Industry Bristles on FCC ‘Cramming' Rules; Consumer Groups Urge Further Protections

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By Paul Barbagallo  

The telecommunications industry urged the Federal Communications Commission to take a light-touch approach to dealing with unwanted or “mystery” fees on consumers' monthly phone bills—an illegal practice commonly known as “cramming”—while consumer groups pressed for even greater protections, particularly for mobile phone users.

Both sides have filed detailed responses to a notice of proposed rulemaking issued in July by the FCC, in which the agency presented solutions to a problem that has emerged as one of the most vexing to consumers and lawmakers.

The Senate Commerce Committee, which is closely monitoring the issue, estimates that third-party charges on monthly telephone bills total as much as $2 billion a year, a large percentage of which are never authorized by customers.

FTC Hangs Up on Third-Party Billing.

The Federal Trade Commission supports the FCC in its rulemaking effort, but urged the agency to impose an outright ban on third-party billing, or at least require phone companies to block some or all such charges. The FTC explained that if consumers wanted to continue receiving third-party charges for goods and services, they could simply allow their phone company to lift the block.

The FTC told the FCC in comments Oct. 25 that it has been able to identify only “very few” legitimate uses of third-party telephone billing, and noted that during a recent forum on the topic, not one third-party vendor presented data supporting the legitimacy of their charges or the necessity for having third-party charges placed on a phone bill at all.

“The silence of merchants who use third-party telephone billing calls into question the extent of legitimate third-party billing,” the FTC wrote in its comments to the FCC.

Carriers Push Self-Regulation.

But telecom carriers, both wireline and wireless, are pushing for a kind of industry self-regulation similar to what was agreed upon for “bill shock.”

The Independent Telephone and Telecommunications Alliance, which represents CenturyLink, FairPoint Communications, Comporium Communications, Consolidated Communications, and TDS Telecom, said industry, consumer advocates, and regulators should voluntarily work together to build on existing industry practices.

“To the extent that the commission believes the adoption of additional safeguards are necessary, however, it should ensure that such requirements will actually be effective and beneficial to consumers and that such regulations give voice providers the ability to respond flexibly based on market demands,” the association wrote in comments Oct. 25.

Many of these companies have been quick to point to policies already place to notify customers about, among other things, third-party billing.

Self-Governance, Not Regulations.

Frontier Communications, for instance, details charges on the front page of consumers' bills in a separate section titled “OTHER SERVICE CHARGES AND CREDITS” as well as in the body of the bill in another section called “DETAIL OF OTHER SERVICES CHARGES AND CREDITS.” Contact information for third-party vendors is included in billing statements as well, the company maintains.

As for blocking, Frontier also provides the option to block third-party charges at no cost to the consumer.

Thus, the company already “exceeds” the commission's proposed regulations, it noted.

The agency's NPRM proposes, specifically, to require traditional landline telephone companies to notify consumers at the point of sale, in monthly billing statements, and on corporate web sites about any blocking services available to prevent third parties from imposing charges on top of those incurred for monthly telecommunications services. Companies would also have to separate any third-party charges from charges for traditional phone services.

The FCC's Truth in Billing rules already require telecom companies to separate local charges from long-distance charges on monthly billing statements; the same requirements would apply for non-“common carrier” services, under the proposed rules.

For wireline and wireless telecommunications services providers, however, the FCC is also proposing a new requirement to include on bills and web sites a notice informing consumers about the option to file complaints with the agency about alleged incidents cramming.

At the same time, the NPRM also poses a number of questions, such as whether phone companies should be required to offer customers the option to block third-party charges from their bills altogether and, if they do not offer such blocking services, whether those companies should notify customers about their options to prevent such charges (134 TCM, 7/13/11).

Flexibility Urged in Tailoring Messages.

But in comments filed with the agency, Frontier said that while it supports making available and disclosing third-party blocking features, the commission should provide companies with the flexibility to “craft solutions and appropriate messaging to the meet the needs of…customers.”

“Companies are best positioned to know their customers, including the most effective ways to advise ways to advise them of important consumer protections,” Frontier wrote. “Web-based or point-of-sale disclosures may be the most effective for some. However, the large quantity of information available to consumers in both instances may cause a third-party blocking notice to be ‘lost.' Moreover, a web post or point-of-sale disclosure may not be as impactful as a monthly bill reminder sent to all consumers.”

To Frontier, “overly prescriptive” rules would deprive companies of exercising judgment based on a unique understanding of their customer base.

Along those lines, Sprint Nextel Corp. voiced concern about a proposed new requirement to include FCC contact information on bills.

“Sprint has the greatest incentive to ensure that its customers' questions or concerns are resolved expeditiously,” the company wrote. “The diversion of such inquiries and complaints to the commission adds another layer to the process, which will slow resolution of the customer's concern.”

Typically, several days, if not weeks, lapse between the time a customer files a complaint and the time the FCC forwards it to Sprint for resolution. Sprint then has 30 days to investigate and respond to the complaint.

“Compare this process to a customer who may dial *2 to reach a Sprint customer care representative who can investigate and refund or credit charges in a matter of minutes,” Sprint added.

Wireless, Wireline Distinctions Drawn.

Overall, Sprint cautioned against additional regulation on wireless carriers, given a lack of complaints from wireless consumers about cramming.

T-Mobile USA Inc. agreed, noting that while many landline telephone users may be unaware that third parties can place charges on their bills, wireless consumers pay myriad third-party-provided services, such as online games, ring tones, and applications, and prefer the charges to appear on their monthly bill. T-Mobile indicated that it receives only slightly more than three complaints per year about wireless cramming.

Verizon Wireless explained that third-party-provided services are typically purchased directly from the customer's handset by the customer. Verizon said the wireless industry continues to work to protect consumers from all unauthorized charges and that “premature regulation” will only inhibit the development of new services.

Consumer Groups See More Harm in Mobile.

Consumers advocates disagree. In comments filed Oct. 25, Consumers Union, the Center for Media Justice, Consumer Federation of America, the National Consumer Law Center, and Public Knowledge argued that while mobile commerce has become more accepted, the rights are “unclear.”

Problematic for regulators are services that allow consumers to make purchases online simply by entering their mobile phone number.

A start-up called Boku offers such a service. The way it works is that the company sends a text message to the buyer asking for transaction authorization with a texted response. The charge then appears on the buyer's next mobile phone bill. Boku takes a percentage and the wireless carriers, with whom consumers have an established relationship, take a percentage. Two other companies, Zong and PaymentOne, offer similar services.

Baseline Protections Said Lacking.

But the only protections consumers have come from their service contract with their wireless carrier.

Consumers Union reviewed the contracts of 18 wireless carriers to determine what kind of baseline protections they contained and found that none provided protections for mobile payment transactions that are as strong as those guaranteed by law when consumers use a credit or debit card.

Some critics have suggested that the wireless carriers and micropayment services providers, by circumventing the payment networks of Visa and MasterCard, are in effect extending credit and should be subject to the Truth in Lending Act and The Truth in Lending Act and Regulation Z, also promulgated by the Fed.

“It is apparent that despite prior efforts to prevent cramming, [it] continues to remain a prevalent problem on landlines and has great potential to become a significant problem for users of mobile devices,” the groups wrote. “To get ahead of the problem and to protect consumers from fraudulent practices, the commission should ensure that providers first receive consumer consent to receive third-party charges on their landline, [voice-over-internet protocol], or wireless bills.”

Initial comments on the FCC's NPRM were due Oct. 25 in dockets 11-116, 09-158, and 98-170. They can be found at