Complaints Draw Probes of Dial-Around Phone Service

Two federal agencies and officials in California and several other states are investigating the advertising claims of phone companies selling dial-around services, an alternative form of long-distance calling nicknamed “10-10 dialing.”

The Federal Communications Commission and the Federal Trade Commission, spurred on by hundreds of customer complaints, are conducting a joint inquiry into the price claims made by companies in the dial-around market--an estimated $3-billion-a-year business in the United States.

An estimated 11 million households have used these fast-growing services, which allow customers to make long-distance calls using a company other than their assigned carrier by dialing a seven-digit code before each call. Customers “dial around” their regular carrier on a per-call basis, allowing them to tap special rates without changing companies or enrolling in a calling plan.

“Consumers have complained to the FCC about hidden charges and misleading advertising,” FCC Chairman William Kennard said. “Consumers want to make informed choices. They want full information, and if the dial-around market cannot provide this information, we will step in to protect consumers.”

The federal inquiry mirrors an investigation by California’s Public Utilities Commission now underway. The state regulatory agency is reviewing complaints that some TV ads present skewed price comparisons and make little or no mention of monthly fees, per-call surcharges and other costs.

“Some of the dial-around services are great, but some are not, and there seem to be some gimmicks involved,” said Larry McNeely, deputy director of the PUC’s consumer services division. “The harm is very significant.”

McNeely said the California attorney general’s office has expressed interest in the issue. He said he will forward the PUC’s findings--”should we find blameworthy conduct”--to the attorney general’s consumer protection division for possible legal action.

A number of district attorneys in California--as well as officials in other states--are also investigating dial-around service advertising, sources say.

MCI WorldCom and AT&T--two; of the larger players in the dial-around market through subsidiaries--say their advertising is straightforward and accurate.

“Customers are using us month after month, and that is the greatest indicator that our advertising is clear and that we are delivering on the promise of savings that we make to our customers,” said Brad Burns, a spokesman for MCI WorldCom, which operates dial-around company Telecom USA.

In the last 18 months, consumers have been bombarded with advertising for these services. One company offers trips and cash prizes for using its service. Boxer Sugar Ray Leonard touts the “dime-line” as a knockout. Actor Christopher Lloyd praises one company from a taxicab, while baseball’s Roger Clemens pitches a rival service and actor James Garner chats up cheaper rates with a farmer.

If the advertising barrage seems unending, it’s no wonder. Total ad spending for Telecom USA’s 10-10-321 alone topped $119 million last year, a more than fourfold increase from 1997, according to figures from Competitive Media Reporting.

Most of Telecom USA’s ads appeared on television, but the company and its rivals have also been aggressively pitching their services on radio, in print and by direct mail.

“There’s been a lot of money thrown at advertising, and the business is growing at a wild clip,” said Fred Voit, a senior analyst for consumer communications at Yankee Group, a Boston-based research firm.

He said a recent survey found 11% of U.S. households had used a dial-around company at least once in the last year.

The companies promote the services as “10-10” numbers, but the access codes actually consist of an industry prefix (101) followed by a four-digit carrier code. Most of the best-known companies have codes with a zero as the first digit, but others in the business do not.

Consumer groups say dial-around offerings can bring solid savings to long-distance customers. And the more vigorous competition has pressured more companies to drop their monthly fees, they say. But the benefits come with a caveat: Don’t forget to read the fine print.

A recent survey of 11 companies by Consumer Action found many cases in which using the dial-around service would result in higher prices.

Services that offer a flat rate for calls of a certain duration--MCI WorldCom’s 10-10-220’s rate of 99 cents for calls up to 20 minutes long, for example--can lead to higher rates for short calls. If customers use that service and get an answering machine, for example, the cost still would be 99 cents--far more than if the caller had dialed direct.

MCI WorldCom said about 40% of the 10-10-220 calls last only one minute. But spokesman Burns said that even with some higher-priced calls, the monthly total for customers can still be less than with direct-dial calling.

Monthly Fees and Restrictions

Some of the most heavily promoted services come with restrictions that are worth noting, the survey by San Francisco-based Consumer Action found.

AT&T;’s Lucky Dog service, for example, tacks a 10-cent “connection fee” onto every call, and VarTec’s New DimeLine imposes a 30-cent minimum on each call, the survey said.

For long calls, the fees and minimums can be a minor matter, but they can make short calls more expensive than dialing direct or using another service. For example, a one-minute call costs 20 cents using Lucky Dog and 30 cents using the VarTec DimeLine, whereas the best direct-dial long-distance rates are 10 cents a minute or less.

Dial-around services often carry monthly fees, the group said. Offers by Cable & Wireless’ Call Club (10-10-566) and VarTec unit Clear Choice Communications’ 9Talk (10-10-636) each charge a monthly fee of $4.95--whether the customer places one call or 100.

In addition, services offered by Qwest and Telecom USA include rates that can vary widely by time of day and day of the week, according to the survey. So actor Tony Danza’s son may boast in a TV ad that 10-10-321 calls are “half-price for calls over 10 minutes,” but there is no mention of how much calls under 10 minutes cost--that is, 30 cents for the first minute and between 13 cents and 28 cents per minute after that.

Some companies also add on a universal-service fee, a federally mandated charge that goes toward making phone service affordable for the disadvantaged. But customers already pay this fee when they use their standard long-distance carrier.

“What’s out there is abusive in the way they’re advertising these services,” said Samuel Simon, chairman of Telecommunications Research and Action Center, another consumer group that surveys dial-around prices. “I’m afraid that most people largely end up paying more than they should.”

Although there are no state laws specifically governing telecom advertising, the PUC’s McNeely said phone companies are subject to California’s general business laws that prohibit false and misleading advertising. Similarly, the FCC and FTC restrict business practices that are deemed unreasonable, unjust, deceptive or unfair.

In the past, authorities have used the laws to clamp down on “slamming,” the practice of changing a customer’s long-distance company without his or her knowledge or consent.

“We do expect that in a competitive market, there are going to be these kinds of issues,” McNeely said. “But we would like to have a competitive market where consumers can have some reliance on what is advertised.”

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Dialing Around

After years in relative obscurity, the dial-around long-distance business--also known as “10-10” service--has grown into a $3-billion-a-year market in the U.S. A look at the dial-around market, in billions of dollars:

1999 estimate: $2.5 billion to $3 billion

Sources: Atlantic-ACM, Yankee Group