FCC Moves to Cut Phone Call Price Gouging


Moving to prevent price gouging of consumers who place long-distance calls from hotel rooms or pay phones, federal regulators on Thursday voted to require that callers be told upfront how much they will be charged.

Over the last 24 months, the Federal Communications Commission has received more than 5,000 complaints concerning undisclosed fees and charges as high as $9.58 for a two-minute call. The new rules affect operator-assisted long-distance calls, including credit card calls, in which the party dials “0” then the area code and phone number.

The excessive charges are often incurred by callers who are unaware they can access the long-distance company of their choice by dialing a five-digit access code or a special toll-free “800” number.


In California, the new rules could have an especially strong impact because the state is a key travel and international business hub and because it is home to a large immigrant population, consumer advocates said.

“Up until now, people have been at a huge disadvantage when they try to make calls from hotels or pay phones,” said Regina Costa, telecommunication research director at the Utility Reform Network, a consumer advocacy group based in San Francisco. “This has been a huge problem in California with immigrants” and others unfamiliar with telephone dialing rules, she said.

Indeed, even FCC Chairman William E. Kennard said he has been a victim of price gouging.

“This can happen to anybody,” he said. “That’s why we need to get the information to consumers so that they can make informed choices.”

When the new system is launched July 1, callers who make operator-assisted calls from hotel rooms or pay phones are likely to hear an announcement providing pricing information for placing that call. However, it would not necessarily inform callers that they have the option of using a competing long-distance carrier, which might offer lower rates.

“When you pick up the phone to dial long-distance, your call will get put on hold for about 15 to 20 seconds while a second call is made to access a database to generate a rate quote,” said Vincent Sanduski, president of America Public Communications Council Inc., a Fairfax, Va.-based group that represents pay-phone operators. “Then you’ll probably get a message saying something like, ‘If you like the rate quote, press 1; if not, press 2 and enter your billing information.’ ”

Some long-distance providers such as MCI Communications Inc. already provide pricing information. But in some cases, callers were unaware of which long-distance phone company they were dealing with and mistakenly believed the rate would be comparable in price to calls made from a home phone. It was not until they later received the bill that they realized the charges were much higher than expected.


AT&T; criticized the FCC decision, saying it was unfair and financially burdensome.

“We’re concerned that the FCC today, instead of targeting the companies that charge rip-off rates, is applying a regulatory solution that will unnecessarily raise costs to the entire long-distance industry,” said Rick Bailey, AT&T; vice president for federal government affairs.

Implementation of the new FCC rules could cost long-distance carriers hundreds of thousands of dollars to update their telephone databases. Operator-assisted long-distance calls from hotel rooms and pay phones amount to an estimated $1.5 billion in annual revenue, according to the Yankee Group. But the spread of cellular phones and prepaid calling cards has cut into this market.

“This is going to kill their business,” Yankee Group telecommunications analyst Amanda McCarthy said of the rules.

Although all five FCC members approved the plan, commissioners Michael Powell and Gloria Tristani voiced concern that the rules still would not give consumers enough information to make informed decisions in situations in which one company operates all pay phones in a single facility, such as an airport.