Wireless Industry Bristles at Rules On ‘Cramming,' as FTC Urges Hard Line

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By Paul Barbagallo  

The wireless industry came out strongly against proposals for new rules that seek to prevent cellphone “cramming,” while the Federal Trade Commission and consumer advocates told the Federal Communications Commission that regulations are necessary to combat the onslaught of unsolicited service fees tacked onto wireless phone bills.

In the latest round of comments filed with the FCC about the issue, wireless companies large and small called for a kind of industry self-regulation similar to what was agreed upon for wireless “bill shock.”

They noted that even though cramming has been a popular landline scheme, wireless should be seen differently, as many consumers legitimately pay for and use third party-provided services, such as online games and ring tones, and prefer that the charges for such services appear on their monthly bills. What is more, third party-provided services typically are purchased directly from the consumer's handset by the consumer, they say.

“Making it more difficult for a customer to purchase and consume third-party content not only risks cutting off customers from innovative products and from the convenience of their portable devices, it also potentially subjects a burgeoning industry of entrepreneurs and job creators to financial distress,” AT&T Inc. said in comments July 20.

Phone companies like AT&T have been under increasing pressure recently from the FCC, the Federal Trade Commission, and Congress to do more to stop crammers, as the number of complaints from consumers of both landline telephone services and mobile services has grown in recent years. According to FCC figures, illegal cramming affects between 15 million and 20 million American households each year, while third-party billing has grown into a $2 billion-a-year industry.

FCC Rules Limited to Landline.

In April, the FCC approved new rules aimed at thwarting cramming, but only for landline phone bills. That decision left many, including the FTC and consumer advocates, unsatisfied.

One proposal that has been floated by the FTC would require wireless companies to offer their customers the ability to “block” all third-party charges. Another would make their customers opt in, instead of forcing them to opt out, of purchasing third-party-provided services. Either way, advocates argue, consumers would not find themselves suddenly enrolled without their consent in a text-message service that delivers celebrity gossip.

But to Verizon, such rules would be extraneous.

The company explained in comments that it already requires a “double opt-in” process.

The way it works, in most instances, is that the customer seeking third-party content enters his or her phone number on the provider's mobile web page, then the provider sends that customer a password, to the phone, which the customer must then enter on the provider's purchase page.

“Despite already completing this double opt-in or equivalent process with the third-party provider, customers would often have to take a third step--i.e., contacting their provider to lift a default block or reverse a negative response to a hypothetical question about third-party billing made when signing up for service--to complete a purchase,” Verizon Wireless wrote in July 20 comments. “This additional step would be inconvenient for customers and could deter them from participating in the mobile marketplace.”

T-Mobile USA Inc. added that most carriers require third-party content providers to abide by both Mobile Marketing Association and company-specific guidelines. Many companies also participate in a program developed by CTIA--The Wireless Association to monitor for fraudulent activity.

“These industry-wide and carrier-specific efforts have successfully prevented significant cramming problems in the [wireless] industry,” T-Mobile wrote in July 20 comments. “Because these efforts are continually under review and are modified to address new issues and trends … they better address the issues and consumer needs and are preferable to inflexible commission rules.”

The Rural Cellular Association, a trade group representing rural and regional wireless companies, noted that the problem of cramming is not as pervasive in the wireless industry as it is in the landline phone industry.

According to the FCC, only 16 percent of the cramming complaints it received from 2008-2010 relate to wireless services. During that same period, only 3.5 percent of all FTC “unauthorized charge” complaints concerned wireless cramming.

To RCA and the industry as a whole, current efforts to stop cramming have been effective.

FTC: Wireless Is Different; Same Concerns Linger.

The FTC does not necessarily agree.

The agency, in lengthy comments filed with the FCC, suggested that despite the differences between the wireline and wireless phone businesses, cramming could become as much a problem for cellphone users as landline phone users.

“Charges are simply placed without any authorization,” the FTC wrote in July 20 comments. “In the landline context, crammers have shown that they are able to fabricate records and thus circumvent requirements that they provide that consumers have 'authorized particular third-party charges.' ”

To illustrate, the commission cited two court cases--FTC v. Nationwide Connections, in which a convict, from his jail cell, charged consumers for collect calls they never authorized; and FTC v. Inc21.com, in which a company falsified verification records for telemarketing calls that purported to show consumers' consent for charges.

The FTC noted that it is still unclear whether a double opt-in requirement is being “consistently followed” or even effective at all.

Besides, not all double opt-in procedures require that a consumer “affirmatively respond” to a confirmation text message, the FTC said. A user could simply click through on a website accessed on a mobile device without viewing the full terms and conditions explaining that he is in fact authorizing a charge to a mobile phone bill.

“At a minimum, all wireless providers should offer their customers the ability to block all third-party charges,” the FTC wrote. “Wireless providers should clearly and prominently inform their customers that third-party charges may be placed on the consumers' accounts and explain how to block such charges at the time accounts are established and when they are renewed. And wireless providers should provide a clear and consistent process for customers to dispute suspicious charges placed on their accounts and obtain reimbursement.”

The FTC said such measures should be “mandated by law or regulation” to ensure that consumers have at least “baseline protections.”

Also advocating FCC regulations were the Center for Media Justice, Consumer Action, Consumer Federation of America, Consumers Union, and National Consumer Law Center.

In a joint filing, the groups took issue with a “voluntary industry effort” approach to dealing with the problem of cramming.

“Just as in 1998, CTIA states now that the 'commission should continue to support voluntary industry practices directed toward any cramming concerns--including cramming by third parties. Also just as the industry asked in 1998 for time to implement current rules and practices, today AT&T urges the commission to 'give its new rules time to go into effect,' ” the groups wrote. “Nonetheless, despite the commission's review of this issue for nearly 14 years, cramming persists.”

For comments filed with the FCC, visit http://apps.fcc.gov/ecfs/proceeding/view?name=11-116.

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