Long-Distance Phone Customers Being ‘Slammed’

John Warnock was simply trying to reach a long-distance information operator from his San Diego home one night last February when he dialed up a rude surprise.

Instead of hearing that familiar little AT&T; chime, he was greeted by a woman with a Texas twang who allowed as how he was no longer being served by AT&T;, but a company he had never heard of: Total World Telecom.

The woman in Denton, Texas, who took his call was an operator for this little-known company--in fact, the only information operator on duty that night for the entire country.

Warnock, who had never consented to the change from AT&T; to TWT, had been “slammed,” as they say in the telephone business.

He has lots of company. His fellow victims have included a Westminster church, a retired congressman, a state senator’s legislative assistant, employees of the Public Utilities Commission--which licenses long-distance carriers in California--and an office of Caltrans, the state Department of Transportation.

In the past two years, more than a million Americans have had their long-distance service switched without their authorization. And it often escapes their attention for months, since a long-distance provider’s name isn’t always prominently displayed on telephone bills.

In California, where the problem is becoming particularly acute, utility regulators estimate that this year alone more than 400,000 phone customers will become unwitting victims of this illegal, but rarely punished, practice.

“Slamming is the No. 1 problem in the industry today, and it’s going to get worse,” said John Muleta, chief of enforcement for the Federal Communications Commission.

It’s the dark side of the intensified competition for America’s $70-billion long-distance market, first cracked open by a 1982 federal court ruling that broke up AT&T; and its Bell subsidiaries. Increased competition has driven down long-distance charges for many customers, but it also has touched off a modern-day gold rush, with more than 860 companies at last count scrambling for a piece of the action.

With $25,000 and a skimpy business plan, virtually anyone can obtain approval to sell long-distance service. In California, it’s actually tougher to become a cosmetologist than a long-distance provider.

“We’ve made it ridiculously easy to get a license,” said Larry McNeely, chief investigator for California’s PUC. “The joke around here is that all you need to do is send in two cereal box tops and 50 cents.”

No equipment is needed, just customers.

Virtually every aspect of the phone business, from cables and switches to operators and directory assistance, can be contracted for or leased.

The Big Three of telecommunications--AT&T;, MCI and Sprint--as well as a growing group of lesser-known companies, eagerly sell their wannabe competitors enormous blocks of long-distance time at wholesale rates, often for less than 7 cents a minute.

This brokered time is then resold by the small providers, frequently for 10 to 20 times as much--or more--producing got-rich-quick stories for former schoolteachers, bail bondsmen, spa salesmen and even a convicted cocaine dealer.

Van Heffner, a broker of telephone services for small businesses and publisher of the Internet-based Discount Long Distance Digest, estimates that every dollar of revenue can generate “anywhere from 25 to 40 cents in pure profit” for even the smallest long-distance provider.

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To make it easy for telephone customers to quickly take advantage of the most competitive long-distance rates, industry regulators required that the process of switching from one long-distance provider to another be as simple and expeditious as possible.

For that reason, local phone companies ask no questions when they receive instructions to switch a telephone account to a new long-distance carrier. They simply accept the order, charge the consumer $5.26, and note the change in their computers.

For start-up companies, the best part is that change orders can be delivered electronically--by the thousands.

With clever marketing and virtually no major investment of capital, newcomers have suddenly found themselves awash in customers--and cash.

How much? Industry officials say a modest operation with only 100,000 customers can take in $36 million a year and net at least $3.6 million a year in profit.

Fast money and scant regulation, the PUC’s McNeely said, have also made the long-distance business a magnet for slammers, who employ many of the same techniques honed over the years by pitchmen for precious-metals schemes, pyramid scams or telemarketing frauds.

Through forgery, deception and misrepresentation, some slammers have built vast networks of customers nationwide.

Few have enjoyed more success in recent years than Roger B. Abbott, who has more slamming complaints against him than any other long-distance provider in California, perhaps the entire country.

Over the past five years, Abbott has made his San Diego-based WorldxChange into an international long-distance company that will gross some $200 million this year and pay him and his wife a combined income of $2.9 million--enough to support a lifestyle that includes a 10,000-square-foot mansion with a pool and tennis court in exclusive Rancho Santa Fe.

Before venturing into the phone business, Abbott ran Walker & Wellington, a precious-metals investment operation in Costa Mesa that he started after serving three years in state prison in San Luis Obispo for his 1982 conviction in Orange County for cocaine trafficking, according to court records.

A charismatic businessman, Abbott, 38, once zipped around Orange County in a red Porsche with personal license plates that read “CRACK,” court records show.

State regulators, in a case pending before the PUC, have accused Abbott’s company of slamming tens of thousands of California customers, many of them Latino and Vietnamese immigrants.

Abbott, who declined to be interviewed, apparently got his start in the business by selling operator-assisted long-distance service to hotels. Guests who used the service frequently found they were charged the highest rates allowed--up to $4.90 for a three-minute call, plus $4 for the operator.

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Denise Mendonca, who works for a computer software company, called her San Luis Obispo home from a San Diego hotel during a recent business trip, for example, and was charged $61.87 for a 33-minute call. She complained to the PUC about the call’s cost when she learned that her provider, AT&T;, would have charged only $4.94. “It was just outrageous,” Mendonca said. “That call cost as much as the room.”

But the occasional complaint like Mendonca’s are dwarfed by the volume of slamming complaints against WorldxChange. From January 1995 through February 1996, the PUC logged more than 30,000 slamming complaints against the company. An additional 10,000 complaints have been received since.

PUC investigator Stormy Maddux said the company quite obviously targeted Vietnamese, Chinese and Latino telephone customers--many of them immigrants who are loath to complain to authorities. “These people didn’t understand what was happening,” Maddux said. “They just knew something was terribly wrong.”

Nghia Tran, an Orange County activist who represents Vietnamese consumers in a complaint against the company, said WorldxChange’s telemarketers practically browbeat customers into taking its service.

Promised savings of 30% were never achieved, and some long-distance rates were nearly double those charged by the Big Three, Tran said. One customer was even charged for calling WorldxChange on the company’s 800 number.

The nightmare continued for many when they tried to switch back to their previous service. The company slammed them again, in some cases several times. That’s because WorldxChange had enrolled many into a program it called “Stay With Us.” When another provider would instruct the local phone company to return a WorldxChange customer to AT&T;, for example, an electronic order would automatically be issued to snap them right back to WorldxChange.

“It made the whole perception of slamming even worse,” Maddux said, adding that customers spent months trying to get away. An action to suspend the company’s operating authority is pending before the PUC.

At a PUC hearing in June, Abbott said the extraordinary volume of complaints “makes us feel bad.” But, he continued, “It’s very difficult to serve consumers . . . and to make them happy.”

Critics of the slamming epidemic say federal regulations actually encourage slamming, because consumers are obligated to pay a company that slams them, albeit at rates they would have paid their old carrier. Otherwise, the FCC argues, some consumers might simply hop from one company to another, claiming they were slamming victims and trying to escape their long-distance charges.

The only other financial disincentive the slammers face is a $10 to $20 charge assessed by local phone companies to switch a slammed customer back.

“The sad thing is, it actually pays to slam people,” said Heffner of Long Distance Digest. “The FCC has given the green light.”

The FCC’s Muleta disagrees: “Slamming is not something we approve of, and we have clamped down progressively as we have identified certain forms of slamming.”

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One of the biggest slamming cases prosecuted thus far by the FCC first came to the attention of regulators nearly two years ago, when John S. Buffa, a former operator of a 900-number service in Roswell, Ga., sent $10 checks to phone customers nationwide as an inducement to switch their long distance business to Buffa’s Sonic Communications.

Thousands of consumers quickly cashed the checks without reading “the very faint, very tiny, 4.6-point type” beneath the line where the checks had to be endorsed. The hard-to-read type was in fact an authorization to switch long-distance service.

The first federal judge assigned to a case filed in U. S. District Court in Los Angeles by Deputy Atty. Gen. Margaret Reiter was shown one of the checks submitted as evidence, and complained: “I can’t read what it says on the back of this thing.”

Some 100,000 Californians cashed the checks, causing enormous confusion, especially in Latino communities, where some checks were cashed by tenants using telephones belonging to their landlords, Reiter said.

Sonic also charged rates two to three times those of AT&T; and MCI, said PUC investigator Mark Clairmont. The company was barred from doing business in California last year. Some $700,000 is supposed to be refunded this month to customers Sonic slammed, in $5 and $10 credits on their phone bills.

As much as any case, Sonic brought home to regulators that “deregulation had made the telephone industry an area ripe for fraud,” Reiter said. “Within a couple of months you can make an awful lot of money. You can slam as fast as you can print checks and send them out.”

The sudden onslaught on slamming complaints in the early 1990s caught California regulators by surprise and unprepared.

Before 1995, when victims called the PUC to complain, their complaints often went nowhere. They simply piled up in the consumer affairs bureau, an understaffed outpost that would send copies of the letters to offending companies and pass replies to consumers if they were received.

But by 1995, slamming complaints had overwhelmed the small bureau. Despite requests for more staff and guidance on how to handle the growing volume, little was done. “The best answer I can give you is: We were never allocated the staff [to investigate the complaints],” said Robert Weissman, who oversees long-distance carriers. When complaints came in, he added, “there really wasn’t any follow up.”

But utility commissioners soon became convinced that full-time investigators were needed to address the problem, so they turned slamming over to the PUC’s Safety & Enforcement branch.

“The whole slamming thing hit the commission at a time when we simply weren’t prepared to deal with it,” said Wesley Franklin, the agency’s executive director. “It was a new thing and we didn’t have the mechanism set up.”

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Today, local phone companies report monthly how many customers have complained to them, and investigators regularly review the complaints. Several investigations are in progress; other cases are pending before the commission.

One of the largest pending cases is against the company that slammed John Warnock, the San Diego man who discovered he had been slammed when he tried to reach a long-distance information operator. As it turned out, Warnock was slammed by one of the industry’s favorite methods. Regulators call it highly deceptive but spectacularly effective.

In February, Warnock’s teenage son dropped by the Boll Weevil Restaurant for a hamburger with friends. Next to the cash register was a brightly colored box announcing the chance to win a free Camaro. His son filled out what appeared to be a raffle coupon about the size of an index card, Warnock said, never noticing the tiny print with the letters LOA, for “letter of authorization.”

“It’s real slick. Nowhere on the form does it say what LOA stands for,” Warnock said.

After he figured out what had happened, Warnock said he went to the restaurant. “There must have been 40 coupons in there,” he said. “It’s all a scam. If you roll enough people, it doesn’t matter if you take $10 or $100. They’re just stealing business.”

Federal regulators fined the Texas slammer $200,000 last month. A settlement is pending in the California PUC action calling for the company to suspend service to residential customers for 40 months, and refund $20 to each of some 32,000 slamming victims. “You can’t fake people out,” said the FCC’s Muleta, “telling them they’re going to win a car and then switching their phone service.”

Yet dozens of companies have done exactly that, said W. Donald Booth, president of the Texas company, who insists he never set out to roll anybody.

Like other companies looking to get big fast, Booth said he signed on with a marketing agent he met at an industry trade show. The plan was to have the agent develop a large base of customers whose calls would be carried over Booth’s long-distance network.

Booth said he even advanced $400,000 to the Los Angeles marketing company, Su Telefonica, which was founded by a businessman from Mexico City. In order to sign up customers in California, where his company had not yet obtained an operating certificate, Booth’s company essentially rented the license of a company in Denton, Texas, for $250 a month.

But according to testimony before the PUC, Su Telefonica’s marketers misrepresented themselves when they canvassed for customers. Christian Saavedra, for example, was in his Los Angeles home one day last summer when a man wearing an AT&T; identification badge came to his door and offered to sign Saavedra up for a new savings plan. Instead, Saavedra was unwittingly switched to Total World Telecom.

“We’re not excusing what they’ve done,” Booth said, but marketing agents going to extremes is a by-product of competition.

Now, Booth is trying to get his company as far away from retail customers as he can. His company is rapidly expanding as a wholesaler of time to other long-distance companies.

Like others, Booth said he was drawn into the business by deregulation.

“I was just trying to operate a little back-room phone company” he said.