[Senate Hearing 105-487]
[From the U.S. Government Publishing Office]
S. Hrg. 105-487
THE EXPLODING PROBLEM OF TELEPHONE SLAMMING IN AMERICA
=======================================================================
HEARINGS
before the
PERMANENT
SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
__________
FEBRUARY 18, 1998 (PORTLAND, MAINE)
UNAUTHORIZED LONG DISTANCE SWITCHING ``SLAMMING''
__________
__________
AND APRIL 23, 1998
__________
Printed for the use of the Committee on Governmental Affairs
----------
U.S. GOVERNMENT PRINTING OFFICE
46-904 CC WASHINGTON : 1998
_______________________________________________________________________
For sale by the Superintendent of Documents, Congressional Sales Office
U.S. Government Printing Office, Washington, DC 20402
COMMITTEE ON GOVERNMENTAL AFFAIRS
FRED THOMPSON, Tennessee, Chairman
SUSAN M. COLLINS, Maine JOHN GLENN, Ohio
SAM BROWNBACK, Kansas CARL LEVIN, Michigan
PETE V. DOMENICI, New Mexico JOSEPH I. LIEBERMAN, Connecticut
THAD COCHRAN, Mississippi DANIEL K. AKAKA, Hawaii
DON NICKLES, Oklahoma RICHARD J. DURBIN, Illinois
ARLEN SPECTER, Pennsylvania ROBERT G. TORRICELLI,
BOB SMITH, New Hampshire New Jersey
ROBERT F. BENNETT, Utah MAX CLELAND, Georgia
Hannah S. Sistare, Staff Director and Counsel
Leonard Weiss, Minority Staff Director
Lynn L. Baker, Chief Clerk
------
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
SUSAN M. COLLINS, Maine, Chairman
SAM BROWNBACK, Kansas JOHN GLENN, Ohio
PETE V. DOMENICI, New Mexico CARL LEVIN, Michigan
THAD COCHRAN, Mississippi JOSEPH I. LIEBERMAN, Connecticut
DON NICKLES, Oklahoma DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
BOB SMITH, New Hampshire ROBERT G. TORRICELLI, New Jersey
ROBERT F. BENNETT, Utah MAX CLELAND, Georgia
Timothy J. Shea, Chief Counsel and Staff Director
David McKean, Minority Staff Director
Pamela Marple, Minority Chief Counsel
Mary D. Robertson, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Collins.............................................. 1, 53
Senator Durbin............................................... 3, 55
Senator Levin................................................ 70
WITNESSES
Wednesday, February 18, 1998 (Portland, Maine)
Susan Deblois, Principal, Albert S. Hall School, Waterville,
Maine.......................................................... 6
Pamela Corrigan, West Farmington, Maine.......................... 7
Steve Klein, Mermaid Transportation Company, Portland, Maine..... 9
Susan Grant, Vice President, Public Policy, and Director, NCL's
National Fraud Information Center, National Consumers League... 18
Daniel Breton, Director, Governmental Affairs, Bell Atlantic..... 22
Hon. Susan Ness, Commissioner, Federal Communications Commission. 36
Thursday April 23, 1998
Eljay B. Bowron, Assistant Comptroller General for Special
Investigations, Office of Special Investigations, U.S. General
Accounting Office, accompanied by Ronald Malfi, Financial and
General Investigations Assistant Director...................... 58
Hon. William E. Kennard, Chairman, Federal Communications
Commission..................................................... 72
Alphabetical List of Witnesses
Bowron, Eljay B.:
Testimony.................................................... 58
Prepared Statement........................................... 119
Breton, Daniel:
Testimony.................................................... 22
Prepared Statement with an attachment........................ 106
Corrigan, Pamela:
Testimony.................................................... 7
Prepared Statement........................................... 89
Deblois, Susan:
Testimony.................................................... 6
Prepared Statement........................................... 87
Grant, Susan:
Testimony.................................................... 18
Prepared Statement........................................... 94
Kennard, Hon. William E.:
Testimony.................................................... 72
Prepared Statement........................................... 130
Klein, Steve:
Testimony.................................................... 9
Prepared Statement........................................... 91
Ness, Hon. Susan:
Testimony.................................................... 36
Prepared Statement........................................... 113
APPENDIX
Exhibit List for February 18, 1998--Field Hearing, Portland, Maine
* May Be Found In The Files of the Subcommittee
1. GLetter from Susan Ness, Commissioner, Federal Communications
Commission, dated March 20, 1998, to The Honorable Susan M.
Collins, Chairman, Permanent Subcommittee on Investigation,
clarifying answers and giving additional data to testimony
provided at Subcommittee's February 18, 1998 hearing........... 144
2. GStatement for the Record of Sprint Corporation.............. 148
3. GStatement for the Record of AT&T Corporation................ 151
4. GStatement for the Record of Frontier Corporation............ 164
5. GStatement for the Record of MCI Communications Corporation.. 169
6. GStatement for the Record of Richard G. Hulsey, Principal,
SYNAPSE Networking, Lewiston, Maine............................ 178
7. GMaterial received from Derek D. Davidson, Assistant
Director, Consumer Assistance Division, Maine Public Utilities
Commission, Augusta, Maine..................................... 187
8. GMaterial received from Patrick Eisenhart, Owner of The OP
Center, Portland, Maine........................................ *
9. GAT&T Form Letter to Resellers, received from Robin Sayre,
Public Relations Manager, AT&T................................. *
Exhibit List for April 23, 1998
1. GLetter from Glenn S. Richards, Fisher Wayland Cooper Leader
& Zaragoza, L.L.P., Counsel for Discount Calling Card (DCC),
dated November 29, 1994, to the Federal Communications
Commission (FCC), regarding filing of Tariff FCC No. 1,
Domestic Resale Common Carrier Service......................... *
2. GFCC Tariff No. 1, Domestic Interchange Telecommunications
Services, for Discount Calling Card (DCC), effective November
30, 1994....................................................... *
3. GLetter from Daniel Fletcher, President, Phone Calls Inc.
(PCI), dated June 3, 1996, to the Federal Communications
Commission (FCC), regarding PCI's Application to Operate as an
International Resale Carrier, enclosing FCC Form 159 and $705
check to cover filing fee...................................... *
4. a. GLetter from Sandra Platt, President, Phone Calls, Inc.
(PCI), dated August 1, 1996, to the Federal Communications
Commission, regarding filing of Tariff FCC No. 1 for Domestic
Resale Common Carrier Service and Tariff FCC No. 2 for
International Resale Common Carrier Service.................... *
b. GFCC Tariff No. 1, Domestic Interchange Telecommunications
Services, for Phone Calls, Inc. (PCI), effective August 2,
1996....................................................... *
c. GFCC Tariff No. 2, International Interchange
Telecommunications Services, for Phone Calls, Inc. (PCI),
effective August 2, 1996................................... *
5. GComplaints received by the Federal Communications Commission
(FCC) against Fletcher companies:
a. GComplaint received by the FCC on June 19, 1995, from Jean
Branno of Blackwood, New Jersey, against Discount Calling
Card....................................................... *
b. GComplaint received by the FCC on April 4, 1996, from
Christopher James Guss of Potomac, Maryland, against
Discount Calling Card...................................... *
c. GComplaint received by FCC on April 18, 1996, from John
Sun of Palm Beach Gardens, Florida, against Long Distances
Services, Inc.............................................. *
d. GComplaint received by FCC on June 15, 1996, from James W.
and Dianne C. High of Frederick, Maryland, against Long
Distance Services, Inc..................................... *
e. GComplaint received by FCC on November 10, 1994, from
Israela R. Franklin of Rydal, Pennsylvania, against CCN.... *
f. GComplaint received by FCC in June 1996, from Gerrold
DeBoe of Pompano Beach, Florida, against Long Distance
Services, Inc.............................................. *
g. GComplaint received by FCC in September 1996, from Kowdle
Kanth of Burtonsville, Maryland, against Long Distance
Services, Inc.............................................. *
h. GComplaint received by FCC on November 30, 1995, from
Michael A. Seidman of Philadelphia, Pennsylvania, against
Long Distance Services, Inc. and U.S. Billing, Inc......... *
i. GComplaint received by FCC in August 1996, from Basil D.
Hunt, regarding Charity Long Distance...................... *
6. GFCC Notice of Apparent Liability For Forfeiture against Long
Distance Services, Inc., adopted December 12, 1996............. 191
7. GFCC Order of Forfeiture against Long Distance Services,
Inc., adopted May 7, 1997...................................... 200
8. GFCC Order to Show Cause and Notice of Apparent Liability For
Forfeiture against CCN, Inc., Church Discount Group, Inc.,
Discount Calling Card, Inc., Donation Long Distance, Inc., Long
Distance Services, Inc., Monthly Discounts, Inc., Monthly Phone
Services, Inc., and Phone Calls, Inc., adopted June 12, 1997... 203
9. GList of ``Slamming Enforcement Actions'' by the Enforcement
Division, Common Carrier Bureau, Federal Communications
Commission, dated March 26, 1998............................... *
10. GFlorida Public Service Commission ``Notice of Proposed
Agency Action--Order Approving Assignment of Certificate'' from
Long Distance Services, Inc. to Phone Calls, Inc., requested
February 27, 1996 and issued May 10, 1996...................... *
11. GDISCOUNT CALLING CARD, INC.: Articles of Incorporation,
dated January 12, 1995; Commonwealth of Virginia Certificate of
Incorporation, effective January 17, 1995; and Commonwealth of
Virginia Notice of Termination of Corporate Existence,
effective September 1, 1996.................................... *
12. GMONTHLY DISCOUNT, INC.: Articles of Incorporation, dated
June 15, 1995; Commonwealth of Virginia Certificate of
Incorporation, effective June 16, 1995; and Commonwealth of
Virginia 1996 Annual Report, affirmed accurate by Daniel
Fletcher on March 6, 1996...................................... *
13. GMONTHLY PHONE SERVICES, INC.: Articles of Incorporation,
undated; and Commonwealth of Virginia Certificate of
Incorporation, effective August 20, 1996....................... *
14. GPHONE CALLS, INC.: Articles of Incorporation, dated December
21, 1995; Commonwealth of Virginia Certificate of
Incorporation, effective December 27, 1995; Commonwealth of
Virginia 1996 Annual Report, affirmed accurate by Daniel
Fletcher on February 9, 1996; Articles of Dissolution dated
September 24, 1996; and Commonwealth of Virginia Certificate of
Dissolution, effective October 11, 1996........................ *
15. a. GCCN, INC.: Articles of Incorporation, dated May 29, 1996;
Commonwealth of Virginia Certificate of Incorporation,
effective June 3, 1996; and Commonwealth of Virginia Notice of
Termination of Corporate Existence, effective September 1, 1997 *
b. GAugust, 1993, LEC Billing/Direct Payment Arrangement
between CHRISTIAN CHURCH NETWORK, Sprint, and U.S. Billing,
Inc........................................................ *
c. GLetter from Sprint Communications, dated March 10, 1994,
to U.S. Billing, regarding payment instructions for
Christian Church Network................................... *
d. GLetter/Facsimile Transmission from Daniel Fletcher,
President, Church Discount Group/CCN, dated July 22, 1994,
to Zero Plus Dialing, Inc. (ZPDI), regarding ``Revision of
Forward Funding Arrangement,'' attaching letter from
Sprint, dated July 22, 1994, to U.S. Billing, advising U.S.
Billing that Christian Church Network has entered into a
direct pay arrangement with Sprint and releasing U.S.
Billing from August 18, 1983 contract whereby U.S. Billing
funded Sprint for customer billing......................... *
e. G``One Plus Billing And Information Management Service
Agreement,'' entered into June 1, 1996, between Zero Plus
Dialing, Inc. d/b/a U.S. Billing (USBI) and CCN, Inc. d/b/a
Christian Church Network................................... *
f. GChristian Church Network (CCN) Chronology of Events
prepared by Sprint and provided to the Permanent
Subcommittee on Investigations in April 1998............... *
16. GLONG DISTANCE SERVICES, INC.: Articles of Incorporation,
undated; Commonwealth of Virginia Certificate of Incorporation,
effective January 10, 1994; Commonwealth of Virginia State of
Change of Registered Office (change of address), dated May 31,
1995; and Commonwealth of Virginia 1996 Annual Report, affirmed
accurate by Daniel Fletcher on February 9, 1996................ *
17. GAT&T billing and payment listing for Long Distance Services,
Inc., December 1994 through March 1998......................... *
18. GLetter/Facsimile Transmission from Daniel Fletcher,
President, Long Distance Services, Inc., dated October 19,
1994, to AT&T, regarding order for AT&T SDN (Software Defined
Network); AT&T ``Network Services Commitment Form'' for Long
Distances Services, Inc., dated October 27, 1994; ``Letter of
Agency'' authorizing AT&T to submit PIC changes for Long
Distances Services, Inc.; and note from Fletcher to AT&T
describing wording to be used by Long Distance Services, Inc.
for their LOA's................................................ *
19. a. GCorrespondence between Daniel Fletcher, President, Long
Distance Services, Inc. and AT&T, dated October 25, 1994,
regarding $75,000 security deposit to secure SDN service....... *
b. GLetter from AT&T, dated March 8, 1995, to Dan Fletcher,
Long Distance Services, Inc., confirming AT&T receipt of
$75,000 security deposit for SDN........................... *
c. GAT&T ``Network Services Commitment Form'' for Long
Distances Services, Inc., for SDN service, signed by AT&T
Division Manager Glenn Starr May 8, 1995................... *
20. G``Letter of Agency'' advising AT&T that Long Distance
Services, Inc. is also doing business as TCR, dated June 9,
1995........................................................... *
21. GLetter/Facsimile Transmission from Daniel Fletcher, Long
Distance Services, Inc., dated January 12, 1996, to AT&T,
seeking more competitive rates, suggesting potential
$50,000,000/year ``win back'' projections if AT&T become their
underlying carrier............................................. *
22. GLetter/Facsimile Transmission from Daniel Fletcher, Long
Distance Services, Inc., dated January 16, 1996, to AT&T,
regarding ``negotiating a deal with AT&T'' and advising AT&T to
send Weekly and Monthly Billing Tapes to Long Distance
Services' MIS office in Texas, attn. Roy Giles................. *
23. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated February 20, 1996, to AT&T, regarding
referral phone number for LDS customers and ``status of 20,495
BTN's''........................................................ *
24. GAT&T ``Customer Account Profile Verification'' for Long
Distance Services, Inc., dated April 3, 1996................... *
25. a. GLetter from AT&T Customer Service Manager, dated April 9,
1996, to Daniel Fletcher, saying AT&T is ``very concerned about
the unprecedented volume of orders you have submitted on your
SDN plan . . . since March 1, 1996 . . . During March alone,
you submitted in excess of 35,000 orders, which is more than
three times the number of orders . . . in January and
February.'' Additionally, in letter, AT&T questions whether
proper authorization was received and informs Fletcher than he
must be prepared to show AT&T the LOAs......................... 221
b. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated April 9, 1996, to AT&T, regarding
need for verification of the number of customers/BTN's
transmitted to AT&T since March 1, 1996.................... 223
c. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated April 9, 1996, to AT&T, regarding
enclosed LOAs.............................................. 224
d. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated April 12, 1996, to AT&T, regarding
``verbal notification that AT&T has decided to reject all
orders . . . provide us with written notification. . . .''
Handwritten note by AT&T indicates that AT&T ``would reject
all order if LOAs were not provided. The customer [Long
Distance Services, Inc.] subsequently told us to cease
processing''............................................... 226
e. GLetter from AT&T, dated April 16, 1996, to Daniel
Fletcher, Long Distance Services, Inc., regarding
Fletcher's April 9 letter regarding need for verification
of the number of customers/BTN's transmitted to AT&T since
March 1, 1996. AT&T advises in this correspondence that,
per Fletcher's instructions, AT&T is not processing any
orders submitted by Long Distances Services, Inc. and that
orders will be returned once AT&T receives Fletcher's
written instructions....................................... 228
f. GLetter from AT&T, dated April 16, 1996, to Daniel
Fletcher, Long Distance Services, Inc., regarding LOAs
provided by Fletcher. LOAs ``appear to violate the FCC rule
that the LOA not be combined with any sort of commercial
inducement''............................................... 229
g. GLetter from AT&T, dated April 25, 1996, to Daniel
Fletcher, Long Distance Services, Inc., confirming that
AT&T has rejected all order sent by Long Distance Services
and has begun to return orders............................. 231
26. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated April 17, 1996, to AT&T, regarding three
April 1, 1996 invoices. ``We [Long Distance Services, Inc.]
will be remitting the proper/total amount due of $124,966.87''. *
27. GAT&T memorandum, dated April 22, 1996, regarding Fletcher's
request for return of $75,000 security deposit, which with
interest totaled $82,917.37. AT&T Adjustment Authorization
approving return of security deposit and accumulated interest.
``Customer account is in good standing''....................... *
28. a. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated June 6, 1996, to AT&T, regarding ``. . .
two (2) versions of our new Letter of Agency (LOA). . . .''
``If a competitive deal can be reached, we would be interested
in bringing our business to AT&T . . .''....................... *
b. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated June 17, 1996, to AT&T, regarding
revisions to LOAs. ``Please let me know if these current
versions are acceptable to AT&T''.......................... *
c. GMemorandum from AT&T, dated June 21, 1996, to Daniel
Fletcher, asking that LOAs comply with FCC rules and June
13, 1995 FCC Report and Order prescribing the general form
and content of the letter of agency (LOA).................. *
d. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated June 25, 1996, to AT&T, regarding LOA
situation. ``Please note that we do not include any
`inducement' whatsoever on our L.O.A. . . . [W]e do not
concur with your legal department on this matter. . . .
[F]ollowing State and Federal guidelines is our/the
reseller's responsibility and not AT&T's--if there is a
problem down the road, AT&T would not be liable anyway. . .
.''........................................................ *
e. GLetter from AT&T, dated July 8, 1996, to Daniel Fletcher,
President, Long Distance Services, Inc., attaching the
FCC's rules on LOAs. ``It is your responsibility to furnish
AT&T with an LOA using the guidelines provided in the
docket referenced above. . . . [A]s a carrier, it is your
responsibility to comply with the law. AT&T continues to
reserve the right, as your underlying carrier, to demand
proper proof of authorization from your end-users, where
appropriate, and to decline to process orders for which
such proof is not forthcoming''............................ *
f. GTwo letters from Daniel Fletcher, President, Long
Distance Services, Inc., dated July 16 and 18, 1996, to
AT&T, inquiring if revised LOAs are approved/acceptable to
AT&T....................................................... *
g. GLetter from AT&T, dated July 24, 1996, to Daniel
Fletcher, President, Long Distance Services, Inc.,
regarding Fletcher's July 18, 1996 correspondence regarding
the LOAs. References the FCC order on LOAs and says
Fletcher should review it with his legal counsel to
determine his obligations as a reseller. ``It is not,
however, AT&T's responsibility to render an opinion on
whether or not your LOA meets the requirements of the FCC
docket. At this time, AT&T trusts that you will be
complying with those requirements unless there is evidence
to the contrary''.......................................... 232
29. GDaniel Fletcher check, dated June 12, 1996, to AT&T in the
amount of $547,760.78. AT&T credits this amount on July 18,
1996 to 16 different Fletcher accounts for Long Distance
Services, Inc.................................................. *
30. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated June 18, 1996, to AT&T, regarding sending
70,000 ``pending'' orders to another carrier. Says 81,000 of
his 85,000 orders were ``good/accepted'' according to report
AT&T sent to Fletcher.......................................... *
31. G``Advanced Payment Agreement'' between LDSI [Long Distance
Services, Inc.] and Zero Plus Dialing, Inc. d/b/a U.S. Billing,
dated July 16, 1996............................................ *
32. GLetter from Daniel Fletcher, President, Long Distance
Services, Inc., dated September 11, 1996, to AT&T, saying that
because of the pricing he is receiving from AT&T he is not
interested in placing more commercial orders with AT&T at this
time. Fletcher goes on to say, ``If AT&T would like to
provision some of our residential customers, please notify me
and we can proceed. LDSI does not mind if a certain percentage
of residential orders are rejected by the LEC's''.............. *
33. GLetter from AT&T, dated September 12, 1996, to Daniel
Fletcher, Long Distance Services, Inc., regarding total balance
due on account of LDSI is $1,276,684.24 of which $950,627.30 is
outstanding and asks for payment by September 19, 1996.
``Should overdue status of account continue, AT&T will no
longer accept orders. . . . [S]ervice currently provided may be
disconnected. . . .''.......................................... *
34. GLetter from AT&T, dated September 23, 1996, to Daniel
Fletcher, Long Distance Services, Inc., regarding final notice
on overdue payment............................................. *
35. GAT&T Memorandum, dated October 1, 1996, ``To all BIR's,''
Saying Long Distance Service, Inc. was blocked for non-payment,
and that his customers should not be calling AT&T's 800 number
since they were network billed (handwritten note says ``USBI--
does billing for LDSI'')....................................... *
36. GExample of LOA obtained and used by Long Distance Services,
Inc., dated January 26, 1996................................... *
37. GVideo and Transcript of a Wednesday, March 2, 1994
advertisement on cable television Prevue Channel for Consumer
Discount Group................................................. *
38. GLetter from PSI Communications, dated January 20, 1998, to
the Federal Communications Commission (FCC), regarding
Application for FCC Tariff and Public Notice of Tariff
Transmittal for PSI Communications............................. *
39. GCHARTS:
a. GTelephone Slamming Complaints to the FCC................. 233
b. GLetter of Application for FCC Tariff for ``PSI
Communications''........................................... 234
c. GFCC Public Notice of PSI Communications Status As Long
Distance Carrier........................................... 235
d. GPromotional Poster for Fletcher Letter of Authorization
(LOA) Promoting ``All New Mustang Convertible or $20,000 In
Cash!'' Promotional Poster for Fletcher Letter of
Authorization (LOA) Promoting ``Cherokee Giveaway or
$20,000 In Cash!''......................................... 236
e. GSample Letter of Authorization (LOA) for a Fletcher
Company.................................................... 238
f. GExample of Deceptive Fletcher Telephone Bill (for Phone
Calls, Inc.)............................................... 239
g. GExample of Deceptive Fletcher Telephone Bill (for Long
Distance Services)......................................... 240
h. GCompanies Served With More Than 210 FCC Slamming
Complaints in 1997 (Prepared by Permanent Subcommittee on
Investigations, based on FCC data.)........................ 241
i. GReprint of FCC Slamming Enforcement Actions (as of March
26, 1998).................................................. 242
j. GComparison of Overall Slamming Enforcement Actions By
States and FCC............................................. 243
k. GSelected Slamming Enforcement Actions Taken By The States
and FCC.................................................... 244
40. GGAO Report to the Chairman, Permanent Subcommittee on
Investigations, Committee on Governmental Affairs, U.S. Senate,
TELECOMMUNICATIONS: Telephone Slamming and Its Harmful Effects,
April 1998, GAO/OSI-98-10...................................... 245
41. GMemoranda prepared by John Neumann and Kirk Walder,
Investigators, Permanent Subcommittee on Investigations, dated
April 16, 1998, to Permanent Subcommittee on Investigations'
Membership Liaisons regarding Telephone Slamming............... 266
42. GCongressional Record reprint of S. 1740, The Telephone
Slamming Prevention Act of 1998, introduced by Senators Collins
and Durbin..................................................... 286
43. GResponses to Permanent Subcommittee on Investigations
questions for the Record of MCI Telecommunications Corporation. 297
44. GResponses to Permanent Subcommittee on Investigations
questions for the Record of Sprint Corporation................. 303
45. GStatement for the Record of the Telecommunications Resellers
Association.................................................... 308
46. GResponses to Permanent Subcommittee on Investigations
questions for the Record of the America's Carriers
Telecommunication Association.................................. 312
47. GResponses to Permanent Subcommittee on Investigations
questions for the Record of AT&T Corporation................... 316
48. GStatement for the Record of CompTel (Competitive
Telecommunications Association)................................ 324
UNAUTHORIZED LONG DISTANCE SWITCHING ``SLAMMING''
----------
WEDNESDAY, FEBRUARY 18, 1998
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:37 a.m., at
Portland City Hall, 389 Congress Street, Council Chambers,
Portland, Maine, the Hon. Susan M. Collins, Chairman of the
Subcommittee, presiding.
Present: Senators Collins and Durbin.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Good morning. The Permanent Subcommittee
on Investigations will now come to order.
Let me begin today by taking the opportunity to welcome
Senator Richard Durbin of Illinois, a Member of the
Subcommittee who has been a real leader in the fight against
fraud. Senator Durbin is, however, perhaps best known for his
successful effort to ban smoking on airplanes, something that I
thank him for every weekend when I fly home to Maine. I was
pleased to join Senator Durbin in another effort last year when
we teamed up to repeal an outrageous $50 billion tax break for
the tobacco industry. Senator Durbin has introduced legislation
pertaining to the issue before us today, and it is indeed a
great pleasure to welcome him here to Maine. I do wish we had
had a little bit better weather for him, he had a very
difficult time getting here last night, but he persevered and
we're very pleased to have him here.
The focus of our hearing this morning is the exploding
problem of ``slamming,'' the unauthorized switching of a
consumer's long distance service. Slamming victimizes the local
telephone company, which must handle thousands of calls from
customers angry about a problem the local telephone company did
not create. It victimizes the consumer's chosen long distance
company, which unfairly loses a valued customer, and, most of
all, it victimizes the consumer, who must spend time and energy
to remedy the problem. Even worse, some consumers do not even
realize that they have been slammed, which may cause them to
pay higher charges or to lose out on valuable premiums, such as
frequent flyer miles, offered by the long distance carrier of
their choice.
Now, how does slamming happen? Deceptive telemarketers may
use fraudulent techniques to trick an unsuspecting consumer
into switching long distance carriers. Other times a carrier
may send a so-called welcome package that actually requires the
consumer to return a postcard rejecting the change in long
distance service which otherwise goes into effect. Some
particularly unscrupulous long distance providers will simply
change a customer's carrier without any contact with the
customer at all.
To be fair, there are some cases of slamming that may be
caused by electronic error or perhaps by customer confusion
during a telemarketing call. However, there is absolutely no
excuse for intentional slamming and the huge number of slamming
incidents that are occurring each year. Consumers all over the
country, including here in Maine, are increasingly the target
of unscrupulous telephone service providers who use deceptive
marketing techniques or outright fraud to change long distance
carrier selections without the consumer's consent.
I was first alerted to the problem of slamming last fall.
My State offices began to receive numerous complaints from
small businesses and from consumers who called to express their
outrage at having been slammed. In further examining this
problem, I learned from Bell Atlantic, our local telephone
company, that more than 1,500 Maine consumers had complained
that they were slammed last year. Slamming cases in Maine range
from an elderly woman in Houlton, to a beauty shop in Bath, to
a family in Blue Hill whose teenager was deceived into
authorizing a change in service.
Nationwide, the number of slamming incidences has increased
significantly. The Federal Communications Commission, the
government agency that is responsible for regulating the
telecommunications industry, received a record number of
slamming complaints from consumers in 1997, over 20,000. In
fact, slamming is the No. 1 consumer complaint to the FCC.
Since many consumers, indeed most consumers, do not report
slamming to the FCC, this number, 20,000, actually greatly
understates the real problem. The National Association of State
Utility Consumer Advocates estimates that as many as one
million consumers each year are fraudulently transferred to a
long distance carrier which they have not chosen.
Victims of slamming are frustrated. They do not believe
that they should spend their time and energy resolving problems
that are not of their making. People rely on their home and
their business long distance telephone service, and they should
be able to choose their long distance carrier without fear that
their decision will be changed without their consent.
Deliberate slamming is like stealing and it should not be
tolerated.
Moreover, as the statistics demonstrate, this problem is
not getting better; it is getting worse. In Maine, Bell
Atlantic reported a 100 percent increase in slamming complaints
from 1996 to 1997. This disturbing trend raises two important
questions about the Federal Government's response to this
problem. First, are the enforcement efforts by the FCC
effective and aggressive enough to control deliberate slamming?
Second, do current penalties provide an adequate deterrent, or
are fines that are imposed simply viewed as a cost of doing
business by unscrupulous providers? Our goal in this hearing is
to find effective regulatory and legislative solutions to halt
the escalating problem of slamming.
We will hear from three panels of witnesses this morning.
Our first panel will consist of three victims of slamming, two
residential telephone customers and one small business owner.
These victims will testify about their personal experience with
being slammed.
Our next panel will be the Director of the National Fraud
Information Center of the National Consumers League and the
Director of Governmental Affairs at Bell Atlantic. The
witnesses will provide information about the prevalence of
slamming, describe their roles in assisting consumers, and
advise consumers on how they can better protect themselves from
being slammed.
Our final witness this morning will be the Hon. Susan Ness,
Commissioner of the FCC. She will describe what the FCC is
doing to control slamming, and discuss and provide advice to us
on what additional regulatory and legislative changes could and
should be made to reduce the number of slamming incidences.
It is now my pleasure to recognize the distinguished Member
from Illinois, Senator Richard Durbin, for any statement that
he may wish to make, and again, Senator, welcome.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you very much, Madam Chairman,
Senator Collins, I'm glad to be here in Maine. This is almost a
matter of retracing political groups. The first man that I ever
worked for in politics was a Senator from Illinois named Paul
Douglas, who was born in Maine and a graduate of Bowdoin
College, so I'm coming at least back to the origins of my
political career, and it's a pleasure to be with you. And I
didn't expect to find this weather in Maine; I expect to find
it in Chicago, but we've been blessed for the last few months
with very mild weather.
I'm glad we're having this hearing on the important topic
of telephone slamming. This matter came to my attention and I
believe it came to your attention because of constituent mail,
people who came to our office, wrote a letter or dropped by and
said we've got a problem here. In fact, I recall one particular
business woman in the Chicago area who was stunned to find that
her long distance carrier had been changed, that her bill had
gone up dramatically, and she had virtually no recourse as a
result of it. She inspired me to look into it a little more,
and as I did I found it to be a problem that is virtually
universal.
Yesterday I was at the New York University Law School at a
seminar on another topic, and the leading law professor there,
constitutional law professor Bert Newborn, asked me why I was
going to Maine, and I said it was on the issue of telephone
slamming and Senator Collins was having a hearing. He said, ``I
have been victimized three times in the last year; they have
changed my long distance carrier.'' It seems like every time
you bring up this issue you find people who have been victims
of this. So I am glad you are having this hearing. It is
timely; it is important that the Senate and House respond this
year with legislation that at least tries to address this
problem.
As you mentioned, it is the No. 1 source of consumer
complaints at the FCC, and in my home State of Illinois it is
the No. 1 consumer fraud complaint to the State Attorney
General. The Los Angeles Times says that what we've seen of
slamming is only the tip of the iceberg. Maybe that's apropos
in this era of the Titanic movie, but they estimate that more
than a million American telephone consumers have been slammed
in the last 2 years. Some say that estimate is far too
conservative, and one of our witnesses, Susan Grant, Vice
President of the National Consumers League, will tell about a
survey that was taken that suggests the problem is even more
widespread.
Slamming was most egregious in the Chicago area, according
to some survey where 36 percent of adults said that they or
someone they knew had been slammed. Moreover, slammers appear
to be targeting people of color, 39 percent African-Americans,
42 percent Latinos, as compared to 28 percent of the white
population. I think we will also find that many seniors have
been victimized by these scams as well. It is a serious problem
that goes beyond inconvenience. It can be expensive, and in one
case I know of a business in the Chicago area that virtually
went without long distance service for a period of time because
of slamming.
As I got into this and started thinking about ways to
address it, I stumbled on another problem, which I think we
should consider as we get into this. It is euphemistically
known as cramming. You know how you used to receive your
telephone bill and it would be one little sheet with three
little lines and it was from the same company that your mom and
dad and grandparents used, and now you receive a bill that is
five or ten pages long maybe from more than one company and
page after page of computer printouts? Well, you ought to read
carefully because people who have been crammed find that they
have charges on there that they never asked for and didn't
believe that they were paying for. And a few dollars a month
times all the people in Portland and all the people in Maine
and all the people in Illinois turns out to be an enormous
profit for these companies providing, ``services you didn't ask
for, cramming them into the bill.'' Well, we have to address
all of these.
The Telecommunications Act wanted to bring competition to
this field so that we'd have more choices as consumers, but
certainly we have to be mindful as consumers that there are
people in the marketplace trying to take advantage of us.
I put a bill in which I think might be a step in the right
direction on this issue of slamming. First, it gives those who
have been victimized the opportunity to sue the slammer in
State or Federal court. Right now you are limited to Federal
court. Now, how many of us are going to go file a lawsuit in
Federal court because of 1 or 2 months of high telephone bills?
It is not likely. You are not going to hire an attorney and you
are not going to file a complaint, but if you have a recourse
in State court and if you realize that there is a minimum
statutory damage of $2,000 that you can recover, it may be
worth it. If you go to small claims court and say, ``I want to
recover what I lost and the $2,000,''--$6,000, incidentally,
under my bill if it was done willfully and knowingly.
Some States, and I am not sure of the situation in Maine,
some States allow the State attorney general to bring suits
against slammers on behalf of all the citizens of the State,
these are class action suits. We do it in Illinois. It is
effective. And I am glad that our attorney general does it. But
some State supreme courts have decided that that is an
authority which a State does not have. We ought to clarify that
once and for all, and this legislation would say every State
attorney general can bring a class action suit against the
slamming telephone company on behalf of the consumers who were
victimized.
And, finally, we know there are repeat offenders out there.
This just is not a nuisance; this is a source of great profit
for these slammers. They end up switching hundreds if not
thousands of people and make a lot of money in the process. If
they continue to do that willfully, knowingly, and repeatedly,
I think they should be subject to criminal penalty as well.
This is as serious as any theft that we talk about.
Finally, let me conclude by thanking you for having this
hearing. I am looking forward to your witnesses, having
explored this issue in Illinois and in Washington. I think we
are building a case for Federal action, and your leadership
today is going to help. Thank you.
Senator Collins. Thank you very much, Senator. It is my
hope today that prior to adjournment we will have the
opportunity for some of the people who have come to attend the
hearing today to share with us their personal experiences with
slamming. We will limit those informal statements, which will
be after the formal testimony, to 3 minutes each, to keep to
our schedule, but I do hope to have an open mike session at the
very end.
In addition, we've received a number of written
communications and testimony. When people learned that I was
having this hearing, my State offices overnight received
numerous faxes from people who have been slammed, and we have
put those in the hearing record.
In addition, prior to the hearing, I sent letters to
several of the long distance companies that provide service to
the majority of Maine consumers inviting them to provide
written statements and several have done so. And without
objection I will ask that those statements be included in the
hearing record.
Finally, I've also received an excellent written statement
from Richard Hulsey, who is a principal in a telecommunications
firm based in Lewiston. He is also on the board of the Maine
Telephone Users Group, a working group of businesses formed to
discuss telecommunications issues. His testimony is very
insightful, and I believe he may be here today and may speak to
us at the end of the hearing, but in any event, his statement
will be included in the record.
I would now like to call our first panel of witnesses. It
includes three victims of slamming, two individuals and one
small businessman. With us this morning is Susan Deblois,
Pamela Corrigan, and Stephen Klein of Mermaid Transportation
Company. I would note that Mr. Klein runs a shuttle to Logan
Airport, so if worse comes to worse today he's offered to bail
any of us out that may need assistance.
We look forward to hearing from each of you today, and I
very much appreciate your willingness to come forward and tell
your personal story. It has been hearing your personal
experience that we in Congress will be able to do a better job
of shaping appropriate legislation. It also gives you an
opportunity to have a Federal Communications Commissioner
listen firsthand to your experience, and I think that's
valuable as well.
Pursuant to the rules of the Subcommittee, all witnesses
who appear are required to be sworn in. So I would ask that you
each stand right now and raise your right hand.
[Witnesses sworn.]
Senator Collins. We will make your written statements a
part of the hearing record, and we are going to ask that you
limit your oral presentations to 5 minutes each.
And I do want to say that it is totally coincidental that
every single panel today has someone named Susan on it. And we
will start with Susan Deblois. Susan? If you would also explain
a little bit about your background as well as what happened to
you with slamming.
TESTIMONY OF SUSAN DEBLOIS,\1\ PRINCIPAL, ALBERT S. HALL
SCHOOL, WATERVILLE, MAINE
Ms. Deblois. I am a principal at the Albert S. Hall School
in Waterville, Maine, and we are on school break and so I was
able to come down and be here.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Deblois appears in the Appendix
on page 87.
---------------------------------------------------------------------------
I want to say good morning. My name is Susan Deblois. I
live in Winthrop, Maine, and it is a pleasure to be here this
morning and to tell you about my experience with telephone
slamming, which was not pleasant.
I was slammed in early 1997 by a company from Texas called
Excel Telecommunications. At the time I had my long distance
service provided by MCI and was very satisfied with their
service. I had been with Excel Telecommunications earlier but
switched to MCI and had used their service for about 2 months.
Excel may have slammed me because they had my name and number
as a previous customer.
I learned that I had been slammed when MCI called and asked
why I had switched. I was both shocked and surprised as I had
not authorized any change in my long distance service. In fact,
I told MCI that I didn't want anyone to be able to change my
phone service. I never received a call or a notice asking me or
telling me about any of the changes in my phone service.
I was very upset that I was slammed because I had an 800
number and a calling card. I had one daughter in college in New
York and a senior home with me, and they used those numbers to
call home and make other long distance calls. In addition, my
husband and I travel frequently and had there been an emergency
with my daughters or while my husband and I had been traveling,
none of our family would have been able to make a long distance
call using our MCI numbers. While my daughters would have been
able to call home collect, if they had reached my answering
machine, they would have been unable to leave a message.
It was difficult for me to get switched back. I was able to
return to MCI after calling them and explaining the situation.
I did pay Excel the money for their bill, and I had to pay some
extra fees to MCI because I had not stayed with them for the 3
months, both of which I probably should have contested but I am
one of those consumers that when they said we can give you a
number, I guess it is a PIC freeze number and this will never
happen again, I just let it drop. I was in graduate school at
the time and was very busy with my job, and I just wanted to
get the problem resolved and just sort of get on with it.
I hope that my experience with slamming is of assistance to
you in your efforts to stop this grievous problem.
Senator Collins. Thank you very much.
Ms. Corrigan.
TESTIMONY OF PAMELA CORRIGAN,\1\ WEST FARMINGTON, MAINE
Ms. Corrigan. Thank you, Senator Collins, Senator Durbin.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Corrigan appears in the Appendix
on page 89.
---------------------------------------------------------------------------
I currently reside in Farmington, Maine. This incident
happened to me when I lived in Bridgton last summer.
In June of 1997 I received a certified return receipt
letter from Minimum Rate Pricing, Incorporated, and found
typical advertising propaganda inside. Because I receive so
much of this type of unsolicited mail, I read only the opening
paragraph of the letter, which began with a greeting thanking
my household for beginning to use Minimum Rate Pricing's
telephone services. My family customarily tasks me with the
responsibility of searching out the best long distance service
carrier, but just to be sure, I checked with my husband and my
son to verify that neither one of them had spoken to a
telephone representative recently. When they confirmed that
they had not authorized any change in our telephone service, I
became irritated with the dramatic return receipt tactics of
the letter; but I figured since we really hadn't signed up with
the company that the correspondence was of little consequence.
Usually I would toss such literature in the trash, but I had
been waiting for a friend to send me information about another
long distance carrier, Unidial, so I had held on to the Minimum
Rate Pricing letter until I could check with my friend to be
sure if there was any connection between the two companies.
My son left for college in late June, and I got serious
about changing our long distance carrier to Unidial because
they provide an attractive calling card service for students.
When I contacted my local telephone carrier to switch from our
long-time long distance carrier, AT&T, to Unidial, I was
informed that I had been changed several weeks earlier to
Minimum Rate Pricing. I asked who changed the service, and they
explained Minimum Rate Pricing had made the change. And my
response was, they can't do that. The very polite customer
service representative explained to me that companies which
switch your--can switch your service without any written
authorization. She further explained to me that it was possible
to place a lock on my service through my local carrier, which
would require that any future changes be made by me personally.
So I proceeded to change my long distance service to Unidial
and placed a lock on my service.
Angered by the unauthorized change, I searched through my
unfiled documents to find the letter from Minimum Rate Pricing,
and I read the whole thing this time. I found mixed in with the
various pages of information a 3 by 5 card with a place to
request additional information. And at the very bottom of that
card was an option to cancel the order. I felt I had been
tricked. I wondered how it was possible for a company to change
your telephone service simply because you did not respond
within a specified amount of time telling them that you didn't
want their service. How could it be that the burden was on the
customer to respond in order for the customer to keep the
service which he or she had so carefully selected?
Few things in life make my blood boil, but for days after
learning that companies can unilaterally make such changes, the
feeling that I had been violated had not subsided. I wrote to
the FCC, stating that I felt it should be illegal for companies
to change long distance carrier service without changing the
customer's--without the customer's expressed permission.
Second, I suggested that if an unauthorized change is made the
guilty company should be responsible to pay the original
telephone carrier for all the costs associated with making the
change back.
When I sent the letter to the FCC I had never heard of
phone slamming, and I thought the FCC would be much too busy to
respond to this isolated issue. To my surprise I received an
acknowledgeable letter from FCC and later received copies of
correspondence from my local carrier and Minimum Rate Pricing,
the originals of which had been sent straight to FCC. The local
carrier's response was simply a history of what changes had
been made and on what dates. Minimum Rate Pricing's response
asserted that it had followed all required procedures,
including the independent verification process, whereby they
claimed to have recorded my husband's voice when he gave
authorization during the verification process to change the
service. My husband and I chuckled at their response because we
both know how rude and abrupt he is to all telephone
solicitors. Even if he had experienced a brief spell of
patience, he never would have endured the solicitation through
to the verification process, and in fact he never recalled ever
receiving any telephone call from a telephone carrier in the
period in question.
Telephone slamming not only affects households; it affects
municipalities and businesses. The phone service for my
employer, the Town of Farmington, was changed from AT&T to
World Tel in mid-January of this year without the proper
authorization. It is difficult to track the history behind this
type of changeover in large organizations, but we believe that
World Tel made the change based on a vague conversation with
one of the town's recreation department staff who is not
authorized to make a change for the entire town. It is
imperative that telephone companies making such changes be
required to obtain written permission before obligating such an
organization.
In summary, my story is not sensational, it is not
newsworthy, it is not even particularly interesting to
outsiders, but I can't help but wonder how many others are
experiencing similar frustrations. Because the practice of
phone slamming is quiet and seemingly innocuous, it receives
little attention, and the unscrupulous companies continue to
get away with this form of stealing.
I applaud Senators Collins and Durbin for bringing this
issue to light. From what I have learned since I was telephone
slammed, this is only the tip of the iceberg, and I hope that
the Senators succeed in bringing about legislation which
prohibits such practices. It is an honor to testify here, and
thank you for your time.
Senator Collins. Thank you very much, Ms. Corrigan. I want
to tell you that your testimony was indeed very interesting and
I am sure it was to your husband as well, if he heard your
comments this morning.
Mr. Klein, would you please give your testimony?
TESTIMONY OF STEPHEN KLEIN,\1\ MERMAID TRANSPORTATION SERVICE,
PORTLAND, MAINE
Mr. Klein. Thank you, Senators Durbin and Collins.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Klein appears in the Appendix on
page 91.
---------------------------------------------------------------------------
My name is Stephen Klein. Mermaid Transportation is a small
Maine owned and operated business that was established in 1982.
Our primary business is our five daily trips from Portland,
Maine, to Boston's Logan Airport and back. We also have an
extensive charter business that caters to business and private
groups. Virtually all of our business is conducted over the
phone.
Our business was slammed on Friday, October 3, sometime
after business hours. All our phone lines were slammed by
Business Discount Plan, a Long Beach, California, company that
had acquired our name from AT&T. All four of our lines were
stolen without authorization.
We were completely unaware of this seizure until sometime
the next day when an office staff member thought our in-State
lines were out of order because we could not access them by
dialing a 1-700 code. The condition continued the next day,
Sunday. By Monday, October 6, we realized after calls were made
to Bell Atlantic and OneStar, the carrier who handles our in-
State and out-of-State service, that our lines had been
slammed.
The seizure disrupted our business, which is dependent upon
making and receiving long distance calls and intrastate calls,
for 4 days and required hours on the phone with Bell Atlantic
and our carrier OneStar to rectify the matter.
When I asked Bell Atlantic how this could happen and who
could have given AT&T our numbers they could not respond with
an intelligent answer. Furious and frustrated, I was about to
put this matter behind us when I received a phone call from
AT&T wanting to know why we had switched from them back to our
original carrier. I immediately asked for the supervisor, who
would then not give me his name nor the department at AT&T he
was calling from. He then came up with another number at AT&T
that he said would help us. It turned out to be Small Business
Billing, which had nothing to do with this matter whatsoever.
I told AT&T the details and the solicitation call from AT&T
from an anonymous department manager, and they looked up the
numbers and said yes, they did sell blocks of time to outside
carriers who slam these numbers. When asked just who they sold
our numbers to, they said they could not reveal that
information. I feel that AT&T is certainly not off the hook,
pardon the pun, just because they sold the time to somebody
else who acted unlawfully.
With some further investigation I was able to find out that
Business Discount Plan was the party that seized our lines. I
called them for an explanation, and they insisted that a woman
in our office had authorized the switch back in July. I said
that was impossible because I knew that she would not have
allowed this to happen and that she did not have authorization
in her job capacity to do that. The person from Business
Discount Plan said he had a tape. I told him that I would be
delighted to listen to it. He said he would have it in a few
days and play it for me. That was in November and I have still
never heard that tape.
Slamming is unfair and I believe infringes upon
individuals' and businesses' privacy. If electronically they
can steal your phone lines, why couldn't they tap or play havoc
with your incoming and outgoing calls? I also believe they are
preying upon the elderly with deceptive mail or just
unauthorized slamming. Unfortunately, the elderly sometimes
don't understand what is going on and they just feel they
cannot change the situation.
In January, I again received a call from Business Discount
Plan to check and see if certain charges had been removed from
our bill, which they had. I asked the person on the line about
the tape that never surfaced, and she replied that her office
was separate from Business Discount Plan's office and that she
worked for a telemarketing firm.
Back in October I did contact the FCC and the Maine Public
Utilities Commission about this. But the FCC wants names and
other information that we cannot get because these people will
not identify themselves. In fact, they are representing
themselves as AT&T. Frankly, I think this is a Federal matter
because these infractions are coming from out of State.
Something must be done to penalize these unauthorized break-
ins. It seems now that the perpetrators are making a lot of
money and getting a slight slap when caught, at best, and the
victims are required to put the pieces back together, which is
time and money consuming.
Thank you.
Senator Collins. Thank you very much, Mr. Klein. I want to
thank all three of you for coming forward today and sharing
your personal experiences. As I was listening to your
testimony, I was struck by the fact that slamming really does
affect people in all walks of life. We've talked about the
impact on senior citizens, and here we have before us today a
school principal, a town manager, and a small business owner.
If it is any comfort to you, I, too, have been slammed twice,
and I must say that my reaction was very typical in that I
didn't know what to do about it. I was very unsure of where to
go.
I would like to start with you, Ms. Deblois, by asking you,
were you aware that you could contact the FCC for assistance in
this matter?
Ms. Deblois. No, I wasn't aware.
Senator Collins. In talking to other people who have been
slammed, do most--I would like to ask each of you this
question: Do you think that people know what to do or are they
unsure? Ms. Corrigan.
Ms. Corrigan. No, I've talked to several people in my own
office that were slammed, and they just let it go because they
had no idea where to send a notification to.
Senator Collins. Mr. Klein.
Mr. Klein. I don't think they know what to do.
Senator Collins. I believe that a lot of consumers'
reactions are very similar to Ms. Deblois's, which is you just
paid the bill; is that correct?
Ms. Deblois. Yes.
Senator Collins. So you actually incurred higher costs, not
to mention the fact that you were concerned about the ability
of your two teenagers to contact you in the event of an
emergency using the telephone card; is that correct?
Ms. Deblois. Right.
Senator Collins. Ms. Corrigan, I think you mentioned very
briefly at the end of your testimony that the Town of
Farmington was slammed?
Ms. Corrigan. That's right.
Senator Collins. Could you tell us a little bit more about
that and what was done, how it was discovered and what was done
to remedy this situation.
Ms. Corrigan. In doing research it was a little difficult
to track down how it happened. I believe they received some
sort of notification or correspondences that said thank you for
changing and they went back and tried to find out who the
company spoke with. And there was some reflection of a number
that only goes into the recreation department, and I--we
believe they may have tried to make contact with the payables
clerk or maybe even the town clerk and maybe got sent away and
continued to call other numbers within the town until they
found somebody who said yes to a certain number of questions
and took that as a yes for a change.
Senator Collins. And you mentioned that the company that
slammed you claimed that they had a tape of your husband
authorizing it. And your husband absolutely had no contact with
this company; is that correct?
Ms. Corrigan. To the best of his recollection he cannot
remember any telephone company calling during that period of
time.
Senator Collins. And, in fact, as you very amusingly
described to us, he usually hangs up on telemarketers?
Ms. Corrigan. It would have been a short conversation.
Senator Collins. Mr. Klein, it is my understanding that you
have been slammed a second time with a fax line; is that
correct?
Mr. Klein. Yes, they--in fact, it was Business Discount
Plan again that came back and did that, and I would like to
raise a question that we have got our recent bill from Bell
Atlantic in response to this business about cramming. On the
bill there is something called Business Discount Plan, and it
would--if you look at it quickly you say, well, it must be some
special thing that they put together for businesses, and it is
not. It has no relevancy at all except for the fact that they
are billing you. And then there is a disclaimer here that says,
this portion of your bill is provided as a service to Business
Discount Plan. There is no connection between Bell Atlantic and
Business Discount Plan. I cannot believe that they are just
printing that and being a collection agency; they have to be
involved. So this disclaimer does not seem to be true.
I, also, yesterday at home got a check from AT&T for a
hundred dollars for--to switch. And they are getting a little
better, I must say, with the asterisks are a little bigger, you
look at the small print, but the fact is that it is very, very
deceptive and this cramming is an issue. I mean, this is 1
month's long distance bill that we go through; it is rather
lengthy.
Senator Collins. Mr. Klein, I think you raise a really good
point on that because a lot of people do not look that
carefully at their phone bills; they simply pay them each
month. And if they had been switched they may not know it for
several months. In fact, one of the purposes of this hearing is
to encourage consumers to take a hard look at their phone
bills, because I bet there are a lot of people out there who
have been slammed and do not even realize it. They are just
writing that check each month because, after all, they are
writing the check in most cases to the local telephone company,
which is acting as the billing agent. And for a business which
has a lengthy telephone bill, that's even more important.
Mr. Klein. Absolutely, you are entirely correct.
Senator Collins. Ms. Corrigan, I have the so-called welcome
package that you received, and it is amazingly deceptive. One
of the things that struck me about it is it looks like you are
not changing telephone service but, rather, that you subscribed
to a service that is simply giving you information on pricing.
For example, one of the pages says, thank you for subscribing
to Minimum Rate Services, comparing network pricing of AT&T,
MCI, and Sprint. So if I had received this in the mail I
wouldn't think that it had anything to do with my choice of
long distance carriers.
Could you talk to us about whether you found this to be
informative? I know you have already said that the postcard was
way at the end which would have required you to send it back to
not switch service. Could you describe the packet and what you
thought you were getting when you received it?
Ms. Corrigan. I do not believe I found it very informative
because I did not read it very thoroughly the first time
around, and the second time I read it I was so mad that I
really was not listening to what they were trying to tell me
about their services. So it was presented in such a way that
there was a lot of verbiage and the important stuff did not
jump off the page. I think that's the point that comes to mind.
Senator Collins. I would like to get your suggestions, each
of your suggestions, before I turn to Senator Durbin for his
questions, on what we can do to better protect consumers
against slamming. And let me ask your advice on three specific
proposals.
First of all, this welcome package that Ms. Corrigan
received, which switches the service unless you return the
postcard rejecting the switch. Should companies be able to do
this, Ms. Deblois?
Ms. Deblois. Absolutely not.
Senator Collins. So you would recommend that the FCC ban--
--
Ms. Deblois. Yes.
Senator Collins [continuing]. The so-called welcome
package. What about you, Ms. Corrigan?
Ms. Corrigan. I agree.
Senator Collins. Mr. Klein.
Mr. Klein. I do, too. In fact, I would go so far as to say
even magazine subscriptions, anything where it is incumbent on
you to stop them from doing something. You never asked for it
so why should you have it. It should be the other way around.
Senator Collins. In studying this issue I found out that
more than 86 percent of the orders to switch telephone service,
the long distance telephone carrier, come from long distance
carriers. They do not come from the consumer, 86 percent come
from the long distance company. Do you think it would be
helpful to change the regulations so that only the consumer can
authorize a change in service? You can't have a third party, a
company, authorize the change in service? Ms. Deblois.
Ms. Deblois. Absolutely.
Senator Collins. Ms. Corrigan.
Ms. Corrigan. I believe when you establish your service
originally if they want to ask for mother's maiden names or
something as a way to verify who it is, either request that
that information be given when a change is given or request
that the change be made in writing.
Senator Collins. Mr. Klein.
Mr. Klein. I think it should be made in writing. I think
what you might need here is an authorization form that's
standard for the industry that has to generate from the user to
the company and has to have notarized signatures from both
ends, two forms, one the company keeps and one you keep, and
those signatures authorized--notarized that says I authorize
ABC to take over my interstate lines or whatever it is.
Senator Collins. And, finally, what's most disturbing to me
are the fact that some companies slam consumers over and over
again, they clearly know they are doing it, it is intentional.
And my friend and colleague, Senator Durbin, has introduced
legislation that in such cases would impose criminal penalties.
Ms. Deblois, what's your reaction to that? Should it be a
crime if a company deliberately slams consumers and is a repeat
offender?
Ms. Deblois. Yes.
Senator Collins. Ms. Corrigan.
Ms. Corrigan. I definitely do. Except I think it is very
difficult and very costly to go through that process. I think
that a more effective means is for the public to be aware and
to know how to protect themselves against this. Unfortunately,
a lot of people I have talked to feel that, well, yes, it was
an inconvenience but it only happened to me once before I
learned about the lock. Well, if it happens to every consumer
only once, these companies are going to be making a heck of a
lot of money off us. So I would advocate some sort of
notification in the local carrier's--local service provider's
bill that tells you how to go about putting that lock on.
Senator Collins. Mr. Klein, should there be criminal
penalties for repeat offenders?
Mr. Klein. Absolutely.
Senator Collins. So we should send the slammers to the
slammer, right?
Mr. Klein. And let them also pay heavily, I mean, really
put a stiff fine on it, without question.
Senator Collins. I think that is the key. I think right now
that a lot of these unscrupulous providers just view this as a
cost of doing business. If they get fined, the fine is pretty
mild compared to the amount of money that they've made. We've
got to make slamming not pay. We've got to have stiffer fines
and real penalties.
Senator Durbin.
Senator Durbin. Thank you. Each of these companies that
were holding out to be your new long distance carriers at some
point in time suggested that you had authorized it, either you
or someone in your family or your business. Did any of these
slamming companies provide to any of you any written evidence
of that authorization or a tape recording, which is the form
that's often used? And, Ms. Corrigan, we often hear that, when
they do it over the phone, they keep the tape recordings, if
there is ever any question later, they can play it back. Have
any of you ever heard what has been purported to be that
authorization from you or your company?
Ms. Deblois. No. The only reason that I knew it was because
MCI called me and asked me why I had switched, and I said, what
do you mean, switched. I am with you. I have your latest bill
in my, where I keep my bills, and that was the only reason I
knew. They said you had switched. Because within that month's
time that had happened to me. So I had no idea.
Senator Durbin. And obviously, Ms. Corrigan, from what you
testified you did not hear your husband say I would be glad to
switch.
Ms. Corrigan. And I was tempted to ask them for the tape
because I was just aghast that they would say that. And as I
learned more about slamming after that I chose not to ask for
the tape because I have heard that it is a practice where they
would ask a number of questions and get you to say yes and then
superimpose the yes over a valid question that you may or may
not have answered, so.
Senator Durbin. And, Mr. Klein, I guess they suggested an
employee in your office did this. Did they ever give you the
name of the employee?
Mr. Klein. They gave us the name. They never produced the
tape, they never produced anything written, and we are still
waiting.
Senator Durbin. And you spoke to that employee?
Mr. Klein. Yes. And she said I never gave them
authorization to do anything like that. We know that to be
true, too.
Senator Durbin. Ms. Corrigan, I have to tell you that I was
very impressed that you would receive what you characterized as
unsolicited mail and then put it on file so you could find it.
Senator Collins. That's good. Most of us throw that away.
Ms. Corrigan. A hazard of my vocation, my job.
Senator Durbin. Well, it paid off--it certainly paid off in
this instance. And I take it that this came to you, this
welcome whatever it was, and appeared to be just more what we
characterize as junk mail, unsolicited, here it is, an offer
too good to be true.
Ms. Corrigan. Except that it scared me a bit. It came by
certified return receipt, and I have never received good news
by certified return receipt. So--and a card came in my mail
later in the week, I was unable to pick it up until the
following Monday, so it really did cause some stress over the
weekend wondering who's sending me this important document, and
then I was just really miffed when I opened it up and thought
it was advertising.
Senator Durbin. And the approach they appear to be using is
the same as we discussed when Senator Collins bought it up,
same used by many book clubs, if you do not return the card
saying no the answer is yes. And that is a new one on me. I
have heard a lot of different slamming techniques, but that
certainly does put us at a disadvantage when we have an
unfamiliar name of a company and we are most likely to throw it
away and if we do we have now signed up for a new carrier.
Their creativity never ceases to amaze me on this.
I would like to put the analogy here when we talk about
serious penalties. What if you came to learn next month that
someone had changed the bank that you had your home mortgage
with and that the terms had been changed at the same time? It
would be an outrage to think that somebody would try to do
that. Because telephone bills are not as large, usually, as
mortgage, except perhaps in your case, Mr. Klein, then I think
we view this as a lower-level offense but when we add it up in
total it becomes serious.
Let me talk about one aspect of this that is--we have to
deal with and try to balance. We all like to have flexibility
in our decision making. We would all like to be able to say,
OK, I just checked it all out and it is time for me to change
my long distance carrier, here's the 800 number I have to call,
whatever it happens to be, I am going to save some money for my
family or my business, and we want to do that without going
through hiring a lawyer. We would like to do that in a way that
is sensible and easy to do. And this raises questions about how
far we are willing to go to protect ourselves and to put in
some verification of this decision being made as against the
whole question of convenience.
We now know that most of our telephone numbers and
certainly our names are public knowledge. They are in the
telephone directory or can be obtained very easily from city
directories, so that information, name, address, telephone
number, is out there for the world to see in most instances.
What can we put into this process that is somewhat personal in
nature that really does reflect our personal decision. Many of
the people with ATM cards here in the audience know that you
have to have a PIN number, so even if somebody finds your ATM
card there is still another number that protects you if they
try to misuse it. And this has been suggested by some groups
that each of us as families or individuals be thinking about
PIN numbers that have to be part of this process. You mentioned
your mother's maiden name. That, too, may be public record if
somebody wants to go so far to find it, and in this computer
age it may not be as difficult as it sounds.
But what are your thoughts about that? Because we have a
balancing act here. On the one hand, we want to make sure we
are protected; on the other hand, we do not want to create this
into a legal process. It is too complicated and expensive.
Ms. Deblois.
Ms. Deblois. Well, I think one of the pieces that I heard
here today is that a number be put on your bill so that you can
call and make sure that telephone slamming cannot happen to
you. So your own PIC freeze number and you can call----
Senator Durbin. You call it a PIC freeze number?
Ms. Deblois. That's what I have heard it called, a PIC
freeze number.
Senator Durbin. Is it like a PIN number?
Ms. Deblois. It is just a number that must have been given
to my telephone company so that this would not happen again,
because when it happened I said, how can this never happen to
me again because I don't want to deal with it, and they said we
will give you this number. Now, I did not have the number. They
just sent the number in so that it would not happen again.
Senator Durbin. So this is a number provided to you by your
long distance carrier that basically has to be surrendered to
the new carrier before it is changed. I might say to you in our
hearings in Washington on the subject there were those who
complained that that was just a way for the incumbent carrier
to protect their own business and to not give the consumers
flexibility to change, so that's how the debate follows in
Washington over this consumer rule on this issue, but it is--
when we are talking about protection that's where we start this
balancing.
Ms. Corrigan, do you think a PIN number is a way to
approach this?
Ms. Corrigan. I can see where it has some pros and cons,
but I would like to go back to basics where you need to sign on
the dotted line in order to commit yourself.
Senator Durbin. So you have a written signature involved.
Ms. Corrigan. I think that would be the best way.
Senator Durbin. In the city of Chicago we have neighborhood
fairs, much like county fairs and town picnics, and they go
around and offer people opportunity to sign up for a raffle for
a vacation, and the fine print suggests they have just changed
their long distance carriers, so they have their signatures and
dates, everything looks very formal, but nobody reads the fine
print. They just hope they get a trip to Maine.
Mr. Klein, how about yourself, what kind of protection
would you suggest?
Mr. Klein. Well, I think that the phone--these operators
have violated the regular course of business. I don't think
they should be allowed to verbally do anything on the phone. I
think it needs to be written. And why can't they do business
the way the rest of us do business? If somebody wants to sell
you clothing or a car or service, they put it in writing, they
send it to you. They do not hide it behind a trip to Europe or
Maine or wherever or a raffle or a check. And they just say,
look, I would like to do business with you, here is how I can
do better than somebody else. If you want more information call
us, if you want to sign up here is the form, we look forward to
being of service to you. Simple as that. I do not like PIN
numbers. I have got enough PIN numbers already, and I do have
something here about a PIC thing if you want to see that. But I
just think let's just do business normally, and the people who
won't do business normally have something to hide.
Senator Durbin. I also think PIN numbers are the subject of
age discrimination because I get older and forget my PIN
numbers and the ATM machine starts rejecting me. It starts to
think I am some sort of a bandit.
The point that you made that I want to ask the FCC is worth
following, too. Is there any compensation to the local billing
phone company from the long distance carrier for billing, for
example, in other words, does your local carrier, in our case
it would be Ameritech, in yours I believe Bell Atlantic, you
read the disclaimer there and suggested that it may not be all
together complete in its disclosure, that there may be a
financial interest for Bell Atlantic in billing it or in who
the long distance carrier might be, and I do not know the
answer to that question. We could find out later on. But
usually they have argued, the local carriers have argued--we
are just pass-throughs. We receive this information from the
long distance carrier, we assume it is true, and we send it
without any verification. We change the long distance carrier
because they tell us you, the customer, have authorized it. So
that is their defense in most cases.
And then to add another element to this, if we were going
to ask them to verify it is going to add to the cost of the
process and probably slow it down. That is an element which we
can bring up with the FCC. I am glad you raised that.
Mr. Klein. I don't think they are doing this just because
they are good guys, putting it on their bill. They must be
somehow compensated as a collection agency; if nothing else,
they should know who they are doing business with.
Senator Durbin. Thank you very much.
Senator Collins. Thank you very much. I want to thank you
very much for your testimony this morning. It was extremely
helpful because each of you were slammed in a different way,
and it will help us better forge a solution to this problem, so
thank you very much for taking the time and being with us
today.
Our second panel this morning includes Susan Grant, the
Director of the National Consumers League National Fraud
Information Center, and Dan Breton, the Director of
Governmental Affairs for Bell Atlantic in Portland. These
witnesses will testify about the growing problem of slamming,
their roles in educating consumers about slamming, and what
consumers should do if they discover they have been slammed.
I would note that Ms. Grant is no stranger to the
Subcommittee. She testified just recently at our hearing on
Internet fraud, and her organization does a great deal of good
work to help consumers deal with telemarketing slams and scams.
Pursuant to Rule 6 all witnesses who testify are required
to be sworn, so I will ask that you stand and raise your right
hand.
[Witnesses sworn.]
Senator Collins. Ms. Grant, I am going to have you go
first.
TESTIMONY OF SUSAN GRANT,\1\ VICE PRESIDENT, PUBLIC POLICY AND
DIRECTOR, NCL'S NATIONAL FRAUD INFORMATION CENTER
Ms. Grant. It seems like we are doing a scam a week, Madam
Chairman.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Grant appears in the Appendix on
page 94.
---------------------------------------------------------------------------
Madam Chairman, Senator Durbin, the National Consumers
League, the oldest consumer organization in the United States,
is pleased to have the opportunity to present you with more
insight about the dark side of telecommunications competition,
slamming. The rising incidence of slamming, unauthorized
carrier switching, not only poses a nightmare for consumers but
it also threatens to undermine the benefits of
telecommunications competition. The National Consumers League
has advocated for fairness in the marketplace since its
founding in 1899, but slamming is not fair. It robs consumers
of the right to choose their own carriers for telephone
service. In 1997 our National Fraud Information Center, which
is a hotline through which consumers can ask for advice about
telemarketing solicitations and report suspected fraud,
received 810 consumer reports about carrier switching. And here
they are; I lugged them with me to Maine to show you. Most of
these are about resellers of telephone service who buy service
in bulk from the major carriers and resell it, although we also
do have a small percentage of slamming complaints against the
major carriers as well.
We know that, even though carrier switching was the fifth
most frequent subject of reports to our National Fraud
Information Center in 1997, that this is just a tiny fraction
of the actual problem. In our written testimony we presented
you with statistics from Ameritech for 1997 showing the
incidence of slamming reported to that company in the five
States in the Midwest that it covers. It received a record
115,585 slamming complaints, more than double what it had
received in 1996. In fact, the regional telephone companies are
really the best sources for statistics about slamming, because
they are the ones who under contract and for a fee provide
switching and billing services for the long distance and local
telephone companies, local toll companies.
However, we know that even the numbers from the regional
Bell companies are probably not the whole picture because not
all consumers complain, that in fact not all consumers may even
realize that they have a problem. And as noted in our written
testimony and referenced by Senator Durbin, we conducted a
Louis Harris survey in the Midwest in September of 1997 to see
how consumers were faring in the new telecommunications
marketplace. Overall, nearly a third of the consumers had
either been slammed themselves or knew someone else who had,
and in Chicago the incidents were higher, 36 percent of those
consumers. And as has been referenced before, not only were
minorities hit higher with slamming but also, the higher your
monthly telephone bill is, the more attractive a target you are
for slamming. I can testify to this personally because in
Washington I share a house with a couple of other people. Last
summer we got a new housemate from India who makes frequent
calls home, and he was not in the house for more than a month
when we got slammed by another company. We were obviously a
much more attractive target.
In preparing for this hearing, I read all 810 carrier
switching complaints that we received last year, and as I did
so, I got angrier and angrier. And at the risk of exceeding my
time, I just want to read you some of the ways that consumers
are tricked and deceived.
Here is a woman from Dover-Foxcroft, Maine, got a call from
a company purporting to be NYNEX saying that they were going to
place all of her bills on one piece of paper. She agreed but
said she did not want her long distance service switched. They
switched her anyway. She called to dispute and they claimed to
have no control over the telemarketers that they used. They
were not NYNEX, by the way.
A man from Illinois, this company switched his long
distance carrier without his permission. They told him that his
wife had signed a card giving permission to switch. He received
a copy of the signature. Not only was it not his wife's
signature but it was not even her name.
Here is a person from Minnesota, long distance switched
again, company claimed her husband filled out a form to
authorize the switch. They sent her a form that had been filled
out in somebody else's handwriting, and when they continued to
question it the company said that the company would require
proof that this was not his signature.
Tyler, Texas, woman has a freeze on her line, a PIC freeze,
but was slammed anyway.
Seattle, Washington, company claimed to be U.S. West
offering billing consolidation. As I said in my testimony, this
is the most common ploy that is used, and it is because
consumers are just so tired of all those different pages of
their bill that it sounds attractive, I think. This was a
company. The office assistant who answered the phone said no
but the service was switched anyway. When they questioned the
switch they were played the tape. The tape was only a segment
of an unrelated conversation where the person had answered yes
to some questions, and the company said that it would cost $25
to hear the rest of the tape.
California, company talked to this person's minor daughter
on the phone. They asked her for her name, birth date, and what
long distance carrier they currently had and then switched with
the minor's authorization.
This is somebody from Texas who is complaining on behalf of
a friend who is hearing impaired. And the company said that it
had telephone authorization of the switch, which in her case is
absolutely impossible. This is the second time that this person
has been switched.
A man from Indiana answered an ad for a job putting long
distance service in stores. He never received the materials to
actually do the work, but his long distance service was
switched, and he also found monthly charges for a calling card
and an 800 number service that he never agreed to. So he was
both crammed and slammed.
A person from Oklahoma whose long distance was switched,
the company refused to remove the charges and had a doctored
tape of her husband, who had refused the offer to switch but
agreed to have information sent through the mail.
California, person got a call from somebody pretending to
be with AT&T, just asking him how he liked his service, and
when he said that it was fine they used that as authorization
to switch him.
And here is somebody from Minnesota who was switched when
her son signed up to win a prize at a carnival, son is a minor.
And finally another person from Maine, this in Camden, who
was contacted by a company that represented itself as his local
carrier offering billing consolidation. He agreed, not
intending to ever switch his long distance service, but he was
switched and the new charges were four times the previous rate
that he had been paying with his original carrier.
Madam Chairman, these situations demonstrate that consumers
have lost control over their telephone service to liars and
thieves. And even the PIC freeze option, which is where you
arrange with your local carrier for them not to effect a change
order unless you have contacted your local carrier directly to
say that you are switching, is not foolproof. As we understand
it, if the slammer is a reseller of the service that you have
from your original carrier, for instance, if you have AT&T and
the slammer is a reseller of AT&T service, then the PIC freeze
system can't recognize that there is a change in service
because the telephone service is ultimately still being
provided by the same carrier. There seems to be a real
disconnect between the service and changing your service on one
hand and the billing and being billed for various service
providers at different rates on the other hand. And we see this
as a major problem, especially since we promote the PIC freeze
as an extra measure of protection that consumers can get.
The status quo is really unacceptable and half measures we
do not believe will solve the problem. We have seen our
different methods of verification that are required are already
abused, written authorization that's forged or hidden on those
contest entry forms, doctored tapes, and the negative option
notices.
To address these problems, we make several suggestions, and
one of them is the PIN number. I realize and I agree that none
of us want to have to memorize another number. I suppose you
could have the same number as you use for something else, a
calling card or a bank account, or something else that would
only be known to you and not known to competitive telephone
companies, so that you could actually make sure that you were
verifying your switch. Another alternative would be a welcome
packet that works the other way around where you actually
receive a notice saying that you have been switched and unless
you respond to confirming that that's your desire then no
change would be made.
Senator Collins. Please take as much time as you need.
Ms. Grant. Oh, thank you. As you can tell I am really
incensed about this problem, especially after spending the
night reading these, and I am desperate to help you with a
solution to this.
We really think that another important part of any kind of
remedy should be minimum standards for the telephone service
providers and the billing aggregators that they sometimes use
to handle their--act as the middle man between the local
company that does the billing for them and the actual service
provider to handle consumer complaints. All of these express
great frustration of the trouble that consumers have, when they
call they can't get through, the lines are busy, they get hung
up on, they are abused if they do get through to somebody.
There ought to be minimum standards for how disputes will be
handled, and if companies do not meet those standards that
should be a basis for the local telephone companies that
provide the billing service to refuse to continue or to refuse
new billing services.
We would like to also see the addresses of the telephone
service providers on the bills. Right now consumers have no
idea who these companies are or where they are. And though the
company names appear on the bills, as has been pointed out
before, that may not be recognizable to you. If it is a name
that is Business Discount Plan, you are not recognizing that as
the name of the company. It sounds like it is a service. And
also if consumers cannot get through on the phone to complain
to these companies, which is a common problem, they do not have
any address to write, to register their dispute, and it is
difficult for them to report the problem to an organization
such as ours or a law enforcement agency that needs that
information.
And most importantly, we want slammers to be hit where it
hurts, in their wallets. We do not think that consumers should
have to pay the charges that slammers assess. We believe that
it is not the consumer's problem to have to figure out how much
their original carrier would have charged for those calls and
then remit that amount to the slammer. It is a terrible burden
to place on consumers, and we also think that by taking away
the ability to collect some money from consumers that would be
an economic disincentive to slamming.
We also support the idea of stronger penalties. I would
note that the FCC can already impose very, very stiff civil
penalties. If consumers could go into small claims court and if
States could also seek both actual and punitive penalties, I
think that that would help. And I think that criminal penalties
are appropriate for situations in which there is deliberate or
repeat incidence of slamming.
And, finally, we recognize the importance of public
awareness and education to fighting fraud. Your witnesses today
have said that what they really need is information about how
to shop for telecommunications services and what to do if they
are slammed, crammed, or have any other kind of problem in that
regard. And the National Consumers League is leading the way in
that effort. We have a free publication that we just came out
with, ``Make the Call,'' which gives consumers information
about how to shop for different kinds of telephone services and
also tells them what to do if they are victims of slamming,
cramming, or other telephone billed fraud such as 900 number
fraud. This is available free in English and in Spanish from
the National Consumers League's web site, which is
www.natlconsumersleague, all one word, dot org, or by calling a
special 800 number, 1-800-355-9NCL, and leaving a message with
your name and address and whether you want to get this in
English or Spanish. We have 350,000 of these, so we really want
to get them out to as many households as possible.
In summary, we believe that if as much energy is put into
solving the problem of slamming as is presently being put into
developing new kinds of telephone services that consumers can
be charged for, we would all be better off. Consumers would be
less victimized by slamming, and the benefits of
telecommunications competition that we have all been promised
will be realized. And we will be really glad to continue to
work with the Committee and the Congress in this effort. Thank
you.
Senator Collins. Thank you very much, Ms. Grant. Mr.
Breton.
TESTIMONY OF DANIEL BRETON,\1\ DIRECTOR, GOVERNMENTAL AFFAIRS,
BELL ATLANTIC
Mr. Breton. Good morning. Thanks for allowing me to
represent my company, Bell Atlantic, on this issue of slamming
and how it affects consumers. I am Dan Breton. I am the
Director of Government Affairs in Maine, and I am a Maine
native. I have 20 years of service with Bell Atlantic and the
NYNEX and New England Telephone companies.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Breton with an attachment appears
in the Appendix on page 106.
---------------------------------------------------------------------------
Bell Atlantic, for people not familiar with the State, is
one of 24 local exchange carriers that make up the Telephone
Association of Maine. Additionally, there are also a couple of
other companies that provide local service, 80 percent of the
consumers are served by Bell Atlantic service in Maine, about
670,000 lines of service. Our consumers can now choose from
about 200 companies for long distance services, and as of last
September Maine consumers can now choose to use any long
distance carrier for in-State calling without having to dial
extra digits. So with all this it sounds like a great thing,
great new services, great new prices. Unfortunately it has
caused some confusion. Slamming is one of those by-products of
having this many choices for consumers to have a chance at
reaching for.
Last year we administered over 363,000 changes of
customers' choices for long distance carriers for out of State
calling. We also in the September to December period processed
about 83,000 changes for intrastate calling, in Maine calling,
in that short amount of time that customers were allowed that
option. Again, that is based on 670,000 lines, but that is a
lot of changes. Some people may have made more than one change,
but that gives you a perspective.
Earlier Senator Collins mentioned that 86 percent of these
preferred carriers changes are made to us via electronic
transmission of tapes from the long distance carriers, and I
believe I am out of my element to talk on behalf of long
distance carriers. I am really trying to speak from my
company's perspective, but I believe initially it was the
feeling that we should make it as easy as we can to let
customers choose long distance carriers other than the dominant
carriers that provided service around the divestiture period.
Long distance companies like Bell Atlantic for in-State calling
and AT&T was the dominant carrier by far for out-of-State
calling. So to open the market for that, we want to make it as
easy as possible for choices to be made.
The long distance carriers have the responsibility of
maintaining records that they have had received, from some
consumer, notification and a positive response of some sort,
before they contact Bell Atlantic. We process the change.
Again, when it is done electronically we probably do--with
these kind of numbers a total of 440,000 changes were made last
year. You can imagine how many we have to do per day just to
keep up with it. And we have to do it very timely. Some of
these long distance plans are dependent on timing as well as
for the consumer to get their 5 cent a minute rate or what have
you, whatever they have chosen to do.
Again, there were 643 slamming cases that we know of in
1996, 1,582 in 1997, so it is a little bit more than double.
And those are known cases. We do not profess that everybody has
called us. The customer reaction that our service reps deal
with is surprise, frustration, and confusion.
We are sometimes the first to hear about a slamming episode
because a customer notices the $5 charge to change their
carrier on a telephone bill that we provide, and so we are
probably the first to get, ``hey, what is going on.''
We bill for other carriers. It was brought up in prior
testimony. We do billing and collection. It is a business--a
line of business for us; we do it as an offering. Some carriers
do their own billing. Some of the larger carriers want to
maintain that relationship with their customers. We do billing,
and included in our fees are charges for recovery of collection
of those telephone calls, as well as some factors in for bad
debt and uncollectibles. And as we run into the uncollectibles
for some carrier whose actions and practices causes the
customer to not want to pay, that is factored into our
negotiation with that particular long distance carrier. There
has been a case where we have refused to do billing for a
carrier because of the number of complaints that have taken
place. We do have one incident that I know of in our territory.
I am sure there are other examples throughout the country.
The key points that I would really like to make is that our
Bell Atlantic employees, we have 1,600 in Maine, we have
133,000 across our footprint, are trained and instructed to try
to make things right for a customer who does call in with a
problem caused by--especially caused by slamming, and it is
probably the largest growing amount of calls we get. We
instruct our employees to waive the charge, the $5 charge, that
the customer incurred and to restore the customer to their
original carrier if that is what the customer wants. There are
those odd cases where the customer says, well, I did not know
what the $5 charge on my bill was, I am getting a much better
long distance rate, leave me alone. Fine, so noted, but I don't
think that that is the dominant response. We restore the
customer to the original carrier at no charge so they will have
paid nothing, and in some cases we will refund the money.
We would rather have the customer deal with the carrier.
There should be an 800 number on every page of the bill.
Unfortunately some customers do not get recourse from the
carrier. If they come back to us we will take the charges off
and we will go after the carrier if we have that ability to do
so. If we do not bill for the carrier, unfortunately, we do not
have that capability. What we would do in that case is we would
waive the $5 charge and instruct the customer to ask the
carriers as many questions as they can to understand what
happened and to request a rebate.
We offer the PIC freeze. If 86 percent of carrier changes
are done via an electronic process, then the PIC freeze should
go a ways to preventing that from happening again. We have to
hear from that customer to make the change, and we prefer to
ask the customer a few questions that probably they would know
more so than others. Rather than put the whole litany out
there, it could be a Social Security number, it could be maiden
name of a relative, it could be something to identify it. We
are just trying to make it so that if that customer decides
that, hey, this new long distance company just came into town,
giving me a heck of a rate, I have to be able to swap over to
that carrier when I call you, in that instance. When a customer
puts a PIC freeze on, I do not have any evidence--any numbers
as to how often they reverse that, but it--the intention is to
have only the customers that make the change reverse that
change.
We believe Congress is in the right frame of mind when they
want to bring attention to this matter via your hearings, via
the newsletters that you are putting out to your consumers, and
you should bring attention to it. We support stiffer penalties.
I believe we testified to that before the FCC, and we want to
make it as easy as possible for people to add a PIC freeze.
There was that incidence early on where we--local exchange
companies, and I can see where the attack came from, of course
you want them to freeze, and that freezes them into a long
distance choice that may benefit you. We advocate for as many
free opportunities as soon as possible; let the customer make
that decision. We always should be saying, and we try to say it
as often as possible, we are for a free market out there. When
we are allowed into long distance out-of-State, we hope that we
win, if we win business, with customers that want to stay with
us and that they know they bought our service.
We support education, in the front of our directories we
are putting information about these particular incidences like
slamming, the chance of a PIC freeze. We have it in our
advertising. The customer billing information notices that we
send out carry that from time to time. We send those out
monthly for residents and for business. And we really emphasize
this matter in our employee training and if we have an employee
that is on the line with a customer, there is no excuse for
them not knowing what to offer the customer, how to remedy the
situation. And it will be so noted, and we will do some
additional training if we have to with that employee.
We are participating in the rule making at the FCC, and you
may want to know that last week we supported legislation in
Maine, that's LD2093, to introduce slamming protections in the
Maine statutes. The bill is not completed yet. It has a very
good consortium of consumer advocates as well as long distance
carriers and local exchange carriers trying to put together
something. It will have penalties and the slamming party will
not receive money. That is the direction we are headed in and
that is the direction that Bell Atlantic has advocated for. If
you are a slammer, why should you get any money out of this.
Those are some of the ideas we have, and I would be more
than happy to answer any questions you have.
Senator Collins. Thank you very much, Mr. Breton.
It has been difficult to get a handle on the extent of
slamming. If you look at the FCC statistics, they clearly
understate the problem, as the FCC has said. When you look at
the local telephone companies, I still suspect that the problem
is greatly understated.
Mr. Breton, I think you said in your testimony that Bell
Atlantic did process more than 360,000 changes in long distance
carriers last year for your customers; is that correct?
Mr. Breton. That was for carriers for out-of-State calling,
and you would have to add to that almost 83,000 for in-State
calling as well, so we processed that many.
Senator Collins. So when you look at the total universe it
is well over 400,000 changes, which is absolutely astounding to
me that there were that many changes.
The FCC Commissioner who is going to be testifying next
says that it is probably a conservative estimate to say that 1
percent are changes that resulted from slamming. So what we are
talking about potentially, even if you do a conservative
estimate, is more than 4,000 Maine citizens being slammed in a
year; would you agree with that?
Mr. Breton. If you leave the 1 percent, I do not have any
knowledge to back that up, but that is what--everything I am
reading points to large numbers. And of the 440,000--if you
start from that universe you can come up with those numbers as
you approach the 10 percentile.
Senator Collins. Ms. Grant, similarly a lot of consumers do
not complain to you more than they do to the FCC. Is your
impression in dealing with State regulators and the consumers
that you talk with that this problem, if anything, is
understated?
Ms. Grant. Oh, absolutely. And I think the Lou Harris
survey that we conducted in the Midwest bears that out. We
found that of the respondents with slamming experience only 7
percent of them reported it to any kind of government agency, 2
percent to a nonprofit group such as ours. So we can see how it
is vastly unreported. Although it is not scientific, all you
need to do, though, is be in a gathering with your friends and
ask how many people have been slammed, and you will find that
the vast majority have been.
Senator Collins. I think this problem is much more
prevalent than is generally realized, and I think there are a
lot of people who do not realize that they have been slammed.
If you look at the statistics just for Maine, there were 51
complaints to the FCC last year, there were 1,600 complaints,
approximately, to Bell Atlantic, and yet if you apply the 1
percent ratio probably we are talking about 4,000 Maine
citizens who were slammed last year, some of whom may not even
realize to this day that they have been slammed. And Ms.
Grant's observation is very similar to mine and to Senator
Durbin's. If you talk to any random group of people you find
out that there are people who have been slammed. I mention this
because it troubles me that this is so widespread and that it
is going in the wrong direction. We do not have the controls in
place now to discourage and deter companies from slamming
consumers.
Mr. Breton, can you give us some idea of the cost to local
telephone companies, to Bell Atlantic, for you to remedy
slamming complaints? After all, you did not cause these
complaints, yet you are the one that usually the consumer
calls. In some cases they call the long distance carrier
directly, but frequently they cannot figure out who the long
distance carrier is or how to contact them.
Mr. Breton. Senator, we have not been tracking specific
costs lost to working on the billing or the rebates, long
distance switching fees. We intend to do so. I do not have any
hard data on that. It takes awhile to do every case. If we know
of 1,500 or so cases you can begin to extrapolate the costs of
a service rep's time on the line, because we view this as--I
know they are doing productive work, but it is also
nonproductive time. It is not getting us ahead or it is just
remedying a situation, but I do not have any data at this time
of specific costs.
Senator Collins. Do you think it is a substantial cost to
local telephone companies to remedy these problems? The reason
I am pressing this issue is ultimately that is passed on to us,
the consumer, because it is going to be built into the rate
structure ultimately, so I think the local telephone company
getting a handle on the cost is important because ultimately we
pay the cost.
Mr. Breton. Yes, I do not know how to--they do a nice job
of defining within my own company substantial, but any time we
spend 1,500 cases and it is growing on this kind of problem, it
is costly.
Senator Collins. Could you describe for us some of the
reactions of consumers who call Bell Atlantic? Are they
puzzled; are they angry; do they understand what's happened?
Mr. Breton. They are very puzzled because it--when a charge
like that appears without any knowledge in their own home, and
there are a lot of people living alone, when it happens to
somebody living alone, there is no way that they could have
authorized that, there is no doubt that maybe another person in
the household did it. So they are very confused at times. When
slamming first started happening we were trying to figure out,
well, there must have been some discussion. Now we quickly
explain what might have happened to try to get the consumers
beyond the anger. And the anger--we try not to blame anybody
out of this, but obviously your first advance as a service rep
is to try to point out you are here to help, you did not cause
the problem, but you would like to try to turn it around.
Senator Collins. Do some of the consumers who call you
mistakenly think that Bell Atlantic caused the problem for
them?
Mr. Breton. Yes, they do. No matter how much money we put
into advertising trying to separate ourselves from other
carriers, even my godmother insist I work for AT&T, that has
not been since 1984 that we were part of that system. And it is
there in the consumers. These consumers have not made changes
in their phone service for ages. They are very accustomed to no
change at all, and this is very confusing. So they expect us to
remedy the situation and to make it right. Because we bill for
a lot of carriers, we will carry the ball as far as we can for
the consumers, but we do take the brunt of the hit on the first
call, and that is usually where the most venting is taking
place. And then we will get another call if they cannot reach
the carrier, and that is a problem.
Senator Collins. Many consumer groups, including the one
represented by Ms. Grant, recommend to consumers that they ask
for a PIC freeze. Does Bell Atlantic offer a PIC freeze up
front when someone calls to start telephone service?
Mr. Breton. I did not check--when somebody is just
initiating basic service, I am not sure. When somebody has a
slamming problem, yes, they do offer it. We offer it right up
front on the slamming complaint, but I would have to do some
checking on that other situation.
Senator Collins. From my experience the answer to that is
no, that the offer or the explanation that a PIC freeze exists
only occurs upon the consumer complaining of slamming. One
problem with doing it up front is right now you are the honest
broker in this, but ultimately I assume Bell Atlantic is going
to get into the long distance business. If that happens, is not
the local telephone company now put into a situation where it
has a conflict of interest in trying to resolve these slamming
complaints?
Mr. Breton. We do plan to be in the long distance arena; we
have filed in New York. We are opening our markets in just
about every State. We are susceptible to that complaint, that
as a local carrier you have an advantage, we expect to do the
long distance business through the guidelines of the Telecom
Act that put together some pretty distinct areas of how to
separate this kind of business. We will follow those and make
it as fair as it can possibly be made. There will always be
people saying that we have an unfair advantage, but the best
way to change these carriers on telephone lines is through the
local exchange carrier. I know in Portland here we have
competition for the local lines; somebody is providing that. So
any local exchange carrier, maybe in 3 or 4 years we will not
have the numbers we have. For example, in Maine our long
distance dominance in in-State long distance calling is less
than 50 percent on business lines. We have had that market
attacked by 180 carriers. So we do not have all those market
numbers that we used to have. And we expect that as we continue
to open our markets that we will have competition, but we will
take on that kind of concern.
Senator Collins. Ms. Grant, I know you have a lot of
expertise in telemarketing scams. In many cases that we have
learned about, telemarketers have been involved in the
slamming. Do you think that there is an economic incentive for
telemarketers to engage in deceptive practices because they are
likely to be paid in part on a commission basis?
Ms. Grant. Yes, I do. And we know that in many of the
instances where we have carriers that we would consider
legitimate major carriers accused of slamming it is because
they have outsourced. They have used outside marketing firms
who are paid by a commission basis, and obviously they then
have an incentive to claim the highest number of consumers
possible as having agreed to switch.
Senator Collins. Some of the more reputable long distance
carriers have found that they had a problem when they
outsourced the telemarketing but that that problem and thus the
number of slamming complaints declined once they brought it in-
house. Another approach taken by some of the larger long
distance companies is to have a third-party, independent
verifier of the consumer's willingness to change carriers. What
do you think of those two approaches?
Ms. Grant. I think that retaining your marketing functions
in-house obviously gives you more control. But you could
probably have very good monitoring provisions if you use
outsources for that.
In terms of independent verification, we have seen so many
abuses in that regard where even though the verifier and the
company that is selling the service are supposed to be
separate, they appear to be in league, just very easy to do.
And the salesperson will in some cases be standing right there
with the verifier in the same conversation putting the person
on the line to verify the change. I think, although independent
verification is an attractive part of the solution, it is hard
to ensure that it really is independent, and that is our main
concern.
Senator Collins. Could you describe for us some of the more
fraudulent telemarketing techniques that you have encountered
in going through the complaints? The reason I would like you to
do this is to help educate consumers on what to beware of.
Ms. Grant. Well, there is no bounds to the creativity of
crooks. As I said, the most common kind of ploy that we see
used is the billing consolidation, which is really confusing
for people because they do not even really understand what that
means. Consumers in most cases get all of their various kinds
of telephone charges in one bill anyway, but I think just the
sound of billing consolidation is attractive because people are
so overwhelmed with different pieces of paper. Very often these
marketers will claim to be the consumer's original long
distance carrier or local carrier and are just offering a new
way of billing. Sometimes they claim that in fact this change
in billing, this bill consolidation, is something that is now
required by the Telecommunications Competition Act. Sometimes
they claim to be calling on behalf of the Federal
Communications Commission.
Senator Collins. That is pretty bold.
Ms. Grant. Yes, they are. They are very bold. These are
people who probably are engaging in other kinds of scams as
well and lying is just second nature to them.
Sometimes they claim to be conducting surveys about either
telephone service or something else entirely, and they'll walk
consumers through a series of questions and they'll tape record
their answers and they'll get various yeses to different
questions, and then later they'll produce a doctored tape that
is supposed authorization using those yes answers.
Sometimes they will approach small businesses telling them
that they are such great customers that they are going to be
offering them a new discount plan. And, again, they will be
pretending to be their original carriers. There is no agreement
that you are going to be changing, just that you are going to
be on some new reduced rate plan. Who could refuse that, that
sounds great, and so people say yes to that. And then the next
thing they know they get a bill from one of these companies.
And not only were they switched without their consent but it is
no rate reduction at all. It is usually three or four times
higher than their original carrier.
The prize promotions, we know that that is another common
way where you fill out some kind of entry form at a county fair
or a mall, also product promotions for coupons to get free
products is another way that people are roped in for both
slamming and cramming, where they are signing something not
reading the fine print.
The job scams. The most amazing one that I have ever heard
of, and we have received two or three calls about this
particular outfit, is a company that calls consumers claiming
to have purchased debts that these consumers owe someone. As
far as the consumers know, they owe no one. But these companies
claim that they have purchased the collectibles on this debt
and that the consumer can get out of the debt and have a clean
credit record if the consumer agrees to buy his or her phone
service from this company. When--I mean, there is no way that
you can even imagine the ploys that these companies will come
up with to either trick people or in this case really
intimidate them into buying their phone service. They say, if
you do not buy our phone service then we will go after you for
these debts and we will take you to court. That is the height
of unfairness.
Senator Collins. Thank you.
Mr. Breton, you mentioned that you are supporting
legislation at the State level related to slamming. I would
like you to be very specific for Senator Durbin and for me on
what changes you would like to see at the Federal level,
whether through regulation by the FCC or through changes in the
law. And to give you an example, for example, should welcome
packages be prohibited by the FCC? Should we have criminal
penalties? What would be your advice?
Mr. Breton. We are at a stage now where we are still
reviewing, I believe there are seven pieces of legislation. The
most recent one that came out this week from Senator McCain,
and each one of them has had a different flavor. I know we are
pushing for increased penalties and for slammers not to receive
any of the compensation. I believe right now there is--as I
think Ms. Grant pointed out, that for a consumer to figure out
how much they owe that different carrier after they have been
slammed, that could be a problem for pushing for that. As far
as a welcome package, we are right now reviewing that. The
negative checkoff is problematic. I know in Maine we do not do
negative checkoffs. We had an experience with that that did not
go that well, and we expected not to ever do that again. And so
those are the ideas I have, but I do not have any specific
things other than the comments we filed on the bills.
Senator Collins. When you say that the long distance
carrier should not be able to keep the money, are you talking
about charges that are above the amount that the consumer would
have paid if the consumer had kept the preferred provider, or
are you talking about the long distance carrier not being able
to collect anything for the calls?
Mr. Breton. We are talking about anything. That is what we
propose. I do not know how other long distance carriers have
weighed in on that. But what we are saying is if somebody had
some deceptive action which took you from one carrier to
another without your knowledge, that the new carrier that
caused that action should not receive any money, any advantage
out of this, because it will be a gaming thing. It could be
they do 95 out of a hundred of those and 95 of them hold true
and they keep the money. We would rather have the consumer, if
they are going to pay any money on that bill, would be to the
carrier they expected to pay at at the rates they expected to
pay.
Senator Collins. Some long distance carriers have objected
to that proposal because they believe it would encourage fraud
by the consumer, that a consumer might run up a huge phone bill
and then say, well, gee, I did not realize that I had been
switched and get off without paying the bill. Do you think that
is a real problem?
Mr. Breton. Well, that is an issue in the proposed State
legislation in Maine. While the FCC legislation today, I
believe, leaves the door open for the consumer to pay their
original carrier, the Maine legislation was uncertain as to
what to do. We are concerned that this could create a situation
where some claims could be made. After the claim--we note the
claims on a customer's bill and we waive the charges. I believe
if it happened six times in a row we would catch on to that
consumer. But we would like to not have that possibility
because it could be at that one and only time that a $5,000
bill was run up. But our contention is we would just rather not
attract more administrative problems through slamming, and to
close a loophole on somebody making a false claim to get a free
phone bill, it puts us in a tough spot. We would rather just
avoid that whole situation, and the consumer's understanding
would be I made 30 minutes worth of calls, I would have paid
this much with my other carrier, that is what I expect to write
a check for this particular month.
Senator Collins. Mr. Breton, do you think that the local
telephone companies should be required to report to the FCC if
they are getting a spate of complaints involving a particular
long distance carrier? Should there be some obligation on you
to alert the FCC if all of a sudden you are getting tens or
hundreds of phone calls that implicate a particular long
distance carrier as being an egregious slammer?
Mr. Breton. I would like to try to sidestep that answer
only because it puts us in a spot of turning the policing act
on the telephone bill to a carrier that we might very well be
competing with head to head in in-State, and this would put us
in a tough spot. When we were formulating our responses for
today, we allude to in some background material to the
scorecard compiled by the FCC without really mentioning any
carriers because it puts us in a difficult spot. If we were
forced to track that and turn it over, obviously, we will do
what we have to do. But we would rather not be the first to
scream about ABC company having 10 slams in a row. I know that
we will probably terminate the billing arrangement we have with
them. That would be how we deal with most of it.
Senator Collins. I guess what troubles me about that answer
is the average consumer is not going to call the FCC and
complain. The average consumer's not even going to call the
National Consumer's League and complain. They are going to call
you. The average consumer has no idea whether or not the
problem that he or she has experienced is an isolated one or
whether or not a whole lot of other customers are being slammed
by the same company. So what I am struggling with is how do we
trigger the FCC to take action against a particular carrier. If
consumers are not complaining to the FCC, and I would not
expect them to do so, and you are not reporting a pattern of
deceptive practices, then I am unclear how the FCC, and I am
going to ask the Commissioner this question, how the FCC knows
to take action.
Mr. Breton. I guess what I would offer is we would be
willing to track it in any way that would be competitively
neutral so that we didn't expose ourselves to a situation. But
as far as tracking, yes, if we track I believe that information
should be available to agencies such as the Maine Public
Utilities Commission, which we do show complaints to them and
the nature of the complaint as well as the FCC. I would want to
say we would want to turn them over, but we would want to be
very careful so that we would have a mechanism of turning them
over without starting a side show that takes away from the real
problem.
Senator Collins. Ms. Grant, my last question for you is
very similar to that which I posed to Mr. Breton, and that is
what specific recommendations would you have for regulatory
changes that could be implemented much more quickly by the FCC
and also statutory changes to deter this very unscrupulous
practice?
Ms. Grant. I do think that the FCC should set some limits
to the number of complaints that a company can have before
action is taken, and there could be a series of different
levels of actions that the FCC would take, depending on the
number of complaints and whether it is a repeat offender. But
what happens now is that there need to be so many complaints
before the FCC acts or before a local company feels that it is
able to terminate its relationship with a service provider
without fear of some kind of liability. But I think it would be
very helpful to the local companies as well as consumers in
general to have those kinds of minimum standards for how the
companies conduct themselves.
Senator Collins. And do you see the need for some law
changes as well? Senator Durbin has suggested criminal
penalties for repeat offenders. That is an idea that I find
very appealing as well; it is deliberate and it happens time
and time again. Or perhaps we should make sure that the FCC
revokes a carrier's license, or whatever the proper term is, in
the case of a repeat offender. Do we need stiffer fines; are
there any law changes that you would like to see?
Ms. Grant. Yes, I think that law enforcement agencies at
both the Federal and the State level need more tools to shut
these people down and to penalize them. And also, as I said
before, I would like to see the law say, as it does for
disputed 900 number charges, that the consumer has the right to
refuse to pay. I think ultimately the most effective way of
going at this is to take away the economic incentive to slam.
Senator Collins. Thank you. Senator Durbin.
Senator Durbin. Thank you, Senator.
Let me try to get an understanding first of the local
situation, and then I want to ask a broader question.
So at the current time Bell Atlantic does not offer long
distance service?
Mr. Breton. That's correct. We offer State long distance
service, in-State, within Maine only.
Senator Durbin. OK, so you would not offer it to
Massachusetts or Illinois, whatever?
Mr. Breton. Yes.
Senator Durbin. And how many companies compete with Bell
Atlantic for local service, within Maine, for example?
Mr. Breton. When you say local service, are you talking
about the dial tone line going into your home?
Senator Durbin. Yes.
Mr. Breton. There is one competing head to head with us in
Portland now. We have about--contracts with about eight others
that have the authority to compete. But one right now head to
head in Maine, and there are 23 other telephone companies
providing service in Maine in their own territories.
Senator Durbin. And you said there were about 200 long
distance carriers that Bell Atlantic bills for at the current
time?
Mr. Breton. There are about 200 carriers that are
authorized through the Maine Public Utilities Commission to
provide long distance service in Maine, and we bill for a
majority of them but I do not have an exact number who we
actually bill for.
Senator Durbin. So if I wanted to start a long distance
telephone company and sell to people living in Maine, I would
have to go through some State process of approval through your
Public Utility Commission?
Mr. Breton. Yes.
Senator Durbin. Is that correct?
Mr. Breton. That's correct.
Senator Durbin. And once having received that approval from
the State utility commission, then is it your obligation to
bill, to pass the bills along to my long distance company?
Mr. Breton. If they contracted with my company, absent some
reason why we could not or should not take their business, we
would probably do the billing and collection for that
particular company.
Senator Durbin. That is what I would like to focus on
because I think that is an important element. You suggested
that you had turned down, refused to bill, for one long
distance carrier. What was the reason?
Mr. Breton. The reason was repeated complaints about
slamming.
Senator Durbin. All right. And I take it that you can do
that without violating any consent decree from Federal courts
or any State law; that is Bell Atlantic's decision.
Mr. Breton. That's correct.
Senator Durbin. So does Bell Atlantic take on--as a
regional carrier take on the responsibility of monitoring the
long distance carriers to see if in fact there are increasing
numbers of complaints about specific carriers?
Mr. Breton. I am not aware that we do. I am not aware we
have a specific procedure for looking at these things today. I
know that slamming has heightened our awareness as to problems
caused by the situation.
Senator Durbin. So how did you come to the conclusion about
this one company that you wanted to stop doing business with?
Mr. Breton. I do not have specifics on that. I could get
that. But I believe it was the nature of how many calls we were
taking based on the number of bills we were providing for them
was getting problematic and we did not like their practices.
Senator Durbin. But, for example, if a company is
relatively new to Maine and it turns out to have been a bad
player in Texas or Illinois and had problems with the FCC and
in fact were fined substantial amounts for those problems, what
you are suggesting is that Bell Atlantic under the current
process and rules really would not take that into consideration
as to whether they would play the middle man and bill for that
long distance carrier in Maine.
Mr. Breton. That is a good question, Senator. Within our
own footprint of 14 States we would use our own information
that we can gather about that particular client and share it
amongst each other. I do not know if we would share it with
Ameritech, what have you, to say stay away from this bad actor,
they are going to cause a problem. I do not know.
Senator Durbin. Does Bell Atlantic get compensated for
billing this long distance service?
Mr. Breton. We get compensated for billing and collections
and there is a factor added in for uncollectibles, for bills
that are bad debts.
Senator Durbin. So this is in fact a business proposition
for Bell Atlantic. There is money to be made; obviously you
would not do it. And you are providing the bill to the consumer
with the name of your company on the bill and have something
in-State, too. What I am driving at is, going back to Senator
Collins' point, is seems like the regional companies here are
not passive players. You are active players in this process,
and you in fact make a profit off these long distance
companies. You in fact decide whether you want to do business
with these long distance companies. And the question she raises
I think is very pertinent. You may be the only source of
information to help police against these companies. And I also
think that your burden as a regional carrier should go beyond
your footprint, as you say. If your company, as large as it is,
and the regional companies are rather large, is not following
the FCC action, for example, they on an annual basis or maybe
more frequently will fine some of these long distance carriers
for actions in another State. And I would think that would
raise a red flag in Maine, too, that perhaps they ought to be
on a watch list. And if you start receiving complaints in Maine
maybe it is time to cut them off. What am I missing here?
Mr. Breton. I believe you are on track. I do not know for
sure if there is a watch list. I do not know if we refused to
even take on some business. I just had evidence of the one that
we terminated upon already doing some billing for them. I would
like to talk to somebody in my company in the billing and
collections group to get a better feel for how we screen.
Obviously that would be a concern to us.
Senator Durbin. How profitable are these long distance
carriers we are talking about? I know there are large ones but
there are also brand new ones on the scene. Is there a lot of
money to be made here?
Mr. Breton. I know the size our market is in Maine, the in-
State long distance market in Maine is about a $300 million
market, maybe. But I do not know what it is nationally. And I
do not know how profitable they are, but they are--with 188
certifying in Maine at one time, Maine is a small market, Maine
is a very small market, so there must be something. Maybe one
of the carriers could give us a better idea.
Senator Durbin. Ms. Grant, can you speak to that, do you
know about these long distance carriers and their profitability
and how many there are nationally and what kind of money they
make out of this?
Ms. Grant. I don't have numbers, but I will tell you that
there are more and more every day. Anyone can call themselves a
telephone company now. It is easy because you do not have to
build your own infrastructure, your own network; you can just
buy service wholesale from somebody else and resell it.
I will also note that I believe that there is a list of
deadbeat consumers that is shared by the telephone companies
and I forget what it is called, I know it has come up in
discussion about 900 number problems, so that if somebody has
really abused their ability to have a telephone and stuck a
company in one place, that company shares that information with
its competitors in other places. I don't understand why there
could not be something similar for these slammers.
Senator Durbin. Mr. Breton, say it ain't so.
Mr. Breton. Firsthand knowledge, I do not know. I would
imagine whether we have a bad debt on a customer I know we
carry it forward in our bills. If, for instance, Mr. A ran up a
telephone bill and there is a bad debt there, we will note that
Mr. A cannot have phone service again until they pay off the
bad debt.
Senator Durbin. And would the RBOCs exchange that
information?
Mr. Breton. That I do not know.
Senator Durbin. Let me ask you, one of the things you said
in your testimony is if somebody calls complaining saying I
have been slammed, you make certain that you restore them to
their original long distance service without charges for
changing, either a charge for initiating the slamming service
or for returning to their old service. But there is no
adjustment made on the actual bill for the monthly charges that
might have come from the company that slammed them.
Mr. Breton. If the consumer--we then ask the consumer--we
do adjust, that is correct, Senator, we adjust the $5 charge
that was incurred by the long distance companies for us
changing from one to the other. Then we waive the charge to
restore them back to their original carrier, and we ask the
customer to contact that long distance carrier to see if they
want to give the customer credit and then we will flow that
credit through on the next bill. If the customer calls us back
and says they told us sorry, we are not helping you, we have a
tape, we have whatever of somebody authorizing this change as a
legitimate charge, and the customer still insists that there
was no way they could have done that, we will adjust that bill
and we will go after that long distance carrier.
Senator Durbin. The last area of questioning here is on
this issue of cramming, which has come up a few times here. If
Bell Atlantic wants to offer a new service to customers in the
State of Maine, for example, whether it is call forwarding or
some new modification on that, and they advertise it and the
customer calls and says I am interested in that, how do you in
fact verify that that customer has given approval for this new
charge to be added to the bill?
Mr. Breton. We have a billing name on our records, and we--
if it is that particular person we just verify that they have
service. If they are asking for a service like that, we will
place it on the bill and make it as easy as possible.
We also have a policy, by the way, of removing that charge
immediately if we made a mistake, if in some cases a very
adult-sounding 13-year-old in the household decides to order
call waiting without telling the parents, then we will waive
that charge, absolutely no money will be expended by the
customer on that. So we have a very liberal policy on our own
services like that.
Senator Durbin. But no signature is necessary, no written
authorization, no PIN number, no PIC freeze number? If it is
involved with local service and additions to charges, merely
the oral representation that I am Mr. So and so from Portland,
Maine, and this is my telephone number is enough to change that
service and bring it to the bill; is that correct?
Mr. Breton. That is--we change it on a verbal--yes, we do.
Senator Durbin. Let me just say that I understand that the
regional companies, including Bell Atlantic, are not the target
of this hearing. But I would suggest to you that you are really
intimately involved in this from a business viewpoint as well
as from a professional viewpoint. And I have to agree with
Senator Collins, I think you may be in the stronger position to
deal with this absent changes in the law than virtually anyone.
If there is evidence of wrongdoing by these long distance
carriers, not only in your region but nationwide, you would be
the first to know about it or could be the first to know about
it and protect consumers. I assume that if you do not bill
these long distance carriers that they have to bill directly;
is that correct?
Mr. Breton. That's correct.
Senator Durbin. I think that would be another red flag,
when people start receiving a new bill from a company they
never heard of and they are told that this is your long
distance carrier, they would be alerted many times to the fact
that they had been slammed. So I think that having said that,
and based on your testimony, you have an enormous volume of
changes that takes place, and I am always shocked when I hear
this, how many people really do set out to change their phone
service each year. But I just cannot imagine anybody else in
this process who can play the role of an honest broker as the
regional companies can, and I hope that we can find a way maybe
even without changes in the law to see that take place. Thanks.
Senator Collins. Thank you very much, Senator Durbin, and
thank you both for your testimony this morning.
Our final formal witness of this morning, before we go to a
public comment period, is the Hon. Susan Ness, who in 1994 was
appointed by President Clinton as a Commissioner of the Federal
Communications Commission. The FCC, as we have learned this
morning, is responsible for regulating the telecommunications
industry and handles slamming complaints. Commissioner Ness is
an attorney with a very impressive background in communications
and in the financial arena. We also very much appreciate her
making the efforts to come here this morning, and I think it
has been valuable for her to hear firsthand the problems that
consumers are experiencing.
As I have explained previously, pursuant to Rule 6, all
witnesses who testify before the Subcommittee are required to
be sworn, so at this time I would ask that you stand and raise
your right hand.
[Witness sworn.]
Senator Collins. Commissioner Ness, if you will please
proceed, and feel free to take as much time as you wish, within
reason. Thank you.
TESTIMONY OF HON. SUSAN NESS,\1\ COMMISSIONER, FEDERAL
COMMUNICATIONS COMMISSION
Ms. Ness. Thank you, Madam Chairman. I greatly appreciate
the opportunity to be here today. You are doing extremely
important work on behalf of the consumer and I am most
grateful. Also I want to thank you, Senator Durbin, for your
leadership in this area as well.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Ness appears in the Appendix on
page 113.
---------------------------------------------------------------------------
I sent you detailed written testimony, which I ask at this
point that you place in the record.
Senator Collins. Without objection.
Ms. Ness. With your permission I will just summarize my
testimony so there will be more time for discussion. Certainly
a lot of ideas have been put on the table today, and I am very
pleased to hear these ideas.
As we have heard repeatedly this morning, slamming deprives
individuals and business consumers of a fundamental right, the
right to use their carrier of choice. This is a major problem
in the telecommunications industry, and we at the Commission
share your commitment to eradicate the practice.
Slammers are nothing if not bold. They are equal
opportunity perpetrators. Victims of slamming include Members
of Congress, such as you, Madam Chairman, their staffs, as well
as employees of the FCC. The Commission receives more
complaints about slamming than any other telephone-related
complaint. In 1997 we handled about 45,000 telephone-related
complaints, of which almost half were about slamming. That is
about 20,000 complaints on slamming, an increase of about 25
percent over last year. Now, because many slammed consumers
grin and bear it or resolve their problems without bringing
them to the Commission, we do not really know how many of the
50 million carrier selection changes each year result from
slamming. If it were just even 1 percent, which as we all agree
is extremely low and well understating the case, it would total
over 500,000 slamming incidents nationwide. And we have heard
the scenarios involving deceptive sweepstakes, misleading
forms, forged signatures, and telemarketers who do not
understand the word no.
In complaints to the Commission consumers commonly use
words like ``abused,'' ``cheated,'' ``pirated,'' ``hijacked,''
and ``violated,'' to describe how they feel. And quite simply,
as you have so beautifully stated, consumers are furious that
their carrier selections are being changed without their
consent.
Now we are starting to see complaints of slamming intraLATA
with the short-haul local toll service within the States in
areas where carriers are competing for presubscription. And as
competition is introduced at the local level for local
telephone services, undoubtedly there will be reports of
slamming on that score. So if this was the tip of the iceberg
now, I think we are entering Antarctica.
The FCC has really taken slamming very seriously. Even
before passage of the 1996 Telecom Act, we adopted orders to
ensure that consumers' rights to use their preferred carrier
would be preserved. Our approach has been two pronged. First,
our rules make it harder for carriers to slam. All carrier
changes are required to be verified in one of four specified
ways. And then, second, carriers who do not follow the rules
are severely punished.
We review complaints for patterns of abuse; in particular
we have been imposing very serious fines. Since 1994 we have
taken enforcement action against 17 companies, we have imposed
forfeitures totaling $160,000 against two such companies,
entered into consent decrees with nine companies with combined
payments of about $1.25 million, and have assessed
approximately $500,000 in proposed additional penalties against
five carriers. We also have two major investigations ongoing
which will probably come to public attention fairly soon.
The Communications Act now gives the Commission additional
authority with respect to slamming. The Telecommunications Act
of 1996 added Section 258, which makes it unlawful for any
telecommunications carrier to submit or execute a change order
in a subscriber's carrier selection, except in accordance with
the Commission's rules. That law also provides that any carrier
that violates these procedures or collects charges for
telecommunications service from a subscriber after the
violation shall be liable to the subscriber's properly
authorized carrier for all charges collected. The 1996 act
requires the slamming carrier to disgorge any moneys it has
received from the consumer and turn them over to the rightful
carrier. In this fashion, the slamming carrier reaps no benefit
from its illegal actions.
Although the 1996 act created a statutory mechanism for
eliminating the financial incentive for carriers to slam, the
language of the act did not explicitly provide remedies for
consumers that had been slammed. In addition, Section 258 did
not provide guidance on how to restructure the complex
relationships between carriers who submit carrier change orders
and those who implement them, without slowing down competition
or restricting consumer choice. I know that has been the
subject of much of the discussion today.
This quarter we will be completing new rules to implement
the legislation. Our objective is the same as yours, to slam
the door on slamming. The Commission has been active in
educating consumers about slamming and their rights in this
area. This outreach has led consumers to become more informed
about the problem and to insist the carriers afford them their
rights without intervention by a regulatory agency. Examples of
our outreach to consumers include the ``Common Carrier Bureau's
Scorecard,'' which is a pamphlet that everyone can see outside
this hall, which names names. It reports how many complaints
have been filed against specific carriers including Bell
Atlantic, and people can see, who has been causing problems
with lots of complaints nationwide. This outreach certainly has
been helpful to us because as we get more complaints we are
better able to tailor both our resolution of the complaints as
well as propose any changes in our rules to address the issues.
Our information on slamming is also available at our Website,
www.fcc.gov.
In addition the Commission has a comprehensive program with
the media and consumer groups to remind consumers how to avoid
being slammed and where to seek relief if they are slammed. Our
Call Center staff is trained to answer consumer inquiries. That
toll free number is 1-888-CALL-FCC. We also send out thousands
of consumer brochures on slamming and complaint resolution in
response to calls to our consumer hotline. These efforts have
significantly increased consumer awareness, resulting in a jump
in the number of slamming incidents reported to the Commission
as opposed to State regulators. These cases also help us, as I
mentioned, to determine what best to do. The message we mean to
send to carriers is loud and clear: We will not tolerate
slamming.
And I understand Congress is considering additional
legislation in this area. I particularly applaud Senator Durbin
in providing for direct redress to the courts, either through
State-initiated class action suits or individual consumer
remedies, including minimum recoveries that can be enforced in
small claims courts, as was done in the Telephone Consumer
Protection Act. Making criminal remedies available also will
reinforce the message that the telecommunications industry is
open to reputable companies only, and I applaud that initiative
as well. Whatever Congress decides in further legislation,
again, our objective is the same--to prevent this type of
intolerable abuse. We are trying to make examples of some of
the major abusers. We will publicize these efforts to deliver
the message to consumers and as a reminder to carriers that
they cannot get away with slamming.
In addition, we have held forums--most recently last June--
with some of the local exchange carriers about their billing
and collection practices. In general we do not regulate billing
and collection. That is an unregulated service that the
carriers provide. But we are talking with them about the kinds
of abuses that are occurring, the complaints that we are
receiving, to try to come up with some best practices. And we
are going to continue to focus on that area as well.
Congress has already provided the FCC with powerful tools
to combat the problem. We will diligently employ these tools
and any new ones you fashion to achieve our shared objective.
With tougher rules and vigilant enforcement, we will help to
restore the right of consumers to choose their local and long
distance carriers and to have that choice honored in the
marketplace.
I appreciate the opportunity to appear before you today and
am happy to answer any questions.
Senator Collins. Thank you very much, Commissioner.
Whether you look at your own statistics or at the
statistics of the National Consumer League or at the statistics
that the local telephone companies have given us today and in
other forums, there is no doubt that slamming has exploded,
that it is a growing problem. Given that indisputable fact, do
you believe that the FCC has been tough enough on slammers? If
you have been tough enough, why is everybody doing it? Why is
the problem growing?
Ms. Ness. We have taken every step that we can and will
continue to take steps to stop the practice. Why is it
happening? Because there are a lot of telemarketers out there
that do not share our ethics, for example. We have got to be
harder, perhaps, on some of the local carriers that are doing
the billing and collection to try to get them to focus in on
those carriers against whom they have received complaints, as
we discussed here earlier today. We do not regulate
telemarketers. The FTC does regulate telemarketers, although we
regulate the carriers. If carriers are using telemarketers, we
have to make sure that their practices meet certain standards.
And we are, as I mentioned, revising our regulations. We
received comments on the proposed rules; we expect to complete
that rule making within the next month. Those should address
many of the issues that were raised--or suggestions that were
put forth today. I can't say how the rule making is going to
come out, but I can tell you from my own personal perspective
that the ``welcome package'' is entirely unwelcome, and I would
not be surprised to see that eliminated from the options for
verifying a consumer change.
One thing we know is as more competition is introduced,
particularly in the local marketplace, we want to make sure
that consumers can in fact change carriers if they so desire
without a lot of hassle. And it is a balancing act to try to
come up with a method by which only truly desired changes take
place. I think a lot of ideas were put on the table today.
Certainly our massive record of comments provides us with a
significant amount of guidance. When we issue these regulations
within the next month, we will begin to see once again a lot of
publicity on slamming and, therefore, hopefully a reduction in
the number of complaints. But the more one advertises these
issues or publicizes these issues, the more likely consumers
will file complaints, rather than chalk it up to an
exasperating experience that consumers just let pass by.
Senator Collins. I realize that the FCC has to strike a
balance, that you want to promote unfettered competition in the
long distance industry, but at the same time there is a very
important consumer protection role that you need to play. And I
guess when I look at the enforcement actions taken by the FCC
since 1994, it strikes me as pretty weak. In the State of Maine
we have almost 200 companies providing long distance service
right now. Nationwide it has exploded similarly. As I
understand it, the FCC has only taken enforcement actions
against 15 companies since 1994.
Ms. Ness. It has been more than 15 companies, but when I am
saying enforcement, I am talking about formal enforcement as
opposed to informal enforcement where we investigate the
complaint and get resolution of the complaint without actually
going in and filing formal charges.
Senator Collins. Well, let me give you a specific example,
because in several cases the States have been far more
aggressive than the FCC. You heard this morning Pamela Corrigan
describe her experience with a company called Minimum Rate
Pricing. Florida assessed a fine of $500,000 against this
company for slamming. The FCC, by contrast, assessed a fine of
only $80,000. My concern is that an $80,000 fine----
Ms. Ness. Is the cost of doing business.
Senator Collins. Exactly.
Ms. Ness. Sure.
Senator Collins. It is not sufficient. We have not made the
economic penalty a deterrent to slamming, and the FCC's penalty
is so puny compared to the State of Florida's, and we could go
to other comparisons, too. The State of Illinois took action
against I think it was Business Discount Plan, which slammed
Mr. Klein, and, again, a far more forceful action than the FCC.
Are you satisfied with the FCC's enforcement?
Ms. Ness. We typically impose a $40,000 fine as the penalty
for initial complaints. We have in fact imposed fines as much
as $500,000. We have instituted revocation proceedings against
some carriers. We are right now, as I mentioned, in the process
of two major investigations that will probably help deter other
incidents. So we are trying to beef up our enforcement and make
examples of the companies that have been repeatedly causing
problems. We have the authority to go up to $110,000 per
incident, and we have the authority to go up to $1,100,000 for
a continuing violation. I, for one, am in favor of us using
every single tool within our power and every single dollar
within our power to address the problem.
Senator Collins. Do you believe your authority to impose
fines is adequate, or would you like to see a law change?
Ms. Ness. I like a lot of the ideas that have been
suggested, certainly to be able to provide more authority for
the State attorneys general to go in, for the consumers to go
in in small claims court and have the minimum recovery. I think
those things would help the process. Criminal penalties would
be extremely helpful. I do think that our existing powers on
fines probably are sufficient. It would be wonderful if we had
more resources to be able to devote to the problem. That
certainly, as with many Federal agencies, is a matter of scarce
resources. But this is a problem that has to be addressed. As
we introduce competition at all levels of telecommunications,
the number of consumer complaints is going to rise. It just
goes hand in hand. As a result of that, the Commission needs to
refocus; as we move into more competition we have to refocus
our resources and energies into the consumer protection side of
the fence. And I would hope that we will do that. I certainly
will do everything within my power to ensure that we do that.
Senator Collins. One of my staff people who headed a
regulatory agency in Maine speculated to me that the FCC has
not made the transition from being the regulator of essentially
one company, AT&T, to a whole new arena. It is now the wild
west out there with long distance telephone carriers and that
there is not an enforcement mentality at the FCC, that you are
not used to playing that role. Could you respond to that
concern?
Ms. Ness. I think we can certainly beef up enforcement, but
I believe that we have in fact moved towards greater efforts on
enforcement. We have about 28 people who do nothing but resolve
informal consumer complaints, and I believe we are authorized
at a level of about 70 people who do regular enforcement on
common carrier matters. There is such a wide--a sweeping area
of enforcement when you think of all of the laws that we do in
fact enforce. We have at the FCC a total of 2,000 people. That
includes all of our field personnel, that includes all of the
local stuff. We regulate cable, broadcast, telecommunications,
wireless communications, satellite communications, and
obviously I would love to see us do more in the enforcement
area. As a staunch consumer advocate, I think it's an extremely
important area we have to focus on. We have a limited amount of
resources. Part of what we need to do is to employ those
resources better. One way to do that is to have very highly
publicized enforcement activities against really large
perpetrators, and that is what we are in the process of doing.
Regretfully, I have not been able to present that information
today because it is ongoing. But I would hope certainly within
the next few weeks that question will be answered in the press.
And, again, as we complete the rulemaking on slamming which was
begun last August, I believe we will see that the tools that we
have will have been beefed up, the ability for the consumers to
get redress will have been beefed up as well.
Among the things that we are going to be addressing is
whether the consumers who have been slammed should have to pay
any of the bill or how they would get reimbursement for
specific things such as even the premiums that might have come
with the regular carrier. Those kinds of issues would be
addressed here. But I do think more tools for consumer self-
enforcement would be very, very helpful, and would also help
our partners in the States to do their jobs better. We are
continuing to work with the States to resolve some of the
problems and exchange information.
Senator Collins. Has the FCC requested more budget or
additional staff to deal with the explosion of slamming
complaints?
Ms. Ness. I do not know the answer to that question.
Senator Collins. If you could get back to us for the
record.
Ms. Ness. I would be more than delighted to do that.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 1, for response, in the Appendix on page 144.
---------------------------------------------------------------------------
Senator Collins. Let me turn now to the role of the local
telephone company. You heard both Senator Durbin and I question
the Bell Atlantic representative about what their role in
protecting the consumer should be.
I would like to ask you two specific questions. One, should
either the FCC or Congress require the local telephone company
to track slamming complaints and report complaints to the FCC,
particularly when there is a pattern of abuse by a particular
carrier? And second, should we change the law or the
regulations so that the local telephone company only makes a
change in a long distance provider upon the explicit request of
the consumer as opposed to getting the request from a telephone
company?
Ms. Ness. Those are two--well, the latter is certainly one
of the issues that we are considering in the additional
rulemaking proceeding underway. The balance there is to what
extent can you fine-tune what the consumer has to do without
making it so cumbersome that it is difficult to change
carriers. So we are trying to balance out those concerns.
Certainly affirmative verification is essential, and I think
clearly that is something that I, for one, am strongly
supporting that we do. I cannot speak for my four other
colleagues.
With respect to the situation you point out with Bell
Atlantic, carriers who execute change orders are responsible
for making sure that our rules are followed. We are trying to
work with the local exchange carriers; I think that is an area
that we certainly can beef up and should beef up. Whether this
is putting in PINs, I share the concern that you have had
raised about trying to keep in mind yet another PIN number,
that is one idea certainly that has been out in the
marketplace. I would caution against requiring anybody to use
mother's maiden name because that is what banks typically use
to verify credit, and the last thing I want to do is to provide
these people with that information.
But, certainly the carrier who is executing the change form
has an obligation to make sure that the procedures have been
done correctly. That is an area of concern to me and I hope
that we will address to some extent in the upcoming rule
making.
Senator Collins. Our focus this morning has been primarily
on long distance providers who are providing service. They may
be slamming customers, they are doing other unethical practices
such as cramming, but at least they are otherwise legitimate
providers of long distance service. The investigators of the
Subcommittee, however, have also discovered a sinister new
development whereby fly-by-night scam artists are setting up
long distance companies on paper only, slamming thousands of
customers, and then quickly going out of business, popping up
again under another name. Have you had any experience at the
FCC with trying to detect this type of operation?
Ms. Ness. We have taken action to decertify one group of
so-called carriers that were all related that sounded like they
were doing a similar type practice, Fletcher. So we are aware
of this. We do not presently require certification of long
distance carriers. They are supposed to file a tariff. It is a
very simple tariff. The Fletcher companies did not do that.
Therefore, among other reasons, we went after them with both
barrels loaded.
We certainly could consider increasing--going back into a
more regulatory mode and requiring carriers to certify or to
get certificates of service before they can provide long
distance service. That is somewhat duplicative of what is going
on in the States. I do not know to what extent that would
prevent someone who was intentionally designing a scam like
that from carrying it out. I don't think it would do much to
prevent that activity, but it is certainly something that we
should consider.
Senator Collins. But right now there is no background
check, no licensing process? Anyone can go in and simply file
the tariff and set themselves up to be a long distance
provider?
Ms. Ness. Typically what happens is they buy service from
another carrier in bulk and then resell it.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 1, for clarification of answer, in the Appendix
on page 144.
---------------------------------------------------------------------------
And there are many, many legitimate carriers who do just
that.
Senator Collins. But we know from the FCC statistics that
resellers tend to be those who engage in slamming most often,
that there is a problem with resellers in particular.
Ms. Ness. There are huge numbers of resellers across the
country, and the vast majority of them in this business are
doing a good job in providing consumers with lower rates for
their long distance service. In fact, resale has been one of
the tools by which we have seen rates come down in long
distance, and we are hoping to see rates come down for local
service as well. What we can further do with that to ensure
that they are valid companies, perhaps, as we discussed earlier
today, could take place in the form of looking at the billing
and collection issues that the local carriers engage in
contractually to carry their billing.
Senator Collins. Senator Durbin.
Senator Durbin. Thank you, Commissioner Ness. So if I
wanted to start a long distance carrier today I really do not
need a license from the FCC.
Ms. Ness. You have to file a tariff with the FCC.
Senator Durbin. What does that mean when you say file a
tariff?
Ms. Ness. It is not a cumbersome process, but you are
supposed to state what the rates are that you are going to be
charging your customers. I think you could begin service the
next day. And then if you are a common carrier you basically
have to offer service to any and all without discrimination.
Senator Durbin. So if I want to start a long distance
carrier, too good to be true long distance, and I file this
tariff there obviously is not going to be a background check on
me if I can start business the next day.
Ms. Ness. That is correct.
Senator Durbin. And I do not file any bond with the FCC.
Ms. Ness. That is correct.
Senator Durbin. And if I want to do business in Maine, I
have to look at the State laws. And I assume every State
through their public utility commission or department requires
me to do something more; is that a fact?
Ms. Ness. I believe that is right. I can check on that,
sir.\1\ I am not absolutely positive.
Senator Durbin. It seems like it is pretty easy to get into
this business.
Ms. Ness. It is.
Senator Durbin. And it also seems like with the number of
complaints that you are receiving and the number of cops you
have on the beat that it is pretty tough to get caught.
Ms. Ness. Where there is a lot of consumer complaints we do
investigate. I think one of the witnesses earlier today was
astounded how we did in fact respond and try to put together
the information and to resolve that complaint. Where we see a
rush of complaints or if we have information from a carrier, we
will try to investigate. But you are correct, we have not
applied as many resources as I would like to see to solving the
problem.
Senator Durbin. When my too good to be true long distance
carrier files a tariff, do I pay anything to the FCC? Is there
a filing fee?
Ms. Ness. Yes, I am fairly certain that there is. Again, I
am nervous about giving you misinformation.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 1, for clarification of answer, in the Appendix
on page 144.
---------------------------------------------------------------------------
Senator Durbin. You are under oath.
Ms. Ness. I know.
Senator Durbin. Be careful.
Ms. Ness. But I believe that with every tariff that there
is a filing fee. For just about everything that the FCC does
there is a filing fee.
Senator Durbin. I am just curious as to whether or not this
could be characterized as a user fee that might give use of
additional resources for enforcement so that you could hire
more people to do investigations and enforcement.
Ms. Ness. I think the issue is less with dollars than with
bodies; being able to deploy the bodies. But it certainly is
something worth playing around with.\1\ I am delighted to take
these ideas back, trust me. I think it is great.
Senator Durbin. So you follow what actions are taken by the
State utility commissions, public utilities commissions,
against these companies?
Ms. Ness. We have discussions with our counterparts in the
States about what they are doing and try to exchange
information. It is informal, there is not a real formal process
in which we are engaged. But right now, for example, the
National Association of Regulatory Utility Commissioners has
done surveys. It instituted a survey to find out from its
membership how many complaints have been filed and what the
resolutions of the complaints are. We will try to exchange that
information.\1\
Senator Durbin. I am not a cyberspace cadet nor do I
profess to be adept at all of the new changes in the Internet
and the like, but when I hear that kind of response I am
surprised. The Federal Communications Commission, it suggests
to me from your testimony, has not established a line of
communications with public utilities commissions----
Ms. Ness. Oh, no, sorry if that was the impression that you
have. Oh, we absolutely do. We talk regularly with our
colleagues in States. We are working with what they have done--
NARUC has done a survey, our staffs work very closely with
their staff. The conversations go on regularly. What I was
perhaps suggesting incorrectly is that there is no formal--
there is no rule making that says we need to do X, Y, and Z. It
just goes on.
Senator Durbin. Does not it strike you, though, as
something very basic that there would be an exchange of
information?
Ms. Ness. There is.
Senator Durbin. And formal.
Ms. Ness. Sure.
Senator Durbin. So that any action taken against a long
distance carrier in Florida against Minimum Rate Pricing,
Illinois, Texas, is shared with the FCC and with the RBOCs so
that the regional carriers understand that out of the people
who are----
Ms. Ness. Let me double-check to see what routinely we
do.\1\ I know every single State public utility commission
receives all of our press releases and all of the information
that we make available certainly to the public. So a lot of
that information is routinely out there and the States have a
routine way of receiving that information. But I would not be
surprised if it goes deeper than that. Certainly in a number of
States where we are doing an investigation we try to bring in
the local PUC. Again, I cannot tell you how formal that is. I
do know of a couple of instances where that is in fact taking
place.
Senator Durbin. How many long distance carriers nationwide
have filed tariffs with the FCC?
Ms. Ness. I think we have about 500 carriers or at least in
order of magnitude, about 500 carriers.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 1, for clarification of answer, in the Appendix
on page 144.
---------------------------------------------------------------------------
Senator Durbin. Roughly 500 carriers. How long does an
investigation take? I am sure they vary in length.
Ms. Ness. Varies in length.
Senator Durbin. Give me an idea.
Ms. Ness. Depends on the amount of information that is
available. Usually it is done with a call coming in. The caller
gives the information to the FCC. If it is an informal
complaint, the FCC staffer will ask them to put it in writing
in the form of a letter. That letter is received; the carriers
are notified; the local exchange carrier is notified to get
information from those parties and then an effort is made to
resolve the complaint informally. Again, since you are asking
for very specific information and it is not my area----
Senator Durbin. I do not mean to put you on the spot. If
you could just give me a general range.
Ms. Ness. My guess is it probably takes a week or two to
get that piece of it resolved. If it is a more involved case it
then goes over to formal enforcement, that is a separate group
of people within the same division who then begin more formal
proceedings.
Senator Durbin. So there are 70 people who are in that
regular enforcement division.
Ms. Ness. Correct, give or take.
Senator Durbin. Can you give me an idea--you said some of
them were fined $40,000 up to over a million, potentially up to
over a million. How long do these procedures take to be
investigated and come to resolution? A year, 2 years?
Ms. Ness. They can take anywhere from a few months to 2
years.
Senator Durbin. Well, it just strikes me that we have so
much----
Ms. Ness. Part of that issue, when we put out a notice of
carrier liability, they have a certain amount of time to
respond, and there are procedural requirements.
Senator Durbin. I know, it is the lawyers. But it just
strikes me if we are dealing with 70 people at the FCC
reviewing 500 long distance carriers and you are receiving
20,000 complaints a year now of slamming, you do not have a
prayer. There is no way you can keep up with this.
Ms. Ness. That is why we have to leverage it by publicizing
in a major way where we have taken very strong action against a
particular carrier. And as I say, this is a process right now
that is ongoing. I wish I could have come with the specifics,
but it is not ready for prime time.
Senator Durbin. I'll just conclude by saying I think that
is part of it, too. I think consumer information is part of it,
coordination with the State attorneys general and public
utility commissions, that is part of it as well. But as you
said, we are just starting to walk into an area of greatly
expanding business opportunities when it comes down to local
carriers and the competition that is bound to ensue there and
the problems that are likely to follow. As people try to use
the same model of fraud and exploitation, there will be bad
actors out there and consumers will suffer. So I hope that we
can start thinking about this in different terms. We
deregulated so let us go for competition. We know competition
is good for consumers but we also know----
Ms. Ness. But it has got a dark side.
Senator Durbin. It has a dark side and we have talked about
it for awhile here, and I hope we can focus on coming up with
some legislative responses that target consumers as well as
government agencies to help bring some protection. Thank you,
Madam Chairman.
Senator Collins. Thank you, Senator Durbin.
Commissioner Ness, we have experienced an explosion of
slamming. It is hurting small businesses; it is hurting
families; it is hurting senior citizens; it is hurting
consumers across the United States. And I am left with one of
two conclusions, and I would like you to tell me which one is
right. Either the FCC has sufficient authority to fight
slamming and simply hasn't been aggressive enough in using the
tools that are available, or the FCC needs new authority and
additional legal tools to fight slamming, because otherwise we
would not be seeing this very disturbing trend. So which is it?
Is it that there is not an aggressive enough enforcement
approach at the FCC, or do you need new tools?
Ms. Ness. I think that no matter--even if I said yes to
both, I think we would still see a rise in the number of
slamming complaints, largely because I think consumers are
finding out about it and now better understand what's going on,
because there's never going to be a way of completely
eliminating disreputable telemarketers. If it is easy to get
into long distance it is far easier to get into telemarketing,
and, I agree with you, we need to provide and ensure that the
resources are applied in the best, most efficient way possible
to get at the problem. We are trying to do that; obviously we
can always do more. And I hope that we do do more. I think that
the rules that we are about to promulgate will go a long way to
resolve some of those problems. But they won't address them
all. I think some of the suggestions that have been raised here
today for legislation are very good ones, and I think that
those will be complementary to the efforts that the Commission
has already undertaken.
Do we need additional tools? I think that, again, there may
be some specific aspects that would be helpful, but let--I am
inclined to say we have enough right now to be able to make a
big dent in it. It won't solve the whole problem, but I do
think the suggestions to provide for the State attorneys
general for class action suits, we do not do class action
suits, those kinds of things are particularly helpful and will
also complement our efforts to get at the heart of the problem.
I--that is hedging a little bit on answering your question, but
I think it is a little bit of an answer ``yes'' to both.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 1, for clarification of answer, in the Appendix
on page 144.
---------------------------------------------------------------------------
Senator Collins. Thank you, Commissioner. I very much
appreciate your traveling from Washington to be with us today.
I know that this is an issue that Senator Durbin and I are
going to pursue, and I hope that you and other commissioners
and the staff will work with us to find a real and effective
solution to this growing problem.
Ms. Ness. I certainly see this as a partnership in working
to resolve the problem. It is a growing one, it is one of great
concern, and we are going to do everything in our power to make
it work.
Senator Collins. Thank you very much for your testimony.
Ms. Ness. Thank you very much.
Senator Collins. We are now going to turn to a brief period
for public comment. We have about 10 or 15 minutes. What I will
ask if you do have an experience you would like to share with
the Subcommittee, I do not know whether there are people who
want to do it through testifying today or just submitting a
statement, but I do want to provide this opportunity.
You can come up to the mike that has been set up in the
front. I would ask that you state your name and where you are
from, so that the court reporter can get your name down. I
would also ask if you are representing a specific organization
that you identify that organization. If you are just
representing yourself, that is great, too. Just let us know.
Ms. Griffith. My name is Deborah Griffith. I am from
Integrated Communication Systems. We are a small interconnect
up in Auburn servicing small business to medium-size businesses
in Maine and New Hampshire.
A lot of the items that were discussed here were items that
I brought with me to discuss. One of the things that you were
asking, Senator Collins, was how can you come up with a time or
a price tag for what this is costing. As an interconnect I deal
with probably 8 hours a week on slamming for my customers.
Everything is so complex these days. They do not know where
to turn, so they turn to their telephone providers. And
sometimes they will call Bell Atlantic, a lot of times our
customers call us for anything, and then I interface with Bell
Atlantic to get it changed, with their long distance carrier to
get things changed, and I spend about 8 hours a week on that.
Several other people in the office will also spend an hour or
two, but I do the majority of it. Bell Atlantic has to spend
time, the long distance carrier has to spend time to get this,
so there is an enormous cost. Now, Bell Atlantic is absorbing
it, I know a lot of the long distance carriers, the larger ones
are absorbing it. As a small interconnect we can't afford that
kind of cost, so that is a cost that we have to pass on to our
customers in order for us to be able to stay in business.
Another item that we have a lot of trouble at our office
physically with one large carrier trying to slam our office
lines on a weekly basis. And one of the things that we did was
put in caller ID to try to find out who was doing it so that we
could give the FCC some information as to who was making these
calls. The telemarketers that are doing this calling and even a
lot of the phone companies, such as Bell Atlantic, do not have
their lines ID'd. The lines come up with unknown. So there is
no way to trace back. When I send my letter to the FCC
complaining about what's going on, then I have no way to say it
was this phone number or this company, because as soon as you
ask for a manager, they will hang up on you.
I send letters about every week to the FCC complaining
about somebody trying to slam our office or a customer being
slammed, and the resolution--the most I have gotten out of the
FCC was a letter saying this is what you can do to prevent
slamming, and so I do not see any resolution from them on the
items. Now, I do not really expect any because I am one small
person and this is a major problem across the country. But it
is--for the interconnects, and I am sure we are not the only
ones that are doing it, it is a major cost that we have to pass
on to the customers. The customers may have a $100, $200, or
$300 bill for us to get this resolved for them, and that does
not have anything to do with the charges that come up on their
phone bill because these are separate charges that come to us.
Senator Collins. I thank you very much for providing the
Subcommittee with your perspective.
Mr. Davidson. Good afternoon, my name is Derek Davidson. I
am the Assistant Director of the Consumer Division with the
Maine Public Utilities Commission.
I would just like to clarify a couple points I think people
need to be aware of, that, as Dan Breton had mentioned earlier,
as of September of 1997 customers in Maine can now choose their
in-State toll provider as well as their interstate toll
provider. Now, the Maine Commission recognized that with people
being allowed to choose now for their in-State toll service, we
anticipated problems with slamming with the in-State tolls that
were currently seen with the interstate tolls. So to address
that the Commission has drafted some legislation which Dan also
mentioned, LD2903, and I would just like to mention some
highlights of that legislation that we are hoping will go
through smoothly.
One, the customer who is slammed will owe no moneys to the
slamming company. The slamming company will be responsible for
all fees to the--that were incurred in initiating the switch as
well as to return the customer to their original carrier. We
will have authority to levy fines against slamming companies on
a per incident basis. And there is also going to be an
affirmative choice that companies are going to have to go
through in order to verify their customer has indeed decided to
switch their phone service.
We also have a complaint process to address the in-State
slamming problems. In-State slamming for the in-State toll
service is within the jurisdiction of the Maine Public
Utilities Commission, and people who are slammed for their in-
State toll service can call the Maine Public Utilities
Commission, we have an 800 number, that's 800-452-4699. And
what we will do is we will assist them in taking care of the
charges and ensure that their complaint is handled
appropriately. We will also help people who are slammed for the
interstate service. What we will do with them is we will give
them some guidance on how they can--what they need to do to
address the problem. We will connect them with the FCC and
assist them in any other way that we can.
I did bring some materials on in-State and interstate
slamming, and it is on the table out front.
Senator Collins. Thank you very much, Mr. Davidson. I would
also ask that you provide to the Subcommittee a copy of the
legislation that you have drafted for consideration by the
State legislature because that may be useful for us on the
Federal level as well.
Mr. Davidson. Sure, I have one with me.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 1, for clarification of answer, in the Appendix
on page 144.
---------------------------------------------------------------------------
Senator Collins. Excuse me, Senator Durbin has a question
for you also.
Senator Durbin. I asked earlier when the FCC Commissioner
was before us, do you know in Maine whether the Public Utility
Commission, when a company comes in and asks for authority to
do business in the State, a long distance carrier or local
carrier, routinely ask for any kind of background check as to
problems that company might have had in another State?
Mr. Davidson. What we do is we have a certification process
for companies that are going to provide in-State toll service.
And what--as part of that certification process I am not sure
the extent of a background check we go through, but we make
sure that they are a corporation that is under good standing
with the State. And there is a checklist process that we go
through that we require them to file tariffs with us, we review
those tariffs to make sure they are in compliance with our
rules and regulations. As far as the extent of a background
check, I am not sure.
Senator Durbin. It just seems to me that some of these bad
actors are moving around the country, and if we are going to
discover wrongdoing by the same company in Florida it may be a
red flag in Maine or Illinois as to whether or not we want them
to do business.
Mr. Davidson. Well, one thing that we do do is we recently
went to a new computer system so that we could more adequately
and appropriately attract consumer complaints. And what we are
doing is we are trying to get an idea of the companies that are
out there performing business, what are the good actors, what
are the bad actors, so that we can when we are reviewing
tariffs provide extra scrutiny on the companies that we are
having problems with.
Senator Durbin. Thanks.
Senator Collins. Thank you very much.
Mr. Davidson. Thank you.
Senator Collins. Good afternoon.
Mr. Eisenhart. Good afternoon, Senator, thank you. My name
is Patrick Eisenhart. I am the owner of the OP Center, which is
a small business that operates out of the Small House, Joseph
Small House, over in the historic district. And our goal in
life is to keep phone bills small for a lot of small
businesses.
I have a packet of information that I would like to leave
with you. It covers a lot of areas, topics I would like to talk
about.\1\
---------------------------------------------------------------------------
\1\ Exhibit No. 8 is retained in the files of the Subcommittee.
---------------------------------------------------------------------------
Very quickly, when you talk about these guys that are
slamming, who's slamming, who's not slamming, oftentimes people
equate that to mean resellers. And I am an agent for a number
of reseller companies, and our goal is basically to get the
lowest rates, particularly in the State, for Maine businesses.
There is no State in the union that has higher in-State
rates than Maine. Companies--since the Telecommunications Act
of 1996, long distance carriers have been moving out of the in-
State business as opposed to moving into it. That has been my
experience. For example, one company, Connect America, which a
year ago--as early as 3 months ago, was charging 13.9 cents in-
State rates, now has had to raise its rates to 38 cents a
minute.
Slamming, as far as active slamming, AT&T is in the hall of
shame of the Telecom Digest, which is a neutral newspaper that
you get on the Internet, it's www.digest.com, cites AT&T as
having numerous incidents of slamming, were fined the $80,000
by FCC. $80,000 to AT&T I would suggest is very little money,
and what happens with most of the businesses that get slammed,
they do not want to deal with it, they are too busy, they just
go ahead and pay it. So when we are talking about slamming I
think we have to put it within a context there are a number of
companies; it is not just the reseller companies.
My problem, as an agent for trying to get my customers the
least cost telephone service, is with, basically, Bell
Atlantic. I have in the packet the phone bills, the telephone
numbers of some 12 different companies that one column shows
that they were provisioned by AT&T in April--I am sorry, by
Bell Atlantic, in other words, got up on their long distance
service by Bell Atlantic in April, charged the $5, and then 2
months later they were slammed by Bell Atlantic and by the
companies that they bill for. So these are actually--actual
phone records and telephone numbers to suggest that is
happening.
I think the way my recommendation to deal with the problem
is not have the FCC add on more staff, have the Federal
Government do all kinds of prosecution of 500 different phone
companies. I think rather the focus should be on the regional
carriers. They are in a conflict of interest situation with
long distance carriers for both in-State and soon to be out-of-
State.
There is a procedure in place, and the procedure that we
take is as follows. When we have a customer change their
service they write--they sign a letter of agency. That
outlines--gives the carrier permission to provide that service,
it has the signature of the customer, it has the signature of
the agent that is signing that. That--if that were required to
be faxed in to Bell Atlantic, Bell Atlantic had that on record,
then any time anybody said, hey--and then a confirmation coming
back saying we have made that switch, I think that would do it,
if FCC would enforce that policy. The same thing with 800
lines, the standard right now is a resporg form, which is a
responsible organization form. That is a written document
signed by the customer, by the carrier, gets faxed to the
appropriate carrier, comes back again. The last part of this--
--
Senator Collins. I am going to have to ask you to wrap up
your comments.
Mr. Eisenhart. I just wanted to leave you with that
recommendation. That procedure is in place, and if we enforce
that at the regional level I think the slamming would stop. The
last part of it is is that if someone does get slammed, and my
recommendation to my customers has worked very effectively, if
they do get slammed do not pay it and require that long
distance carrier come back and say, let me see your letter of
agency or let me see your responsible organization form. Thank
you.
Senator Collins. Thank you very much for your testimony.
Good afternoon.
Ms. Sayre. My name is Robin Sayre, and I am actually a
public relations manager for AT&T.
I wanted first of all to say of course that AT&T takes
slamming very seriously. In fact, I think we were the first
company to bring this to the attention of the FCC back in 1990.
We do exit interviews with our customers to find out why they
are changing their long distance service, and that is how we
found out a lot of people who were leaving us did not know they
were leaving us. And we have always complied with FCC rules on
slamming. We have taken very aggressive steps to educate
consumers about the problem. We have sponsored public service
announcements in various languages, distributed pamphlets, and
we take this very strongly.
The main reason I wanted to get up to speak today was to
let you know that we have actually sent a letter to our
resellers, including Business Discount Plan, to let them know
that we are asking them to take steps to ensure that they are
in compliance with Federal and State rules and policies
regarding carrier changes, as a condition of AT&T continuing to
process their carrier change requests.\1\ As you may know, as a
common carrier we have the obligation to provide phone service
to all resellers who come to us asking for service, but we have
taken this extra step of sending out this letter to make sure
that they do conform to the procedures that are required, to
make sure that we are not inadvertently helping them slam
people. So I just wanted to bring that to your attention. I
would be happy to share a copy if you would like, or I know
AT&T was going to submit comments.
---------------------------------------------------------------------------
\1\ Exhibit No. 9 is retained in the files of the Subcommittee.
---------------------------------------------------------------------------
Senator Collins. Right, thank you very much. I just wanted
to for the record say that prior to the hearing we did ask AT&T
to submit a written statement. That has not been submitted to
us yet, but we do expect to receive it.
I also want to let the long distance carriers who are here
know that in addition to their written statements we will be
holding further hearings on the slamming problem, and there
will be more of an opportunity at those hearings as well.
I do want to thank everybody for appearing today. The
testimony that we have heard has made it clear that much more
needs to be done to control slamming. Existing enforcement
efforts are obviously inadequate to stem the growing tide of
slamming. In Maine, for example, we have heard that slamming
complaints to Bell Atlantic have increased by over a hundred
percent over the past year, and that is completely
unacceptable. I believe that the FCC must step up its
enforcement efforts to fight slamming and to make sure that
existing laws and regulations are followed.
Consumers deserve this protection. It is outrageous and
completely unacceptable that a consumer's choice of long
distance carrier can be reversed without the consumer's
permission. The FCC cannot treat slamming as an administrative
or a technical problem that can be solved by polite warnings to
long distance carriers. To me intentional slamming is like
stealing, and that certainly seems to be the opinion of many of
the consumers whom we have heard from today.
In addition, I want to pledge to work with my colleagues in
the Senate, especially Senator Durbin, who's been such a leader
in this area. We want to make sure that the current legal
remedies are adequate and that the penalties for slamming
provide an adequate deterrent. It is evident that today they do
not.
On behalf of myself and the people of Maine, I want to
again thank Senator Durbin for coming to Maine for this
hearing. He has been a leader on this issue, and I look forward
to continuing to work with him. I also want to thank his
judiciary staff member for being here and for his work on this
issue. I want to thank my own staff who's worked very hard in
putting this hearing together, Kirk Walder, John Neumann, Tim
Shea, Lindsey Ledwin of the Subcommittee staff, Steve Abbott
and Felicia Knight of my personal office, as well as the staff
of my Portland office. They all worked very hard and are
continuing to help Maine consumers understand their rights.
And finally we appreciate the hospitality of our host
today, the City of Portland. Senator Durbin and I were
commenting what a very nice city chamber this is. We very much
appreciate their hospitality, and I want to thank you all for
coming. Thank you. This hearing is adjourned.
[Whereupon, at 12:33 p.m., the Subcommittee was adjourned.]
THE EXPLODING PROBLEM OF TELEPHONE SLAMMING IN AMERICA
----------
THURSDAY, APRIL 23, 1998
U.S. Senate,
Permanent Subcommittee on Investigations,
Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:37 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Subcommittee, presiding.
Present: Senators Collins, Levin, and Durbin.
Staff Present: Kirk E. Walder, Investigator; John Neumann,
Investigator (Detailee, GAO); Mary D. Robertson, Chief Clerk;
Eric Eskew, Investigator (Detailee, HHS-IG); Lindsey E. Ledwin,
Staff Assistant; Pamela Marple, Minority Chief Counsel; Alan
Edelman, Minority Counsel; Elizabeth Stein, Minority Counsel;
Bill McDaniel, Minority Investigator; Maggie Hickey (Sen.
Thompson); Michael Loesch (Sen. Cochran); Jeff Gabriel (Sen.
Specter); Leslie Phillips (Sen. Lieberman); Kevin Landy (Sen.
Lieberman); Steve Diamond (Sen. Collins); Felicia Knight (Sen.
Collins); Linda Gustitus (Sen. Levin); Katie Siegel (Sen.
Durbin); Myla Edwards (Sen. Levin); and Steve Abbott (Sen.
Collins).
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. The Subcommittee will please come to
order. Good morning.
Let me start with an apology for keeping people waiting. We
just had three back-to-back votes in the Senate. We try to
schedule hearings around the Senate schedule, but oftentimes
our best efforts notwithstanding, it is a very difficult task
to accomplish.
Today, the Permanent Subcommittee on Investigations will
hold its second hearing on the exploding problem of telephone
``slamming''--that is, the unauthorized switching of a
consumer's long-distance service. Slamming is a pervasive and
growing problem in Maine and throughout the country.
Nationwide, the number of incidents of slamming has soared over
the past few years.
The Federal Communications Commission, the government
agency responsible for regulating the telecommunications
industry, received a record number of slamming complaints from
consumers in 1997--over 20,000 complaints. This is a 900-
percent increase since 1993. More troubling is the fact that in
the first 3 months of this year, the FCC has already received
nearly 20,000 complaints on its 1-800 line. In fact, slamming
is the No. 1 consumer complaint to the Commission. Since most
consumers do not report slamming incidents to the FCC, however,
this number actually greatly underestimates the extent of the
real problem.
Perhaps a more accurate picture of the extent of slamming
is found in the National Association of State Utility Consumer
Advocates' estimate that as many as 1 million consumers each
year are deceptively transferred to a long-distance provider
not of their choosing. Moreover, as the statistics indicate,
this problem is not getting better; it is getting worse. In
Maine, Bell Atlantic reported a 100-percent increase in
slamming complaints from 1996 to 1997.
In response to numerous complaints from consumers, the
Subcommittee last fall undertook an extensive investigation of
telephone slamming. In February, I chaired a field hearing in
Portland, Maine, and my distinguished colleague, Senator
Richard Durbin of Illinois, joined me on that very cold and wet
day, and we heard firsthand from several consumers about their
personal experiences with telephone slamming. We learned that
telephone slamming disrupted the operations of small
businesses, that it cost consumers time and money, and that it
frustrated families throughout the State.
Maine slamming victims testified that some long-distance
companies had used fraudulent or deceptive ploys to change
their telephone service. Witnesses used words to describe it
such as ``stealing,'' ``criminal,'' and ``break-in'' to
describe the practices employed by unscrupulous telephone
providers in switching unsuspecting consumers in order to boost
their profits.
These practices included telemarketers who use deceptive
techniques to trick unsuspecting consumers into switching long-
distance carriers, as well as the so-called welcome package,
mailed by a carrier, that actually requires consumers to return
a postcard rejecting the change in long-distance service which
otherwise goes into effect. Some particularly unscrupulous
long-distance providers simply change a customer's carrier
without any contact with the consumer at all.
To assist the Subcommittee in its ongoing investigation, I
requested the General Accounting Office's Office of Special
Investigations to determine which entities are slamming
consumers most frequently and to explore the techniques used to
deceive consumers. During our hearing today, the Subcommittee
will hear the results of the GAO's investigation.
Specifically, our hearing today will focus on the following
issues: First, which entities are responsible for most of the
intentional slamming? In this era of telecommunications
deregulation, are certain segments of the industry or certain
businesses particularly egregious offenders?
How does slamming occur under the existing regulatory
schemes and telecommunications market structure? How can we
achieve the goal of an open and vigorously competitive long-
distance market and yet one that is also free from unfair and
fraudulent activities like slamming?
Third, what regulatory and legislative solutions can be
used to halt this escalating problem? For example, should
criminal penalties be imposed in cases where unscrupulous
providers deliberately and repeatedly slam consumers?
The Subcommittee's first hearing clearly demonstrated that
current statutory and regulatory responses have been
ineffective in controlling slamming. One of the purposes of
today's hearing is to explore possible remedies to curtail this
problem, including legislative proposals that I have introduced
with Senator Durbin. In that regard, this hearing is
particularly timely since the Senate expects to debate anti-
slamming legislation within the next month.
There is simply no excuse for intentional slamming or the
enormous number of slamming problems that are occurring each
year. Consumers all over the country are increasingly the
target of unscrupulous telephone service providers who use
blatantly deceptive marketing techniques or outright fraud in
order to change the long-distance carrier selections of
consumers.
Victims of slamming are frustrated. They do not believe
that they should have to spend time and energy resolving
problems not of their own making. People rely heavily on their
home and business telephone service. They should be able to
choose their own long-distance service carrier without fear
that that decision will be changed without their consent. To
me, deliberate slamming is like stealing and it should not be
tolerated.
Finally, let me emphasize that no one is immune to this
problem. Maine victims include senior citizens, a town manager,
a school principal, several small businesses, and even a town
office. I, too, have been slammed twice, despite having a PIC
freeze on my own account.
We will hear from two witnesses this morning. Our first
witness is Eljay Bowron, the Assistant Comptroller General for
Special Investigations for the General Accounting Office. He
will testify about the types of entities responsible for
slamming, how these entities go about slamming consumers, and
the adequacy of existing Federal enforcement efforts. In
addition, he will present a disturbing case study of a long-
distance service provider who employed slamming as a standard
business practice.
Our second and final witness today will be the Hon. William
Kennard, the Chairman of the Federal Communications Commission.
He will testify about the FCC's activities to control slamming
and discuss what additional regulatory or legislative changes
could be made to reduce this practice.
We look forward very much to hearing our witnesses today
and exploring ways to control this growing problem.
It is now my pleasure to recognize a leader in this area,
Senator Durbin of Illinois.
OPENING STATEMENT OF SENATOR DURBIN
Senator Durbin. Thank you, Senator Collins. I want to thank
you for calling this hearing on the important topic of
telephone slamming.
As Senator Collins mentioned, we had a field hearing in
Portland, Maine. I thought Chicago was a windy city until I
visited Portland, Maine, where we had a horizontal rain storm
which I still recall.
On May 10, millions of Americans are going to pick up their
phone to call Mom. But they may get a surprise when they get
the bill for the call. Thousands of people calling to wish
their mother a Happy Mother's Day will have been slammed.
My interest in slamming started last year when a
constituent, a small business owner in Chicago who had been
slammed came and told me her story. She had little or no power
to rectify the situation or to seek redress for her injuries.
But that was only the beginning of the story. I traveled around
the State of Illinois and found that hers was not an unusual
case. Many people had suffered this same type of slamming where
your long-distance carrier is changed without your permission.
And what can you do about it? For most of these people, my
answer was: Almost nothing. But with the Chairwoman's help, we
have come a long way toward finding a sensible solution.
Slamming is a serious problem that has to be stopped. It is not
just an inconvenience or a nuisance. It is stealing. It is an
act of fraud. It costs long-distance telephone consumers
millions of dollars every year. Imagine, you have signed up
with a long-distance carrier. You think it is in the best
interest of your family or business. And then you discover with
next month's bill somebody has changed your carrier. Your
charges are higher.
Well, if they had done the same thing to you with your
mortgage, you would be headed to the courtroom, to think that
somebody could change your bank on your home mortgage. But in
this case, they are changing your long-distance provider
without your permission, and you are the loser.
The GAO report we received today details many individual
incidents and serious gaps in our regulatory scheme. And as the
Chairwoman said, it is the No. 1 source of complaints at the
FCC.
In my home State of Illinois, slamming was the No. 1 source
of consumer complaints at the attorney general's office in 1995
and No. 2 in 1996. That is only the tip of the iceberg.
In the Los Angeles Times, there are reports that more than
a million telephone consumers have been slammed in the last 2
years. But the Los Angeles Times' estimate may be far too
conservative. As Bob Spangler, Acting Chief of the Enforcement
Division of the Common Carrier Bureau, testified last November,
as many as 1.5 to 2 million customers were slammed in America
last year. One survey of Chicago, Detroit, and Milwaukee found
30 percent of the adults saying that they had been slammed or
someone they knew had been slammed.
Slamming was most egregious in Chicago where 36 percent of
adults said they were slammed. Moreover, slammers appear to be
targeting people of color: 39 percent of African Americans, 42
percent of Latinos, as compared to 28 percent of whites.
The GAO report we will hear about today is frightening. It
tells a disturbing new kind of American success story by these
slammers. They bamboozle the government into giving them a
license. They slam thousands of people, and they make millions
of dollars and then flee from justice.
Senator Collins and I have introduced the Telephone
Slamming Prevention Act to stop this slamming and empower
consumers. The bill takes important steps to accomplish this,
taking part of the financial incentive away from slammers,
increasing civil penalties, creating criminal penalties, and
requiring telecommunications carriers to report slamming
complaints to the FCC.
Slamming has already caused telephone consumers to become
angry and disillusioned with the entire telecommunications
industry. These people have voiced their concerns to local
telephone companies, to State regulatory bodies, and to the
FCC. But they still feel like their complaints have not been
heard. My hope is that our Telephone Slamming Prevention Act
and this hearing will help us produce a solution.
I might say at the outset that I join in Senator Collins'
apology for our being late, and I also want to apologize in
advance for having to leave from time to time. I have a markup
in the Judiciary Committee at the same time as this hearing, so
I will try to cover both as best I can. But, Madam Chairwoman,
thank you for holding this hearing, and I look forward to
hearing from the witnesses.
Senator Collins. Thank you.
As you can imagine, there has been considerable interest in
this issue. Without objection, the hearing record will remain
open for 30 days so that additional materials, including all
exhibits, can be submitted to the hearing record.
Prior to the hearing, I sent letters to several of the
major long-distance companies and three telephone resellers
associations inviting them to provide written statements on the
slamming problem. Most of them have done so. We have received
statements from Sprint, AT&T, MCI, CompTel, the America's
Carriers Telecommunications Association, the Telecommunications
Resellers Association. We have yet to receive a response from
Frontier Communications.
Without objection, all of these statements will be included
in the printed hearing record as exhibits.\1\
---------------------------------------------------------------------------
\1\ See Exhibits 43-48 of the April 23, 1998 hearing in the
Appendix on pages 297-324.
---------------------------------------------------------------------------
I would now like to invite our first witness to come
forward. Our first witness this morning is Eljay Bowron, the
Assistant Comptroller General for Special Investigations of the
U.S. General Accounting Office. We look forward to hearing the
results of the GAO's 4-month investigation of slamming.
Prior to joining the GAO, Mr. Bowron served this country
with distinction as Director of the U.S. Secret Service. He
comes to us today with 24 years of law enforcement experience.
Pursuant to Rule VI, all witnesses who testify before the
Subcommittee are required to be sworn, so I would ask that you
stand and raise your right hand.
Do you swear that the testimony you are about to give to
the Committee will be the truth, the whole truth, and nothing
but the truth, so help you, God?
Mr. Bowron. I do.
Senator Collins. Thank you. Please be seated.
Your entire written testimony will be made part of the
record, and I would ask that you limit your oral presentation
to about 15 minutes so that we have ample time for questions.
Thank you.
TESTIMONY OF ELJAY B. BOWRON,\1\ ASSISTANT COMPTROLLER GENERAL
FOR SPECIAL INVESTIGATIONS, OFFICE OF SPECIAL INVESTIGATIONS,
U.S. GENERAL ACCOUNTING OFFICE; ACCOMPANIED BY RONALD MALFI,
FINANCIAL AND GENERAL INVESTIGATIONS ASSISTANT DIRECTOR
Mr. Bowron. Thank you, Madam Chairman, and Senator Durbin,
for inviting us here today to testify about the results of our
investigation into slamming. As you mentioned, it is about
telecommunications fraud and abuse.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Bowron appears in the Appendix on
page 119.
---------------------------------------------------------------------------
Before I summarize our investigation, I would like to
introduce our Assistant Director for Financial and General
Investigations, Ron Malfi. He supervised this investigation.
As we have reported, slamming is the unauthorized switching
of a consumer from the long-distance provider of choice to
another provider. Although all three types of long-distance
providers--facility-based carriers, switching resellers, and
switchless resellers--have some incentives to engage in
slamming, switchless resellers are by far the most culpable.
I would like to provide a definition of these three types
to help explain why each has at least a monetary incentive to
slam.
Facility-based carriers, carriers such as AT&T, Sprint, and
MCI, have invested considerably in the physical equipment such
as hard lines and computerized switching equipment necessary to
accept long-distance calls and forward them to their
destination. Because the carriers already have that equipment,
it costs them little to provide service to additional
customers, whether they are slammed or not, who increase the
carriers' profits.
Switching resellers lease capacity on a facility-based
carrier's long-distance lines at a discounted price and resell
the long-distance services to customers at a profit. These
resellers have one or more switching stations, so they do have
an investment in their companies. Again, though, additional
customers, whether they are a result of slamming or not,
increase their profits.
Switchless resellers also lease line capacity and resell it
at a profit. However, they have no equipment and little or no
financial investment in their company. So of the three provider
types, they have the most to gain and the least to lose by
slamming customers.
Intentional slamming is accomplished through deceptive
practices. This includes misleading consumers into signing a
written authorization--known as letters of agency or letters of
authorization, referred to as LOAs--forging LOAs, or even
pulling numbers from a telephone book and submitting them to a
local telephone company for change.
Although the Federal Communications Commission received
only about 20,000 slamming complaints in 1997, intentional
slamming is not an occasional occurrence. For example, Daniel
Fletcher, the owner/operator of the companies discussed in our
case study, apparently attempted to slam about 544,000
customers in one effort. However, the FCC, State regulatory
agencies, and the industry each rely on the others to be the
main force in the fight against slamming.
Of these efforts, those by some States are the most
extensive. The FCC really has no front-end controls to ensure
that long-distance provider applicants have a reasonable level
of integrity or record of ethical business practices.
To illustrate, long-distance providers are required to file
a tariff, or a schedule of services, rates, and charges, with
the FCC before doing business. States and the industry rely on
that tariff as a key credential for a provider. But in its
filing procedure, the FCC really just accepts the filing and
does not review the information submitted and filed with the
tariff.
To test the FCC's oversight of the filing procedure, we
easily filed a tariff using fictitious information, didn't
really provide the application that is required, and didn't pay
the $600 filing fee. Our fictitious switchless reseller, which
we named PSI Communications, could now slam consumers with
little chance of adverse consequences. In short, the FCC's
tariff-filing procedure isn't a deterrent to a determined
slammer and provides no assurance to States, to the industry,
or to the public concerning a long-distance provider's
legitimacy. In fact, despite your experience, Madam Chairman,
the most effective anti-slamming measure appears to be one that
consumers can take themselves: Contacting their local exchange
carrier and freezing their long-distance provider, or primary
interexchange carrier, commonly known as a PIC. And this has
become known as a PIC freeze.
A PIC freeze likely helped some consumers avoid being
slammed by Mr. Fletcher's eight known switchless resellers. The
owner/operator of our case study companies apparently entered
business in 1993 and continued into 1996. Through each company,
he apparently slammed or attempted to slam many thousands of
consumers, including, as I mentioned, 544,000 in one attempt.
Business records, although incomplete, indicate that between
1993 and 1996, Fletcher companies billed their customers over
$20 million and left at least $3.8 million in unpaid bills to
some of the firms that they dealt with. Another firm has a $10
million judgment against one Fletcher company.
Some State regulatory agencies and the FCC have taken
action against one or more Fletcher companies. Generally, the
States have taken the stronger action. For example, in 1997,
Florida canceled the right of one Fletcher company to do
business and fined it $860,000 for slamming.
The FCC, in June 1997, issued a show-cause order regarding
Mr. Fletcher and his eight companies. However, as of the
writing of our report, it had not finalized its order. I
understand now, though, subsequent to our briefing of the FCC
on our findings, that in the last few days finalized that order
and taken action with respect to the Fletcher-owned companies.
Although it appears that all eight Fletcher companies were
out of business by the end of 1996, we identified several
instances of his continued involvement in the industry. But
because Mr. Fletcher knowingly used false information to
conceal his identity and whereabouts, he has not been located.
Madam Chairman, that concludes my summary, and I would
submit my full statement for the record. We would be pleased to
answer any questions that you or Senator Durbin may have.
Senator Collins. Thank you very much.
Let me start by directing your attention to the bar graph
that is before you that shows the number of slamming complaints
to the FCC since 1993. As I mentioned in my opening statement,
there has been an enormous explosion in complaints, yet we know
that this actually greatly underestimates the amount of
slamming that is actually occurring.
Based on your investigation, what would you cite as the
major causes for this explosion in slamming?
Mr. Bowron. Well, there is an emphasis certainly on
increasing competition in the industry, and that has not been
accompanied by an increase in any kind of effort to protect
consumers. We are in an environment of competition, but really
relying on a system that isn't geared toward enforcement in
that competitive environment. It might have been more effective
in a monopoly environment, but under the current environment it
isn't effective.
Senator Collins. You mentioned in your written testimony
and in your report that the FCC issues a scorecard of slamming
complaints. Could you explain a bit about that scorecard and
whether you think it accurately describes the slamming
complaints, particularly with regard to resellers, which you
have identified as the segment of the industry most likely to
engage in intentional slamming?
Mr. Bowron. The FCC scorecard provides a ratio of slamming
complaints to dollars in revenue. It understates the slamming
problem in that resellers are only required to report revenues
of $109 million or more. For those resellers that don't report
those revenues--and most of them don't or a large number of
them don't--the $109 million in revenue is assumed in absence
of the information. So that throws off the ratio of complaints
versus dollars and revenue, because the revenue is actually
much lower and their complaints are higher in that ratio.
Senator Collins. So for the smaller resellers, it actually
may understate the amount of complaints; is that correct?
Mr. Bowron. That is correct.
Senator Collins. You talked in your testimony that slamming
is profitable for a lot of long-distance companies. Could you
explain to us what the incentive is, what the profit incentive
is for the various segments of the industry? One of my concerns
is that slamming clearly pays, that the financial incentives
are very strong, the fines are often treated just as a cost of
doing business.
Could you explain to us the segments of the industry and
what the incentive is to slam customers?
Mr. Bowron. The incentive for the primary components of the
industry--the facility-based carriers and the switching
resellers--are the same in that they have fixed costs
associated with their businesses and with their equipment, and
the cost of carrying additional customers on their equipment
doesn't significantly increase their overhead, so more
customers provide them with more dollars without really
increasing their costs dramatically.
Switchless resellers have no investment, so it is a simple
matter of the greater the customer base they are able to
develop and switch, the more profit; that is, more dollars in
their pockets.
Senator Collins. A customer who is slammed still pays the
unauthorized carrier for the calls. It may be at the rates of
the original carrier, but doesn't the money from the consumer
go to the company that deceptively switched the consumer in the
first place?
Mr. Bowron. That is clearly a problem. There is an economic
incentive in that even if it is identified, complained about,
and action is taken, the slamming company still receives the
money, at least at the rate that would have been paid to the
customer's preferred carrier.
Senator Collins. I think that is a major problem because
that is one reason that slamming pays. Senator Durbin and I
have introduced legislation that would change the system so
that consumers could pay their original carrier rather than the
carrier that slammed them.
Do you think that that would help reduce the financial
incentives to slam consumers?
Mr. Bowron. Yes, I do.
Senator Collins. I would now like to turn to the licensing
process that you talked about. First, it would be helpful to
the Subcommittee if you outlined what the FCC's requirements
are for becoming a long-distance telephone carrier.
Mr. Bowron. The FCC's requirements are that you provide
certain information about the kind of business you will be
doing and the rates and charges that will be involved; and that
you file a tariff with the FCC, provide it with an application,
and pay a $600 application fee. Those are the requirements for
someone to be recognized with a tariff through the FCC.
Senator Collins. Is there any kind of review by the FCC of
the applications that are filed or the tariff that is filed?
Mr. Bowron. It appears from our experience and
investigation that any review would be after complaints were
filed, that there isn't a review in advance that would prevent
someone from getting a tariff.
Senator Collins. So do you think that the requirements and
the current process are sufficient to prevent someone whose
sole purpose for becoming a provider is to slam people, to
prevent that kind of fraudulent individual from entering the
market?
Mr. Bowron. No. I believe that whether you are talking
about telecommunications fraud or any other kind of fraud, when
you are trying to chase fraud after it has occurred, it is a
labor-intensive, resource-intensive battle that is very
difficult to make. So the more you can do to implement some up-
front controls to deter or minimize unscrupulous people from
coming into the business, that is a positive step.
Senator Collins. I would like to have charts brought up on
your own application for an FCC license when you went to the
FCC and established the company, PSI Communications. I am not
sure whether to thank you for naming it after the Subcommittee
or to look forward to a cease and desist order from the FCC.
Now, according to your report, you used a fictitious name,
a phony telephone number that you took simply off the FCC's
sample application form and put it on your form, your license
application. Also, as I understand it, instead of submitting
the tariff information, the rates, and the services, you just
submitted a blank computer disk. Is that accurate?
Mr. Bowron. Yes.
Senator Collins. Did you pay the $600 fee?
Mr. Bowron. No.
Senator Collins. But you were able to be licensed as a
long-distance provider despite that?
Mr. Bowron. We received a tariff. In fact, that letter
represents the tariff when stamped by the FCC, and we were then
listed by the FCC on the Internet as having applied for and
received a tariff.
Senator Collins. So even today, PSI Communications, a
totally bogus company that submitted an application with a
phony phone number that was taken from the FCC's sample form,
which did not pay the application fee of $600, and submitted a
blank disk rather than the information that you required, you
are now a recognized, legitimate provider of long-distance
services in the FCC's eyes?
Mr. Bowron. I don't know about today because we did brief
the FCC on our activity about a week or so ago.
Senator Collins. Until briefing them.
Mr. Bowron. So we may not be today, but we would have been
recognized at least up until that point.
Senator Collins. So to become a long-distance telephone
service provider in the United States, you have testified
earlier that you don't need any equipment; is that correct?
Mr. Bowron. That is correct.
Senator Collins. You don't need any facilities?
Mr. Bowron. That is correct.
Senator Collins. You don't need employees?
Mr. Bowron. That is correct.
Senator Collins. You don't need any experience in the
industry?
Mr. Bowron. That is correct.
Senator Collins. You don't need any special showing of
expertise or ability to perform the services?
Mr. Bowron. No.
Senator Collins. You don't need an office or any other
location?
Mr. Bowron. No.
Senator Collins. All you need is to supposedly file the
tariff, pay the fee--but you didn't do either of those--and you
can become licensed; is that correct?
Mr. Bowron. Well, obviously, after you have taken those
steps, you would have to have a customer base that you were
going to provide to a carrier who you entered into an agreement
with to lease line capacity. You would have to go through a
billing procedure, which is frequently accomplished through a
billing company that you enter into an arrangement with. But
those are the steps that you would take, and the tariff in most
instances, although it varies a little bit from State to State,
would enable you to accomplish that.
Senator Collins. And this means that anyone, even someone
with a lengthy criminal record, could get through the first
threshold; is that accurate?
Mr. Bowron. Yes.
Senator Collins. And we know, in fact, given Daniel
Fletcher's experience, that going to the next level is not that
difficult either.
Do you have any evidence that the major carriers check with
the FCC to see whether someone has been barred from the
industry or has a disciplinary history with the FCC or whether,
in fact, they have filed the information correctly with the
FCC?
Mr. Bowron. No. Those are two other vulnerabilities. I
mean, there really isn't a requirement for the industry, before
doing business with a reseller, to check with the FCC, and
there really isn't a requirement for them to report to the FCC
that they are doing business with any particular entity.
Senator Collins. One of the aspects of this that troubles
me is it seems that no one is really in charge, that the FCC
expects the industry to essentially police itself and for the
major carriers to take responsibilities for their dealings with
the resellers. The industry seems to rely on the FCC's process,
and yet we have just seen that it is very easy to become
licensed as a long-distance carrier.
Is that a weakness in the system that allows a Daniel
Fletcher to enter it and to rip off consumers?
Mr. Bowron. Yes. There is no centralized repository for
slamming complaints, and as you indicated, our investigation
and interviews with the FCC and with State and industry
representatives, indicates, as we said in our report, that each
really relies on the others to be the main forces in anti-
slamming efforts. So there really isn't any one entity that is
taking overall responsibility for that.
Senator Collins. I have a number of specific questions I
want to ask you about your case study of Mr. Fletcher, but I
know that Senator Durbin is on a tight schedule, so I am going
to yield to him now for some questions.
Senator Durbin. Thanks, Senator Collins.
The more I get into this, the more I am convinced that, to
this point, no one has taken this seriously. If a fellow like
Fletcher can get into business and, according to what we have
here, charge the slammed customers as much as six times the
rates they had previously been paying, can make, it appears,
millions of dollars off of this and ultimately escape
prosecution. As I understand it, he has never been indicted or
prosecuted for anything. Is that true?
Mr. Bowron. I believe that is correct.
Senator Durbin. If you steal hubcaps they stop you, arrest
you, make you face the judge, and this fellow is involved in
millions of dollars of fraud, and no one has ever prosecuted
him. It appears to be a game in the minds of some people. But
it is not a game in the minds of the victims.
I am also concerned, too, because the threshold
qualification to be part of this business, the tariff at the
FCC, clearly is not on the up and up. There isn't a good job
being done by that agency if you can go in there and not even
present the $600 filing fee. You managed to get a tariff
without paying?
Mr. Bowron. Well, that was our experience. Now, we didn't
do any work to ascertain whether there were other occasions on
which tariffs had been obtained under such circumstances. But
that was our experience, yes.
Senator Durbin. I just wonder how many other Americans
could expect to go to a Federal agency and receive a license or
a tariff or some permit and not provide the check that is
require, I assume that is required by law. Is that the case
here?
Mr. Bowron. That is what is required by law, yes.
Senator Durbin. And there was obviously no effort to
scrutinize your application to find out if you were legitimate.
Mr. Bowron. That is right.
The process though, is somewhat fragmented in that all
steps of the process don't occur at the same place. You send
the application to one location. You send the check to a
location. You actually go in to obtain the tariff at a
different location and provide your disk. So we didn't really
study the process, but our experience showed us that the
process was fragmented.
Senator Durbin. Well, it appears the process is meaningless
as well as being fragmented if you could give a false telephone
number--I don't know if that address up there was a legitimate
address. Is it?
Mr. Bowron. No.
Senator Durbin. You made that up, too.
Mr. Bowron. It is a real post office box mail drop.
Senator Durbin. You used a mail drop, a phony number. Who
is Ron Ryan? Is that someone who works for you?
Mr. Bowron. The two agents that were involved in the
investigation used the first name of one and the last name of
the other.
Senator Durbin. So it is a phony name and a phony address--
not a phony address but a mail drop, with a phony telephone
number, and you handed them a blank computer tape?
Mr. Bowron. Disk.
Senator Durbin. Disk?
Mr. Bowron. Yes.
Senator Durbin. It had nothing on it?
Mr. Bowron. Nothing on it.
Senator Durbin. And then you didn't give them the check,
and you walked away with your tariff.
Mr. Bowron. Yes.
Senator Durbin. And now you are ready to do business.
Well, if that is the best we can do at the Federal level,
we have a long way to go to try to convince the consumers that
we are even trying. And it troubles me as well that this
Fletcher got away with this for such a long period of time.
These newspaper articles called him ``the king of slammers.''
Do you have any idea how much money this man made or what
he took out of this business?
Mr. Bowron. We really can't report with any precision how
much he made. We do know that he billed over $20 million to
customers. If you use his typical method of operation--and he
wasn't able to do this on all $20 million--through billing
companies, he received 70 percent of the billing amounts in
advance of the bills actually being paid. So if you use that 70
percent method, he could have made as much as $14 million.
Now, he made something less than that, but certainly there
was a lot of money involved.
Senator Durbin. And not only stiffing consumers, he stiffed
some of these long-distance providers like AT&T in the process,
did he not?
Mr. Bowron. Yes.
Senator Durbin. I don't know if this is accurate, Madam
Chairwoman, but it said that despite warning signals, companies
like AT&T and Sprint took months or years to stop doing
business with this fellow. As a rule, they only stopped when he
failed to pay his bills. And until this investigation was
initiated, AT&T at least had no idea they were owed almost $2
million by Fletcher.
Mr. Bowron. That is correct.
Senator Durbin. Is that what you found?
Mr. Bowron. Yes.
Senator Durbin. It amazes me that this fellow did this with
impunity. And 29 years old, he was? Pretty enterprising young
businessman. And now he has fled the country. Is that the best
we know?
Mr. Bowron. We are not sure that he has left the country,
but there is an ongoing investigation, and he may very well
have left the country.
Senator Durbin. Well, let me tell you, the bill that
Senator Collins and I have introduced is finally going to put
criminal liability into this, and a man like Mr. Fletcher would
certainly be a prime target for it. If people want to do this
repeatedly at the expense of consumers, I think they should be
held just as accountable as the folks that are stealing
hubcaps.
Thanks, Madam Chairwoman.
Senator Collins. Thank you, Senator.
If PSI Communications were to start slamming consumers, how
would the FCC go about taking enforcement against the company?
Mr. Bowron. FCC would have difficulty taking any
enforcement action because it has no legitimate information
that would allow it to locate or communicate with the
representatives of that company.
Senator Collins. Isn't that one of the problems, then, of
there being no verification of even the phone number that is on
the application? If there is a problem, what can the FCC do if
the information is phony?
Mr. Bowron. That is a problem, a vulnerability.
Senator Collins. I would like to turn to the Fletcher case
and follow up on some of the questions that Senator Durbin
asked you.
First, let me start by asking you, Did Daniel Fletcher file
the necessary documents with the FCC to be considered an
authorized long-distance service provider?
Mr. Bowron. Not in every instance. I believe out of his
eight companies he filed for a tariff with regard to two of
them.
Senator Collins. But despite not even filing with the FCC,
he was able to enter into relationships with the major carriers
to lease capacity?
Mr. Bowron. Yes.
Senator Collins. So that indicates that one of the problems
here is, even if the information is accurate with the FCC, if
the individual doesn't file at all, the major carrier is not
doing a check with the FCC to see whether or not there is
authorization. Is that correct?
Mr. Bowron. That is correct. There is no current
requirement that makes it incumbent on the carrier to make such
a check.
Senator Collins. So, to the best of your knowledge, none of
the long-distance or billing companies checked with the FCC
about Mr. Fletcher prior to doing business with him?
Mr. Bowron. We don't believe so.
Senator Collins. You mentioned that in one case Daniel
Fletcher tried to slam more than half a million customers. That
is pretty bold. Do you know how many he was successful in
slamming?
Mr. Bowron. Well, in that particular instance, we don't
know how many he was successful in slamming. We know that about
200,000 of a group of 500,000 went through, and based on the
number of rejections, resulted in suspicion on the part of one
entity that Mr. Fletcher was dealing with.
Senator Collins. Are the techniques that Daniel Fletcher
used to slam consumers unusual?
Mr. Bowron. No, they really are not.
Senator Collins. I would like to discuss one of those
techniques by having a chart brought up. It is my understanding
that one of the most common methods that he used was a
combination sweepstakes entry and letter of authorization for
changing the long-distance services. Is that accurate?
Mr. Bowron. Yes.
Senator Collins. Are you familiar with the two charts that
we are putting up?\1\ One is what I understand was a poster
that was used, and the other is a slightly blown-up version of
what really was a three-by-five card which served as the letter
of authorization.
---------------------------------------------------------------------------
\1\ See Exhibit 39 (d) and (e) of the April 23, 1998 hearing in the
Appendix on pages 236 and 238 respectively.
---------------------------------------------------------------------------
Mr. Bowron. Yes.
Senator Collins. Could you explain how Mr. Fletcher used
the enticement of a sweepstakes in order to slam consumers, in
order to get their names and addresses and phone numbers?
Mr. Bowron. Well, he used the marketing technique of a
sweepstakes, which concealed the fact that people were
unknowingly changing their long-distance carrier in the fine
print. It provided confusing information that did not clearly
identify even a single carrier that one would be switching to;
but, most importantly, it combines it with an official
registration. Although it says LOA at the top of the form, most
people only know it is an official registration. LOA doesn't
really mean much to them.
So he has disguised, basically, through a marketing attempt
the fact that people are changing to his long-distance company.
Senator Collins. So most consumers thought that when they
filled out this postcard that they were signing up to win the
new Mustang convertible or $20,000 in cash. Is that accurate?
Mr. Bowron. That is accurate. What I don't know for sure is
whether that particular form went with that particular contest.
But that is a typical scheme.
Senator Collins. This is, according to the information we
have from our investigation, precisely what was done in this
case. These materials were provided to us by the State of
Florida which took action against Mr. Fletcher.
The way this was set up is this essentially was a poster
with the Mustang convertible come-on, and then these were
little cards that people could fill out and put in the box with
the slot right below the poster. So I would wager that most
people thought they were entering a contest, not signing up to
switch their long-distance service.
Based on your knowledge of slamming, is that a reasonable
assumption on my part?
Mr. Bowron. Yes.
Senator Collins. And is this a typical method of slamming
that unethical providers use?
Mr. Bowron. This is a typical example of a deceptive
marketing practice to build a customer base.
Senator Collins. AT&T wrote to Mr. Fletcher on several
occasions questioning the legitimacy of his letters of
authorization or letters of agency, and, in fact, in April of
1996--and I think we have given you a copy of this exhibit; if
not, I will ask for the clerk to make sure that one is brought
down to you--AT&T wrote Mr. Fletcher in a ``Dear Daniel''
letter and said that these LOAs, the letters of authorization,
were a problem, that they violated the current FCC rules.
In fact, the AT&T individual said to Mr. Fletcher about his
LOAs, ``This is not sufficient for proof of authorization
purposes because the FCC rules provide that the LOA form may
not be combined with any sort of commercial inducement.''
So, in other words, AT&T realized that Mr. Fletcher was
violating current FCC regulations; is that correct?
Mr. Bowron. Yes.
Senator Collins. Is there any indication--and it is my
understanding that as a consequence AT&T rejected thousands of
the change orders that Mr. Fletcher submitted; is that correct?
Mr. Bowron. The records that we got from AT&T weren't
complete enough for us to be able to determine whether or not
they processed those LOAs. We do know that they continued to do
business with Mr. Fletcher until November of 1997. We don't
know with certainty whether or not they processed those
particular letters of agency.
Senator Collins. So AT&T continued to do business with Mr.
Fletcher despite its concerns. It may or may not have stopped
processing some of his orders. Is that correct?
Mr. Bowron. Yes, it is.
Senator Collins. Did AT&T report its suspicions about Mr.
Fletcher to the FCC?
Mr. Bowron. No.
Senator Collins. That troubles me greatly because AT&T's
letter says to Mr. Fletcher that he is not in compliance with
the FCC. Do you think there should be some sort of requirement
or obligation imposed on the major carriers to report activity
like this to the FCC? Here we had a classic scheme for
slamming. We have evidence that thousands of consumers are
being deceived. AT&T realized that, but it didn't take action--
it wrote to Mr. Fletcher, but it didn't take action to report
to the FCC that its regulations weren't being followed.
Mr. Bowron. Based on our interviews and investigation with
respect to the industry, they do not report that kind of
activity. They don't consider it their responsibility to report
that kind of activity. They generally put the suspected slammer
on notice, as in the Fletcher case, that they expect the
company to comply with FCC regulations, but do not report it to
the FCC.
Senator Collins. One of the provisions of the Collins-
Durbin legislation would put more requirements on the major
long-distance carriers as well as the local exchanges, the
local telephone companies, because they are the ones who get
most of the slamming complaints, to when they see a pattern,
report to the FCC. Do you think that would be helpful in cases
like this that would allow earlier detection of widespread
slamming by an individual provider?
Mr. Bowron. Yes, I do.
Senator Collins. I would like to now turn to the FCC's
actions against Mr. Fletcher. If AT&T did not, or none of the
other companies--and I am not trying to single out AT&T
because, obviously, Mr. Fletcher did business with other major
carriers as well. To your knowledge, none of them contacted the
FCC about Mr. Fletcher's activities; is that correct?
Mr. Bowron. To our knowledge, they did not.
Senator Collins. How did the FCC become aware that Mr.
Fletcher was engaged in such blatant slamming?
Mr. Bowron. Mr. Malfi advises me that there were direct
complaints made to FCC with respect to Mr. Fletcher.
Senator Collins. So it was consumers complaining directly.
Mr. Bowron. Yes, that is correct.
Senator Collins. And the FCC saw the pattern.
We know that Mr. Fletcher slammed probably hundreds of
thousands of consumers. He certainly tried to slam a huge
number. Yet it took the FCC almost 2 years to take final action
against Mr. Fletcher to ban him from the business.
Could you give us your opinion of the FCC's enforcement
activity in this case?
Mr. Bowron. Well, the enforcement activity in this case
really was not more aggressive than sending a notice of the
orders to Mr. Fletcher; and when Mr. Fletcher didn't respond to
those orders, FCC could have used his lack of response to act
sooner, but did not. So while they did initiate some action,
they really did not follow through with the action as soon as
they could have based on his lack of response, which enabled
him probably to stay in business longer.
Senator Collins. Do you think Mr. Fletcher is still doing
business today?
Mr. Bowron. Yes. We have some indication that he is, but
because of an ongoing investigation, I really wouldn't want to
comment further than that.
Senator Collins. Based on your investigation and the FCC's
enforcement actions to date, what is there to stop another
Daniel Fletcher from getting an FCC license to provide long-
distance service, from slamming thousands of consumers, getting
paid up front, and disappearing again?
Mr. Bowron. Right now there isn't anything that would
prevent that.
Senator Collins. Is there anything that would prevent Mr.
Fletcher from getting back into business again? He has legally
been barred, but given the weaknesses in the system, is there
anything to prevent him from setting up yet another company
with yet another name? He has done it eight times.
Mr. Bowron. He would have to use another name, but other
than that, he could certainly get back into the business.
Senator Collins. I wonder if he could get back in using his
own name if there is no review of the FCC's applications.
Mr. Bowron. It is possible.
Senator Collins. Senator Durbin and I have introduced
legislation that would make intentional and repeated slamming,
such as Mr. Fletcher has committed, a crime. It would make it a
criminal offense.
You have enormous experience as director of a law
enforcement agency. You have a lot of knowledge of the Fletcher
case and of slamming in general. Do you think that activities
such as Mr. Fletcher's should constitute criminal conduct and
should there be criminal penalties for such egregious cases?
Mr. Bowron. Yes, I believe that should be the case. And I
would say that right now there are criminal laws that could be
applied--wire fraud, mail fraud--but it would be, I think, from
an enforcement standpoint for prosecuting attorneys and law
enforcement agencies, preferable if there were specific
violations that were specific to slamming rather than trying to
use the facts and circumstances to rely on other statutes.
Senator Collins. So it is a stretch under existing laws to
bring a criminal case for slamming?
Mr. Bowron. It is certainly not as straightforward. It is
more difficult. You have to make sure that you meet the
particular elements of those other offenses, such as mail fraud
or wire fraud.
Senator Collins. Have you looked at the States' enforcement
actions against companies that engage in slamming?
Mr. Bowron. Yes, to some extent.
Senator Collins. How do these States' actions compare with
the FCC's action in general?
Mr. Bowron. It varies from State to State, but in general,
the States' actions are more severe than those taken by the
Federal Government.
Senator Collins. In closing, I would like to ask you to
just go through what you think consumers should do to avoid
being slammed, what you believe the industry needs to do, and
what you think that the FCC needs to do. And part of it, I
should say, means that Congress also needs to change the law
and toughen the penalties, but if you could focus on what you
believe would be most effective to curtail this practice once
and for all. We clearly have a new deregulated environment that
has brought many benefits, but it has also opened the door to
fraud and scams like slamming. So what should we be doing?
Mr. Bowron. Well, certainly I think, as I said, the most
important step that consumers can take to protect themselves is
to initiate a PIC freeze with respect to their long-distance
carrier, and they can do that by contacting their local
exchange carrier.
If they are slammed, they should immediately notify the
local exchange carrier and the FCC.
Now, as far as developing something that would result in a
more effective enforcement of rules and regulations and
centralizing responsibility for this, I think that the
legislation that you talked about, taking the economic
incentive out of slamming, is a very important step. But I also
think that any time you have dollars changing hands in
businesses, as much as you can reasonably do to establish up-
front controls to keep unscrupulous people out of the business,
should be done. And I am not talking about going from doing
nearly no review or no examination to doing a full field
background investigation. The banking industry, credit card
industries, credit bureaus--lots of entities--have developed
information-verification steps that can be taken that are not
resource-intensive and that can be done from a centralized
location. It couldn't be done without some resources.
In addition to that, I think that there needs to be a
centralization of where the slamming complaints go so that
local exchange carriers, the telecommunications industry, and
sellers of hard lines should have to report to the FCC their
experience with unscrupulous or suspicious people that are in
this business. They should also have to check with the FCC to
determine whether or not a tariff has been filed.
Now, if the FCC had a record of all the slamming complaints
filed by States and other industry entities, at least when a
provider called the FCC to check on someone that it was going
to do business with, the FCC would be able to provide that
information.
So, really, I think that centralizing a repository for all
slamming information would help.
Senator Collins. And, in addition, I believe today you have
endorsed many of the very strong provisions of the Collins-
Durbin bill--is that correct, also--on criminal penalties, the
requirements on the industry, and the increased fines?
Mr. Bowron. I think that they are very viable steps that
would have an impact.
Senator Collins. Thank you very much, Mr. Bowron.
Senator Levin, do you need a moment or two?
Senator Levin. No. I am fine. I am ready to go.
Senator Collins. OK.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Thank you, Madam Chairman, and thank you for
your leadership in this area and for the hearing that you have
called today. You have put your finger on a major problem, a
major consumer problem in this country, and all of the Nation
should be grateful to you and Senator Durbin and others who
have taken a leadership role in this for that leadership.
My office has received huge numbers of complaints from
constituents on the practice and the problems of slamming. In
fact, switching someone's long-distance carrier without their
consent, or slamming, is the No. 1 complaint which has been
received by the Michigan Public Service Commission. And
Michigan ranks fourth nationally in the number of slamming
complaints which have been received, and it is a growing
number.
Twenty-five percent of telephone customers in Michigan's
two largest cities, Detroit and Grand Rapids, have either had
their telephone carrier switched without their permission or
know someone who was illegally switched.
There is no national database, so we don't know exactly how
many complaints there are on slamming. But we do know that
local phone companies receive most of the complaints, and one
local phone company in Michigan received close to 116,000
complaints last year. And that is just the tip of the iceberg.
Consumers are understandably outraged when this happens. It
leaves them vulnerable, paying higher rates, and they want to
be in control, and they have a right to be in control, and they
lose that control when slamming occurs without their consent
and rewards the companies that engage in these deceptive and
misleading marketing practices. And we had many examples, but
in Westland, Michigan, Mrs. Lori Isler's 14-year-old daughter
was approached three times in a mall by marketing
representatives who urged her to fill out a form for a chance
to win new cars. She told them she didn't want to. They
persisted. She told them she didn't want to. They persisted.
Finally, she signed. Happily, she told her mother, who notified
the regular long-distance carrier that the service had been
switched, and she complained to the Michigan attorney general,
Frank Kelly's office, for protection, and they got action.
But think of the hundreds of thousands that don't, and that
action, just having that minor sign a card, violates the
regulations of the FCC. You are not supposed to have anything
on that notice other than the request for the change. And yet
we don't see any enforcement that is flowing in that area from
the FCC.
I have just one question, and, again, I want to commend our
Chair for her leadership here in the bill that she has
introduced. And we also will be looking at the FCC-proposed
regulations to see if they are strong enough and, indeed, if
Congress should act in addition to the ways that have already
been proposed by our Chairman.
I just have one question of you. That is, some of us are
looking at the possibility of requiring a bond, an up-front
bond, for the resellers. And I am wondering what you would
think about that and what your comment would be on that.
Mr. Bowron. I think that that is a very viable option and
it should be considered, and the bond could vary in amount,
obviously, and the length of time that someone had to be bonded
could also vary. It wouldn't necessarily have to be for their
entire period of time in the business, but I think it is a
viable option.
Senator Levin. You have pointed out in your testimony that
chasing fraud after it occurs is extremely expensive and labor-
intensive, and hopefully we can stop it from occurring, and one
way possibly that I hope we will consider would be a
requirement that the resellers here be required to put up
bonds.
Thank you, and thank you, Madam Chairman.
Senator Collins. Thank you very much, Senator Levin.
Thank you very much, Mr. Bowron. I really appreciate the
cooperation of GAO and the assistance, the very able
assistance, GAO has given us in this important matter. Thank
you very much.
Mr. Bowron. Thank you, Madam Chair.
Senator Collins. Our second witness this morning I am
pleased to welcome is the Hon. William E. Kennard, the Chairman
of the Federal Communications Commission.
Mr. Kennard was confirmed as Chairman of the FCC last
October, having previously served for over 3 years as the FCC's
general counsel. Before joining the FCC, he practiced
communications law at a very prestigious Washington law firm,
and he brings a considerable private and public sector
experience to the Subcommittee today. He has a very impressive
academic and legal background that makes him well-qualified for
the challenges of his job.
We look forward to hearing the FCC's position on slamming,
a review of its current policies, and suggestions on what you
may have for us to control this problem.
Pursuant to Rule VI, all witnesses who testify before the
Subcommittee are required to be sworn, and so I would ask that
you stand and raise your right hand.
Do you swear that the testimony you are about to give to
the Subcommittee is the truth, the whole truth, and nothing but
the truth, so help you, God?
Mr. Kennard. I do.
Senator Collins. Thank you very much.
Mr. Kennard, you may proceed.
TESTIMONY OF HON. WILLIAM E. KENNARD,\1\ CHAIRMAN, FEDERAL
COMMUNICATIONS COMMISSION
Mr. Kennard. Thank you, Madam Chairwoman, and Senator
Levin.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Kennard appears in the Appendix
on page 130.
---------------------------------------------------------------------------
I appreciate the opportunity to appear before you today,
and I am particularly pleased that you are shining the
spotlight on this very important area, and I commend you for
your leadership in bringing these issues to the attention of
the Congress.
Please be assured that we at the FCC are very aware of this
problem. We understand the outrage that consumers feel when
they are slammed. The practice brings the industry into
disrepute, leaves consumers frustrated, and we are committed to
doing all we can, and to doing more.
I think the recent action that we took against the Fletcher
companies demonstrates our willingness to get tough against
slammers, but we won't stop there. I would like to outline what
I think should be our three-pronged approach to dealing with
the slamming problem.
First, vigorous enforcement. We need to nab the bad actors
when slamming violations occur. We need to be vigorous in this
area.
Second, and most importantly in my view, we need to
strengthen our existing rules. We need to take the profit out
of slamming. Madam Chairwoman, you touched on this in your
questioning and in your opening statement. I think the single
most effective thing that we can do in this area is to
eliminate the profit motive from slamming, to tell consumers
that if you get slammed, you don't have to pay a dime to the
slammer or to anybody else. I think that that would go a long
way in removing the incentive for people to slam in the first
place.
And, third, we need to continue to educate consumers on
ways that they can avoid being slammed in the first place. Many
Americans are adjusting to the transition from monopoly to
competition. Most Americans in this country remember--I
certainly do--when you only had one long-distance provider.
Well, obviously, the world has changed. We have 500 providers
of long-distance service in this country. Consumers need to be
vigilant. They need to educate themselves, and we want to help
them do that.
Now, I have proposed for the Commission's consideration
tougher rules that I hope will take the profit out of slamming.
Currently, for the period their service was changed without
their permission, slammed consumers need only pay the slammer
the amount they would have ordinarily paid to their authorized
carrier. But to discourage slamming, I think we should do more.
My own view is that slammed consumers should not have to pay
any charges for a reasonable period of time after being
slammed, maybe one or two billing cycles. Such an approach, in
my view, will remove the profit incentive from slamming, and it
will also tell the carriers that do the billing for these long-
distance carriers and these slammers that they have to be
vigilant.
We heard testimony earlier about how AT&T was not vigilant
enough in shutting down Mr. Fletcher. Well, if there was no
profit incentive for Fletcher to slam, if AT&T knew that the
consumers that Fletcher was slamming didn't have to pay them a
dime, then I think that AT&T might have been more vigilant
themselves.
Now, Madam Chairwoman, I am aware of your concerns. We have
talked about this proposal, and I am aware that you have
concerns about absolving consumers altogether from the
responsibility of paying when they get slammed. But I think
that we can craft rules with appropriate safeguards so that we
can take the profit motive out of slamming without creating
abuse by consumers themselves.
We have talked a lot about tariffs this morning. With all
due respect to the GAO, I think that a lot of this focus on the
tariffing process is really misdirected.
First of all, a tariff is not a license. It has never been
a license. A tariff is a document that carriers are required to
file at the FCC which provides basic information about rates
and services, not about marketing practices. It has never been
intended to be a process to screen people coming into the
market based on their marketing practices or their character.
And we freely stipulated to the GAO that the tariffing process
was not intended to screen people or do background checks or
anything of the sort.
In fact, the FCC has tried to get out of the tariffing
business because we have found, based on years and years of
experience, that in a competitive market the tariffing process
is anti-competitive because it allows carriers to signal to one
another what rates they are going to charge to consumers. And
it has not been good for competitive markets. So I do not think
that beefing up the tariffing process and, in effect, erecting
a new entry barrier for people getting into the long-distance
business is the solution.
Now, as to consumer education, the Commission has done a
lot in this area and we will continue to do so. We receive most
complaints about slamming via our toll-free number. That is
working well. Consumers have one place to call to get
information about slamming and how to protect themselves.
I want to raise one other issue that is very important. It
is an emerging problem in the telecommunications marketplace.
That is the problem of cramming. And, Madam Chairwoman, I would
invite your leadership and your attention to this matter
because I think that cramming is the next major consumer
protection issue that we have got to deal with.
Cramming is the process when consumers receive bills for
services that they never ordered. It is sort of a variation on
slamming. We are seeing a lot of consumers complaining about
receiving bills for Internet services, for example, that they
never ordered or never wanted.
To head off this growing problem, today I am calling upon
the CEOs of the major local telephone companies to come
together next month at the FCC in order to prevent cramming and
to identify voluntary practices that they can incorporate in
their billing procedures to stop cramming.
I am making available the Commission's resources to assist
in these industry efforts. I hope to create a neutral forum
where the industry can come together, and I would certainly
invite your leadership in this process as well, Madam
Chairwoman.
This concludes my oral testimony. Again, I praise you for
your efforts to call attention on this problem and to propose
some very helpful legislative solutions which will give our
Commission more tools to combat this problem. I think there are
some wonderful provisions in your bill.
I am happy to be here and to take your questions.
Senator Collins. Thank you very much, Mr. Kennard. We
appreciate your cooperation and your being here this morning.
I am a little bit troubled by some comments that you made
in discussing the tariff and the application process. You said,
I think, that--you explained correctly, obviously, that tariffs
are not really a license, they are a filing of the charges and
the fees that are going to be offered by the provider. And you
described them as being anti-competitive, and you and I have
had a discussion on the phone as well that your mission is to
deregulate. And deregulation has certainly brought a lot of
benefits to consumers, but with deregulation have also come
scams. And my concern is that that doesn't mean we shouldn't
deregulate, but it means that when we are dealing with a
deregulated market, we do need to have some consumer
protections that would not have been necessary in the old
regulated market when you could just deal with one company and
you had a very close working relationship with them.
Now we have some--I think it is 500 long-distance telephone
providers, and we have learned very clearly that some of them
are engaging in outright fraudulent activities. We don't seem
to have the process or the procedures in place to adjust to
this deregulated market from the consumer protection
perspective.
Now, it is my understanding the FCC provides a blanket
authority for domestic long-distance carriers to enter the
market. Is that correct, that there is this blanket authority
that means that there isn't any kind of review?
Mr. Kennard. Well, there isn't a licensing requirement, no.
The tariff is not intended to scrutinize carriers coming into
the market. It is, rather, a method for them to indicate to the
FCC their rates and charges. But, again, the tariffing process
is really a vestige of a less competitive marketplace and
really should go by the wayside, in my view.
Senator Collins. So are you advocating having no
application process, no filing at all with the FCC?
Mr. Kennard. What I am saying is that the way to combat
slamming is not through the tariffing process. I really think,
Madam Chairwoman, that we need to think outside the box a
little bit on this and not look at the tariffing process as the
solution.
I believe that the reason people slam is because there is a
financial incentive to do so, and we need to remove that
financial incentive.
I could go out tomorrow and create a 50-page tariff filing
requirement and do background checks and collect all sorts of
financial information, and it wouldn't do one thing to combat
what we saw in that Fletcher case, because as we heard the GAO
testify, Fletcher didn't even file a tariff, and had he filed,
he probably would have misled the FCC and lied in his
application, as he lied to Dun and Bradstreet when we tried to
track his financial information.
So an individual like Fletcher, who sets out in a very
intensive, unscrupulous way to rip off consumers, is going to
do that whether you have an extensive tariffing process or not.
What an extensive tariffing process would do is harm the
legitimate providers, and most of the providers today are
legitimate. It would just impose an entry barrier, another
regulatory issue that they have got to deal with, more cost,
delay, and expense for them to get into the marketplace.
Senator Collins. But the legitimate providers are losing
customers to the slammers. I mean, that is not good for the
competitive market, either, when an unethical provider can so
easily enter the market and rip off the customers of a
legitimate provider.
Mr. Kennard. I don't disagree with that. My point goes to
how do we eliminate the bad conduct, the slamming. And I think
that we do that by taking the profit incentive out of slamming,
not by trying to erect some sort of an entry barrier or a
background check, which I don't think is going to give us the
kind of protection that we need.
Senator Collins. What if the FCC received a tariff from an
individual whose address was Cell Block C of Leavenworth
penitentiary? Would that trigger any kind of review by the FCC?
Mr. Kennard. It probably would. But that sort of review--
and this is my point--is not going to solve the slamming
problem.
Fletcher is a great example of this. We chased Fletcher all
over the country for almost 2 years. This was a guy who was on
the lam. He was intentionally trying to violate our rules. So
he probably would have filed the most legitimate looking
application you have ever seen, and it would have been wrong.
We know that he gave us false addresses and false telephone
numbers. So an up-front approach is not going to solve the
problem.
We would have combatted Fletcher if we had had rules, as I
have proposed to the FCC, I believe, that would tell the
Fletchers of the world, if you slam someone, you are not going
to get a dime from that consumer because they won't have to
pay.
Senator Collins. As you know, the GAO's investigators filed
an application for ``PSI Communications.'' It had phony
information. The phone number was wrong. They didn't pay the
fee. The computer disk was blank, so they really didn't file
the tariff.
Shouldn't that kind of blatant deception be caught by your
application process, by the process that you have now? I mean,
all that would have been required is to plug in the computer
disk or--I mean, I am amazed that someone could get
authorization without paying the $600 fee. There must be some
sort of reconciling of accounts, I would think.
Mr. Kennard. No one got authorization from that PSI tariff
filing. If you recall the chart that was put up earlier, in the
corner it said unofficial log. That was not a license. That was
not an official tariff. That was just a notification that this
filing had been made.
We talked to the GAO when they came to discuss this
procedure with us. We freely told them, don't look for the
tariff process to try to scrutinize who people are who are
providing long-distance service, because that is not what we
rely on tariffs to do, nor should we. The FCC has sought to de-
tariff the long-distance business because we do not rely on
tariffs to enforce against slamming, because in my view, that
is an ineffective way to do it.
Senator Collins. What troubles me about that answer is the
industry has told us that they consider the tariff filing as
being a key credential when they decide to do business. Now,
there is also evidence, I will say, that the major carriers
don't bother to check with the FCC. So there is conflicting
evidence. But the major carriers are telling us that they rely
on the filing with the FCC.
Mr. Kennard. Some of the carriers like tariffs because, as
I mentioned before, it allows a signaling process. The non-
dominant carriers like tariffs because it allows them to get
information about what their competitors are charging
consumers. That is exactly why I don't like tariffs in a
competitive market, because it allows signaling and allows
carriers to tell one another what prices consumers should be
charged. We don't need that in a competitive market.
So the tariff is not really the best way to combat this
problem. And certainly if one were to design a process to
combat this problem, it wouldn't be through a tariff. It would
be through some sort of background check or financial
qualifications. But there, again, I don't think that that is
going to combat the unscrupulous type of slammer, as we have
seen in the Fletcher case.
Senator Collins. You mentioned in your testimony the need
for more consumer education.
Mr. Kennard. Yes.
Senator Collins. And, indeed, the FCC has urged consumers
to scrutinize their telephone bills to make sure that they have
not been a victim of slamming.
I would like you to take a look at a phone bill on our
chart. It is Chart F.\1\ This is an actual phone bill. We have
just taken out the telephone numbers to protect the privacy of
the person whose bill it is.
---------------------------------------------------------------------------
\1\ See Exhibit 39 (f) of the April 23, 1998 hearing in the
Appendix on page 239.
---------------------------------------------------------------------------
Now, would you please identify for the Subcommittee the
name of the long-distance telephone company on this bill?
Mr. Kennard. I don't see the name of a long-distance
carrier on this bill.
Senator Collins. I didn't either when I looked at it, and I
was amazed to learn that the name of the long-distance provider
is ``Phone Calls.'' That is the name of the company. And we
have highlighted it to draw attention to it.
Now, the problem with telling consumers that it is up to
them to scrutinize their bills is any consumer could look at
this bill all day--you are Chairman of the Commission--and not
realize that they have been slammed by a company that has
deliberately adopted a deceptive name in order to deceive the
consumer. The name of this--most consumers would never realize
that ``Phone Calls'' is the name of the long-distance company.
Instead, it appears to you, as it did to me, to be a listing of
long-distance phone calls made by the consumer.
I would like to show you another phone bill. It is Chart
G.\1\ And, again, I would ask you if you could identify the
name of the long-distance company.
---------------------------------------------------------------------------
\1\ See Exhibit 39 (g) of the April 23, 1998 hearing in the
Appendix on page 240.
---------------------------------------------------------------------------
Mr. Kennard. It looks to be ``LongDistanceServices.''
Senator Collins. And we have obviously highlighted it to
help you out.
Mr. Kennard. That is very helpful. Thank you. [Laughter.]
Senator Collins. Again, do you think that most consumers,
no matter how carefully they scrutinize this bill, would
realize that they have been slammed by a company called
``LongDistanceServices''? Doesn't that instead look like a
listing of long-distance calls?
Mr. Kennard. I think you have a fair point here. I think
you do highlight a problem when a consumer can't reasonably
determine who is charging them for long-distance services. That
is fair.
Senator Collins. When a company files a tariff listing a
deceptive name like ``Phone Calls,'' shouldn't that trigger
some sort of scrutiny by your staff? I mean, if the FCC can't
tell, how can the consumer tell?
Mr. Kennard. Well, the one caveat I would give is that
often times--and I notice this on my own phone bill--the name
of the long-distance carrier is on the front page of the bill
but not listed on every page. So I would--it is important,
before coming to final judgment on something like this, to
scrutinize the entire bill.
Senator Collins. My concern is that we have companies out
there whose favorite technique is to take a name that is going
to be clearly deceptive to the consumers, and telling the
consumer that it is up to you to scrutinize a bill like this in
order to find out whether you are slammed is just unfair. It is
not fair to expect a consumer to know that ``Phone Calls'' is
the name of the long-distance company.
Mr. Kennard. I don't disagree with that.
Senator Collins. We are in the midst of a vote. We have 7
minutes remaining. I can either yield to one of my colleagues,
or would you prefer to--certainly, Senator Durbin, I am going
to go vote and come back.
Senator Durbin. Tell them I am coming.
Senator Collins. I will. Thank you.
Senator Durbin. Mr. Kennard, thank you for being here, and
I am sorry I missed your testimony in person, but I read it.
And I am troubled by it, very troubled by it. I just don't buy
your premise, and your premise is that if we are in the world
of deregulation, it is time for the FCC to step aside and let
the Wild West prevail----
Mr. Kennard. Senator, that is not my testimony.
Senator Durbin. You have suggested to me that tariffs you
don't like because it is, as you call it, a price schedule that
is going to be shared, and it is anti-competitive, and yet you
have not come back with any alternative suggesting a new
function of your agency that would help protect consumers. It
is one thing for you to agree with Senator Collins and say
these are deceptive, but not a word in your testimony suggests
any new regulation that would stop this. Am I missing
something?
Mr. Kennard. Senator, yes, I think you are, and I
respectfully disagree with your premise.
First of all, my testimony outlines a number of things that
the FCC is doing and can do more to protect consumers. I have
proposed strengthening the anti-slamming rules. The point that
I am trying to make is we need to have rules against slamming.
That is fundamental. The FCC needs to have a strong consumer
protection orientation, more so than ever in a competitive
marketplace. My point is only that we have got to do that in an
environment where my agency and all other Federal agencies are
challenged to do more with less.
Senator Durbin. Now, that is a legitimate point, and I am
not going to argue with it. Because if we want your people to
actually make sure that there is something written on that
computer disk or that the check is received before the tariff
goes out, you need the people to do it. And if we are short-
changing you, I would think your responsibility as chairman of
the FCC is to tell us as much: Members of Congress, you want
new responsibilities, you want more activity from my agency,
give me the people to do it. That is legitimate.
But the argument that you have made here that basically you
have got to step aside from this process, I can't accept that
premise. At one point here you say--and I disagree with this,
incidentally. It sounds very good on the surface. ``Slammed
consumers should not have to pay any charges for a reasonable
period of time.'' That sounds good on its face, and a lot of
the people that I have talked to who have been hurt by this
process would jump at the chance. But imagine what you just
invited. You invite people who don't like their long-distance
charges to come in and say, ``I was slammed, so I don't want to
pay for a couple months.''
So then you go on to say, oh, incidentally, the FCC can
craft rules with safeguards. Why is it that you can craft rules
with safeguards in the expanded rights of consumers but can't
craft rules with safeguards to establish whether the company in
the first instance is totally bogus?
Mr. Kennard. Because I think that by eliminating the
incentive to slam, you will take slamming out of the picture.
Again, an unscrupulous company is going to slam no matter what
we do on the front end. I do believe that it is possible to
craft appropriate safeguards.
If somebody steals your credit card and makes an
unauthorized charge on your credit card, if you call your
credit card company and tell them that your credit card has
been stolen, you are not responsible for making that charge--
for paying that charge. That is appropriate. I want to import
that to the slamming context. And in the slamming context,
carriers know whether their customers have been slammed, so
they can make that determination.
Senator Durbin. Well, here is where we disagree. I don't
think you are wrong in your premise that if we enforce the
penalties and make it expensive for slammers it will discourage
them. But I don't think it is unreasonable to also say that
people who want to play in this arena have to be legitimate,
that you have to know who they are and where they are and where
they can be reached, because the bottom line is if your tariffs
are meaningless--and it appears they are--your enforcement
actions are meaningless.
Mr. Kennard. I agree. I mean, you are suggesting that I am
not interested in doing anti-slamming enforcement. That is
incorrect. I think that the FCC can do more to enforce against
slamming. I want to have higher fines. I think the provisions
in your bill to impose criminal sanctions and give people civil
penalties is great.
Senator Durbin. But you are missing my point. Why is it
that you don't feel any obligation on the threshold, on the
front end of this process, to establish that the people who are
creating these bogus companies are using misleading names, are
giving you addresses that don't exist, are using telephone----
Mr. Kennard. I freely acknowledge that, Senator.
Senator Durbin [continuing]. Numbers that are totally
phony. I'm saying to you that they are not even going to pay
the filing fee, and they are going to give you an empty
computer disk, and you are saying, ``Well, we will catch you if
you break the law.''
Mr. Kennard. I freely acknowledge that there are people out
there who will use fictitious names and lie to the FCC, and my
point is, if they do that, we won't be able to catch them by
having the most elaborate of screening processes.
There are really two categories of companies that slam.
There are the unscrupulous companies like the Fletchers of the
world that go out to break the law. And then there are carriers
that are legitimate; they respond when we call them; they
respond when we fine them; they enter into consent decrees; and
they get sloppy and careless. Those folks we need to work with.
We should hit them with higher fines.
All I am saying is on the front end--we saw this in
telemarketing fraud--people who go out to rip off consumers are
not--you are not going to catch them by having them fill out
applications.
Senator Durbin. I am afraid I have to run and vote, but I
appreciate your testimony. The committee, I guess, will stand
in recess until another Senator shows up.
Thank you.
Mr. Kennard. Thank you.
[Recess.]
Senator Collins. The Subcommittee will be back in order.
Again, my apologies. This is a heavy voting day.
Mr. Kennard. I understand.
Senator Collins. My hope is that we can conclude the
hearing before the next votes start.
Mr. Kennard, I want to follow up on the points that we have
just made. In these cases, the consumers are going to have a
very difficult time figuring out that they were slammed. I
agree with your statement that we need to take the profit out
of slamming and that that is going to help curb the problem.
But that only works if the consumer knows that he or she has
been slammed.
In a case like this, the consumer might never realize that
he has been slammed. So taking the profit out isn't going to
affect this kind of situation where the unauthorized carrier is
going to continue getting all of the payments from the consumer
because the consumer doesn't realize that he has been slammed.
That is why I think we need a more comprehensive approach
and one that does something on the front end. I don't want to
impose a huge new regulatory burden. I don't want to constrict
entry into the market unnecessarily. But I do want to have some
way of weeding out the bad apples right up front if we possibly
can.
Mr. Kennard. You are quite right about that, and it is
fundamental that a consumer should know when he or she has been
slammed. I mentioned in my opening statement that I am going to
call together the CEOs of all the major telephone companies
that do the billing to consumers, and I am going to put this
issue on the table and see if we can address this issue of
long-distance carriers not fully disclosing the charges to the
carriers or identifying themselves on the bill. Maybe we can
come up with a solution to that.
Senator Collins. Thank you.
The Washington Post reported today that a Minnesota judge
struck down that State's anti-slamming law. The judge ruled
that Federal regulations in this area preclude States from
adopting their own regulations. I am very troubled by that
because States have been very aggressive and have, frankly,
been more aggressive than the FCC in taking enforcement action
against slamming. If State laws are struck down, then the
burden on the FCC is going to be even greater.
Do you believe--and I realize this judgment just came down,
or this decision just was rendered, but do you believe that
Federal law needs to be clarified to ensure that States are
allowed to take action against intrastate slammers?
Mr. Kennard. Section 258 of the statute currently allows
the States to take action. That is why this Minnesota decision
is curious. I am very interested to see the reasoning that the
judge used to reach that conclusion. But, fundamentally, I
welcome State activity in this area. We need more cops on the
street. We need more State commissions to continue to be
vigilant in this area.
So provided that their actions are not inconsistent with
the Federal law, I invite the States to be very, very active in
this area.
Senator Collins. It was my understanding that the current
Communications Act explicitly sets forth a role for the States
in
intrastate, but that it is silent on interstate. Am I mistaken
on that? Is there explicit authority for the States?
Mr. Kennard. I would want to go back and look at the
statute, but it is my understanding that the provision allows
the States to conduct their own anti-slamming activities
provided that such action is not inconsistent with Federal law.
And I believe that could include slammers who are slamming both
interstate and intrastate. But I would have to double-check
that.
Senator Collins. I would ask that you work with us to try
to clarify that so that the role that the States are playing,
which has been a really critical role, is not jeopardized in
any way.
Mr. Kennard. I would be happy to.
Senator Collins. I would like to ask you a question about
the Fletcher companies, which has been the source of much
discussion today. First, let me say that I am very pleased that
the FCC has taken action this week to revoke the authority of
these companies.
However, it is my understanding that the FCC received the
majority of the complaints against the Fletcher companies in
mid-1996, and during the interim time, several States took
action against Fletcher. Alabama, Illinois, Florida, and New
York actually revoked his authority to operate over a year ago.
Why did it take the FCC almost 2 years to issue a final
order in this case banning him from the business?
Mr. Kennard. Well, I have reviewed the enforcement action
in the Fletcher case, and first let me say that slamming
complaints should be expedited. I think that the Commission can
and will take steps to make sure that complaints are expedited.
They are taking too long.
But in the Fletcher case in particular, because he was such
an egregious actor, it was clear that the FCC's enforcement
activity against him escalated over time. Originally, we began
an investigation into the complaints that we were receiving in
mid-1996. By the end of 1996, we had issued a fine against his
companies. We broadened our investigation about a month later.
At that time we began to realize--this was the beginning of
1997. We began to realize that this was a really bad actor, and
we contacted the FBI's field office in Los Angeles to try to
track him down and get more information about him.
We issued another forfeiture against him in May of 1997,
about a year after we first got a lot of complaints, and then
it became clear to us that he had disappeared and he was no
longer in the business. At that point we decided that we wanted
to make sure he stayed out of the business. We issued an order
to show cause to revoke his license, and that final order was--
that has to go through a hearing procedure because he has some
fundamental due process rights. We designated his operating
authority for hearing. He didn't show up. And at that point we
revoked his license.
Senator Collins. It is my understanding that the FCC sent a
number of notices over the past 3 years, though, and that all
of them came back as either refused or no addressee or
unclaimed, so that it was evident pretty early on that you
weren't going to be able to find him.
Do you think the FCC should have acted sooner?
Mr. Kennard. I think the FCC should act as quickly as
possible on all slamming complaints. I think it takes too long.
Fletcher is not the isolated instance of that.
Senator Collins. Do you believe that the major carriers who
dealt with Fletcher who realized that there were problems here,
that they had very questionable letters of authorization, that
he was combining the LOAs with the sweepstake offer in
contradiction to your regulations, do you think they had an
obligation or should have an obligation to report to you when
they uncover a case where your regulations are not being
followed by a company they are doing business with?
Mr. Kennard. Yes, I like this provision in your legislation
which requires the carriers to notify the FCC when they become
aware that there is a problem. I think that that would be a
helpful solution.
Senator Collins. One of the troubling facts that we learned
during this investigation is that sometimes the long-distance
carriers, the major carriers, the facility-based carriers, are
not checking to see whether there is a tariff before doing
business with a provider. And in the Fletcher case, as you have
pointed out, he registered with you or filed the tariff for a
couple of his companies, but he didn't with others.
Should there be some sort of requirement that there be a
check? My concern is that were it not for the notoriety that
our investigation has given Mr. Fletcher, there would be
nothing to stop one of the carriers from doing business with
him tomorrow, despite your order barring him, because they are
not checking with you.
Mr. Kennard. Well, this goes back to what I believe is the
single most important thing we can to prevent slamming, and
that is to take the profit motive out of it. If carriers knew
that companies that they deal with, if those companies got
involved in slamming, that they weren't going to be able to
remit any funds to the carriers, I think that they themselves
would be more vigilant in policing the kind of people that they
do business with. So I think it all comes back to that.
Senator Collins. I think that is a powerful improvement,
and it is one that I know you are working on from a regulatory
perspective and we are working on legislatively. But that
assumes that the consumers realizes it. And when you have a
company that is named ``Phone Calls,'' the consumer is not
going to realize it. And that is why I think we need to look at
that aspect of the problem as well.
Mr. Kennard. I agree.
Senator Collins. It is also troubling to me that GAO
testified this morning--and I don't know whether you are aware
of this--that they believe that Mr. Fletcher is still in the
long-distance business. Were you aware of that prior to the
testimony this morning?
Mr. Kennard. Frankly, I don't think anyone knows where Mr.
Fletcher is or what he is doing. We have been in contact with
various law enforcement authorities through our field offices
and elsewhere, and we have not received any definitive
information about what this man is doing or where he is.
Senator Collins. Part of taking the profit out of slamming
is making sure that the fines for slamming are sufficiently
high so that slamming doesn't pay. Would you support an
increase in the civil fine authority such as suggested by the
legislation that Senator Durbin and I have introduced?
Mr. Kennard. Yes, I think it is important to send a signal
to all carriers that slamming is a serious offense, and one way
to do that is to make sure that they understand that if they
get sloppy, even if it is not an intentional violation, they
need to be vigilant to prevent this sort of activity. So I
think that increasing the level of fines is a helpful thing.
Senator Collins. Because right now some companies are
treating the fines as just a cost of doing business, so I think
that is part of taking the profit out of it for them. And that
is something that I do want to pursue.
Just so I get you on the record, we talked earlier about
the fact that intentional slamming is now currently a separate
Federal crime, and the legislation that Senator Durbin and I
have introduced would make intentional slamming possibly
subject to criminal penalties in the more egregious cases, such
as Mr. Fletcher's. Would you support that provision?
Mr. Kennard. I think that would be helpful. I think we have
to be very careful to make sure that we are clearly defining
intent, because under any criminal statute, as you know, you
have to be very, very explicit about that.
Senator Collins. Right, and there is, I should mention,
some changes in long-distance service that do occur because of
error. But that isn't really what our bill is designed to do.
We want to get after the intentional, deliberate use of
slamming.
Mr. Kennard. Right.
Senator Collins. One final issue that I want to talk to you
about is the actions taken by State governments. I am concerned
about the disparity between the slamming penalties imposed by
the States and those imposed by the FCC. And we have got two
charts--J and K,\1\ that compare the slamming enforcement
actions as of April between the Federal Government and
aggregating the States.
---------------------------------------------------------------------------
\1\ See Exhibit 39 (j) and (k) of the April 23, 1998 hearing in the
Appendix on pages 243 and 244 respectively.
---------------------------------------------------------------------------
Now, you have recently imposed a very hefty fine on the
Fletcher companies of $5.6 million, I think it is, which we
could add to the $1.8 million. But you are still substantially
below the amount of money that has been imposed by the States.
Do you think your enforcement actions have been tough
enough using your current authority?
Mr. Kennard. I think that for the egregious violators we
should have more stringent fines. It is important to understand
something, though, more about just the gross numbers in
understanding how the enforcement process works.
At the FCC today, the staff is delegated authority to issue
a forfeiture in the slamming area for up to $80,000. And so if
the fine is issued at the staff level, it can move more quickly
because we have more resources at the staff level. It avoids
the process of bringing the complaint up to the Commissioners
and having a full Commission vote. So it is faster.
In cases where we can get the attention of the carrier with
an $80,000 notice of forfeiture, and when they cooperate with
us and we bring them in, it is often more effective if we levy
a smaller fine. Or, stated another way, sometimes the size of
the fine is not as relevant as our ability to get the carrier
to the table so we can negotiate a consent decree and actually
enter into a long-term monitoring arrangement so that the
carrier has to report to us on remedial efforts they have
taken, for example. So it is a little misleading to look at
just the gross amount of the fines to evaluate the level of our
enforcement activity.
There is a fundamental matter. We are not in competition
with the States in levying fines here. As I said before, we
invite the States to be in this area. We want them to be
active. We want their enforcement to be effective. And we are
not trying to levy more fines or fewer fines than them.
Senator Collins. I understand that, but the States
generally have not only imposed higher fines and tougher
penalties, but they have acted much sooner. And I think that is
really critical because you have cases where slamming can go on
for a very long time while the FCC is going through its
processes.
So I think that one thing that we need to look at is how
can we act more quickly in addition to imposing heftier fines.
Mr. Kennard. Well, some States have; some States haven't.
The point is that I agree we need to expedite the processing of
these complaints. But, again, we don't want more complaints. We
want fewer complaints. And I am convinced that issuing huge
fines is not going to deter all the slamming complaints. Some
it will. Some it won't. We have to take the economic incentive
out of slamming to solve this problem.
Senator Collins. I agree we have to take the economic
incentive out of slamming. Slamming cannot pay. It does now. We
also need to try to prevent those bad actors from getting in in
the first place, and we need to send a very strong message that
it is not going to be tolerated. And I think having criminal
penalties available, having tougher fines, would deter some
people.
Right now it can be treated as a cost of doing business,
and certainly the availability of criminal penalties and tough
fines sends a far different message from the Federal Government
about our seriousness in combating this problem.
Mr. Kennard. That is a fair point, and I intend to direct
the FCC staff--in fact, I have directed the FCC staff to
revisit the level of the forfeitures that are being recommended
so that we can up the ante for these sorts of violations.
Senator Collins. I think that would be very helpful. I
don't want to dwell on this point, but I want to show you one
more chart \1\ which looks at a number of companies against
whom there have been considerable slamming complaints. And,
again, it compares--the State actions are in red, the Federal
actions are in green. I would just urge you to take a look at
that, because I think right now that the message is being sent
that the Federal Government is not really committed to cracking
down on this problem.
---------------------------------------------------------------------------
\1\ See Exhibit 39 (k) of the April 23, 1998 hearing in the
Appendix on page 244.
---------------------------------------------------------------------------
One final question on the issue of the States. When the
States take enforcement action, does it trigger a review by the
FCC? Is there coordination or some sort of reporting by the
States to the FCC when they take enforcement?
Mr. Kennard. Not on each individual action. We are in
regular contact with the State public utility commissioners,
the National Association of States Attorneys General, to share
information and enforcement techniques. But there is not a
formalized notification system.
Senator Collins. Thank you very much, Mr. Chairman, for
your testimony. I suspect that some of the other Members who
were not able to get back due to continuing activity on the
floor may have some questions to submit for the record. We look
forward to working with you to solve this problem.
There is no doubt in my mind that deregulation has had many
good benefits for consumers, but that it has also been an open
invitation to scams and fraud by the unethical providers. And
that doesn't mean that we shouldn't continue to deregulate the
market and promote competition. But legitimate providers are
harmed just as much as consumers are by the actions of
companies that slam.
We have an obligation as we pursue deregulation to not
forget about the consumer and to put in place consumer
protections that perhaps were not needed in a regulated
environment. It is clear to me from the two hearings we have
held, plus our 6-month investigation, that the existing
enforcement actions have been woefully inadequate and that
current laws aren't strong enough, that you don't have all the
tools that you need to cope with this problem. Otherwise, we
wouldn't see it keep continuing to spiral ever upward.
The FCC can't treat slamming as a technical or an
administrative problem that can be solved with polite warnings.
I think we need far tougher and more aggressive action.
Senator Durbin and I will be working with our colleagues,
especially Senator McCain, who has reported some slamming
legislation. We have already talked to Senator McCain about
strengthening the bill that was reported by the Commerce
Committee. We want very much to work with you. Our goals are
very similar.
From my perspective, it seems to me that we need to take
three actions legislatively:
First, as you have emphasized throughout your testimony,
the financial incentive for slamming must be removed. Under the
current law, the slamming carrier gets to keep the money from
its fraudulent activities. Consumers should be able to refuse
to pay the unauthorized carrier. Crime shouldn't pay. There
should not be a benefit for slamming people. I know you have
proposed going even further, and we have talked about ways to
set that up that might go even beyond what we have suggested.
Second, penalties for slamming must be tough enough to stop
the problem from growing each year. That is the situation we
are in now. It seems to me that the companies are treating the
fines as just a cost of doing business, that in many cases they
are not going to be caught at all, so they are never going to
be subjected to penalties.
And, finally, I believe that we must establish criminal
penalties for cases of intentional, deliberate, repeated
slamming. Currently, it is not a crime and, thus, the people
like Daniel Fletcher in this world can pretty much get away
with this activity.
I am going to continue to work with my colleagues on this
Subcommittee and also with you, and I would appreciate any
advice that you might have for us as we pursue this initiative.
I want to thank you very much for being here today.
Mr. Kennard. It is my pleasure.
Senator Collins. And we look forward to working with you.
Mr. Kennard. Thank you.
Senator Collins. I want to thank the Subcommittee staff who
worked very hard on this investigation, especially John
Neumann, Kirk Walder, Tim Shea, Lindsey Ledwin, Mary Robertson,
and Steve Diamond from my personal staff.
I appreciate your being here today, and the Subcommittee's
hearing is now adjourned.
[Whereupon, at 12:43 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
[GRAPHIC] [TIFF OMITTED] 46904.001
[GRAPHIC] [TIFF OMITTED] 46904.002
[GRAPHIC] [TIFF OMITTED] 46904.003
[GRAPHIC] [TIFF OMITTED] 46904.004
[GRAPHIC] [TIFF OMITTED] 46904.005
[GRAPHIC] [TIFF OMITTED] 46904.006
[GRAPHIC] [TIFF OMITTED] 46904.007
[GRAPHIC] [TIFF OMITTED] 46904.008
[GRAPHIC] [TIFF OMITTED] 46904.009
[GRAPHIC] [TIFF OMITTED] 46904.010
[GRAPHIC] [TIFF OMITTED] 46904.011
[GRAPHIC] [TIFF OMITTED] 46904.012
[GRAPHIC] [TIFF OMITTED] 46904.013
[GRAPHIC] [TIFF OMITTED] 46904.014
[GRAPHIC] [TIFF OMITTED] 46904.015
[GRAPHIC] [TIFF OMITTED] 46904.016
[GRAPHIC] [TIFF OMITTED] 46904.017
[GRAPHIC] [TIFF OMITTED] 46904.018
[GRAPHIC] [TIFF OMITTED] 46904.019
[GRAPHIC] [TIFF OMITTED] 46904.020
[GRAPHIC] [TIFF OMITTED] 46904.021
[GRAPHIC] [TIFF OMITTED] 46904.022
[GRAPHIC] [TIFF OMITTED] 46904.023
[GRAPHIC] [TIFF OMITTED] 46904.024
[GRAPHIC] [TIFF OMITTED] 46904.025
[GRAPHIC] [TIFF OMITTED] 46904.026
[GRAPHIC] [TIFF OMITTED] 46904.027
[GRAPHIC] [TIFF OMITTED] 46904.028
[GRAPHIC] [TIFF OMITTED] 46904.029
[GRAPHIC] [TIFF OMITTED] 46904.030
[GRAPHIC] [TIFF OMITTED] 46904.031
[GRAPHIC] [TIFF OMITTED] 46904.032
[GRAPHIC] [TIFF OMITTED] 46904.033
[GRAPHIC] [TIFF OMITTED] 46904.034
[GRAPHIC] [TIFF OMITTED] 46904.035
[GRAPHIC] [TIFF OMITTED] 46904.036
[GRAPHIC] [TIFF OMITTED] 46904.037
[GRAPHIC] [TIFF OMITTED] 46904.038
[GRAPHIC] [TIFF OMITTED] 46904.039
[GRAPHIC] [TIFF OMITTED] 46904.040
[GRAPHIC] [TIFF OMITTED] 46904.041
[GRAPHIC] [TIFF OMITTED] 46904.042
[GRAPHIC] [TIFF OMITTED] 46904.043
[GRAPHIC] [TIFF OMITTED] 46904.044
[GRAPHIC] [TIFF OMITTED] 46904.045
[GRAPHIC] [TIFF OMITTED] 46904.046
[GRAPHIC] [TIFF OMITTED] 46904.047
[GRAPHIC] [TIFF OMITTED] 46904.048
[GRAPHIC] [TIFF OMITTED] 46904.049
[GRAPHIC] [TIFF OMITTED] 46904.050
[GRAPHIC] [TIFF OMITTED] 46904.051
[GRAPHIC] [TIFF OMITTED] 46904.052
[GRAPHIC] [TIFF OMITTED] 46904.053
[GRAPHIC] [TIFF OMITTED] 46904.054
[GRAPHIC] [TIFF OMITTED] 46904.055
[GRAPHIC] [TIFF OMITTED] 46904.056
[GRAPHIC] [TIFF OMITTED] 46904.057
[GRAPHIC] [TIFF OMITTED] 46904.058
[GRAPHIC] [TIFF OMITTED] 46904.059
[GRAPHIC] [TIFF OMITTED] 46904.060
[GRAPHIC] [TIFF OMITTED] 46904.061
[GRAPHIC] [TIFF OMITTED] 46904.062
[GRAPHIC] [TIFF OMITTED] 46904.063
[GRAPHIC] [TIFF OMITTED] 46904.064
[GRAPHIC] [TIFF OMITTED] 46904.065
[GRAPHIC] [TIFF OMITTED] 46904.066
[GRAPHIC] [TIFF OMITTED] 46904.067
[GRAPHIC] [TIFF OMITTED] 46904.068
[GRAPHIC] [TIFF OMITTED] 46904.069
[GRAPHIC] [TIFF OMITTED] 46904.070
[GRAPHIC] [TIFF OMITTED] 46904.071
[GRAPHIC] [TIFF OMITTED] 46904.072
[GRAPHIC] [TIFF OMITTED] 46904.073
[GRAPHIC] [TIFF OMITTED] 46904.074
[GRAPHIC] [TIFF OMITTED] 46904.075
[GRAPHIC] [TIFF OMITTED] 46904.076
[GRAPHIC] [TIFF OMITTED] 46904.077
[GRAPHIC] [TIFF OMITTED] 46904.078
[GRAPHIC] [TIFF OMITTED] 46904.079
[GRAPHIC] [TIFF OMITTED] 46904.080
[GRAPHIC] [TIFF OMITTED] 46904.081
[GRAPHIC] [TIFF OMITTED] 46904.082
[GRAPHIC] [TIFF OMITTED] 46904.083
[GRAPHIC] [TIFF OMITTED] 46904.084
[GRAPHIC] [TIFF OMITTED] 46904.085
[GRAPHIC] [TIFF OMITTED] 46904.086
[GRAPHIC] [TIFF OMITTED] 46904.087
[GRAPHIC] [TIFF OMITTED] 46904.088
[GRAPHIC] [TIFF OMITTED] 46904.089
[GRAPHIC] [TIFF OMITTED] 46904.090
[GRAPHIC] [TIFF OMITTED] 46904.091
[GRAPHIC] [TIFF OMITTED] 46904.092
[GRAPHIC] [TIFF OMITTED] 46904.093
[GRAPHIC] [TIFF OMITTED] 46904.094
[GRAPHIC] [TIFF OMITTED] 46904.095
[GRAPHIC] [TIFF OMITTED] 46904.096
[GRAPHIC] [TIFF OMITTED] 46904.097
[GRAPHIC] [TIFF OMITTED] 46904.098
[GRAPHIC] [TIFF OMITTED] 46904.099
[GRAPHIC] [TIFF OMITTED] 46904.100
[GRAPHIC] [TIFF OMITTED] 46904.101
[GRAPHIC] [TIFF OMITTED] 46904.102
[GRAPHIC] [TIFF OMITTED] 46904.103
[GRAPHIC] [TIFF OMITTED] 46904.104
[GRAPHIC] [TIFF OMITTED] 46904.105
[GRAPHIC] [TIFF OMITTED] 46904.106
[GRAPHIC] [TIFF OMITTED] 46904.107
[GRAPHIC] [TIFF OMITTED] 46904.108
[GRAPHIC] [TIFF OMITTED] 46904.109
[GRAPHIC] [TIFF OMITTED] 46904.110
[GRAPHIC] [TIFF OMITTED] 46904.111
[GRAPHIC] [TIFF OMITTED] 46904.112
[GRAPHIC] [TIFF OMITTED] 46904.113
[GRAPHIC] [TIFF OMITTED] 46904.114
[GRAPHIC] [TIFF OMITTED] 46904.115
[GRAPHIC] [TIFF OMITTED] 46904.116
[GRAPHIC] [TIFF OMITTED] 46904.117
[GRAPHIC] [TIFF OMITTED] 46904.118
[GRAPHIC] [TIFF OMITTED] 46904.119
[GRAPHIC] [TIFF OMITTED] 46904.120
[GRAPHIC] [TIFF OMITTED] 46904.121
[GRAPHIC] [TIFF OMITTED] 46904.122
[GRAPHIC] [TIFF OMITTED] 46904.123
[GRAPHIC] [TIFF OMITTED] 46904.124
[GRAPHIC] [TIFF OMITTED] 46904.125
[GRAPHIC] [TIFF OMITTED] 46904.126
[GRAPHIC] [TIFF OMITTED] 46904.127
[GRAPHIC] [TIFF OMITTED] 46904.128
[GRAPHIC] [TIFF OMITTED] 46904.129
[GRAPHIC] [TIFF OMITTED] 46904.130
[GRAPHIC] [TIFF OMITTED] 46904.131
[GRAPHIC] [TIFF OMITTED] 46904.132
[GRAPHIC] [TIFF OMITTED] 46904.133
[GRAPHIC] [TIFF OMITTED] 46904.134
[GRAPHIC] [TIFF OMITTED] 46904.135
[GRAPHIC] [TIFF OMITTED] 46904.136
[GRAPHIC] [TIFF OMITTED] 46904.137
[GRAPHIC] [TIFF OMITTED] 46904.138
[GRAPHIC] [TIFF OMITTED] 46904.139
[GRAPHIC] [TIFF OMITTED] 46904.140
[GRAPHIC] [TIFF OMITTED] 46904.141
[GRAPHIC] [TIFF OMITTED] 46904.142
[GRAPHIC] [TIFF OMITTED] 46904.143
[GRAPHIC] [TIFF OMITTED] 46904.144
[GRAPHIC] [TIFF OMITTED] 46904.145
[GRAPHIC] [TIFF OMITTED] 46904.146
[GRAPHIC] [TIFF OMITTED] 46904.147
[GRAPHIC] [TIFF OMITTED] 46904.148
[GRAPHIC] [TIFF OMITTED] 46904.149
[GRAPHIC] [TIFF OMITTED] 46904.150
[GRAPHIC] [TIFF OMITTED] 46904.151
[GRAPHIC] [TIFF OMITTED] 46904.152
[GRAPHIC] [TIFF OMITTED] 46904.153
[GRAPHIC] [TIFF OMITTED] 46904.154
[GRAPHIC] [TIFF OMITTED] 46904.155
[GRAPHIC] [TIFF OMITTED] 46904.156
[GRAPHIC] [TIFF OMITTED] 46904.157
[GRAPHIC] [TIFF OMITTED] 46904.158
[GRAPHIC] [TIFF OMITTED] 46904.159
[GRAPHIC] [TIFF OMITTED] 46904.160
[GRAPHIC] [TIFF OMITTED] 46904.161
[GRAPHIC] [TIFF OMITTED] 46904.162
[GRAPHIC] [TIFF OMITTED] 46904.163
[GRAPHIC] [TIFF OMITTED] 46904.164
[GRAPHIC] [TIFF OMITTED] 46904.165
[GRAPHIC] [TIFF OMITTED] 46904.166
[GRAPHIC] [TIFF OMITTED] 46904.167
[GRAPHIC] [TIFF OMITTED] 46904.168
[GRAPHIC] [TIFF OMITTED] 46904.169
[GRAPHIC] [TIFF OMITTED] 46904.170
[GRAPHIC] [TIFF OMITTED] 46904.171
[GRAPHIC] [TIFF OMITTED] 46904.172
[GRAPHIC] [TIFF OMITTED] 46904.173
[GRAPHIC] [TIFF OMITTED] 46904.174
[GRAPHIC] [TIFF OMITTED] 46904.175
[GRAPHIC] [TIFF OMITTED] 46904.176
[GRAPHIC] [TIFF OMITTED] 46904.177
[GRAPHIC] [TIFF OMITTED] 46904.178
[GRAPHIC] [TIFF OMITTED] 46904.179
[GRAPHIC] [TIFF OMITTED] 46904.180
[GRAPHIC] [TIFF OMITTED] 46904.181
[GRAPHIC] [TIFF OMITTED] 46904.182
[GRAPHIC] [TIFF OMITTED] 46904.183
[GRAPHIC] [TIFF OMITTED] 46904.184
[GRAPHIC] [TIFF OMITTED] 46904.185
[GRAPHIC] [TIFF OMITTED] 46904.186
[GRAPHIC] [TIFF OMITTED] 46904.187
[GRAPHIC] [TIFF OMITTED] 46904.188
[GRAPHIC] [TIFF OMITTED] 46904.189
[GRAPHIC] [TIFF OMITTED] 46904.190
[GRAPHIC] [TIFF OMITTED] 46904.191
[GRAPHIC] [TIFF OMITTED] 46904.192
[GRAPHIC] [TIFF OMITTED] 46904.193
[GRAPHIC] [TIFF OMITTED] 46904.194
[GRAPHIC] [TIFF OMITTED] 46904.195
[GRAPHIC] [TIFF OMITTED] 46904.196
[GRAPHIC] [TIFF OMITTED] 46904.197
[GRAPHIC] [TIFF OMITTED] 46904.198
[GRAPHIC] [TIFF OMITTED] 46904.199
[GRAPHIC] [TIFF OMITTED] 46904.200
[GRAPHIC] [TIFF OMITTED] 46904.201
[GRAPHIC] [TIFF OMITTED] 46904.202
[GRAPHIC] [TIFF OMITTED] 46904.203
[GRAPHIC] [TIFF OMITTED] 46904.204
[GRAPHIC] [TIFF OMITTED] 46904.205
[GRAPHIC] [TIFF OMITTED] 46904.206
[GRAPHIC] [TIFF OMITTED] 46904.207
[GRAPHIC] [TIFF OMITTED] 46904.208
[GRAPHIC] [TIFF OMITTED] 46904.209
[GRAPHIC] [TIFF OMITTED] 46904.210
[GRAPHIC] [TIFF OMITTED] 46904.211
[GRAPHIC] [TIFF OMITTED] 46904.212
[GRAPHIC] [TIFF OMITTED] 46904.213
[GRAPHIC] [TIFF OMITTED] 46904.214
[GRAPHIC] [TIFF OMITTED] 46904.215
[GRAPHIC] [TIFF OMITTED] 46904.216
[GRAPHIC] [TIFF OMITTED] 46904.217
[GRAPHIC] [TIFF OMITTED] 46904.218
[GRAPHIC] [TIFF OMITTED] 46904.219
[GRAPHIC] [TIFF OMITTED] 46904.220
[GRAPHIC] [TIFF OMITTED] 46904.221
[GRAPHIC] [TIFF OMITTED] 46904.222
[GRAPHIC] [TIFF OMITTED] 46904.223
[GRAPHIC] [TIFF OMITTED] 46904.224
[GRAPHIC] [TIFF OMITTED] 46904.225
[GRAPHIC] [TIFF OMITTED] 46904.226
[GRAPHIC] [TIFF OMITTED] 46904.227
[GRAPHIC] [TIFF OMITTED] 46904.228
[GRAPHIC] [TIFF OMITTED] 46904.229
[GRAPHIC] [TIFF OMITTED] 46904.230
[GRAPHIC] [TIFF OMITTED] 46904.231
[GRAPHIC] [TIFF OMITTED] 46904.232
[GRAPHIC] [TIFF OMITTED] 46904.233
[GRAPHIC] [TIFF OMITTED] 46904.234
[GRAPHIC] [TIFF OMITTED] 46904.235
[GRAPHIC] [TIFF OMITTED] 46904.236
[GRAPHIC] [TIFF OMITTED] 46904.237
[GRAPHIC] [TIFF OMITTED] 46904.238
[GRAPHIC] [TIFF OMITTED] 46904.239
[GRAPHIC] [TIFF OMITTED] 46904.240
[GRAPHIC] [TIFF OMITTED] 46904.241
[GRAPHIC] [TIFF OMITTED] 46904.242
[GRAPHIC] [TIFF OMITTED] 46904.243
[GRAPHIC] [TIFF OMITTED] 46904.244
[GRAPHIC] [TIFF OMITTED] 46904.245
[GRAPHIC] [TIFF OMITTED] 46904.246
[GRAPHIC] [TIFF OMITTED] 46904.247
-