Phone Bill May Soon Step In for Credit Card

Under a pay-by-phone-bill system cleared for use this month, California telephone statements may soon look more like credit card bills, packed full of charges for everything from soft drinks to movie tickets and takeout pizza.

The new billing option, believed to be a first in the nation, was triggered by the elimination of a state prohibition against non-telecommunications items appearing on phone bills.

No California phone companies have begun using the expanded billing option, but wireless carriers and their brethren are expected to do so in the future.

A division of Motorola, for example, has been testing a service that allows customers to order a pizza by using their cell phone. And Nokia has a project in Raleigh, N.C., that uses a unique identifier embedded in a wireless phone, giving it the ability to make a payment much the way toll-road drivers pay the required fee when their transponder-equipped car passes under a designated reader.

The idea has alarmed the California attorney general’s office and consumer advocates, who are leery of adding new phone bill troubles when regulators are still struggling to rein in the twin phone frauds known as slamming and cramming.

Slamming, the practice of illegally switching a customer’s long-distance provider, and cramming, which is the addition of unauthorized charges to a consumer’s phone bill, have become commonplace scams in telecommunications despite escalating fines and stepped-up enforcement.

“There has been a long history of seeing all kinds of strange things turn up on people’s phone bills. . . . So I was pretty shocked when I heard that this was going to be possible,” said Gail Hillebrand, senior attorney in the West Coast office of Consumers Union.

Atty. Gen. Bill Lockyer and others worry that as phone bills become a dumping ground for purchases, they also will become a major new avenue for fraud, identity theft, credit problems and billing errors.

The state Public Utilities Commission, which regulates phone companies, took its first steps Thursday to allay those fears by adopting several measures that mimic those contained in the federal Truth-in-Lending Act and other measures that apply to credit card companies.

The PUC’s new rules presume that customers do not want to open their bills to extraneous charges. They require phone companies to get approval from each customer before activating the ability to bill for non-communications items.

In addition, the PUC ruled that phone companies cannot discontinue basic local phone service for nonpayment of unrelated charges. Consumer groups point out, however, that the protection does not apply to long-distance service or to add-on phone items such as caller ID, Internet access or other services on phone bills.

The state regulations also require participating phone companies to:

* Allow customers to set a per-item dollar limit for charges as well as a monthly limit.

* Obtain customer approval for each transaction, as well as proof of authorization through the use of a personal identification number or a similarly secure method.

* Clearly disclose all terms and conditions related to the billing service, including fees and charges, late-payment penalties and interest.

* Clearly describe how customers can dispute a charge, how they can revoke authorization for the extra billing and how private customer information is being protected.

* Provide a 24-hour, toll-free customer service system so customers can immediately notify the company of any loss, theft or unauthorized charge.

The pay-by-phone-bill system is already entrenched in Europe and Japan. AT&T; Wireless Services, the nation’s third-largest carrier, is considering copying the Japanese system, which allows customers to download phone ring tones and horoscopes and to buy various items with their phones.

“We’re trying to emulate as much as possible the business practices that are working in Japan,” said John Mendez, an AT&T; Wireless spokesman. “Those practices are very successful because they simplify the money collection process for everyone.”

But consumer advocates are not convinced the new system makes sense for consumers.

“That all sounds lovely and convenient,” Hillebrand said. But, she added, “It ends up being one more thing that can go wrong . . . and there’s still the question, why not just use your credit card?”