August 12, 1997
Thank you, Senator Burns, for inviting me to testify before you today on the issue of telephone slamming -- the practice of changing a consumer's long distance carrier without the consumer's knowledge and consent.
You mention that over the past few months your own family was slammed, as was a congressman and a committee staff member. May I add to this list my own secretary and the president of the dominant Mexican telephone company. They have all been slammed.
The Commission receives more complaints about slamming than any other telephone-related complaint. In 1996, complaints totalled 16,000. Already during the first six months of this year over 12,000 were filed. I understand from Commissioner Bob Rowe that our state colleagues are similarly besieged.
Because most slammed consumers grin and bear it, we don't know how many of the 50 million carrier selection changes each year result from slamming. If just 1% were slamming changes -- a very conservative estimate -- that would total over 500,000 slamming incidents each year.
Not only is slamming a growing problem, but it is also one about which consumers care passionately. For example, in complaints to the Commission, consumers use words like "abused," "cheated," "pirated," "hi-jacked," and "violated" to describe how they felt.
Slamming scenarios involve deceptive sweepstakes, misleading forms, forged signatures and telemarketers who do not understand the word "no."
Quite simply, consumers are furious that their carrier selections are being changed without their consent.
And now we're seeing complaints about slamming of intraLATA toll service in areas where carriers are competing for presubscription. Once local service competition is introduced, I'm sure reports of slamming won't be far behind.
The FCC takes slamming very seriously. We have a two-pronged approach to combat this problem: First, our rules make it harder for carriers to slam. Second, carriers who do not follow the rules are severely punished.
In crafting these rules, the Commission carefully balanced the twin goals of consumer protection and unfettered competition.
The Commission's current anti-slamming rules require long distance carriers to use one of four verification procedures to confirm carrier change orders resulting from telemarketing:
(1) a written authorization;
(2) confirmation from the subscriber via a toll-free number provided exclusively for this purpose;
(3) an independent third party to verify the subscriber's order; or
(4) a "welcome package" -- a letter that the consumer receives in the mail that requires the consumer to affirmatively reject the change in carrier, otherwise the change goes into effect after two weeks.
Thus, your service cannot be changed simply because you tell a telemarketer "okay" -- there must be a subsequent verification of that authorization.
Another Commission rule regarding letters of agency (LOA) details the minimum form and content for written authorizations of carrier changes. These rules slam the door on misleading and deceptive marketing practices, such as having promotional material in one language and the form to authorize a change in carrier in another language.
Finally, under our current policy, carriers who provide unauthorized services must recompute the consumer's bill so that the consumer pays no more than would have been paid to the properly authorized carrier.
Enforcement is the second prong of our anti-slamming campaign. Since 1994, the Commission has imposed consent decrees and has assessed companies more than $1 million in forfeitures, with approximately $500,000 in additional penalties pending.
Also, the Commission recently has taken steps to revoke the operating authority of a group of companies accused of violating the Commission's anti-slamming rules.
The message is loud and clear: we will not tolerate slamming. But more needs to be done.
Under Section 258 of the 1996 Telecommunications Act, we have begun a rulemaking to provide greater protection for consumers. Our proposal will be published this week in the Federal Register.
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.
We propose to require the slamming carrier to reimburse the consumer for any premiums or frequent flyer miles that otherwise would have been earned with the chosen carrier.
We also ask whether a slammed consumer should have to pay at all for the service rendered by the slamming carrier. Here, we must weigh the deterrent effect against the possibility of encouraging bogus complaints.
We also ask whether the existing verification procedures are effective in deterring slamming -- for example whether a "welcome package" requiring the consumer to respond affirmatively to prevent a carrier change -- is adequate verification. I don't believe it is -- not all consumers read the mail they get from communications companies. I sure don't.
And we ask whether rules are needed to address preferred carrier freezes. In a freeze, local carriers get consumers to authorize the blocking of future carrier changes unless the consumer gives his or her written or oral consent to the blocking carrier -- not just to the requesting carrier.
As local competition arrives, the blocking local exchange carrier is poised to compete for long distance with the requesting carrier. Thus, the local exchange carrier may no longer be acting as a neutral third party, but may have instituted freeze procedures for anticompetitive reasons. In drafting our rules, we must be vigilant to avoid deterring lawful competition as we work to eliminate slamming.
Consumers wishing to comment on this proceeding can reach us by the Internet at firstname.lastname@example.org.
Congress wisely provided the FCC with tools under the 1996 Telecom Act to combat this problem. I am also pleased, Senator, that you are focusing attention on slamming by holding this hearing.
In conclusion, with tougher rules and vigilant enforcement, we will help restore the right of consumers to choose their local and long distance carriers -- and to have that choice honored in the marketplace.