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December 17, 1998


Re: Second Report and Order and Further Notice of Proposed Rulemaking, Implementation of the Subscriber Carrier Selection Changes Provisions of the Telecommunications Act of 1996 and Policies and Rules Concerning Unauthorized Changes of Consumers' Long Distance Carriers (CC Docket No. 94-129).

The unauthorized change of a customer's long distance carrier ("slamming") is a growing concern for consumers and this agency, and I congratulate the Commission on taking steps to reduce it. I appreciate that we must take action to combat slamming, but we cannot and should not do so in a manner that conflicts with the safeguards and incentives established in the Act. With that in mind, I write separately to explain why I must dissent from the regulations outlined in today's Order.

Before I begin, let me note that everyone here at the Commission shares the same goal -- significantly reducing and eventually eliminating slamming. I express my firm support for the Commission, pursuant to section 258 of the 1996 Act, to enact rules and regulations designed to eliminate these unauthorized changes. I have serious reservations, however, about the method of achieving these goals that the Commission adopts in this Order. Specifically, I believe that the consumer absolution scheme created here will lessen the incentives of the party most able to take appropriate action to combat slamming -- i.e. the authorized carrier -- and may also inadvertently lead to an increase in fraudulent claims of slamming.

First, I am concerned that the absolution of consumer liability proposed here is not found in the statute and even conflicts with the statutory goals. Section 258 seems to anticipate that it would be the authorized carrier who would have the greatest incentive to police against slamming, as that carrier would be entitled to recover the charges paid to the slamming carrier.(1) The rules adopted today, however, do not provide for any compensation to the authorized carrier when the subscriber does not pay the slamming carrier. In this manner, the adoption of consumer absolution may act to discourage the authorized carrier from policing these practices because frequently there will be no payments by the consumer to the slamming carrier available for them to collect.

I agree with Commissioner Powell that we should be -- and indeed the statute envisioned -- doing more to compensate the authorized carriers. These carriers are also harmed by slamming, as they lose the compensation that would have been due to them had one of their customers not been taken away in an unauthorized manner. Indeed, the authorized carrier may suffer a greater harm. The subscriber was still able to make telephone calls using the service of the slamming carrier. The authorized carrier, however, will be unable to recoup the payments that should have been made by their customer.

In addition, at least in one regard, the Commission's rules directly conflict with the statute. Section 258 states that the authorized carrier should be entitled to "an amount equal to all charges paid by such subscriber after such violation."(2) The Order, however, requires that authorized carriers, once obtaining monies paid by the subscriber to the slammer, must refund any excess of what the subscriber would normally have paid. Such a requirement is not what the statute requires and is especially troubling in concert with the consumer absolution provisions.

At bottom, the statute seemed to ensure that the authorized carrier would be made at least whole, maximizing their incentive to collect from slammers. By absolving consumer liability for the first 30 days and requiring the authorized carriers to refund any excess that they do collect from a slamming carrier, the Commission is eviscerating the incentives that Congress provided to the authorized carries.

Finally, I fear that the consumer absolution mechanism adopted today may add further complications by encouraging false claims of slamming. While I appreciate the expedited industry-driven process for evaluating slamming claims, informing customers that they may have 30 days of free service with the mere allegation of a slam will only encourage fraudulent claims of slamming. Moreover, it will necessitate increased costs to be borne by all consumers for either adjudicating those claims or providing free service to those claiming to be slammed. I cannot endorse such an outcome.

There are countless markets in the United States that work well for both consumers and businesses alike. The vast majority of these markets work on a common-law basis, without the striking level of government intervention found in this item. The Commission's decision today presents the extraordinary situation in which consumers recognize that a service has a price, willingly purchase that service, are satisfied with the service itself, and yet the federal government interferes to instruct the consumer not to pay for that service. Indeed, I can think of no other industry in which a federal agency has decreed such an outcome by rule.

This form of supposedly free service is not cost-less. These costs are borne by legitimate carriers in the telephone industry. The long distance industry is extremely competitive and, according to one of the basic principles of economics, additional costs in a competitive industry are always reflected in higher prices. And these higher prices will be paid by all telephone consumers. That is an outcome that I see in conflict with the Telecommunications Act of 1996.

1. 47 USCA Section 258.

2. 47 USCA Section 258.