WorldCom to Pay Record Sum for ‘Slamming’

WorldCom agreed Tuesday to pay the federal government a record $3.5 million to settle complaints that the company switched customers’ long-distance carriers without their permission, an illegal practice known as “slamming.”

The Mississippi-based phone company agreed to the payment as part of a consent decree it signed with the Federal Communications Commission, which had been investigating mounting complaints about WorldCom’s long-distance marketing practices.

Last year the FCC received 2,900 slamming complaints from consumers about WorldCom, the most of any long-distance carrier, agency officials said.

Consumer advocates complained that the large payout is a pittance for the nation’s second-largest long-distance company. The amount is equal to one-fourth of one day’s profit for the company, whose sales topped $37 billion last year. Still, they applauded the action because it includes new anti-slamming measures and signifies a new willingness by the FCC to pursue complaints against brand-name carriers.

“This is a drop in the proverbial bucket,” said Charles Langley of the Utility Consumers’ Action Network, a San Diego-based consumer group. “But hopefully, this will result in an improved environment for customers of WorldCom.”

The new sales rules at WorldCom include financial penalties and disciplinary action for any employee or outside sales contractor caught slamming. The company, which instituted the changes at the end of 1999 and created a 200-member team to focus on customer-service issues, also has pledged to issue credits to customers who complain that their phone service was changed without their consent.

A consumer’s long-distance carrier can be changed only through the local phone company, which keeps a record of each customer’s chosen provider and includes the long-distance charges on monthly phone bills. In most cases, long-distance companies submit a change order on behalf of customers after they sign up for service.

However, unscrupulous phone companies can “steal” another carrier’s customers by submitting the change order without the consumer’s permission or knowledge. Sometimes carriers construct falsified authorizations that include forged signatures. Consumers also are tricked into approving the change by signing a sweepstakes entry that contains fine print explaining that their long-distance service will be switched.

“WorldCom condemns unauthorized carrier switches, and we cooperated fully with the FCC’s review,” said Bernard J. Ebbers, president and chief executive of the company, which recently changed its name from MCI WorldCom. “The incidents highlighted by the FCC were perpetrated by a few sales employees, who have since been terminated. Our zero-tolerance policy for slamming is very real, and we will take whatever steps necessary to prevent slamming from occurring.”

Ebbers and WorldCom had a powerful incentive to appease regulators on the slamming issue: The company still needs FCC approval for its pending $120-billion merger with Sprint.

Consumer groups and rival phone companies have tried to scuttle the WorldCom-Sprint deal, arguing that regulators should block it because the combined companies’ dominance in long-distance and in the market for carrying Internet traffic would be anti-competitive.

Industry analysts recently have speculated that the FCC would approve the deal, but only if the firms sold off the UUNet Internet backbone unit--a condition WorldCom has said would be unacceptable.

Asked about that possibility at a phone industry trade show in Atlanta on Tuesday, FCC Chairman William Kennard said: “Obviously, you’ve put your finger on an important issue in the context of that transaction. . . . We’ll make a decision as quickly as we can.”

In many states, including California, WorldCom has gained a reputation among regulators for having significantly more slamming complaints than its peers. In recent years, several states have fined the company for the practice.

Consumer advocates, meanwhile, have criticized WorldCom’s treatment of consumers, condemnations that grew more strident last year after the firm led a group of carriers in challenging tough new anti-slamming rules proposed by the FCC.

The companies challenged the new rules in federal court, winning a stay that lasted more than a year and stalling regulations that would have required companies to immediately compensate consumers who say they were slammed instead of waiting to verify the complaint.