12/17/98 Separate Statement of Commissioner Michael Powell on 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)

December 17, 1998

STATEMENT OF COMMISSIONER MICHAEL K. POWELL, CONCURRING IN PART AND DISSENTING IN PART

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).

I write separately to explain the bases upon which I partially dissent from and partially concur in this action.

As an initial matter, I wish to express my firm support for the Commission taking steps, pursuant to section 258 of the 1996 Act, to establish policies and rules designed to combat unauthorized changes of consumers' long distance carriers ("slamming"). The Act mandates that we turn the ship of federal telecommunications regulation smartly in the direction of competitive markets and away from the traditional central planning model. It is critical to the functioning of competitive markets that consumers make effective choices in the marketplace, as these choices tell self-interested firms what to sell, how much and where. Slamming robs consumers of choices they have made, and thus I am more than pleased to support its prevention and vigorous prosecution.

I have some nagging concerns, however, about the manner in which this action combats slamming, which I describe briefly here. I agree that an important way to combat slamming is to prevent carriers from reaping the financial benefits of slamming. Further, I generally support making slamming carriers pay for what they have done, to the extent we have authority to require such remedies.

But I am concerned that some of the steps taken in this item may not adequately compensate authorized carriers, which are no more responsible for a particular incident of slamming than the slammed subscriber. There are two dimensions to my concerns in this regard.

First, I must respectfully and reluctantly dissent from the narrow part of this action that requires authorized carriers to forward to the subscriber charges the subscriber has paid to the slamming carrier (which the authorized carrier then collects from the slammer) when those monies exceed the amount the subscriber would normally have paid the authorized carrier. While I agree that it is a worthy end for us to do what we can to restore slammed subscribers to their original positions, I feel strongly that the means for achieving this end must comport, as always, with the express language of the Act. Section 258(b) could not be more clear that a slamming carrier is liable to the authorized carrier for the entire amount the slammed subscriber has paid to the slammer:

Any telecommunications carrier that violates the verification procedures described in subsection (a) and that collects charges for telephone exchange service or telephone toll service from a subscriber shall be liable to the carrier previously selected by the subscriber in an amount equal to all charges paid by such subscriber after such violation . . .⁽¹⁾

The statute provides for no exception to this all-inclusive language regarding charges paid to the subscriber, and I respectfully reject the suggestion that we can trump the express language of section 258(b) by relying on tidbits from the legislative history, comments detailing the parties' preferences or inferences regarding what Congress must have meant in enacting the provision in the context of existing Commission rules.

I also reject the suggestion that simple adherence to the statutory language would lead to an anomalous policy result. For example, allowing the authorized carrier to keep all of the money it collects from slamming carriers would tend to maximize the incentive authorized carriers have to collect from slammers. Moreover, in light of the public outcry against slamming, it seems likely that many authorized carriers would have freely chosen to refund charges in excess of what the subscriber normally would have paid, just to keep their subscribers happy and retain them in an increasingly competitive market. By mandating this remedy, we have overstepped our legal authority and precluded potential market-based remedies that could have achieved the same purpose.

Given these objections, I would have preferred to make use of other express language in section 258(b), which provides that "[t]he remedies provided by this subsection are in addition to any other remedies available by law."⁽²⁾ In particular, I would have preferred to consider alternative legal means by which the slammed subscriber could collect an amount equal to the "excess" it paid from the slamming carrier, provided that such means did not undermine the statutory remedy available to the authorized carrier. If such means could not be implemented in this action I would have been open to considering them in the next phase of this proceeding, in which we will consider additional financial penalties for slamming carriers.

Second, I am concerned that our rules do not provide for compensation to the authorized carrier (either from the slamming carrier or the subscriber) when the subscriber does not pay the slammer. I worry that this shortcoming does not afford the authorized carrier the benefit of the bargain it struck with the subscriber.

Authorized carriers generally have a relationship of indefinite duration with their subscribers, according to which the authorized carrier expects to profit from doing business with that subscriber. The authorized carrier relies on that expectation in crafting its pricing policies and otherwise running its business, at least until the subscriber acts to sever his relationship with the authorized carrier. Without further information on the record, I am not prepared to say that authorized carriers are not harmed when this expectation is not satisfied.⁽³⁾ I also would point out that this potential harm would tend to disfavor smaller authorized carriers who are now entering the market to bring consumers the benefits of additional competition. By declining to compensate authorized carrier for this potential harm, I believe our rules fall short of keeping the authorized carrier whole.

In contrast, our rules are more favorable to slammed subscribers. I agree that subscribers may suffer harms and incur costs as a result of being slammed, and I would support penalizing slammers in a way that forces them to compensate subscribers for such harms and costs. But the fact generally remains that a slammed subscriber expected to be able to make calls, expected to pay for those calls and actually made the calls. The primary difference is that the slamming carrier, rather than the authorized carrier, actually served the subscriber -- a fact which will generally go unnoticed until the subscriber sees a new carrier on his bill. Thus, in many cases, the subscriber will pretty much receive the benefit of his bargain, albeit based on the performance of a substitute carrier.

While in principle, I do not object to our rules compensating slammed subscribers, I do wish we were doing more in this action to compensate authorized carriers. This view is consistent with the plain language of the section 258, which appears to provide a remedy for the authorized carrier. Indeed, as I have said, section 258 specifically allows the authorized carrier to collect all monies paid by the subscriber to the slammer, without reference to whether or not the amount paid to the slammer is greater than the amount the authorized carrier would normally receive from the subscriber. Thus, under the statute, the authorized carrier could, in some cases, receive more than it would have received had the slam not occurred.

In light of these concerns, I would have preferred to defer considering rules to free slammed subscribers from paying either the slamming or authorized carrier until the next phase of this proceeding, in which we will consider additional financial penalties for slamming carriers. By imposing these additional penalties on slammers, I believe we could more adequately compensate authorized carriers without necessarily reducing compensation to slammed subscribers. I do, however, take some comfort in knowing that (1) a solution that would provide more compensation to authorized carriers (based on harsher penalties to slammers) can still be implemented after reviewing the submissions responding to this action; and (2) authorized carriers that feel they have not been adequately compensated under our rules may have additional remedies available in state or federal fora.⁽⁴⁾ These considerations mitigate my concerns sufficiently that I feel comfortable concurring in the remainder of this action.

Having expressed these concerns, I look forward to working with my colleagues in the next phase of this proceeding to ensure that all of the innocent parties associated with slamming violations -- both subscribers and authorized carriers -- have full opportunity to be compensated for such violations. My colleagues and, in particular, our dedicated Common Carrier Bureau staff are to be commended for their tireless work in addressing this important consumer protection issue.

1. 47 U.S.C. § 258(b) (emphasis added).

2. 47 U.S.C. § 258(b).

3. Conversely, I reject the notion that authorized carriers would obtain a windfall if the subscriber paid them for service actually provided by the slamming carrier. The authorized carrier made capacity on its network available for the subscriber's use in reliance on the expectation that the subscriber would use that network and pay for such use. Thus, payment to the authorized carrier would merely afford the authorized carrier with the benefit of the bargain it struck with the subscriber. In any event, the plain language of section 258 clearly contemplates authorized carriers obtaining money paid by the subscriber (to the slammer) even though another carrier has provided service.

4. For example, it is my understanding that authorized carriers may be able to sue slamming carriers for lost profits before the Commission pursuant to Title II of the Act or before state authorities. Other possible remedies based on state law might include actions alleging tortious interference with contracts, interference with business relationships, and punitive damages (for willful slamming violations), or contract violations (e.g., where the slamming carrier is a reseller that can be said to have violated a contract with the authorized carrier).