[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.
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    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\
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    \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\
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    \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

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