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Slamming Bill Could Hammer Switchless Resellers

Posted: 07/1998

Slamming Bill Could Hammer Switchless Resellers

By Khali Henderson

In a move the long distance resale community is calling "discriminatory" and
"punitive," the U.S. Senate unanimously passed an anti-slamming measure
containing a requirement that switchless resellers of long distance services post surety
bonds. Insiders say a similar measure introduced by Rep. Billy Tauzin (R-La.) in the House
of Representatives May 15 will be on a fast track, propelled by the momentum of the swift
Senate action and election-year campaigning under the consumer protection banner.

Amending Section 258 of the Communications Act of 1934, the Senate May 12 passed the
Anti-Slamming Amendments Act (S.1618), which would impose substantial civil penalties (not
less than $40,000 for the first offense and not less than $150,000 for subsequent
offenses) each time a carrier or billing agent switched a customer’s long distance service
without authorization. The bill also contains a provision that would require switchless
resellers alone among their competitors to post surety bonds or risk suspension of their
operating authority. Further, the bill prohibits any billing company from providing
services to a switchless reseller without proof of such a bond or risk penalties of up to
$50,000. The amount of the bond will be determined by the Federal Communications
Commission (FCC).

"Our primary concern is that the surety bond requirement in the bill is
discriminatory as it would affect only the small business segment of this competitive
market," wrote Telecommunications Resellers Association (TRA) President Ernest B.
Kelly in a letter to the bill’s primary sponsor, Sen. John McCain (R-Ariz.), chairman of
the Senate Committee on Commerce, Science and Transportation. "This amendment will
have a chilling effect on these lesser-capitalized companies to conduct business because
it will impose additional costs on them that their competitors will not have to
face."

Based in Washington, D.C., TRA is the national association for resellers of
telecommunications services, including long distance. In its letter, TRA also cites
potential harm to billing companies and wholesale long distance carriers that count
switchless resellers among their primary customers.

The amendment requiring a surety bond for switchless resellers apparently arose from an
April 21 report on the effects of slamming prepared for the Senate Permanent Subcommittee
on Investigation of the Committee on Governmental Affairs by the General Accounting Office
(GAO). In that report, the GAO concludes from interviews with regulators that a majority
of slamming activity is committed by switchless resellers. "Switchless
resellers–having the least to lose and the most to gain–most frequently engage in
intentional slamming," according to the FCC, state regulatory agencies and the
telecommunications industry, the report states.

As an example, the report cites the Fletcher Companies, a group of long distance
telephone companies owned/operated by Daniel Fletcher, which were removed of their
operating authority and fined more than $5.6 million for slamming violations by the FCC on
April 21. For his alleged crimes, which he never answered, Fletcher is the subject of a
manhunt launched by the Federal Bureau of Investigation (FBI).

TRA’s Kelly, in his letter to McCain, takes exception to this example, stating:
"TRA counts over 185 switchless resellers among its membership, many of whom have
been in business for numerous years, but very few of whom have any substantial slamming
complaints against them. Certainly, none of them fit the category of the companies formed
by the infamous fugitive Daniel Fletcher, whose extraordinary and willful slamming
activities the GAO chose to use as their case study."

The GAO report takes the FCC to task for an apparently lax tariff review process, which
it says offers consumers "no guarantee of a long distance provider’s integrity or of
the FCC’s ability to penalize a provider that slams consumers." As evidence, the
investigators used fictitious information to successfully file a tariff enabling it to
function as a switchless reseller and "slam consumers with little chance of being
caught."

The FCC received approximately 20,000 consumer complaints on slamming in 1997. Since
1994, the agency has taken formal enforcement action against 17 companies.

FCC Chairman William Kennard commended the bill’s primary sponsors–Sens. McCain,
Ernest Hollings (D-S.C.), Olympia Snowe (R-Maine), Bill Frist (R-Tenn.), Richard Bryan
(D-Nev.), Susan Collins (R-Maine), John Glenn (D-Ohio) and Dick Durbin (D-Ill.)–on the
efforts to "slam the slammers."

"Now that the Senate has voted to toughen the law against slammers, we will carry
the fight forward and use existing tools and whatever new tools Congress gives us to fight
slamming root and branch," he said.

Following criticism from Congress and the GAO, the FCC had been expected to adopt
tougher anti-slamming safeguards sometime in June. These safeguards, contained in a
proposed rulemaking, included provisions absolving consumers of paying for calls made
during a limited time after being slammed. Sources say the FCC’s efforts have been
postponed pending action from Capitol Hill.

In the House of Representatives, there are four bills advancing anti-slamming measures,
including HR.3888, the S.1618 mirror bill sponsored by Tauzin, which was introduced May 14
with 37 cosponsors. A measure (HR.3050) introduced by Rep. John Dingell (D-Mich.) back in
November 1997 is a likely competitor, with its tenacious sponsor and 62 cosponsors. Other
anti-slamming legislation, which are not expected to factor into the debate, are HR.2120
introduced July 9, 1997, by Rep. Peter A. DeFazio (D-Ore.) and HR.2112 introduced by Rep.
Bob Franks (R-N.J.) on July 8, 1997. All bills have been referred to the House
Subcommittee on Telecommunications.

Representing the resellers, TRA’s David Gusky says the association will be lobbying to
eliminate the surety bond requirement in HR.3888. It also has concerns about provisions in
the Dingell bill giving consumers the right to sue carriers by which they claim to have
been slammed.

A frequent contributor to PHONE+, Khali Henderson is a principal with Marcom Support
Services, a marketing communications firm serving firms in the telecommunications
industry. She can be reached at marcommail@aol.com

UPDATE
Buying Alliance Gateway Signs Global Termination Agreements with RBOC, 6 Other
Wholesale Carriers

By Khali Henderson

SynergetEx, the new gateway company formed by the founders of the Telecom Buying
Alliance (TBA) consortium of small- to mid-sized carriers, has signed underlying carrier
agreements with seven international wholesale providers, including Ameritech Global
Gateway Services Inc. (AGGS), the only Bell company subsidiary offering global termination
to resellers. Terms of the agreements were not disclosed.

After 10 months of being unable to secure an underlying carrier agreement, the TBA’s
facilitators and members formed SynergetEx in competition with the established and
emerging multinational carriers they say snubbed them. In this unprecedented move, members
of the alliance will own nearly one third of the new carrier.

In addition to AGGS, other carriers with which SynergetEx has contracted include PICK
Communications Corp., Wayne, N.J.; and Trilogy Telemanagement LLC, Omaha, Neb. Identities
of the other four providers were not disclosed.

SynergetEx Chief Executive Officer Joe Sadoti said AGGS represents the
"cornerstone" for SynergetEx’s termination services to Europe, providing 10 to
15 routes to European destinations. Formed in July 1997, AGGS is a wholly owned subsidiary
of Ameritech Corp., delivering wholesale international transport services for
communications carriers by leveraging its parent company’s foreign investments and
partnerships. Ameritech is the largest foreign investor in European telecom ventures, with
more than $7.5 billion combined interest in Belgacom of Belgium, TeleDanmark of Denmark,
MATAV of Hungary, Netcom of Norway and directory publisher WLW of Germany. Ameritech also
has partnership agreements with Singapore Telecom and Deutsche Telecom. AGGS itself has
correspondent agreements with France Telecom and TeleDanmark and provides termination to
more than 200 countries. In March, the company reported that traffic on its network has
tripled since January.

Its contract with SynergetEx is its first publicly announced wholesale agreement. A
spokesperson for the company says the AGGS startup has been welcomed by the reseller
community despite its parent company’s adversarial stance with resale carriers in the
local service arena.

"We’re positioned as a good alternative to the Big Four," says Dave Onak,
director of media relations for Ameritech. "Some companies have expressed interest in
us primarily for that reason."

AGGS provides the link between Ameritech’s domestic and international strategies by
allowing Ameritech to provide an end-to-end solution once it is freed to provide in-region
long distance services domestically, Onak says.

Already, AGGS provides international termination for Ameritech Cellular Services.

Because AGGS is unique among the Bells, it could survive the planned SBC Communications
Inc.-Ameritech merger. AGGS’s regional strength, a la Ameritech partnerships, in Europe is
complemented by SBC’s interests and joint ventures in other parts of the world, such as
Chile, China, Israel, Mexico, South Africa, South Korea and Taiwan.

Other carriers signing agreements with SynergetEx are members of the alliance itself.
They will both sell to and buy from the gateway carrier as appropriate to assemble
cost-effective termination globally.

"It is a way for us to benefit from each other’s strengths," says Karen M.
Quinn, vice president of operations and corporate communications for PICK Communications.

Established in 1992, PICK is a facilities-based telecommunications carrier providing
wholesale international long distance services via gateway switches located in Jersey
City, N.J., and Miami. Through its April 23 contract with Teleglobe International for
earth station access and uplink to an Intelsat satellite, PICK will provide termination to
destinations in the Middle East, Africa and Asia. The company also will provide
termination to destinations in Latin America.

Trilogy Telemanagement, an enhanced services software provider and service
bureau-turned-carrier, will offer SynergetEx global termination primarily to destinations
in Latin America and Asia from facilities in Omaha, New York and San Francisco. A relative
unknown in wholesale carrier circles, four-year-old Trilogy has been behind the scenes
providing software programming, network management and termination services to many
international callback service providers.

The Telecom Buying Alliance was formed in spring 1997 in response to smaller carriers’
desire to remain competitive in a market that it claims disadvantages low-volume buyers
with wholesale rates that are not decreasing at the same pace as retail rates. To secure
better rate structures enjoyed by the larger carriers, the alliance hoped to artificially
create high volumes of international traffic by aggregating minutes of several carriers
under one contract. The group issued its request for proposal (RFP) in mid-June 1997.
Absent bids from the first-tier international players, Washington-based FaciliCom
International won the Telecom Buying Alliance contract–then 70 million minutes valued at
$6 million to $10 million per month–from a field of second-tier and international gateway
long distance providers in September 1997. Less than three months later, the growing
alliance announced it would pursue a multicarrier strategy to accommodate its diverse
traffic and began entertaining proposals from various emerging international carriers.
When contract negotiations stalled, the TBA facilitators decided to take a different tack
by owning its own switch.


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