BRENNAN: Certainly.

MS. HARRINGTON: -- contemplate your -- rather

than making an analogy to is it radio, is it television,

is it print --

MR. BRENNAN: Yes, the unavoidable, yes,

absolutely, and if I understand it, and I'm -- you have

-- you are a little beyond me, but to the extent that I

understand the question you're asking me, yes, it --

yes, it would, and -- and we would -- and we would

support that.

There are -- also, there are nuances that will

need to be in the -- in the subsequent discussion, there

are nuances that are going to need to be taken into

account based on how it is that people -- how it is that

people relate to information over the Internet.

For example, some marketing data would suggest

that users generally don't read a lot of, you know, a

lot of material, you know, more than a page. I mean,

our rule of thumb in marketing a service when you're

explaining its -- its advantages is not to do -- not to

have more than a screen there, because people click

through it. So, I think when we get to that discussion,

what we will want to do is we will want to look at those

issues and say realistically how can we present this in

such a way that it's concise enough so that people will

read it and be affected.

MS. HARRINGTON: Linda?

MS. GOLDSTEIN: Yeah, I was just really --

similar to Peter's point, I -- I don't think any of us

from the industry side are philosophically opposed to

the concept of clear and conspicuous, nor would we want

the Internet to become the next haven for where

audiotext services can be advertised without the

consumer disclosures and the consumer protections,

because that would obviously undermine everything that's

happened over the last four years.

Our more global concern is that because there

has been such a -- really a lack of definite standards,

I mean, the whole question of what constitutes clear and

conspicuous disclosure of advertising on the Internet

and how certain other regulations with specific type

size and placement requirements that have been adopted

in other contexts can now be applied to the Internet has

implications beyond audiotext, but it comes up in other

areas, as well, and, you know, our concern is that

perhaps, you know, were we to just wholesale import

these requirements to this medium, it might have an

unintended precedential impact. Other regulatory

agencies may look at it as having some precedent beyond

its intended effect.

So, I think the issue really of advertising

disclosures in general should be dealt with really in a

separate proceeding where others who, you know, may not

have an interest in this proceeding as they perceive it

as more audiotext-based then would have a lot of

expertise in this area and would have more input.

MS. HARRINGTON: Jim?

MR. BOLIN: I agree with the remarks that have

just been made. I think it would be a mistake to treat

the Internet as just another version of radio or just

another version of TV. The unavoidability standard is

an interesting one, and I think that that's got some

legs. My concern, though, is that what is and isn't

avoidable I think is changing month to month at this

point in terms of what controls browsers enable users to

use, and I would -- I think when you import an element

of good faith, an element of attempting to comply, I

don't know that we can even define what is and isn't

avoidable in the context of the Internet right now.

Maybe folks with more expertise than I can, but I just

don't think the Commission should be very flexible on

that.

MS. HARRINGTON: Question from Adam?

MR. COHN: I know that sometimes when I'm on the

Internet, I sometimes get the warning I can't play a

certain message if I don't have a piece of software.

Would that be something that would create a problem with

unavoidability?

MR. BOLIN: I think that's an issue. You talk

about audio disclosures. I'm often getting messages

just like that when on the net. To get this, you need X

plug-in or Y plug-in. I rarely bother to get it.

I think the Internet allows people platforms to

talk to each other, and that's not perfect either. If

you have an older computer, an older version of

Netscape, you sometimes can't use the plug-ins you

need. It's changing so much, so many different kinds of

hardware, I think that we need to import an element of

making an effort to make a good faith disclosure, a

clear and conspicuous disclosure, and unavoidable really

has legs, is a good way to go, but I think anything the

Commission does here is going to have reverberations

elsewhere on interstate commerce, and I think none of us

have the expertise to address it at this point.

MS. HARRINGTON: Peter?

MR. BRENNAN: Unavoidability, all the problems

you have with the plug and plays is acknowledged, but

unavoidability is something different as one that builds

web sites. That means that you can't get to slide C

until you have seen slide B and at the bottom of it you

said yes; yes, I agree that I will comply with these

rules; yes, that I really want to see slide C; yes, that

-- no, I -- you know, or no, I want to go back to slide

A. It -- it -- and unlike the -- unlike the difficulty

inserting the tone in the prior discussion, this is

something which -- which is -- is at this point in time

an available option for -- for web site constructors.

MR. BOLIN: Is it going to stay that way for the

foreseeable future? Is it really that stable?

MR. BRENNAN: Well, I don't know why -- I mean,

I don't know why it shouldn't.

MS. HARRINGTON: Besides -- Gordie or Albe, I'll

come right back to you, but besides Internet telephony,

are there any other technologies coming down the road

that have applications for audiotext services?

For example, and maybe it's not a new technology

but just a different development, I don't think that --

at least I don't think that I foresaw the use of

international dialing patterns at the time that we were

initially getting together to write the rules for 900

pay-per-call. Is there anything like that, a different

sort of application that's looming out there so that

three months from now or four months from now when we

finish this rulemaking we find all sorts of problems on

some other sort of platform that people have migrated

to?

Albe?

MR. ANGEL: I chose really just to respond to

something that Peter just said. In his little

description of how he builds a web site, he said you

can't go to slide C until you've passed through slide B

and you may want to click on something on slide B in

order to see slide C. I don't want his comments to be

interpreted as those of the ISA that any affirmative

consent would be necessary and that would constitute a

clear and conspicuous disclosure. You can see how

applying that sort of standard backwards to audiotext

would set us back quite a bit, and I think we need to

really address the Internet standards for advertising in

a separate proceeding.

MS. HARRINGTON: Okay.

Richard?

MR. R. GORDON: There is something

technologically that is happening now that I think the

Commission will be confronting in about a year or two.

Back on February 1st, the International

Telecommunications Union opened up the application

process for international toll-free dialing. This is

the new 0-800 technology that Congressman Gordon

actually mentioned yesterday. I don't know how many

people understood what he said, the 0-800, but that's

what it is.

We happen to, as a -- as a company, own a number

of numbers like 0-800-call-visa, which is a phone number

that can be dialed in any one of 57 participating

countries, and that number will go wherever we as the

owner of the number want the number to route. It is the

equivalent on a worldwide basis of what 800 service was

26 years ago here in the states.

From the perspective of electronic commerce, I

know many members of the Congress are excited about

this, because it will break down a lot of the

international barriers for American-based companies that

want to do business on a global basis, and they won't

have to have a sales office in England or a sales office

in France or whatever. I think that this does open up

the spectre of the types of audiotext services that

today are provided on 011 possibly being provided in a

0-800 environment and, of course, then there would have

to be a billing mechanism.

What that is, how that will evolve, who will be

involved, will it be a credit card platform only, will

it be some form of international telephone company

billing, will it be collect, I don't think anybody knows

yet. The numbers will go live, I'm told, by AT&T, who

is our provider for services here, in the next 30 to 60

days. So, there is going to be a fair amount of

shake-up when it comes to telecom, and I think that

there is a number of things that the Commission needs to

become aware of with these new technologies.

The one thing that probably will be of some

interest and relief on a national basis is the current

state of the technology is such that the only place the

number doesn't work is intra-country. So, my

0-800-call-visa number I can dial from the U.S. to

England or from the U.S. to Canada or from the U.S. to

Russia or from Russia to the U.S., but I can't dial from

New York to Los Angeles.

MS. HARRINGTON: Do you -- does your company

know now, Richard, whether you're going to be marketing

0-800 numbers to U.S. consumers, that is, will you be

routing calls outside of the United States?

MR. R. GORDON: I'm not sure I understand that

question.

MS. HARRINGTON: Well, my understanding of what

you're saying is that these are international numbers,

and I guess what I'm asking is, as far as your

applications are concerned, will this have implications

for U.S. consumers or are these numbers going to be

marketed only to consumers in other countries?

MR. R. GORDON: Well, first and foremost, my

companies don't generally deal with the consumers.

We're business to business, and we provide the

technology behind some of this.

MS. HARRINGTON: Do you know whether your

clients will be?

MR. R. GORDON: Yes, they will. I mean, I know

that as an example, we have the number

0-800-Four-Seasons for the Four Seasons hotel chain.

They want to use that number in their marketing in the

United States and to take those calls to their

reservation center in London. So, yes, there will be

U.S. people using these types of numbers. The entire

plan is really an overlay in technology. You have to

have an established toll-free connection between the

originating point and the terminating point, and this is

really a mathematical or a software solution where the

-- the 0-800 number points to a predesignated toll-free

circuit that you have already established. It's a

numbering plan is what it is.

MS. HARRINGTON: And will -- here's a really

dumb question.

MR. R. GORDON: No such thing.

MS. HARRINGTON: I may be missing the point

here. Are these calls going to be toll-free for

consumers or will they pay, or are they going to be

charged for calling?

MS. GRANT: That was my question.

MR. R. GORDON: Well, the technology is

intending to be a technology that the receiver of the

phone call pays for the transport. So, the answer to

your question is, as I understand the ITU's promotion

here and the reason that they want this, is they want a

global free phone service and economy. There are

toll-free lines available from all different types of

locations. My toll-free number in -- in France is

05-2000, and if you dial that, you wind up in my Los

Angeles office, free of charge.

MS. HARRINGTON: Now, I guess that one reason

that you're raising this is that it's conceivable that

the recipient might want to pass back the costs.

MR. R. GORDON: Don't know that, don't know

that.

MS. HARRINGTON: But that's a possibility.

MR. R. GORDON: That's a possibility, yes.

MS. HARRINGTON: And then we wind up in a

quasi-pay-per-call sort of situation, at least.

MR. R. GORDON: Yeah.

MS. HARRINGTON: Okay, well I very much

appreciate the information.

MR. R. GORDON: And this is getting back to one

of the other issues that was raised here about passing

ANI and passing CLI. While we believe that those are

very essential things for risk management and for fraud

and for consumer protection, they also have to be dealt

with very carefully, and I think the European model

there where you have to be specifically in the risk

management or fraud control business to receive CLI, the

equivalent of ANI, is a good one, but it is made

available when the information services industry wants

to reduce risk and reduce fraud, the European carriers

do pass CLI under a specific licensing agreement.

MS. HARRINGTON: Okay, we have questions from

Adam and Mark.

MR. COHN: I just wanted to ask if AT&T and MCI

or perhaps other parties, including TSIA, could

supplement the record with information about 0-800

service.

MS. HARRINGTON: Well, Jim from AT&T nods yes.

MR. BOLIN: I can try. I don't know much about

it.

MR. HERTZENDORF: I just wanted to know whether

there is also some kind of international version of a

900 number service that the ITU is working on. I

thought I read something like that, and I guess it's

called 0-900. Maybe you can supplement the record on

that, too, and maybe Richard has something to say about

that.

MR. R. GORDON: I am not personally aware of

where they are on international pay-per-call on the

0-900 platform. I was at a meeting in Dublin about a

year and a half ago in which there were some discussions

about a European prefix, primarily because the same

problem that existed here in the United States with 976

and 550, being local service numbers only, in Europe,

when you live in Brussels, you are 30 minutes from four

other countries. So, there is a European effort that I

have been somewhat aware of, and I will contact my

colleague, David Wiseman, in London, who is an expert on

this, and ask him to give us some current information

and supplement the record.

MR. BOLIN: I literally learned in a phone call

this morning that the ITU is working on an international

900 number. I'm told that it's coming along. I'll see

what we can find out and supplement the record.

MS. HARRINGTON: Is there any possibility, do

you think, Jim or Richard or anyone else who would like

to comment on this, that some of the vendors who make

these 0-800 and possibly 0-900 services available to

their business customers to make available to consumers

could work on some sort of voluntary standards for price

disclosure in the event that costs are being passed back

to end use consumers?

MR. R. GORDON: I can only address the 0-800

issue.

MS. HARRINGTON: Yes.

MR. R. GORDON: And I don't think personally

that that's going to be possible, because the actual

domain ownership of the number is resident with the

carrier who first obtained the number. In other words,

if I'm in Iceland and the Icelandic telephone company

made the application for me, then I'm governed by that

particular set of rules for Iceland irrespective of

where I may use that number.

Now, the number is also portable. So,

portability has been recognized. There is an

international standard that's required, and I can

transfer it, but I'm governed by the rules of the

carrier who first got me the number until I move the

number to another carrier. Again, it's -- it's

important to understand that this is a -- it's a billing

and a numbering scheme, and I don't mean scheme from the

negative standpoint, the European standpoint. It's an

overlay plan.

If you turn a 0-800 number on, you have to tell

the network where to take calls from and where to take

calls to and how to get them there. If you turn it on

in Europe, you don't turn it on in ten countries, you

turn it on wherever you have international connections.

MS. HARRINGTON: Okay, Jim, your tent is up.

MR. BOLIN: Don't have any information on that

subject. Are we ready to move on?

MS. HARRINGTON: Sure.

MR. BOLIN: Okay, two potential scams, one of

which may not really be in the scope of this

proceeding. As I'm sure you're aware, the 888 or NPA,

not an area code, is up and running now for toll-free

calling. To date, the users of 800 numbers have been

permitted to reserve and/or block out the same 888

numbers. I don't know for a fact that MCI has reserved

888-Collect, but that would be one example.

As number exhaust becomes increasingly a

problem, as other NPAs are opened up for toll-free, my

prediction is the pressure is going to get to be such

that that kind of reservation system will not be

permitted anymore. If every time you open a new NPA,

you can reserve the numbers that are in use, you don't

have a lot of numbers.

If I'm right in my prediction, I think you might

start see scams that someone opens up whatever the toll

free SAC is, if it's 999, 999-Collect, 999-Flowers,

999-Call AT&T. You have a situation where a consumer

thinks they are dealing with one company with which they

have a relationship or which they believe they can trust

and in fact they are dealing with another entity. I

think that could be coming down the road.

MS. HARRINGTON: Thank you. It's useful to know

that, depressing to know that.

MS. SCHWANKE: Isn't there another new --

MR. R. GORDON: 877.

MS. SCHWANKE: Is that already currently in

use?

MR. R. GORDON: It's under development, I think,

isn't it?

MR. R. GORDON: April 4th. Better than April

Fools.

MS. HARRINGTON: We are at the point of the day

where we want to open up for public participation, but

Jim wanted to say one last thing.

MR. BOLIN: If I may, there is one other scam

potentially, not technology related, but new Section 228

of the Communications Act, 47 USC 228 contains an

exception to the presubscription requirement for 800

calls for purchase of goods and services that are not

information services. I think that the creative and

unscrupulous provider could argue that they provide a

service, they charge for some goods. Say if it's a

psychic line, we are going to produce a deck of tarot

cards that cost us a quarter, we are charging 20 bucks

for the tarot deck, the reading is free. Call the

number, we will send you the tarot deck and charge you

20 bucks. Because the call was free, we are only

charging you for goods, we don't have to use a

presubscription arrangement. We flagged this to our

comments in the FCC in their proceeding. We think that

that is a loophole in the law unless it is closed by the

FCC and FTC.

MS. HARRINGTON: And you have commented on that

to the FCC?

MR. BOLIN: It is attached to our comment that

we submitted in this proceeding.

MS. HARRINGTON: Okay, good, thank you.

Public participation, two people at least have

indicated to me that they would like to make statements

and converse during this time, and you know who you

are. Is there anyone else other than the two who I have

spoken with who would like to participate during this

session?

All right, we will hear from this gentleman

first, please, thank you.

MR. ANGEL: I have to catch a plane, so I have

to be leaving right now, and I wanted to thank the FTC

and everyone participating for giving the ISA an

opportunity to participate. We do want to supplement

the record, particularly in the areas of billing and

collection. We have had a lot of discussion following

our discussion yesterday, and we just would like to know

how you want to receive that.

MS. HARRINGTON: Send it in to the secretary,

the same way you would file a comment. Alan has to take

leave, as well, and the rest of you -- no one else may

leave. This gentleman has been listening to us all

day.

Go ahead, please.

MR. BARTEL: I had a hand out, I hope everyone

got it --

MS. HARRINGTON: What's your name?

MR. BARTEL: Richard Bartel. I am representing

the Communications Venture Services, Inc., and we are a

consulting firm in Bethesda, Maryland, and our clients

are information service providers, and in particular

clients who are -- have achieved or received number

assignments in the 555 exchange. I personally am also

appearing here.

We have a ride-sharing service, one of our

clients does, which is a tax-exempt, nonprofit,

501(c)(3) information service. I am also personally a

member of the North American Numbering Council Dispute

Resolution's Task Force. I cannot speak for them

today. They are a federal advisory committee to the

Federal Communications Commission.

Our company is also a participant in the

Industry Numbering Committee, and a lot of these issues

on NPA exhaust and so forth have come up there.

I'm not sure how to go about this. Should I

read my comments into the record or just --

MS. HARRINGTON: No, your comments will be

included in the record, your written comments, so if you

could tell us what your most important concerns are.

MR. BARTEL: Okay, I'm assuming that this is not

a negotiated rulemaking proceeding.

MS. HARRINGTON: That's right.

MR. BARTEL: First of all, we have an interest

in the definition of pay-per-call, and our opinion is

that from a regulator's point of view, this is a very

sticky thicket, so to speak, and we feel that the

definition of pay-per-call should draw the distinction

between those things that are operations of a common

carrier versus those things that are information

services provided over common carrier circuits, so that

you can make a distinguishing mark between regulatory

jurisdictions, as well, between FCC and FTC, and define

the overlap.

So, therefore, we propose that pay-per-call be

defined as any charges that are made above and beyond

the fair, reasonable and nondiscriminatory charges that

are made for the transport by the common carrier, the

costs associated there, such that you can define which

part of a call was pay-per-call, what part is common

carriage charges.

Secondly, we would like to propose something

bold that may take into -- may solve a lot of the

problems that I'm hearing here today. I'll give an

analogy, when they build a new college campus, they

plant the grass, and they put up signs that say don't

step on the grass, but after a while, you take aerial

photographs, you'll notice that there are foot paths

that develop all over the campus where people walk all

the time.

So, the solution to that problem is not to send

police out on the foot paths to try to stop people but

to build sidewalks where the common foot paths are, and

finally you end up with a well-designed campus, for

example, and I think that the regulatory analogy here is

that it seems from the testimony here today and the

evidence in the record that I've seen so far that the

charges below $2 are really not a big chargeback

problem, not a big consumer problem for issues of

charges below $2.

So, what we would propose is that the preamble

requirements and the pay-per-call definition and the

disclosure requirements begin at the point where the

premium charge for the call reaches $2, so that there is

a very significant period of time in some instances

where the disclosure can be made rather than trying to

talk fast in 18 seconds, where there is this affirmative

area where the consumer is well versed on what they are

getting themselves into, and I think that if you allow

the carriers to go ahead and charge that first $2 and

have the presumption shift to the carrier after $2 and

be in the consumers' -- I'm sorry, in the carrier's

interest the first $2 and the consumers' interest after

the $2 point, that you will find that you're going to

have fewer chargebacks, fewer consumer complaints to

both carriers and to the FTC, and there will be an

opportunity in that first period of time for not only

adequate disclosure but also for promotional purposes

for the information service provider.

So, therefore, we suggest that there be a $2

threshold on the premium over transport where there is

an irrefutable premium charge there where the consumer

really does not have the -- basically the first $2 are

the cost of the call, and after that, you get into the

point where the burden shifts to the consumer to show

that the call was fraudulently obtained or that they

were led into something that they didn't think they were

getting into. That takes care of the clear and

conspicuous standard that appears to be in the

administrative law.

On the comments of AT&T regarding the additional

codes, there are -- there is 877 coming in April of next

year. There is 630 new area codes coming out in the

next 15 to 20 years. NPA exhaust is now estimated by

NAPA to be around the year 2031 under current

conditions, assuming that there is some, you know, great

center pooling and some other issues that occur, and

therefore, the consumer is less and less likely now to

decide what they are getting themselves into based upon

the first three digits they call.

800 is toll-free, but very few people know about

888, or it is getting better and better. Almost nobody

knows about 877, and in addition, on the other side of

the coin, there are a lot of pay-per-call codes that

people are not aware of.

NYNEX itself, in a study they did, they have

over a dozen to 20 pay-per-call prefixes that are not

recognized by the public as pay-per-call, and, of

course, everyone knows about 976, but there is a whole

slew of other types of codes that are intra-LATA,

intrastate pay-per-call. I don't know if that's the

subject of this proceeding, but the states attorneys

general might be interested in that.

So, therefore, the solution may be not to try to

wrangle around trying to figure out which area code is

pay-per-call and which is not but to allow pay-per-call

to occur on any code sequence provided that the

disclosure requirements trigger at the $2 premium level,

and that will clean up and clear up a lot of wrangling

and regulatory heartburn and discussions and minutia and

detail about that first 18 seconds of the call.

And I guess I -- I don't know how much time I

have here, but my comments and our comments in here go

into much more detail in these areas, and we would like

to thank you for the time today to make a presentation.

MS. HARRINGTON: Thank you, Mr. Bartel, it's

very thoughtful, and I was trying to figure out how old

I'll be in the year 2031, and hopefully I'll be retired

when we have complete exhaustion of dialing codes.

Let's see, here we go.

MR. LOADER nick Loader, Lo-Ad Communications,

thanks again for a chance to give some comments. I will

be brief.

There are a number of questions that were asked

today that were not answered. One in particular of the

gentleman from the Florida PSC had a phone bill from a

consumer or a constituent, I assume, that indicated that

the company had charged in excess of $5 per minute for a

call terminating in Canada. I've been in this business

and had quite a bit of exposure to international calls.

I was unaware how you could get away with something like

that. I do trust before the FTC offers any regs that

some type of investigation to see that these companies

like these aren't violating any existing framework or

regulatory framework that may exist out there covering

how you can get away with charging those kind of rates

for a normal phone call to Canada.

In regards to a question brought up by Adam on

the matter of fraud and fraud calls, he posed a question

of how the payment cycles are. They are anywhere from

90 to 120 days for foreign carriers. Whenever we are

made aware of fraud by any regulatory agency or an

association makes us aware of anything, there is still

such a lag in the time length of the revenue that

ultimately the offending party will very rarely end up

with any significant sums of money as a result of that

fraud, and we encourage any regulatory agency, state or

federal, to contact either the trade associations, and

they can always contact the offending bureaus, and

because of the nature of our contracts, we can move

extremely quickly to shut those numbers down without

even a phone call to the -- to the perpetrator of it,

and we invite you to participate in helping us police

the problems that exist in this business.

I would also like to make a statement regarding

the aspect of -- I heard again today again and again

about somebody can get in your house and rack up all

these unauthorized charges. I seriously don't believe

that's a significant problem, but I offer a brief

example here. We offered a 900 service in Chicago. A

mentally retarded man made a number of -- thousands of

dollars actually worth of phone calls to the services.

The press got ahold of that, and they approached the

billing entity with would you -- are you going to try

and collect these charges? The answer is, of course,

no, we would rather block a call like that than pursue

it and collect it.

Over the next 14 days, there was a 200 percent

increase in chargebacks and over 80 percent of them

cited mental retardation or diminished capacity of

someone in the house as a result of those calls.

What I'm trying to get to here is I think a lot

of where you guys are going to try and regulate these

rare occurrences of where somebody comes into somebody's

home and steals services or what have you, what is

happening is you are causing a self-fulfilling prophecy

here where people know they can get out of paying the

charge as a result of that, it's a given, nobody wants

to try and sustain it. We must move to communicate to

the consumer that he has a point of sale in his house.

These points of sale for new scams and new regulations

and what have you, television, satellite, cable,

Internet service, Internet access, we need to make a

concerted effort to educate that these are points of

sale, and you need to protect those points of sale,

because you can't just run around saying, Oh, well, you

know, somebody else walked in on me and did it when I

wasn't looking.

I think overall that can be the best benefit to

the consumer and to the industry as a whole, that the

number one benefit is that these consumers that are

using this as an excuse are really -- we know we handle

all of the tasks of the consumers, but the penalties

have now become at least a 50 percent increase in rates

to the honest and viable people that are willing to

accept and pay for their responsible usage of these

services, and it is a rather small percentage of these

people that amount to a tremendous dollar value of the

chargebacks.

I thank you all for your time.

MS. HARRINGTON: Thank you very much.

Jill?

MS. SANDFORD: Yes, I would like to ask this

gentleman a question. You just stated in terms of the

time period between which the charge is made and then

the information provided is paid.

MR. LOADER: Yeah, the typical carrier

settlement period, it varies by carrier and by country,

but I don't know of any case where it's faster than 60

days, typically averages 90, and can often be as far out

as 120.

MS. SANDFORD: Okay, when -- because I

understand that there is also a time lag between the

time a consumer makes a call and it actually appears on

the bill. Is this the same time period or would this be

after the consumer has gotten a bill?

MR. LOADER: The time period I'm referring to

refers to the 60 days after close of calendar month, and

that is a very rare case. Typically AT&T pays a lot of

the smaller carriers much faster than an MCI or a Sprint

would.

MR. R. GORDON: I think what you're talking

about, you are talking about a stack-on time. If a call

is made today, it might be processed and put on a bill

on the 5th of July. What Nick is talking about is it's

from the 5th of July probably 120 days before the

information provider is going to get that cash.

MR. LOADER: It puts us in a unique position to

be able to stop anyone benefitting by doing these

illegal schemes, but what it does require that the

regulatory agencies and bodies that exist communicate to

us. A lot of times you know something is going on and

are not -- and do not have the ability to move as

quickly as we can on it. I don't have to do a lot of

evidentiary findings. You tell me you don't like

something, my contract says that's it, you're out of

business, buddy, no further excuse.

MS. SANDFORD: That's interesting, because what

we're finding when we do initiate an investigation is

there is a time lag between the time that the consumer

allegedly made the call, it may be 30, 60 days before

it's on the consumer's phone bill. By that point, when

we followed the money, the IP is gone, the money has

already passed on, the factor may be at the end of the

chain as opposed to the IP, and often times we are told

that there is nothing.

MR. R. GORDON: Okay, you are talking about

domestic situations. Nick is talking about

international situations.

MR. LOADER: But you have a very viable point.

There are certain companies that are buying the

payables, and almost every single scam that's being

performed right now, they are being sold to a factor

company. I suggest this to you, you make the factor

company pay the redress and you'll stop that action

almost immediately.

MS. HARRINGTON: Well, thank you all very much.

We have had I think excellent discussion over the past

two days. We have a very rich record at this point. We

have your written comments. We have the record of these

discussions.

We are in the advanced notice of proposed

rulemaking phase of this rule review, and the record

remains open. So, if anyone would like to supplement

the record, you may send whatever you have into the

Commission through our Office of Secretary.

The procedure here is that at some point in the

near future, the staff working on this matter will make

a recommendation to the Commission for further action,

likely the publication of a notice of proposed rule

making, and then the Commission will be making an actual

proposal for perhaps changes to this rule, and we will

again invite your comment. We will invite your written

comment, and it's very likely that we will have another

proceeding like this. We like these.

We hope you do, but we want to make sure that

when the Commission is faced with the recommendation

that it take final regulatory action in this area that

it does so equipped with the richest possible record and

the richest exchange of ideas and suggestions so that it

can do right both by consumers and by this very exciting

and vibrant and growing industry.

I see that Richard, your tent is up. Did you

want to say something?

MR. R. GORDON: I did. I wanted to formally

submit into the record the TSIA Code of Ethics. We are

also going to be sending to everyone that we have a name

and address for a copy of this, particularly the

consumer groups and attorney generals.

I'd like to also make sure that everyone is

aware of the fact that as a supplement to the code of

ethics, there is a publisher's code of ethics for all

the members of the TSIA.

And I would like to first and foremost thank the

Commission and secondarily thank all the participants

here and encourage those of you that might have views

that are somewhat different than ours to communicate

with us. I think consensus works, regulation only

causes additional heartache and confusion sometimes,

trying to interpret what somebody thought they said.

I'm not saying that regulation is bad, but if we can

come to consensus, I think that we can move a lot more

quickly.

In closing I would like to say that Muldova

issue that was raised, I think this morning or

yesterday, the TSIA notified Congress, notified

Congressman Gordon specifically, that we knew that that

was going to happen about a week before it happened. We

didn't know where or how it was going to happen, but we

knew it was going to happen.

We are very actively self-policing, and when the

beeper scam took place, and I think that one of the

people up here found out about that very early on,

immediately the service bureau was notified, and that

was brought down. We don't want this type of behavior,

and we are doing everything we can within our power to

stop it at the source.

Thank you.

MS. HARRINGTON: Thank you, and thank you all

very much, very much.

I'm sorry, Mr. Bartel?

MR. BARTEL: I have a procedural question.

MS. HARRINGTON: Yes, procedural question.

MR. BARTEL: How long is the ANPR docket going

to remain open, and secondly, has it been decided that

the Internet issues are going to be a separate

proceeding?

MS. HARRINGTON: The two questions, how long is

the ANPR record open and has it been decided that

Internet issues will be dealt with in a separate

proceeding. The answer to the first question is

generally as a practical matter we try to keep our

record open until the point that we close comment on a

notice of proposed rule. So, you know, we have set some

deadlines and asked for comments to be submitted by

certain points, but this is an agency that tries very

much to accommodate the desire of people to have a say.

So, we would invite you to continue to submit

information if you care to do that.

On your second question, I really would not

anticipate that there would be very much, if any,

proposal in this rulemaking to deal with Internet

issues, but there may be some. I think it's also likely

that the Bureau of Consumer Protection of the FTC will

initiate some separate mechanism for a careful

examination of the applicability of all of our trade

regulation rules, guides and Section 5 advertising

principles to Internet advertising, selling and

marketing, not necessarily a regulatory proceeding, but

a proceeding to explore those issues with people who

have information and an interest.

And I'm really needing to end, and I would

invite if you have further questions, I'll --

MR. BARTEL: Real quick question, is there any

inter-agency coordination between this agency and the

FCC on this?

MS. HARRINGTON: Yes.

MR. BARTEL: Thank you.

MR. BOLIN: Can I ask a procedural question?

There is going to be a fair amount of supplemental

material coming into the record. How can other

participants get copies of this material?

MS. HARRINGTON: Is this on the Internet, on the

web site?

MS. SCHWANKE: If they are submitted in

electronic form, they will go onto our web page, and

they will also be on the public record.

MS. HARRINGTON: So submit them in electronic

form, and the public record is available in the public

reference room. We are not going to xerox everything

and send it out to you, that is not going to happen, but

you can obtain everything that is in the record if it's

not on the Internet, but submit additional materials.

MR. BOLIN: Is there a date when they will be

placed in the reading room or do we just need to check

periodically?

MS. HARRINGTON: Check periodically.

Thank you very much, very much.

(Whereupon, at 4:51 p.m., the meeting was

concluded.)

- - - - -

C E R T I F I C A T I O N O F R E P O R T E R

DOCKET/FILE NUMBER: R611016

CASE TITLE: PAY-PER-CALL RULEMAKING

MEETING DATE: JUNE 20, 1997

I HEREBY CERTIFY that the transcript contained

herein is a full and accurate transcript of the notes

taken by me at the hearing on the above cause before the

FEDERAL TRADE COMMISSION to the best of my knowledge and

belief.

DATED: 6/27/97

SUSANNE Q. TATE

C E R T I F I C A T I O N O F P R O O F R E A D E

I HEREBY CERTIFY that I proofread the transcript

for accuracy in spelling, hyphenation, punctuation and

format.

DIANE QUADE