Critics Consider Phone Firms’ Client Data a Monopoly Tool

In today’s digital world, where information is king, enterprises ranging from grocery stores to Internet sites have begun collecting personal data in hopes of improving service to customers.

But two important federal rulings last week giving phone companies more leeway to capitalize on their vast stockpile of customer data have drawn criticism from consumer advocates, who say the decisions will enable well-established phone companies to keep rivals at bay.

In the first decision, the Federal Communications Commission relaxed rules that had restricted telephone companies from using customer data to market phone equipment and services.

Although the rule change is still being finalized, the FCC signaled that it will allow phone companies to use proprietary data to market services or equipment “that is necessary to, or used in, the provision of their telephone service . . . without first obtaining customer permission.”

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A day after the FCC decision, the U.S. Court of Appeals in Denver issued an even more dramatic ruling that “vacated,” or threw out altogether, FCC rules restricting phone companies’ use of customer data.

Executives with US West, who had filed the lawsuit claiming the FCC’s restrictions violated phone companies’ free-speech rights, were jubilant. However, the FCC has appealed the ruling in hopes of overturning it.

If it stands, the Denver decision will effectively allow US West to offer new services and products by targeting specific customers who are most likely to be interested in them, said Mark Roellig, a US West executive vice president and the company’s chief lawyer.

Phone companies collect massive amounts of information on the phone services used by their subscribers as well as customers’ dialing patterns, including the length of a call, time of day it is made and the number being dialed.

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The information is a potential gold mine for carriers seeking to target customers that are most likely to sign up for lucrative add-on services. A subscriber with two phone lines, for example, might be a good candidate for telephone voicemail or distinctive ringing; a customer with caller ID might be receptive to buying a new phone with an integrated caller-ID display.

The phone companies are not seeking to offer this data to third parties who want to sell other services such as airline tickets or magazine subscriptions out of fear that phone rivals could end up with this data.

Still, consumer watchdog groups are not happy that phone companies may soon get permission to more fully exploit their intimate knowledge of customers’ preferences.

That’s because, unlike the millions of grocery stores and Web sites, incumbent phone companies face hardly any competition. Thus, they might enjoy an unfair advantage over rivals seeking to enter the local phone market without the same extensive knowledge of users, consumer advocates say.

Everything about how you use your phone is in the phone company’s databanks, said Gene Kimmelman, executive director of the Washington office of Consumers Union. “So you don’t want the monopoly phone company to have an unfair advantage over other carriers because of their knowledge about your usage patterns. The local phone company may . . . not have the best price or the best service.”

But phone company executives say the local telephone playing field is more level than some consumer advocates suggest. They say that many potential local phone company rivals, particularly long-distance giants such as AT&T; Corp., Sprint Corp. and MCI/Worldcom Inc., have compiled databanks on their customers as vast as those maintained by regional Bell companies such as SBC Communications Inc. and Bell Atlantic Corp.

Long-distance companies, said US West senior attorney Kathy Krause, “have as much, if not more, [data] than we do.”

What’s more, the relaxed rules would also apply to the highly competitive wireless phone industry, where no carrier has sufficient market power to thwart competition.

“This will be a big benefit to wireless carriers [who] . . . will be able to tailor a particular marketing offering based on what that customer’s [telephone] usage is,” said Michael Altschul, general counsel for the Cellular Telecommunication Industry Assn., a Washington trade group.

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When any rule change will take place, however, remains up in the air as a result of the FCC’s intention to appeal the federal court decision.

Several legal experts speculated that the FCC may ultimately have to go back to the drawing boards and craft totally new rules if the Denver court ruling is upheld.

“Most of us believe that all of the FCC’s [customer data] rules are now vacated by the court of appeals, so they [FCC] really do have to go back to square one,” said Altschul.