Federal Court Overturns FCC Rule on Phone Customer Data

A federal appeals court on Wednesday overturned an FCC regulation requiring phone companies to obtain customer permission before using data, for marketing purposes, on how customers use their phone service.

The U.S. 10th Circuit Court of Appeals ruled 2 to 1 that the Federal Communications Commission violated the 1st Amendment when it adopted the regulation last year.

On Monday, the FCC had modified the regulation by reducing restrictions on companies using information to market services and equipment to their own customers, but still barred them from selling the information to other companies.

Monday’s modification of the rule also allowed companies to use customer account information to win back customers who had switched to competitors.

An FCC spokeswoman said the agency could not comment on the court’s decision because it had not yet seen it.

Telephone companies can already use information about customers to market products within the same categories the customer subscribes to. But under the contested regulation, companies have to have customer approval to use information to market products for types of service that the customer is not using.

Denver-based US West Inc. and other telecommunications companies asked the appeals court here to declare the regulation unconstitutional. At the same time, the companies were asking the FCC to reconsider the regulation.

AT&T; Corp., MCI WorldCom Inc., Sprint Corp., SBC Communications Inc., BellSouth Corp. and Frontier Corp. also challenged the FCC rule.

The court said the FCC “insufficiently justified” its decision to adopt the so-called ‘opt-in’ provision, rather than an opt-out provision. In opt-out, a customer must request that information not be disclosed for marketing. The FCC “merely speculate[d] that there are a substantial number of individuals who feel strongly about their privacy, yet would not bother to opt-out,” the majority opinion said.