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                                Before the
                     Federal Communications Commission
                          Washington, D.C. 20554


In the Mat                       ter of:)
                                     ) FILE  No. ENF-97-003
Long Distance Services, Inc.         )
                                     ) NAL/Acct. No. 716EF0002
                                     )
Apparent Liability for Forfeiture    )
                                     

                           ORDER OF FORFEITURE

     Adopted:  February 24, 1998   Released:  February 25, 1998  

By the Chief, Common Carrier Bureau:

I.  INTRODUCTION
         

 1.   On December 17, 1996, we released a Notice of Apparent Liability ("NAL") in
the above-captioned proceeding.  We concluded therein that Long Distance Services, Inc.
("LDS, Inc.") had apparently changed the primary interexchange carriers ("PICs") designated
by Ms. Karen Putnam ("Putnam") and Mr. Benjamin Wetherill ("Wetherill") without Putnam's
or Wetherill's authorization, in violation of the Commission's rules and orders.  We found
LDS, Inc. apparently liable for forfeiture in the amount of eighty thousand dollars ($80,000) for
its willful or repeated violations of the Commission's rules and PIC-change requirements and
allowed 30 days from the release date of the NAL for LDS, Inc. to respond, either by paying
the forfeiture amount, or by explaining why the forfeiture should be reduced or not imposed. 
On January 16, 1997, LDS, Inc. filed a Response to Notice of Apparent Liability for Forfeiture ("Response") asking that we reduce the forfeiture amount.  For the reasons discussed below, we
decline to reduce the $80,000 forfeiture assessed against LDS, Inc.

                              II.  BACKGROUND

 2.   The facts and circumstances leading to the issuance of our NAL are recited therein
and need not be reiterated at length.  This proceeding was initiated by the Putnam and Wetherill
complaints, each of which allege that LDS, Inc. converted their respective long distance service
providers from their chosen carriers to LDS, Inc. without their authorization.  Putnam states in
her complaint that the letter of authorization ("LOA") used to switch her long distance service
to LDS, Inc. contained a forged signature and an incorrect zip code.  The Putnam LOA also
included Putnam's maiden name, which she claims not to have used since she was married over
eight years ago.  Wetherill states in his complaint that the LOA switching his long distance
carrier to LDS, Inc. bears his wife's authentic signature, but that he does not believe that the
document contained any language authorizing a change of their long distance carrier at the time
it was signed.  

 3.   Subsequent to the filing of the above complaints, the Enforcement Division
("Division") of the Common Carrier Bureau ("Bureau") sent letters to LDS, Inc. requesting that
LDS, Inc. provide specific information regarding the allegations raised in the Putnam and
Wetherill complaints.  LDS, Inc. never responded to the Division letter regarding Putnam.  It
did, however, respond to the Wetherill complaint.  In its response, LDS, Inc. states that
although it received a "valid" LOA from the Wetherills, upon their request, it would "re-rate"
their phone bill to the previous carrier's rates if those rates were less expensive.  Based on the
information provided in the Putnam and Wetherill complaints,  LDS, Inc.'s response to the
Division, and the Bureau's investigation of the matter, the Bureau issued the NAL against LDS,
Inc.

 4.   On June 2, 1997, LDS, Inc. filed a voluntary Chapter 11 petition in the United
States Bankruptcy Court for the Eastern District of Michigan.

III.  CONTENTIONS AND DISCUSSION
               
 5.   In its Response, LDS, Inc. contests the Bureau's finding of apparent liability for
willful or repeated violations of the Commission's rules governing PIC-change conversions. 
LDS, Inc argues that if a forfeiture is imposed at all, it should be reduced because: 1)
discrepancies in the LOA signed by the Wetherills constitute a de minimis violation of the
Commission's rules; 2) the Commission rule at issue violates the First Amendment; 3) the
Bureau failed to consider all of the statutorily mandated factors in deriving the proposed
forfeiture amounts; and 4) LDS, Inc. is taking comprehensive steps to minimize the likelihood
of future problems.

 A.   The Wetherill Complaint

 6.   Contentions:  LDS, Inc. claims that the Wetherill LOA constitutes only a de
minimis violation of the Commission's PIC-change rules because the basis of the Wetherills'
complaint, and the source of their confusion, actually involves a promotion that complies with
Commission rules.  LDS, Inc. asserts that the inducement about which the Wetherills complain
involves a raffle to win a Ford Explorer, the promotion for which is on another document,
separated by perforation from the LOA, in compliance with the Commission's rules.  LDS, Inc.
concedes that the first sentence of the Wetherill LOA, which includes a promotion for the "Hugs
not Drugs" campaign, may not comply with Section 64.1150(c) of the Commission's rules.  
It argues, however, that because the Wetherills were not confused by this language, it is only
a de minimis violation of our rules.  LDS, Inc. further claims that it removed the "Hugs not
Drugs" promotion from all its LOAs in June 1996, one month after the Wetherill LOA was
signed.   LDS, Inc. maintains that because of the minimal violation at issue and the remedial
step of removing the Hugs not Drugs promotion from all of its LOAs, no forfeiture should be
entered based upon the Wetherill complaint. 

 7.   Discussion: Section 64.1150 of the Commission's rules prohibits the
combination of an LOA with inducements of any kind on the same document.  These rules for
proper LOA form and content were implemented to prohibit certain deceptive or confusing
marketing practices utilized by some IXCs and were intended to significantly reduce consumer
confusion over the use and function of the LOA.  Specifically, the Commission determined that
the combination of promotions or inducements of any kind with LOA language is inherently
confusing, which is why the rules require that the sole purpose of the LOA be to authorize an
interexchange carrier to initiate a PIC change.  We therefore find unavailing LDS, Inc.'s
attempts to minimize the manner in which the LOA in question violates Section 64.1150 (b) and
(c) of our rules.  Moreover, according to their informal complaint, the Wetherills were, in fact,
clearly confused about the purpose of the LOA they signed in May 1996.  LDS, Inc.
incorrectly characterizes the source of the Wetherill's confusion.  LDS, Inc. asserts that the
Wetherills complained only about the Ford Explorer promotion, which, LDS, Inc. says,
complies with the Commission's rules for proper LOA form and content; not the "Hugs not
Drugs" campaign, which, LDS, Inc. concedes, violates our rules.  This characterization is not,
in fact, accurate.  Instead, the Wetherills claim that they did not remember any language
authorizing the change of their long distance carrier on the LOA they signed.  They only
remember that Mrs. Wetherill signed a raffle ticket to win a Ford Explorer and that some of the
raffle money would be donated to the "Hugs not Drugs" Campaign.  That inclusion of language
offering consumers the opportunity to donate a portion of their monthly phone bill to the Hugs
not Drugs campaign on the same page as the language authorizing the change in long distance
carriers is in direct violation of Section 64.1150 (b) and (c) of our rules.

 B.   Constitutionality of 47 C.F.R.  64.1150

 8.   Contentions:  LDS, Inc. also contends that, under the Supreme Court's decision
in Rubin v. Coors Brewing Co., Section 64.1150 of the Commission's rules imposes an
impermissible restriction on commercial speech, in violation of the First Amendment.  The
Court in Rubin v. Coors, applying the test developed in Central Hudson Gas & Electric Corp.
v. Public Service Comm'n of New York, struck down a provision of the Federal Alcohol
Administration Act ("FAAA") which prohibited beer containers from displaying alcohol content. 
The Government argued that the ban was necessary to suppress the threat of "strength wars"
among brewers, who, without the regulation, would seek to compete in the marketplace based
on the potency of their beer.  The Court ruled that the labeling provision could not directly and
materially advance this aim, because other provisions of the same Act directly undermined and
counteracted its effects.  Specifically, the Court cited a provision of the FAAA that allowed
the disclosure of alcohol content in advertising, which the Court reasoned "would seem to
constitute a more influential weapon in any strength war than labels."   In addition, the FAAA
provision at issue before the Court required that alcohol content be disclosed on wine and spirit
labels, even when both have higher alcohol content than beer.  The Court also ruled that the
labeling provision was more extensive than necessary, because available alternatives to the
labeling ban would prove less intrusive to the First Amendment's protection of commercial
speech.

 9.   Applying the reasoning employed by the Rubin Court, LDS, Inc. argues that
dichotomies exist in Section 64.1150 of the Commission's rules that make it impossible for the
rule to advance directly and materially the Commission's aim in implementing it.  LDS, Inc.
claims that while subsection (b) generally bans combining an inducement and an LOA in a single
document, subsection (d) specifically sanctions the combination of one type of inducement, the
issuance of negotiable instruments, with the LOA language prescribed in subsection (e).  LDS,
Inc. asserts that if one of the goals of implementing the rule was to eliminate potential confusion
regarding the effect of the LOA form, the discrepancy between subsections (b) and (d) is
unlikely to directly and materially advance this aim, making the rule unconstitutional.  LDS,
Inc. also argues that Section 64.1150 is unconstitutional because the interests served by the rule
could be achieved through equally viable, yet less restrictive means. 
 
 10.  Discussion:  The Commission addressed the constitutionality of Section 64.1150
in the LOA Order.  It determined that the new rule met the tests set out by the Supreme Court
for permissible government regulation of commercial speech under the First Amendment.  The
Commission concluded that the new regulations were similar to the "time, place, and manner"
restrictions permitted in Virginia State Board of Pharmacy v. Virginia Citizens Consumer
Council, in that they do not prohibit any speech, commercial or otherwise.  Rather, they
merely require that the manner of delivery of that speech not confuse or mislead the consumer.
The Commission further determined that it chose the least restrictive method of regulation
because it did not propose to restrict IXCs' use of their promotional materials, but merely
specified that such materials be separate or severable from the actual document that authorizes
a PIC change.

 11.  We believe that the Commission's reasoning upholding the constitutionality of
Section 64.1150 in the LOA Order is unaffected by the Court's holding in Rubin v. Coors.  Our
rules on proper LOA form and content do not contain the regulatory dichotomies overturned in
Rubin v. Coors.  As discussed above, the Commission's rules do not prohibit any speech, but
rather require that the manner of delivery of that speech not confuse or mislead the consumer. 
Unlike the FAAA regulatory scheme, Section 64.1150 does not impose different disclosure
requirements on different products; checks must include the very same authorizing language as
any other document.  Section 64.1150 also generally requires that the language authorizing the
change of long distance service be kept separate from promotional materials or inducements
except when the inducement involves a negotiable instrument.  When a check is used as the
inducement, the language authorizing the change of long distance service may be contained on
the check if placed near the signature line on the back of the check.  The check cannot contain
any promotional language or material, but only the language necessary to make it a negotiable
instrument and a notice that by signing the check, the customer is authorizing a PIC change. 
 Furthermore, the Commission's decision not to impose the same "separate or severable"
condition on checks, as it did all other inducements, is the least restrictive regulatory approach
because the immediate and direct transfer of a cash benefit makes the nature and purpose of the
inducement quite clear.  Therefore, by allowing authorizing language to be placed on the back
of a check, the Commission chose the least restrictive means in which to protect consumers from
misleading and deceptive practices.  For these reasons, we find that LDS, Inc. failed to present
a persuasive argument to counter the Commission's finding in the LOA Order finding the
restrictions on LOA form and content contained in Section 64.1150 of the Commission's rules
constitute a permissible time, place, and manner restriction on speech.

 C.   Forfeiture Amount
 
      1.  Factors Considered

 12.  Contentions:  LDS, Inc. next argues that even if the Commission determines that
a forfeiture is required, the amount imposed by the NAL is inappropriate.  In support of this
argument, LDS, Inc. claims that the Bureau failed to consider all statutorily-mandated factors
when determining the forfeiture amounts proposed in the NAL.  Specifically, LDS, Inc. argues
that the Bureau should have considered its relative lack of market share or power and its limited
financial resources before it proposed a $80,000 forfeiture.  LDS, Inc. asserts that while it has
substantially lower revenues than companies against which the Bureau has issued forfeitures in
the past, it was not assessed a proportionately lower forfeiture.

 13.  Discussion:  Section 503(b)(2) of the Communications Act authorizes the
Commission to assess a forfeiture of up to one hundred ten thousand dollars ($110,000) for each
violation, or each day of a continuing violation, up to a statutory maximum of one million, one
hundred thousand dollars ($1,100,000) for a single act or failure to act.  In exercising such
authority, the Commission is required to take into account "the nature, circumstances, extent,
and gravity of the violation and, with respect to the violator, the degree of culpability, and
history of prior offenses, ability to pay, and such other matters as justice may require." 
Considerations of size and relative market share are noticeably absent from these factors.  We
note, moreover, that notwithstanding LDS, Inc.'s characterization of its size and relative lack
of market share, records maintained by the Bureau's Consumer Protection staff indicate that
from May 1996 through February 1997, 1,882 consumer complaints were filed with the
Commission against LDS, Inc.  We expect all carriers, regardless of size and market share, to
follow the Commission's rules.

 2.   LDS, Inc.'s Remedial Actions

 14.  Contentions:  LDS, Inc. also urges the Bureau to consider its voluntarily
implemented remedial measures when determining the appropriate forfeiture amount.  These
remedial measures include the suspension of all LOA solicitation as of January 16, 1997; the
revision of LDS, Inc. marketing agreements to include a clause requiring the marketer to adhere
to "all local, state, and federal laws, rules and regulations governing the marketing, promotion
and sale of long distance telephone services;" and the imposition of an affirmative obligation
on marketers to acquire an accurate and true written consent or authorization of any customer
who determines that he or she wished to transfer long distance service from his or her current
carrier to LDS, Inc.  LDS, Inc. also claims to be in the process of reorganizing its consumer
inquiry and complaint practices and procedures.  While LDS, Inc. recognizes that these
remedial measures cannot alter the circumstances that lead to the Wetherill and Putnam
complaints, it hopes that "they will help the Commission understand that LDS, Inc. is making
a conscientious effort, within the limits of its size and resources, to revise its internal practices
and procedures to promote compliance with FCC rules and to minimize the likelihood of future
complaints." 

 15.  Discussion:  We recognize LDS, Inc's voluntarily implemented remedial measures
but agree with its admission that the measures do not alter what happened in the case of the
Wetherills and Putnam.  Further, we have concerns about the sincerity of "revisions to internal
practices and procedures to promote compliance with FCC rules" that are contingent upon
limits of size and resources.  All common carriers are required to comply with the Commission's
rules, regardless of size or resources, particularly those rules targeted to protect consumers from
deceptive practices.  We also note that despite its claims of "conscientious efforts" to change
its practices, LDS, Inc. failed to provide timely and comprehensive information and proposals
requested at an April 23, 1997 meeting with the Commission staff.  Under these circumstances,
we find no basis in LDS, Inc's Response to warrant a reduction of the forfeiture amount.

IV.  CONCLUSION
                                   
 16.  After reviewing the information filed by LDS, Inc. in its Response, we find that
LDS, Inc. has failed to identify facts or circumstances to persuade us that there is any basis for
reconsidering the NAL.  Neither has LDS, Inc. shown any mitigating circumstances sufficient
to warrant a reduction of the $80,000 forfeiture penalty for which it is liable.

V.  ORDERING CLAUSES

 17.  Accordingly, IT IS ORDERED pursuant to Section 503(b) of the Act, 47 U.S.C.
 503(b), Section 1.80(f)(4) of the Commission's rules, 47 C.F.R.  1.80(f)(4), and the authority
delegated in Sections 0.91 and 0.291 of the Commission's rules, 47 C.F.R.   0.91 and 0.291,
that LDS, Inc. SHALL FORFEIT to the United States Government the sum of eighty thousand
dollars ($80,000) for violating the Commission's rules and orders governing primary
interexchange carrier conversions.

 18.  IT IS FURTHER ORDERED that a copy of this Order of Forfeiture shall be sent
by certified United States mail to Allan Barash, President, LDS, Inc., 50 West Big Beaver Road,
Troy, Michigan 48084.



      FEDERAL COMMUNICATIONS COMMISSION




      A. Richard Metzger, Jr.
      Chief, Common Carrier Bureau