Crackdown on Telemarketers Equals Risk, Opportunity for Telcos

Posted: 12/2002

Crackdown on Telemarketers Equals Risk, Opportunity for Telcos

By Josh Long

FEDERAL AND STATE LAWS MANDATING do-not-call lists are making life complicated for the $669 billion telemarketing industry. Twenty-seven states have implemented do-not-call list laws restricting organizations from making cold calls to particular phone numbers. And, legislators across the rest of the country are on pace to enact similar laws, experts say.

While telecom network service providers supporting telemarketing divisions risk hefty fines (in August the Louisiana Public Service Commission fined AT&T Corp. a record $175,000 for violating the state's do-not-call law), they also have an opportunity to make money helping other telemarketing companies comply with the rules.

Twenty-eight states have implemented telemarketing laws governing when calls can be made, along with other regulations such as requiring a company to post bond before being able to cold-call consumers in a particular state. However, not all of those states have implemented do-not-call list laws, said Joe Sanscrainte, general counsel and director of regulatory affairs for Call Compliance Inc., a Glen Cove, N.Y.-based company that is partnering with VeriSign Inc. to manage do-not-call lists for a number of businesses such as brokers, credit card companies, the time share resort industry and call centers.

In January Dean Garfinkel, founder of Call Compliance, earned a patent on a product that blocks out numbers telemarketers are prohibited from calling. TeleBlock is a system that automatically blocks outbound calls to state, in-house and third party do-not-call lists within a telephone company's network infrastructure. Before Garfinkel secured the patent, Call Compliance had provided the blocking service to two long-distance providers, Covista Communications Inc. and eMeritus Communications Inc., so those carriers could offer it to their business customers.

Linking up to the signaling system (SS7) network, Call Compliance and VeriSign can tap into state and federal do-not-call lists every time a telemarketer makes a phone call. In short, if the sales representative is calling a destination registered on a state or federal list, the person will hear a recording saying the phone number is on a do-not-call list, and the call won't go through.

Call Compliance and VeriSign anticipated making the telemarketing solution available to service providers throughout the country beginning Nov. 1. "We are finding quite a few telemarketers that are ... interested in this," Sanscrainte said.

That comes as no surprise to Keith Fotta, founder, president and CEO of Norwood, Mass.-based Gryphon Networks Corp., a company that integrates its technology into carriers' switching and interactive voice response (IVR) systems to manage do-not-call lists.

Gryphon Networks has relationships with Sprint Corp. and Qwest Communications International Inc., among others, Fotta said. One of Gryphon Networks' biggest telemarketing customers is Credit Suisse First Boston, he said.

It's no secret telephone carriers want to book accounts with companies that make a ton of phone calls, and telemarketers do just that. With the help of a technology partner such as Call Compliance or Gryphon Networks, long-distance providers can save a company valuable resources, including hundreds of thousands of dollars in potential fines, by accessing state and federal databases that detail phone numbers telemarketers are restricted from calling.

However, Yankee Group analyst Danny Klein said the service probably is not enough to convince a company to switch from one telephone carrier to another. Moreover, large companies with extensive telemarketing operations, such as call centers, could implement the technology themselves rather than outsourcing it to a service provider, he said.

Nevertheless, Klein anticipates CLECs and other aggressive phone companies would be the first ones to implement the technology, and he expects most service providers to do so once the "value proposition" becomes apparent.

Perhaps the momentum of the do-not-call list laws will provide that incentive. In addition to the 27 states that have implemented do-not-call list laws, the Federal Communications Commission (FCC) and the Federal Trade Commission (FTC) also are considering introducing their own lists, Sanscrainte said. And, experts predict all the states to pass do-not-call lists within the next 18 months to two years. Upping the inducement further are onerous fines. A telemarketing firm could get slapped with a fine ranging from $1,000 to $25,000 for violating a state law related to do-not-call lists, experts say.

Over the last couple years, companies publicly have been fined a total of nearly $3.5 million, according to Fotta. But that figure only represents about 10 percent of all the fines, he said, noting, "if you have the right lawyers it never hits the press."

Federal laws passed in the 1990s to protect consumers laid the foundation for do-not-call lists. In 1991 the Telephone Consumer Protection Act established federal rules governing when telemarketers could make calls and distribute faxes. Among other requirements, the federal law stipulates disclosures telemarketers are required to make and requires companies to maintain an internal do-not-call list when a person asks not to be called again. Under federal law, the telemarketer is not supposed to call that person for 10 years, Sanscrainte said.

In 1994 Congress passed the Telemarketing and Consumer Fraud and Abuse Prevention Act. The act gave the FTC authority to regulate the telemarketing industry and spawned the Telemarketing Sales Rule. The FTC-imposed rule prohibits misrepresentations by telemarketers, among other things, and stipulated that a telemarketer could be fined $10,000 for calling someone on a do-not-call list. The fine now has been increased to $11,000 per call.

Last January the FTC announced a proposal to create a national do-not-call registry that would help consumers rid themselves of most telemarketing calls by dialing the federal agency. The FTC received more than 42,000 comments from the public regarding a do-not-call list during a comment period that stretched from March 1 to April 15, an FTC spokesman said. The federal agency is expected to issue a rule on a do-not-call list this month, but it is unclear whether the FCC and the FTC will collaborate or issue their own lists. An FTC spokesman said the FTC would work with all state and federal agencies, but it has not publicly disclosed how it will proceed with the FCC.

The telemarketing industry has gone from zero regulation a few years ago to a variety of regulations now, and life is "getting more and more complicated by the day," Fotta said.