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FTC Cracks Down as FCC, Industry Issue Anti-Cramming Code

Posted: 09/1998

Regulatory News

FTC Cracks Down as FCC, Industry Issue Anti-Cramming Code

By Khali Henderson

In an effort to curb "cramming," the Federal Communi-cations Commission (FCC)
together with local phone companies July 22 issued guidelines to prevent the practice,
which involves the billing of charges for programs, products and services subscribers have
not knowingly authorized. Release of the voluntary guidelines comes a week after the
Federal Trade Commission (FTC) announced it had filed suit against two so-called
"crammers."

The self-policing effort is the result of mounting consumer complaints and a direct
challenge from FCC Chairman William Kennard. The FCC says it has processed on average more
than 300 complaints each month. Kennard met with large local exchange carriers (LECs) and
carrier association representatives May 20 to address an industry solution to the problem.

The "Anti-Cramming Best Practices Guidelines" includes procedures for
comprehensive advance screening of products being charged to local telephone bills;
telephone company scrutiny of service providers; verification of end-user approval of
service being charged to their bills; and customer dispute resolution procedures.

Noting that cramming ranks fifth among the most frequent consumer complaints reported
to the agency, Deputy Director of the FTC’s Bureau of Consumer Protection Teresa M.
Schwartz announced "cramming" cases against International Telemedia Associates
Inc. and HOLD Billing Services Ltd. The FTC has charged the two companies, separately, for
alleged violations of Section 5 of the FTC act, which prohibits unfair and deceptive
practices by making false and misleading representations about their services.

Many LECs already began implementing procedures to prevent cramming by third parties
for whom they bill services. Coincident with the release of the Best Practices Guidelines,
SBC Communications Inc. announced it has discontinued billing for 20 telecommunications
providers. And, Ameritech Corp. plans to introduce a simplified, easier-to-read phone bill
later this year.

At the same time, Bell Atlantic Corp. has announced plans to allow its customers to
limit the service providers whose charges are carried on their telephone bills. In May,
Bell Atlantic declared a moratorium on the billing of any new services.

Also in May, BellSouth Corp. announced a three-month moratorium on the acceptance of
billing for any new services. The company said in a July statement that it plans to keep
the moratorium in place until cramming incidents are reduced.

In addition to the efforts of local carriers, billing clearinghouses and services
providers also have developed their own guidelines. On March 2, the Competitive
Telecommuni-cations Association (CompTel) released the first set with its "Customer
Choice Principles," designed to discourage both slamming and cramming.

On July 13, several billing clearinghouses as the Coalition to Ensure Responsible
Billing (CERB) drafted a similar code called the Anti-Cramming Consumer Protection
Standards of Practice.

CERB’s founding members–Billing Concepts Inc., San Antonio; OAN, Los Angeles; and FTT,
Atlanta–are seeking support for its standards from other industry clearinghouses before
distributing the final document to the FCC, the FTC, state public utilities commissions
and attorneys general on Oct. 1.

Anti-cramming legislation is making its way through the U.S. House of Representatives
in H.R. 3990, the Anti-Cramming Protection Act of 1998. Evans says while this bill is not
likely to pass in this Congressional session, its provisions could be tacked on to HR
3888, the anti-slamming bill sponsored by Rep. Billy Tauzin, (R-La.) which mirrors a
senate measure (s.1618) passed May 12.

BellSouth Tries PCS Argument Again in Long Distance Filing

By Carol L. Bowers

BellSouth Corp. made one last conciliatory move as the Federal Communications
Commission (FCC) began considering the company’s second petition to offer long distance
service in Louisiana–withdrawing at the last minute its appeal of the agency’s rejection
of its initial Louisiana petition.

"We want to start the new process at the FCC with a clean slate," says Sid
Boren, BellSouth’s executive vice president for planning, development and administration.
"We want to make it easier for the staff and commissioners to concentrate on the
petition before them."

BellSouth’s second petition, based on the same premise that personal communications
service (PCS) providers are viable competitors but bolstered with more facts and figures,
actually may have a shot at approval, some industry analysts speculate. In part, the
company’s chances may have been improved by beating Bell Atlantic Corp.’s anticipated
September filing to offer long distance service in New York. Bell Atlantic’s application
seems to be a foregone conclusion to many, given the concessions the company made to the
New York Public Service Commission on rebundling un-bundled network elements for
competitors, but pressure has been mounting from members of Congress to approve the next
so-called Section 271 application, named for the long distance requirements’ place in the
Telecommunications Act of 1996.

The first attempt by BellSouth to prove that PCS was becoming a viable alternative to
traditional wireline services met with criticism from the industry; however, following up
on the FCC’s indication that it was open to such an argument, the company commissioned a
more in-depth study to prove its point. The new study solicited calls from wireless
service subscribers with a New Orleans newspaper advertisement and M/A/R/C/ Research
subsequently interviewed 202 people. According to the survey, 6 percent of those
interviewed signed up for PCS as their initial telephone service instead of wireline,
while 5 percent added a PCS phone instead of a wireline phone for a second line. One
surprising statistic: 5 percent of the 202 people surveyed said they had eliminated
wireline service and replaced it with PCS service.

The reality of approval, however, also depends on how much the FCC believes BellSouth
has changed its operations support systems (OSSs)–a major fault the agency cited in its
rejection of the company’s first Section 271 application. If the company’s second
application passes the PCS-as-wireline-competitor and OSS reviews, then the agency must
consider whether BellSouth has met the rest of the 14-point competitive checklist and
whether it’s in the "public interest" to allow the company to provide the
service.

Telco Coalition Has Advice for FCC on Streamlining Accounting Rules

A coalition of five incumbent local exchange carriers (ILECs) says the Federal
Communications Commission (FCC) must dump the costly and illogical accounting rules that
bog them down in minutia at great expense.

"Changing these rules would save the American public money twice–as taxpayers and
as consumers," says David Markey, BellSouth Corp.’s vice president for governmental
affairs.

Since the 1930s, the FCC has required the large regulated LECs–Ameritech Corp.,
BellSouth Corp, GTE Corp., SBC Communications Corp. and US WEST Inc.–to keep a duplicate
set of "books" for regulatory evaluation. Those rules, updated last in 1988,
require accounting of such items as metallic and non-metallic cable and separate accounts
for different kinds of trucks. In addition, the companies must keep books according to
generally accepted principles of accounting for the Securities and Exchange Commission and
shareholders. The FCC recently opened a docket on accounting simplification.

The companies say the outdated rules have no place now that the companies operate under
price cap regulation and are transitioning into a deregulated market. To prove the point,
the coalition commissioned a study by Arthur Andersen LLP. Among the study’s
recommendations: eliminate asymmetrical affiliate transaction rules and modify the rules
of prevailing price.
— Carol L. Bowers

CompTel Presents New Solution for Recombining
Unbundled Network Elements

Software that allows incumbent local exchange carriers (ILECs) to update the
office-specific software of a switch, establishing electronic connections that combine the
functionality of loops and switches, may hold the key to the testy problem of combining
network elements, according to the Competitive Telecommunica-tions Association (CompTel).

In a white paper released in July, the association says the so-called "recent
change" software that is used today by ILECs to provide large Centrex system
customers with access to services "can be used by entrants to combine the loop and
local switching network elements."

"One of the most contentious challenges facing companies has been their ability to
combine network elements easily and efficiently," says CompTel President Russell
Frisby. "This is a software-based solution which can readily be adapted to provide
competitors with access to network elements."

The author of the white paper, Joseph Gillan, says that essentially what CompTel is
suggesting is that ILECs allow new entrants to use the same software that they, the
incumbents, now use to combine network elements. "Collocation proposals all require
enormous human intervention," Gillan says.

While a ruling by the 8th U.S. Circuit Court of Appeals in St. Louis declared
incumbents did not have to recombine network elements for new entrants, it failed to say
"what it means to give us [network] access to combine the elements," Gillan
says.
— Carol L. Bowers


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