article

Mixed Messages

Posted: 06/1999

Mixed Messages
State Anti-Slamming Rules Conflict with FCC Order

By James Veilleux

The anti-slamming rules issued by the Federal Communi-cations Commission (FCC) are by
no means the last word. State rules still apply. At least 38 states have rules against
slamming, and at least 20 states’ rules are significantly different from the FCC’s. Those
differences include allowing third-party verification (TPV) as the only form of
verification, defining the specific script of a TPV call, allowing someone other than the
subscriber to give authorization for a carrier change and requiring TPV providers to be
certified, as well as deviations in the form and content of letters of authorization
(LOAs).

Although the FCC has ruled that state rules cannot conflict with the federal rules,
there will be an ongoing debate about what "conflict" means. For one thing, the
FCC’s latest Report and Order on this topic makes it clear that it will not pre-empt state
rules without a clear case that those rules contradict the FCC’s. The FCC’s order also
states that "… a state may accept additional verification procedures for changes to
intrastate service," suggesting that the states could create other rules. The
commission also ruled that states have been useful in enforcement and encouraged them to
continue helping to enforce the rules. Finally, the FCC also ordered that states could use
other laws, such as general consumer protection laws, to control carrier marketing. In
fact, the FCC last year issued an opinion letter that it would not pre-empt a Minnesota
consumer protection law that was used against a carrier.

Many states will interpret the language of the FCC’s order and its behavior to mean
that they can impose additional verification requirements, rather than simply accept the
FCC verification methods and add other optional rules. Since the FCC will not pre-empt
state action without a strong case, we can expect to see state regulation of this area for
a long time.

Reconciling Different Rules

How will the state and FCC rules work together? Combined with the new
"Truth-in-Billing" rules the FCC adopted, it is easy to imagine some challenging
scenarios for carriers. Consider this: Joe Consumer opens his bill one month and
discovers–thanks to new billing rules–that his carrier has changed. He waits a month
before complaining, then refuses to pay–based on the FCC’s rule absolving customers of
the first 30 days’ billing. After investigating, the carrier finds that it has a recording
of Joe’s wife giving the authorization for the carrier change, but the script of the
authorization does not meet the requirements of Joe’s state. Furthermore, although Joe’s
wife can give authorization under the state’s rules, she is not the subscriber, as is
required by FCC rules. Finally, Joe refuses to pay anything to the new carrier, since
under his state’s rules, he doesn’t have to pay for a service that was not properly
authorized.

How will state rules work together? Since most carriers market in more than one state
and many of them market nationally, it is worth noting that it is difficult to meet every
rule in every state with one national verification method. For example, California allows
only TPV, while Arkansas does not allow TPV unless the carrier gets permission from the
regulatory commission. Although this is the most glaring conflict across states, there are
a number of others.

TPV and LOAs are the closest thing to universal verification mechanisms across the
states’ and FCC rules. While no one form of verification meets the rules in every
jurisdiction, using these two methods and making necessary changes in a few states will
allow a carrier to meet the rules almost everywhere.

State Agencies Surveyed

To see whether the states were likely to continue regulating slamming under the new FCC
rules, VoiceLog LLC, a Charlotte, N.C.,-based provider of TPV services, polled regulatory
staff in all 50 states and asked them for their opinions. Staff people in 26 states were
willing to complete the questionnaire, and the results were very interesting (see
"And the Survey Says …," below). While these are the opinions
of staff, not the official position of the state or even the opinions of the
commissioners, they indicate that many states will continue to enforce rules that add more
restrictions to the use of the verification methods available to carriers.

And the Survey Says …

How familiar are you with the new Federal Communications
Commission (FCC) anti-slamming rules? Would you say that you are:
a) Very familiar 28.6%
b) Somewhat familiar 61.9%
c) Not very familiar 4.7%
d) Not at all familiar 4.8%
e) Don’t know 0%
Do you expect the new FCC rules to affect the anti-slamming
rules in your state?
a) Yes/probably yes 55%
b) No/probably no 35%
c) Don’t know/unsure 15%
Under the new FCC rules, three forms of verification are allowed
for carrier changes: letters of agency (LOA), third-party verification (TPV) and
electronic verification. In addition, the FCC said that states could provide other forms
of verification for in-state services, as long as they don’t conflict with the FCC rules.

We
believe this wording is ambiguous and can be interpreted to mean either that the states
can adopt their own rules, with additional restrictions for verification, or that the
states must accept the FCC rules, but can provide for other forms of verifying in-state
services in addition to the FCC rules. Without a formal court ruling, which interpretation
of this aspect of the rules do you expect your state to adopt?

a) The states must accept the FCC rules but can add their forms of
verification for in-state services.
31.6%
b) The states can add limitations to the FCC’s forms of
verification for in-state services. For example, California can continue to restrict
verification for residential sales to just TPV, and Missouri can continue to require
quarterly audits of verification methods.
36.8%
c) Don’t know/unsure 31.6%
Based on your knowledge of the new FCC rules, which examples of
state verification rules–assuming they are applied only for in-state services–do you
expect to conflict with the new FCC rules?
  Will Conflict Won’t Conflict Don’t Know/Refused
California’s rule restricting residential orders to TPV only 11.8% 35.3% 52.9%
Illinois’ rule restricting verification to TPV or a written letter of notice 11.8% 29.4% 58.8%
Massachusetts’ rule which requires that TPV companies be registered in the
state
0% 41.2% 58.8%
Various state rules which require that the TPV be audiotaped 0% 66.7% 33.3%
Arkansas’ rule limiting verification to LOAs and electronic verification 5.6% 38.9% 55.5%
Oklahoma’s rule requiring that the regulatory authorities approve the TPV
script
0% 52.9% 47.1%

About 90 percent of respondents said they were "very" or "somewhat
familiar" with the new FCC rules, and most were in the "somewhat" familiar
category. Fifty-five percent of respondents expected the new rules to have an impact on
their state rules, while 30 percent did not. Fifteen percent weren’t sure enough to answer
either way.

When asked about the type of influence the FCC rules might have, most states that
answered suggested that they patterned their rules on the FCC’s, so they were likely to
make their rules the same. About 37 percent of respondents said the states could add
limits to the FCC verification methods, while the rest of the opinions were split between
"have to accept the FCC rules but can add others for in-state" and "don’t
know."

When asked whether particular state rules (such as the California statute that limits
verification for residential orders to TPV or the Oklahoma rule that says the public
utility commission [PUC] should approve TPV scripts) were in conflict with the FCC rules,
half or more of respondents didn’t know or weren’t sure. Rules that eliminated one of the
FCC options (California’s law or the Arkansas statute that does not provide for TPV, for
example) were most likely to be considered in conflict with the FCC’s order by
respondents. Rules that added conditions to verification requirements (such as
requirements for audio recording, script approval or certification of TPV providers) were
not regarded as conflicting by any respondent.

Overlapping Regulation Persists

The FCC’s anti-slamming order is ambiguous on the latitude that states have to regulate
slamming. This ambiguity, combined with the FCC’s stated and historical reluctance to
pre-empt state rules and the states’ desire to set their own rules, will result in
continued and different regulations across states regarding slamming. In particular, rules
that add conditions and limitations to the verification methods approved by the FCC are
likely, as are variations in penalties and dispute-resolution mechanisms.

Since many states pattern their regulations on the FCC rules, it is unlikely that major
deviations–such as banning FCC-approved verification methods–will occur in more than a
handful of states. However, because of the FCC’s reluctance to pre-empt state rules, a
carrier should not take for granted that a conflict between FCC and state rules will be
invalidated without a fight.

James Veilleux is president of VoiceLog LLC, a provider of third-party verification
services based in Charlotte, N.C. He can be reached at Jim_Veilleux@compuserve.com.


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