THE CUTTING EDGE / PERSONAL TECHNOLOGY : Heat Is on FCC Over Slamming : States Call Industry-Backed Enforcement Plan Ineffective

Federal regulators, looking to crack down on the nation’s most pervasive form of phone fraud, are being pressured by the telephone industry to back an enforcement plan that has been widely criticized as too weak and possibly harmful to the nation’s hundreds of thousands of victims of slamming, the unauthorized switching of a caller’s long-distance carrier.

As part of the proposal submitted to the Federal Communications Commission by AT&T;, MCI WorldCom, Sprint and other long-distance carriers, phone companies would handle slamming complaints through voluntary participation in an organization controlled and funded by the industry.

The carriers say the plan would benefit consumers by providing them with a single contact for complaints and a streamlined review process that could quickly issue refunds and restore the correct long-distance service.

But state regulators and others are fighting the proposal, which they say would undercut tougher local penalties, create an expensive new bureaucracy and leave federal enforcement to long-distance carriers--most of which have been in legal scrapes over slamming.

At the same time, MCI WorldCom and the other companies have won a court injunction against anti-slamming rules passed by the FCC last December. They are pushing their enforcement plan as a substitute.

“One might conclude that, for good or ill, the long-distance companies are dragging this out as long as possible,” said J. Bradford Ramsay, assistant general counsel for the National Assn. of Regulatory Utility Commissioners, an organization for state regulators that has filed objections to the plan with the FCC.

Consumers, meanwhile, are caught in the middle.

About 50 million people change long-distance carriers each year, often lured by discount rates or money-saving calling plans.

The majority of the switches take place without dispute, but some changes are made illegally by aggressive companies that trick consumers into switching or steal business from a competitor using fabricated documentation.

It’s unclear how many callers are slammed each year, because not all victims file reports with state or federal regulators. So although a national organization of consumer advocates has estimated that slamming hits up to 1 million callers each year, the official numbers are much lower. California’s Public Utilities Commission received about 100,000 slamming complaints last year; the FCC tallied more than 20,000.

Most slamming victims must make a series of calls--to their local phone company, the offending carrier and their preferred carrier--to rectify the matter. Often the local carrier restores the desired long-distance service, but it’s up to the customer to try to collect restitution from the slammer.

Many states have attacked the problem by imposing heavy fines and revoking operating licenses in the most egregious cases.

A recent report by the federal General Accounting Office showed that in all but a few cases, states have been more aggressive in squeezing penalties and restitution from slammers than have federal regulators.

For example, the lead supporter of the industry proposal, MCI WorldCom, paid about $1.7 million in slamming restitution and penalties in seven states from 1996 to 1998, according to the report. During the same period, the FCC collected $30,000 from MCI.

AT&T; last month agreed to issue refunds and pay $175,000 to settle a slamming case brought by the Arizona attorney general, who accused the company of using forged customer signatures to change service.

Also last month, No. 4 carrier Qwest Communications received a warning from Connecticut’s attorney general that the company could face a lawsuit over an alleged pattern of slamming Latino residents using forged signatures as authorization. A Qwest spokeswoman said the company fired some marketers who “did not meet our standards” and agreed to stop residential sales in the state pending further review.

North Dakota raised the bar still higher when it acted to address the “hassle factor” inherent in slamming by requiring guilty companies to wipe out all charges and pay victims $1,000.

Still, state officials say tough federal enforcement is needed to prevent rogue carriers from moving from state to state.

Under the FCC rules approved in December, consumers would be absolved of all long-distance charges for the first 30 days after the slam occurred. In addition, the regulations would clamp down on companies that falsify customer approvals.

The phone company plan, known as the “Third-Party Administrator” (or TPA) proposal, would grant any long-distance carrier that participates in the group an exemption from having to comply with the FCC’s tougher measures--when and if the court allows the rules to be reinstated.

Although details are still being worked out, the current industry plan calls for phone companies that do not join the TPA to be subject to both that group’s rules and the FCC’s December regulations if they are enacted. “This third-party process would provide the same consumer protection that would apply with the FCC rules, only it does so under a system that would work,” said Peter Lucht, MCI WorldCom’s manager of federal policy communications. “Consumers would get more money, and they’ll get it back more quickly . . . and by all accounts, it has been well-received at the FCC.”

But there are key differences. The FCC rules, for example, place no limit on total compensation for slamming victims, whereas the TPA plan invokes a three-month cap. And the FCC rules include the presumption that a consumer’s slamming complaint is justified, while the TPA system lets a carrier off the hook if it provides documentation that the customer approved the switch--a presumption that ignores the prevalence of doctored tapes and falsified authorization signatures.

The TPA system would be run by an independent contractor, but would be funded by the participants and controlled by a board of directors made up of representatives from phone companies and industry trade groups.

As part of its operations, the TPA would maintain a database on customers who repeatedly lodge slamming complaints and would share that information with member companies to deter fraudulent claims.

Consumer groups say that approach shows why the FCC should not entrust slamming enforcement to the phone companies.

“The consumer abuse is so minuscule that it’s like worrying about an ingrown toenail when you’re having a heart attack,” said Samuel Simon, founder of the Telecommunications Research and Action Center, a consumer group that rates long-distance phone service.

Glenn Reynolds, acting chief of enforcement at the FCC’s common-carrier bureau, said the commission has not decided whether the TPA is an adequate substitute for the agency’s pending regulations. But he stressed that the FCC intends to move quickly to resolve the slamming stalemate.

In private meetings with state regulators, Reynolds and other FCC officials talked favorably about the industry’s plan as a workable solution--a position that sparked an unusually heated reaction from those in attendance, sources say.

“We are very concerned that the industry plan is getting serious consideration at the FCC,” said Pam Nelson, a South Dakota utility commissioner and vice chairwoman of consumer affairs for NARUC, the state regulators’ organization. “I think if no one intervenes, this could quietly be passed.”

Nelson and other TPA critics have a strong ally in Sen. John McCain (R-Ariz.), who chairs the Senate’s powerful commerce, science and transportation committee.

“Not since the fox volunteered to watch the henhouse have we seen such a demonstration of solicitude for the well-being of the vulnerable,” said McCain, who has backed federal anti-slamming measures.

FCC Chairman William Kennard, who has spoken often of “taking the profit out of slamming,” has expressed frustration that the FCC’s latest anti-slamming effort is stalled in court.

In a speech to the National Consumers League in May, Kennard suggested that consumers phone MCI WorldCom to protest the company’s legal maneuvering.

Today Kennard’s position is unclear. Sources say the long-distance companies are lobbying hard for the FCC to endorse their plan, and that a key advisor to Kennard is among the plan’s backers.

Seeking to pacify TPA critics, the long-distance companies have pledged that their proposal would not hinder state prosecutions, and that any consumer who is unhappy with the results of the industry system can still pursue complaints with state regulators.

In fact, the phone companies said the TPA would compile monthly reports that could be subpoenaed by the states for follow-up action.

But TPA critics are not swayed by the carriers’ reassurances.

“We want to make sure the FCC does not adopt the plan, and we aren’t going to go away on this,” said William Schulte, director of the consumer services division of the California PUC.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Fighting Slamming

Aggressive enforcement in California is beginning to slow the tide of slamming. But it continues to be a national program, and some believe a new enforcement plan will make it worse. State slamming complaints, in thousands:

May 1999: 5,239 complaints

Source: California Public Utilities Commission