[Senate Hearing 113-674]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 113-674
 
                   CRAMMING ON WIRELESS PHONE BILLS:
                    A REVIEW OF CONSUMER PROTECTION
                           PRACTICES AND GAPS

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 30, 2014

                               __________

    Printed for the use of the Committee on Commerce, Science, and Transportation
       
                                                    
                             
                             
                    
                             
                             
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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
BARBARA BOXER, California            JOHN THUNE, South Dakota, Ranking
BILL NELSON, Florida                 ROGER F. WICKER, Mississippi
MARIA CANTWELL, Washington           ROY BLUNT, Missouri
MARK PRYOR, Arkansas                 MARCO RUBIO, Florida
CLAIRE McCASKILL, Missouri           KELLY AYOTTE, New Hampshire
AMY KLOBUCHAR, Minnesota             DEAN HELLER, Nevada
MARK WARNER, Virginia                DAN COATS, Indiana
MARK BEGICH, Alaska                  TIM SCOTT, South Carolina
RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
BRIAN SCHATZ, Hawaii                 DEB FISCHER, Nebraska
EDWARD MARKEY, Massachusetts         RON JOHNSON, Wisconsin
CORY BOOKER, New Jersey
JOHN E. WALSH, Montana
                    Ellen L. Doneski, Staff Director
                     John Williams, General Counsel
              David Schwietert, Republican Staff Director
              Nick Rossi, Republican Deputy Staff Director
   Rebecca Seidel, Republican General Counsel and Chief Investigator
   
   
   
   
   
   
   
   
   
   
   
   
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 30, 2014....................................     1
Statement of Senator Blumenthal..................................     1
    Report dated July 30, 2014 entitled, ``Cramming on Mobile 
      Phone Bills: A Report on Wireless Billing Practices'' by 
      the Office of Oversight and Investigations Majority Staff..     3
Statement of Senator Thune.......................................    55
Statement of Senator Johnson.....................................    87
Statement of Senator Nelson......................................    89
Statement of Senator Markey......................................    91
Statement of Senator Klobuchar...................................    94

                               Witnesses

Hon. Terrell McSweeny, Commissioner, Federal Trade Commission....    58
    Prepared statement...........................................    59
Hon. William H. Sorrell, Attorney General, State of Vermont......    66
    Prepared statement...........................................    67
Travis LeBlanc, Acting Chief, Enforcement Bureau, Federal 
  Communications Commission......................................    73
    Prepared statement...........................................    74
Michael F. Altschul, Senior Vice President and General Counsel, 
  CTIA--The Wireless Association................................    79
    Prepared statement...........................................    81

                                Appendix

Response to written questions submitted to Hon. Terrell McSweeney 
  by:
    Hon. Cory Booker.............................................   103
    Hon. John Thune..............................................   103
Response to written questions submitted to Travis LeBlanc by:
    Hon. Cory Booker.............................................   125
    Hon. John Thune..............................................   125
Response to written questions submitted to Michael F. Altschul 
  by:
    Hon. Cory Booker.............................................   127
    Hon. John Thune..............................................   128
    
    
    
    
    
    
    
    
    

                    CRAMMING ON WIRELESS PHONE BILLS:



                     A REVIEW OF CONSUMER PROTECTION



                           PRACTICES AND GAPS

                              ----------                              


                        WEDNESDAY, JULY 30, 2014

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:50 p.m. in room 
SR-253, Russell Senate Office Building, Hon. Richard 
Blumenthal, presiding.

         OPENING STATEMENT OF HON. RICHARD BLUMENTHAL, 
                 U.S. SENATOR FROM CONNECTICUT

    Senator Blumenthal. This hearing is open.
    And as you know, my name is Richard Blumenthal. I am a 
Senator from Connecticut, and I am here regretfully in place of 
Chairman Rockefeller, who has an urgent intel, intelligence 
matter and therefore could not be with us at the opening. I do 
not think he will be able to join us, but his absence is in no 
way a sign of any lack of interest in this subject. In fact, I 
have talked to him in some detail about this hearing, and I 
know that he would be here if he could be.
    I want to welcome all of our panel here and all of the 
folks who are attending. This subject is one very, very close 
to my heart as a former Attorney General for a couple of 
decades in Connecticut. I had firsthand experience with 
cramming, both wireless and landline, and worked with at least 
one of the members of this panel, Attorney General Sorrell. And 
I will be introducing him in just a moment.
    As many of you know, more than 2 decades ago, the telephone 
industry decided to get into the payment processing business. 
The bright idea was that consumers could charge purchases to 
their phone bills rather than doing it through a credit card or 
a bank account. At the end of every billing period, consumers 
would pay for their telephone service plus the purchases they 
had made from third-party vendors.
    In theory, using a telephone bill as a way to purchase 
goods and services makes some sense, has a lot of potential, 
and attracted a lot of interest. As several of our witnesses 
point out in their testimony today--and they do it very well--
the so-called direct carrier billing method of payment could 
benefit unbanked customers and other people looking for an 
alternative way to shop or make a charitable contribution.
    But the reality of third-party charges on telephone bills 
is a markedly different story, a profoundly different tale, and 
the fact of the matter is that it has not lived up to its 
potential. Almost as soon as the telephone companies opened up 
their payment platforms to outside parties, scammers figured 
out a way to beat the system, not surprisingly. They found ways 
to cram unauthorized charges onto consumers' bills, and they 
have been absolutely relentless in doing so.
    So today most consumers still do not understand, including 
some of my colleagues, that their phone bills have often 
contained charges for things they never actually bought. What a 
surprise. They are paying for things they never bought. And it 
is an unwelcome surprise to them, especially when they discover 
that they have trouble getting refunds or that they cannot get 
their money back at all.
    In the 1990s and into the 2000s, most cramming occurred on 
consumers' wireline telephone bills, as this committee 
documented in an excellent 2011 hearing and report. American 
consumers and businesses paid billions of dollars for fax, 
voice mail, celebrity gossip, and other services they did not 
want and did not order. A few days ago, the crammers very 
predictably turned their attention--I should have said a few 
years ago the crammers very predictably turned their attention 
to the rapidly growing wireless telephone market. They figured 
out a way to rip consumers off who had grown accustomed to 
purchasing music and other content on their phones through a 
text messaging-based system called PSMS, premium short 
messaging system.
    The Commerce Committee staff--and I really want to thank 
them for their excellent work--has prepared a new report 
documenting how crammers exploited the weaknesses in the 
premium messaging system to fraudulently charge American 
consumers literally hundreds of millions of dollars. And I ask 
unanimous consent to put this report and its exhibits in the 
record of this hearing.
    [The information referred to follows:]

    
    
                           Table of Contents
Executive Summary

I. Background

        A.  Initiation of Third-Party Billing on Telephone Bills

        B.  Third-Party Charges on Landline Bills

        C.  The Emergence of Cramming on Wireless Phone Bills

        D.  State and Federal Enforcement and Regulatory Authority

II.  Committee Investigation

III.  Overview of Premium Short Message Service (PSMS) Wireless Billing

        A.  The PSMS Third-Party Wireless Billing Process

        B.  Voluntary Industry Oversight over Third-Party Wireless 
        Billing Practices

                1.  Industry-Wide Oversight

                2.  Individual Carrier Policies

IV. Committee Findings on PSMS Third-Party Wireless Cramming

        A.  Carriers Have Profited Tremendously from Third-Party 
        Wireless Billing

        B.  Wireless Cramming Has Likely Cost Consumers Hundreds of 
        Millions of Dollars

                1.  Refund Rates

                2.  Consumer Complaint Data

                3.  State and Federal Actions

        C.  Carriers Were on Notice about Cramming and Other Vendor 
        Problems

        D.  Industry Self-Regulation Has Left Gaps In Consumer 
        Protection

                1.  The Double Opt-In Safeguard was Porous

                2.  Tolerance for High Consumer Refund Rates Raises 
                Questions about Carrier Commitment to Preventing and 
                Addressing Cramming

                        a.  Carrier Policies on Refund Thresholds

                        b.  Some Vendors Had Exceedingly High Refund 
                        Rates that at Times Spanned Several Months

                        c.  Case Study on Vendor with High Refund 
                        Rates: Variation in Carrier Response 
                        Underscores Broad Latitude Afforded by the 
                        Self- Regulatory System

                3.  Carriers Placed Questionable Reliance on Billing 
                Aggregators as Oversight Partners

V.  Emerging Third Party Wireless Billing Technologies and Potential 
        Consumer Protection Issues

Exhibits

Exhibit A

Exhibit B

Exhibit C
                                 ______
                                 
Executive Summary
    For several decades, phone companies have allowed third-party 
vendors to charge consumers on their phone bills for goods and services 
unrelated to phone service, such as photo storage, voice-mail, and 
faxes. This practice began with landline phone bills and continued on 
wireless phone bills as consumer use of mobile phones increased. 
Throughout this period, the industry has assured the public that its 
self-regulatory system is effective at protecting consumers from 
fraudulent third-party billing on their phone bills.
    However, this Committee's 2010-2011 review of third-party billing 
practices on landline phones showed that widespread unauthorized 
charges--known as ``cramming''--had been placed on phone bills and had 
likely cost consumers billions of dollars over the preceding decades.
    In light of these findings, and emerging reports of cramming in the 
wireless context, the Committee subsequently began reviewing third-
party billing practices on wireless phone bills.
    This inquiry focused largely on third-party vendor charges placed 
through a system known as the premium short message service, or 
``PSMS,'' which involves use of text messaging charged to consumers at 
a higher rate than standard text messaging. These types of charges had 
been the focus of mounting reports of abuses. Products charged to 
consumers through the PSMS system generally have involved digital goods 
used on mobile phones, such as ringtones and cellphone wallpaper, or 
for services such as subscriptions to periodic text message content 
sent to the subscriber on subjects such as horoscopes or celebrity 
gossip.
    To assess the nature and scale of wireless cramming, the 
Committee's majority staff reviewed narrative and documentary 
information provided by the four major wireless carriers, entities 
known as ``billing aggregators'' that serve as middlemen between 
vendors and carriers in the billing process, and other sources.
    Unfortunately, the information reviewed by the Committee shows 
that, just as in the landline context, cramming on wireless phone bills 
has been widespread and has caused consumers substantial harm. 
Specifically, this report finds:

   Third-party billing on wireless phone bills has been a 
        billion dollar industry that has yielded tremendous revenues 
        for carriers. AT&T, Sprint, T-Mobile, and Verizon generally 
        retained 30 percent-40 percent of each vendor charge placed.

   Despite industry assertions that fraudulent third-party 
        wireless billing was a ``de minimis'' problem, wireless 
        cramming has been widespread and has likely cost consumers 
        hundreds of millions of dollars.

   The wireless industry was on notice at least as early as 
        2008 about significant wireless cramming concerns and problems 
        with third-party vendor marketing tactics, yet carriers' anti-
        cramming policies and sometimes lax oversight left wide gaps in 
        consumer protection:

     Consumer billing authorization requirements known as 
            the ``double opt-in'' that were touted as safeguards by 
            industry were porous, and multitudes of scammers appeared 
            to have repeatedly skirted them.

     Some carrier policies allowed vendors to continue 
            billing consumers even when the vendors had several months 
            of consecutively high consumer refund rates--and documents 
            obtained by the Committee indicate this practice occurred 
            despite vendor refund rates that at times topped 50 percent 
            of monthly revenues.

     Carriers placed questionable reliance on billing 
            aggregators in monitoring conduct of vendors that were 
            charging consumers on carriers' billing platforms.

    In November 2013, the Attorney General of Texas brought an action 
alleging that Mobile Messenger, one of the major PSMS billing 
aggregators, had engaged in a deceptive scheme with vendors to cram 
consumers' bills. Within weeks--and after years of wireless industry 
attestations about its effective consumer protection practices--AT&T, 
Sprint, T-Mobile, and Verizon abruptly announced they would virtually 
eliminate PSMS billing on their platforms.
    Today, while the major carriers have phased out commercial PSMS 
services, they continue to allow third-party charges on consumers' 
wireless bills using methods that do not involve PSMS. These include 
methods sometimes labeled ``direct carrier billing'' (DCB) through 
which vendors using websites and apps connect to carrier billing 
platforms. To date, products and services charged through these non-
PSMS billing methods have primarily involved digital content, such as 
music and apps including games with in-app purchasing capabilities.
    Direct carrier billing methods are relatively nascent, and it is 
not possible at this stage to predict the extent to which scammers will 
find ways to cram charges on wireless bills under these non-PSMS 
systems. As new third-party wireless billing methods continue to 
evolve, it is important that industry and policymakers evaluate the 
consumer protection gaps that have enabled widespread deceptive and 
fraudulent charges to be placed on consumers' landline and wireless 
bills, and to ensure that the unfortunate history of cramming on 
consumer phone bills does not repeat yet again.
Background
A. Initiation of Third-Party Billing on Telephone Bills
    Third-party billing on consumer phone bills grew out of two 
regulatory steps that occurred in the 1980s: the divestiture of AT&T in 
1984 and de-tariffing of telephone billing and collection in 1986. 
Prior to those steps, AT&T had its own billing and collection system 
that encompassed both local and long-distance charges. Following the 
break-up of AT&T, regional bell operating companies, also known as 
local exchange carriers, were not allowed to offer their own long-
distance services, and began providing billing collection services to 
AT&T and other companies that offered long-distance services.\1\
---------------------------------------------------------------------------
    \1\ Senate Committee on Commerce, Science, and Transportation, 
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at 
1 (July 12, 2011).
---------------------------------------------------------------------------
    Over time, telephone companies opened these billing platforms to an 
array of other third-party vendors that offered products and services 
beyond those directly related to phone service--from webhosting, to 
online gaming, online photo storage, and roadside assistance.\2\ 
Telephone numbers thus became a payment method similar to credit card 
numbers. However, third-party charges levied on the phone bill platform 
did not receive the same protections as credit card payments. For 
example, with credit card payments, consumers' liability for 
unauthorized charges is limited to $50, consumers have the right to 
dispute unauthorized charges, and consumers have the right to seek to 
reverse a charge.\3\ Further, unlike credit card numbers, telephone 
numbers for landline phones are widely accessible to anyone with a 
telephone directory.\4\
---------------------------------------------------------------------------
    \2\ See Senate Committee on Commerce, Science, and Transportation, 
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at 
22 (July 12, 2011).
    \3\ See Fair Credit Billing Act, 15 U.S.C. Sec. Sec. 1666-1666j; 
Consumer Credit Protection Act 15 U.S.C. Sec. 1643; Regulation Z, 12 
C.F.R. Sec. 1026.13.
    \4\ See Senate Committee on Commerce, Science, and Transportation, 
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at 
2 (July 12, 2011).
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B. Third-Party Charges on Landline Phone Bills
    From early on, industry representatives pledged that voluntary 
industry practices would protect consumers from billing scams relating 
to third-party charges on the carrier billing platforms, and carriers 
agreed upon a set of nonbinding guidelines.\5\ At a Senate hearing in 
July 1998, the President of the United States Telephone Association 
asserted, ``I have a high degree of confidence that these voluntary 
guidelines will produce an effective means to curb this abuse,'' that 
the industry has ``a powerful self-interest to correct this problem,'' 
and, that the industry was ``working overtime'' to eliminate ``this 
scourge.'' \6\
---------------------------------------------------------------------------
    \5\ See Federal Communications Commission, Anti-Cramming Best 
Practices Guidelines (available at www.fcc.gov/Bureaus/Common_Carrier/
Other/cramming/cramming.html) (accessed July 7, 2011).
    \6\ Permanent Subcommittee on Investigations of the Senate 
Committee on Governmental Affairs, Hearing on ``Cramming'': An Emerging 
Telephone Billing Fraud, 105th Cong. (July 23, 1998) (S. Hrg. 105-646).
---------------------------------------------------------------------------
    However, over the decade that followed, consumers increasingly 
began to complain that the third-party charges appearing on their 
wireline--also known as ``landline''--telephone bills were 
unauthorized. This came to be known as ``cramming.'' State and Federal 
law enforcement agencies brought dozens of enforcement actions against 
third-party crammers that highlighted problems consumers were 
encountering. For example:

   In 2006, the Attorney General of Florida filed a lawsuit 
        against E-mail Discount Network for charging 20,000 Florida 
        consumers' telephone bills for e-mail accounts and coupons they 
        did not request or use;\7\
---------------------------------------------------------------------------
    \7\ See Settlement Agreement, Florida, Office of the Attorney 
General v. E-mail Discount Network, Fla. 2d Cir. Ct. (No. 2006 CA 2475) 
(Feb. 15, 2007).

   In 2009, the Attorney General of Illinois filed a lawsuit 
        against U.S. Credit Find for placing ``unauthorized charges on 
        more than 9,000 Illinois consumers' phone bills'' for a 
        purported online tutorial that would ``help consumers fix their 
        credit;'' \8\ and
---------------------------------------------------------------------------
    \8\ See Press Release, Madigan Reaches Agreement with U.S. Credit 
Find to Prevent Phone Cramming, The Office of the Illinois Attorney 
General (June 18, 2009).

   In 2010, a Federal district court awarded the FTC a $37.9 
        million judgment against Inc21.com Corporation and related 
        third-party vendors after learning that as few as 3 percent of 
        the defendants' customer base expressly authorized the 
        defendants' charges on their telephone bills.\9\
---------------------------------------------------------------------------
    \9\ See Federal Trade Commission v. Inc21.com Corp., 745 F.Supp.2d 
975, 982-983 (N.D. Cal. 2010).

    In 2010, Chairman Rockefeller opened an investigation to examine 
the extent of third-party billing on landline telephone bills. This 
investigation resulted in a majority staff report issued in July 2011 
---------------------------------------------------------------------------
that found:

  (1)  third-party billing on wireline telephone bills was a billion-
        dollar industry, with over $10 billion in charges placed on 
        consumer bills over a five year period;

  (2)  a substantial percentage of the charges placed on consumers' 
        telephone bills were likely unauthorized;

  (3)  telephone companies profited from cramming, generating over $1 
        billion in revenue from placing third-party charges on customer 
        bills over preceding years;

  (4)  cramming affected every segment of the landline telephone 
        customer base, from individuals to small businesses, non-
        profits, corporations, government agencies, and educational 
        institutions;

  (5)  many third-party vendors were illegitimate and created solely to 
        exploit third-party billing;

  (6)  many telephone customers who were crammed did not receive help 
        from their telephone companies; and

  (7)  telephone companies were aware that cramming was a major problem 
        on their third-party billing systems.\10\
---------------------------------------------------------------------------
    \10\ Senate Committee on Commerce, Science, and Transportation, 
Staff Report on Unauthorized Third-Party Charges on Telephone Bills, at 
ii-iv (July 12, 2011).

    Following release of the investigation's findings at a Committee 
hearing and through a majority staff report, in early 2012 the three 
major telephone companies--Verizon, AT&T, and CenturyLink--agreed to 
stop placing third-party charges for enhanced services on their 
customers' wireline telephone bills.\11\ These and other carriers 
continued, however, to allow third parties to place charges on 
consumers' wireless telephone bills.
---------------------------------------------------------------------------
    \11\ See Senate Committee on Commerce, Science, and Transportation, 
Rockefeller Hails Verizon Decision to Shut Down Unwanted 
3rd-Party Charges on Telephone Bills (Mar. 21, 2012); Senate 
Committee on Commerce, Science, and Transportation, Another Major Phone 
Company Agrees to End Third-Party Billing on Consumer Phone Bills (Mar. 
28, 2012); Chairman Rockefeller Introduces Telephone Bill Anti-Cramming 
Legislation, U.S. Federal News (June 14, 2012).
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C. The Emergence of Cramming on Wireless Phone Bills
    Over the past two decades, consumers have migrated from using 
landline phones to relying on mobile phones,\12\ including Internet-
enabled smartphones that today represents over half of the mobile phone 
market.\13\ As use of wireless phones began to increase, reports began 
to mount that consumers were being ``crammed,'' or charged for text 
message services for which they had not enrolled, on their wireless 
phone bills. Many of the products that were the subject of consumer 
complaints were charges for subscription services such as celebrity 
gossip, horoscopes, sports scores, love tips, and diet tips, which were 
similar to many of the services found to be fraudulent in the 
Committee's 2011 wireline cramming investigation.\14\
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    \12\ A recently released report by the National Center for Health 
Statistics showed that two out of five U.S. households, or 41 percent, 
had only wireless phones in the second half of 2013 (July-December 
2013). Pew Research Center, CDC: Two of Every Five U.S. Households Have 
Only Wireless Phones (July 8, 2014) (online at http://
www.pewresearch.org/fact-tank/2014/07/08/two-of-every-five-u-s-
households-have-only-wireless-phones/).
    \13\ As of January 2014, 90 percent of American adults had a cell 
phone and 58 percent had a smartphone. Pew Research Center, Cell Phone 
and Smartphone Ownership Demographics (online at http://
www.pewinternet.org/data-trend/mobile/cell-phone-and-smartphone-
ownership-demographics/).
    \14\ See What's Your Sign? It Could Be a Cram, New York Times (Mar. 
24, 2012) (reporting on a consumer who complained of being billed for 
horoscope text services not authorized). In the wireline cramming 
investigation, the Committee found that companies that were charging 
consumers each month for e-mail accounts that included weekly e-mail 
messages with ``celebrity gossip'' and ``fashion tips.'' See Senate 
Committee on Commerce, Science, and Transportation, Staff Report on 
Unauthorized Third-Party Charges on Telephone Bills, at ii-iii (July 
12, 2011); See also footnote 16 infra, detailing legal actions 
concerning various subscription services.
---------------------------------------------------------------------------
    In recent years, private parties, state Attorneys General, the 
Federal Trade Commission (FTC), and the Federal Communications 
Commission (FCC) have brought a number of actions highlighting consumer 
protection vulnerabilities in the wireless billing system, particularly 
with respect to charges placed through a system known as premium short 
message service (PSMS).
    For example, between 2008 and 2010, the Attorney General of Florida 
reached settlements with AT&T Mobility, Verizon, T-Mobile, and Sprint, 
wherein the companies agreed to issue refunds to customers billed for 
ringtones, wallpapers, and other mobile content that had been 
advertised on the Internet as free, but resulted in consumers being 
signed up for monthly text message subscriptions.\15\ A plethora of 
other actions followed.\16\
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    \15\ See FL AG McCollum in Settlement With Sprint Over `Free' 
Ringtones, Bloomberg (Oct. 8, 2010) (online at http://
www.bloomberg.com/apps/news?pid=21070001&sid=aXwc4FpkupsU); T-Mobile 
$600k Settlement with Florida AG Affects All Mobile Content Marketing, 
Mobile Marketer (July 22, 2010) (online at http://
www.mobilemarketer.com/cms/news/legal-privacy/6873.html). See Part I.D 
below for discussion of additional state and Federal actions.
    \16\ See Texas v. Eye Level Holdings, LLC, et al., Tex. D. Ct., 
Travis County (No. 1:11-cv-00178) (Mar. 11, 2011) (where the Texas 
Attorney General accused the defendants of engaging in deceptive trade 
practices by running a text messaging scheme that cost consumers in 
Texas millions in unauthorized wireless charges; and defendants agreed 
to pay nearly $2 million to settle the charges); Federal Trade 
Commission v. Wise Media, LLC, et al., N.D. Ga. (No. 1:13cv1234) (Apr. 
16, 2013) (where the third-party content provider was charged for 
placing over $10 million on consumers' wireless bills for unauthorized 
charges for PSMS messages containing horoscopes, love and flirting 
tips, and other information); Federal Trade Commission v. Jesta 
Digital, LLC, also d/b/a JAMSTER, D.D.C. (No. 1:13-CV-01272) (Aug. 20, 
2013) (where the third-party content providers were charged with 
cramming unwanted charges on consumers' cell phone bills for ringtones 
and other mobile content); Texas v. Mobile Messenger U.S. Inc., et al, 
Tex. D. Ct., Travis County (Nov. 6, 2013) (alleging that defendants, 
who were a billing aggregator, four content providers, and an online 
advertising placement business, conspired to enroll consumers in PSMS 
programs for ringtones, horoscopes, celebrity gossip news, and other 
coupons without consumer consent); and Federal Trade Commission v. 
Tatto, et al., C.D. Cal (No. 2:13-cv13-8912-DSF-FFM) (Dec. 5, 2013) (in 
which FTC alleged that defendants placed millions of dollars on 
consumers' wireless phone bills for text messages that consumers did 
not authorize; and defendants ultimately agreed to surrender over $10 
million in assets to settle these charges). Private parties also have 
brought legal actions involving third-party cramming charges. See 
Tracie McFerren v. AT&T Mobility LLC, Sup. Ct. of Ga. (No. 08-cv-
151322) (May 30, 2008) (a class action suit alleging that AT&T failed 
to set up controls to stop unauthorized third-party charges on 
consumers' wireless bills); Gray v. Mobile Messenger Americas, Inc., 
S.D. Fl. (No. 0:08-cv-61089-CMA) (July 11, 2008) (a class action suit 
charging Mobile Messenger, a billing aggregator, with placing 
unauthorized third-party charges on consumers' wireless bills); Armer 
v. OpenMarket, Inc., W.D. of Wash. (No. 08-CV-01731-CMP) (Dec. 1, 2008) 
(a lawsuit against OpenMarket, a billing aggregator, and Sprint 
concerning alleged unauthorized charges for PSMS messages containing 
content such as ringtones, sports score reports, weather alerts, and 
horoscopes); and Cellco Partnership d/b/a Verizon Wireless v. Jason 
Hope, Eye Level Holdings, LLC, et al., D. Ariz. (No. 2:11-cv-00432-DGC) 
(Mar. 7, 2011) (in which Verizon charged that the third-party content 
provider collected unauthorized or deceptive charges on consumers' 
wireless bills through PSMS messages).
---------------------------------------------------------------------------
    Most recently, the FTC filed its first wireless cramming complaint 
against a major carrier, alleging that T-Mobile placed unauthorized 
third-party charges on its customers' wireless bills, including in some 
cases, for services that had refund rates of up to 40 percent in a 
month. The complaint alleged that T-Mobile knew or should have known 
that these charges were not authorized and that T-Mobile's billing 
practices--allegedly burying charges deep into phone bills and without 
clear descriptions--made it difficult for consumers to find these 
unauthorized charges on their bills. According to the complaint, when 
consumers found these charges on their bills, T-Mobile failed to 
provide full refunds, and directed consumers to the third-party content 
providers for redress.\17\ The FCC announced that it is also 
investigating complaints against T-Mobile regarding these same 
practices.\18\
---------------------------------------------------------------------------
    \17\ See Federal Trade Commission v. T-Mobile USA, Inc., W.D. Wash. 
(No. 2:14-cv-00967) (July 1, 2014) (online at ftc.gov/enforcement/
cases-proceedings/132-3231/t-mobile-usa-inc).
    \18\ FCC, FCC Investigates Cramming Complaints Against T-Mobile 
(July 1, 2014) (online at http://www.fcc.gov/document/fcc-investigates-
cramming-complaints-against-t-mobile).
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D. State and Federal Enforcement and Regulatory Authority
    Agencies at the state and Federal level have enforcement and 
regulatory authority to protect consumers from cramming. Many states 
have enacted legislation and regulations prohibiting cramming on 
landline service.\19\ Further, California has adopted regulatory 
provisions specifically addressing wireless cramming.\20\ In addition, 
state Attorneys General have been active in pursuing cases against 
carriers, billing aggregators, and third-party content providers 
alleged to have crammed consumers on their wireless bills under their 
state laws prohibiting unfair and deceptive trade practices.\21\
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    \19\ See, e.g., Mich. Comp. Laws Sec. 484.2502; Cal. Pub. Util. 
Code Sec. 2890; 52 Pa. Code Sec. 64.23; Tex. Util. Code Sec. 17.151; 
Va. Code Sec. 56-479.3. In 2011, Vermont became the first state to 
enact legislation prohibiting third-party billing on landline telephone 
bills, with three limited exceptions: ``(1) billing for goods or 
services marketed or sold by entities subject to the jurisdiction of 
the Vermont Public Service Board; (2) billing for direct-dial or dial-
around services initiated from the consumer's telephone; and (3) 
operator-assisted telephone calls, collect calls, or telephone services 
provided to facilitate communication to or from correctional center 
inmates.'' 9 Vt. Stat. Sec. 2466. Illinois enacted similar legislation 
in 2012. See 815 ILCS 505/2HHH.
    \20\ The California Public Utilities Commission adopted rules that 
(1) established that wireless carriers must obtain explicit 
authorization from consumers before they can be billed for third-party 
charges; (2) establish that the carriers must refund consumers for 
unauthorized charges and investigate any complaints of unauthorized 
charges; and (3) requires wireless carriers to report quarterly the 
total amount of refunds given to California consumers for unauthorized 
charges and third party vendors that have been suspended or terminated. 
See Press Release, CPUC Strengthens Consumer Protections Against 
Cramming and Fraud on Telephone Bills, California Public Utilities 
Commission (Oct. 28, 2010).
    \21\ See, e.g., cases cited at footnote 16, supra.
---------------------------------------------------------------------------
    At the Federal level, both the FTC and the FCC have jurisdiction 
over cramming. The FTC enforces Section 5(a) of the FTC Act, which 
prohibits ``unfair or deceptive acts or practices in or affecting 
commerce.'' \22\ The FTC has pursued enforcement actions against third-
party content providers, billing aggregators, and carriers based on 
this authority, finding that cramming charges onto phone bills is both 
an unfair and deceptive practice.\23\
---------------------------------------------------------------------------
    \22\ 15 U.S.C. Sec. 45(a). Misrepresentations or deceptive 
omissions of material fact constitute deceptive acts or practices, and 
acts or practices are unfair if they cause substantial injury to 
consumers that consumers cannot reasonably avoid themselves and that is 
not outweighed by countervailing benefits to consumers or competition. 
Id.
    \23\ See, e.g., cases cited at footnote 16, supra.
---------------------------------------------------------------------------
    In addition to these enforcement actions, the FTC has held a 
workshop regarding wireless cramming and explored the possibility of 
Federal regulations.\24\
---------------------------------------------------------------------------
    \24\ See Federal Trade Commission Roundtable, Mobile Cramming, An 
FTC Roundtable (May 8, 2013) (online at http://www.ftc.gov/news-events/
events-calendar/2013/05/mobile-cramming-ftc-roundtable). The FCC also 
held a workshop on wireless cramming. See Federal Communications 
Commission Workshop, Bill Shock and Cramming (Apr. 17, 2013) (online at 
http://www.fcc.gov/events/workshop-bill-shock-and-cramming).
---------------------------------------------------------------------------
    The FCC has pursued cramming cases under Section 201(b) of the 
Communications Act of 1934, which states in pertinent part: ``[a]ll 
charges, practices, classifications, and regulations for and in 
connection with [interstate or foreign] communication service [by wire 
or radio], shall be just and reasonable, and any such charge, practice, 
classification, or regulation that is unjust or unreasonable is 
declared to be unlawful. . . .'' \25\ The FCC has found ``cramming'' to 
be an ``unjust and unreasonable'' practice.\26\
---------------------------------------------------------------------------
    \25\ 47 U.S.C. Sec. 201(b).
    \26\ See Order, FCC v. Assist 123, LLC, at 3 (EB-TCD-12-00005541) 
(July 16, 2014) (online at http://www.fcc.gov/document/assist-123-pay-
13m-resolve-wireless-cramming-investigation).
---------------------------------------------------------------------------
    Current FCC regulations also contain ``truth-in-billing'' rules 
regarding both wireline and wireless phone bills.\27\ Further, on April 
27, 2012, the FCC issued a Further Notice of Proposed Rulemaking 
(FNPRM) seeking comments on additional measures to prevent wireline 
cramming and on possible regulatory and non-regulatory measures to 
address wireless cramming.\28\ The comment period closed in July 
2012.\29\
---------------------------------------------------------------------------
    \27\ 47 C.F.R. Sec. Sec. 64.4200-64.2401.
    \28\ Empowering Consumers to Prevent and Detect Billing for 
Unauthorized Charges (``Cramming''); Consumer Information and 
Disclosure; Truth-in-Billing and Billing Format, 27 FCC Rcd 4436 (Apr. 
27, 2012). The additional safeguards proposed regarding wireline 
cramming ``require wireline carriers that currently offer blocking of 
third-party charges to clearly and conspicuously notify consumers of 
this option on their bills and websites, and at the point of sale; to 
place non-carrier third-party charges in a distinct bill section 
separate from all carrier charges; to provide subtotals in each section 
of the bill; and to display separate subtotals for carrier and non-
carrier charges on the payment page of the bill.'' Id.
    \29\ Consumer and Governmental Affairs Bureau Announces Comment 
Deadline for ``Cramming'' Further Notice of Proposed Rulemaking, Public 
Notice, DA 12-833 (May 25, 2012).
---------------------------------------------------------------------------
    In joint comments made to the FCC in 2012, consumer advocates 
including the Consumers' Union, Consumer Federation of America, and 
National Consumer League,\30\ pressed the agency to adopt rules that 
would, among other things: (1) prohibit third party charges on wireless 
accounts except for charitable or political giving;\31\ (2) for 
recurring charges (such as subscriptions), require authorization every 
time a charge is placed on the consumer's account;\32\ (3) require 
carriers to report wireless cramming complaints on a regular basis;\33\ 
and establish a clear dispute resolution process when consumers 
complain of unauthorized charges on their wireless bills that includes 
consumer protections such as the right to withhold payment for the 
charge while the dispute resolution process takes place.\34\ Industry 
representatives, on the other hand, submitted comments arguing that, at 
the time, wireless cramming was not ``a prevalent consumer issue,'' 
that voluntary industry measures would ensure that it did not become a 
significant consumer issue, and that the FCC lacked authority to issue 
wireless cramming rules.\35\
---------------------------------------------------------------------------
    \30\ The comments were also joined by the National Consumer Law 
Center, Consumer Action, and the Center for Media Justice. Comments of 
Center for Media Justice, Consumer Action, Consumer Federation of 
America, Consumers Union, National Consumer Law Center--On Behalf of 
its Low-Income Clients, and National Consumer League, Federal 
Communications Commission, CG Docket No. 11-116, CG Docket No. 09-158, 
& CG Docket No. 98-170 (June 25, 2012).
    \31\ Id. at 18.
    \32\ Id. at 20.
    \33\ Id. at 20-21.
    \34\ Id. at 21-22.
    \35\ Comments of CTIA-The Wireless Association, Federal 
Communications Commission, CG Docket No. 11-116, CG Docket No. 09-158, 
& CG Docket No. 98-170 (June 25, 2012).
---------------------------------------------------------------------------
    On August 27, 2013, the FCC released a Public Notice seeking to 
refresh the record on cramming ``in light of developments and 
additional evidence'' \36\ related to both wireline and wireless 
cramming. The FCC rulemaking remains pending.
---------------------------------------------------------------------------
    \36\ Consumer and Governmental Affairs Bureau Seeks to Refresh the 
Record Regarding ``Cramming,'' CG Docket No. 11-116, CG Docket No 09-
158, & CC Docket No. 98-170, Public Notice, DA 13-1807 (rel. Aug. 27, 
2013). Issues on which FCC sought comment included the extent of 
cramming for consumers of wireline and wireless services, the need for 
an opt-in requirement and the mechanics of an opt-in process for 
wireline and wireless services, the details and efficacy of any other 
industry efforts to combat wireline and wireless cramming, whether 
different measures to combat cramming are appropriate for small and 
rural wireless carriers and other wireless carriers, and whether 
additional measures to combat wireline and wireless cramming are 
appropriate. Id. at 2-3.
---------------------------------------------------------------------------
II. Committee Investigation
    In June 2012, Chairman Rockefeller followed up on his wireline 
cramming investigation to open an inquiry into the scope of 
unauthorized third-party charges in the wireless context and what steps 
carriers had undertaken to protect consumers from cramming. He launched 
this investigation with letters to the four major U.S. wireless phone 
companies--Sprint, T-Mobile, Verizon Wireless, and AT&T \37\--
requesting information regarding the companies' relationships with 
third-party vendors and billing aggregators and their practices to 
prevent cramming on consumer wireless bills.
---------------------------------------------------------------------------
    \37\ Senate Committee on Commerce, Science, and Transportation, 
Rockefeller Asks Wireless Carriers for Information on Third-Party 
Charges (June 12, 2012).
---------------------------------------------------------------------------
    As evidence of wireless cramming continued to mount, Chairman 
Rockefeller followed up with additional letters to the same four 
carriers in March 2013 requesting billing data the companies had 
provided to the California Public Utilities Commission (CPUC) under 
California's law requiring disclosures relating to wireless 
billing.\38\ Also in March 2013, the Chairman requested information 
from five major billing aggregators--Ericsson, mBlox, Mobile Messenger, 
Motricity, and OpenMarket--relating to their practices in facilitating 
third-party wireless billing and steps they were taking to prevent 
abuses.\39\
---------------------------------------------------------------------------
    \38\ Senate Committee on Commerce, Science, and Transportation, 
Rockefeller Vows to Avert Wireless Cramming Scams on Consumers (Mar. 1, 
2013).
    \39\ Senate Committee on Commerce, Science, and Transportation, 
Rockefeller Questions Billing Aggregators on Wireless Cramming (Mar. 
22, 2013).
---------------------------------------------------------------------------
    In June 2013, Chairman Rockefeller wrote the four major carriers to 
request additional information on questions that had emerged regarding 
how carriers were monitoring consumer authorizations of third-party 
billing and following up on consumer concerns.\40\
---------------------------------------------------------------------------
    \40\ Senate Committee on Commerce, Science, and Transportation, 
Senators Introduce Legislation to Stop Cramming on Telephone Bills 
(June 12, 2013).
---------------------------------------------------------------------------
    In November 2013, the Attorney General of Texas filed a complaint 
against Mobile Messenger, one of the major wireless billing 
aggregators, alleging that the company had engaged in a deceptive 
scheme with third-party vendors to cram consumers.\41\ These 
allegations raised questions regarding representations Mobile Messenger 
had made to the Committee about the company's commitment to consumer 
protection and the assurances major carriers had given the Committee 
that aggregators worked with carriers to promote consumer protections 
in the third-party wireless billing process. In late November, Chairman 
Rockefeller wrote to Mobile Messenger seeking additional information 
concerning a subset of vendors whose conduct had raised concerns and 
pressing for production of previously requested information.\42\
---------------------------------------------------------------------------
    \41\ Plaintiff's Original Petition, Texas v. Mobile Messenger U.S. 
Inc., et al, Tex. D. Ct., Travis County (Nov. 6, 2013).
    \42\ Letter from Chairman Rockefeller to Michael L. Iaccarino, 
Chief Executive Officer, Mobile Messenger (Nov. 26, 2013).
---------------------------------------------------------------------------
    When Mobile Messenger refused to provide key information requested 
in the Chairman's March 2013 and November 2013 letters, the Committee 
on March 14, 2014, issued a subpoena to the company, and Mobile 
Messenger was responsive to the subpoena.
    Over the course of the Committee's investigation, Committee 
majority staff reviewed thousands of pages of narrative and documentary 
materials produced by wireless carriers and billing aggregators, and 
conducted interviews of carrier and aggregator representatives as well 
as other experts. An association for the wireless industry, CTIA--The 
Wireless Association (CTIA), also provided the Committee documentary 
and narrative information about the third-party wireless billing 
system.
III. Overview of Premium Short Message Service (PSMS) Wireless Billing
    From the early days of third-party wireless billing, major carriers 
allowed third-party vendors to charge for their goods and services on 
customers' wireless accounts. One system that became prevalent is known 
as the premium short message service (PSMS) whereby consumers would be 
charged at a higher rate for one-time content or subscriptions received 
via text message as compared to the standard messaging rate.\43\ PSMS 
charges, along with other third-party charges, are billed to the 
consumers' wireless account and appear on their billing statement. Over 
the past few years, use of PSMS has been waning and major carriers 
ultimately stopped most commercial PSMS billing early in 2014.\44\ At 
the same time, use of other methods that do not involve PSMS for 
placing third-party charges on consumers' wireless bills has been 
increasing.
---------------------------------------------------------------------------
    \43\ Verizon Wireless, Premium Messaging FAQs (accessed July 27, 
2014) (available at http://www.verizonwireless.com/support/faqs/
Premium_TXT_and_MMS/faq_premium_txt_and
_mms.html).
    \44\ See, e.g., Letter from Chief Executive Officer, mBlox, to 
Senator John D. Rockefeller IV (Apr. 23, 2013); VT. AG: 3 Firms End 
Extra Cellphone Bill Charges, Associated Press (Nov. 21, 2013). See 
also AT&T Mobility, Sprint and T-Mobile Will No Longer. . . ., 
Communications Daily (Nov. 25, 2013) (quoting Verizon General Counsel 
as saying that Verizon had ``previously decided to exit the premium 
messaging business''). PSMS use continues for charitable giving and 
political contributions. Briefing by CTIA--The Wireless Association to 
Senate Commerce Committee Majority Staff (June 3, 2014); Briefing by 
Sprint Nextel to Senate Commerce Committee Majority Staff (July 16, 
2014).
---------------------------------------------------------------------------
    This section of the report provides an overview of the billing 
process associated with PSMS and the self-regulation regime that the 
wireless industry developed to oversee marketing and billing under the 
PSMS system. Section V of the report addresses alternative third-party 
billing methods that have been emerging amid the recent decrease in 
PSMS billing.
A. The PSMS Third-Party Wireless Billing Process
    Third-party PSMS billing generally has involved three types of 
companies: vendors (often known as content providers), wireless 
carriers, and middlemen known as ``billing aggregators'' who have 
provided technology to link content providers and wireless carriers. 
Under this system, vendors contract with billing aggregators to 
facilitate placement of charges for goods and services--often referred 
to as ``programs''--on consumers' wireless accounts. Billing 
aggregators in turn contract directly with the wireless carriers, which 
control access to the consumers' wireless bills. Each party in this 
process has retained a portion of the charges paid by consumers.\45\
---------------------------------------------------------------------------
    \45\ See, e.g., Master Services Agreement provided by Mobile 
Messenger to Senate Commerce Committee (AG-MM-COMM-001908-001911).
---------------------------------------------------------------------------
             FIGURE I: PARTIES IN THE PSMS BILLING PROCESS


    In order for a content provider to send commercial premium text 
messages, the provider first has to obtain authorization to use a five 
or six-digit code known as a ``common shortcode'' (CSC).\46\ CTIA-The 
Wireless Association has managed and controlled issuance of CSCs.\47\ 
Once a content provider has been granted a shortcode, they also must 
apply to individual wireless carriers to obtain access to the carrier's 
billing platform to charge consumers for specific content--or 
``campaigns''--associated with the shortcode.\48\
---------------------------------------------------------------------------
    \46\ Common shortcodes can also be used to allow consumers to make 
charitable donations and political contributions via text messaging. 
The Committee's inquiry focused on commercial shortcode charges.
    \47\ See Common Short Code Administration, About Short Codes 
Frequently Asked Questions--CTIA Vetting (online at http://
www.usshortcodes.com/about-sms-short-codes/sms-marketing-
faqs.php#.U8l0L6ggZss).
    \48\ See, e.g., Letter from Executive Vice President, Federal 
Relations, AT&T, to Chairman John D. Rockefeller IV, at 5 (July 11, 
2012); Letter from General Counsel, Verizon Wireless, to Chairman John 
D. Rockefeller IV, at 5 (July 11, 2012); Letter from Vice President, 
Federal Legislative Affairs, T-Mobile USA, to Chairman John D. 
Rockefeller IV, at 1 (July 11, 2012).
---------------------------------------------------------------------------
    From a consumer's perspective, the PSMS purchase process as 
prescribed by industry guidelines has worked as follows. Using an 
authorization process known as the ``double opt-in,'' consumers must 
take two affirmative acts when purchasing goods or services with their 
mobile phone: one to initiate the purchase and one to confirm the 
purchase.\49\ At least one of these actions must be performed using the 
mobile device associated with the wireless account to be charged.
---------------------------------------------------------------------------
    \49\ Mobile Marketing Association, Global Code of Conduct; Mobile 
Marketing Association, U.S. Consumer Best Practices for Messaging, 
Version 7.0 (Oct. 16, 2012) (online at: http://www.mmaglobal.com/files/
bestpractices.pdf).
---------------------------------------------------------------------------
    Industry guidelines also have required content providers to provide 
information and disclosures to consumers before completing the PSMS 
charge including the identity of the content provider, contact details 
for the content provider, a short description of the program, pricing, 
and terms under which consumers could opt out of the subscription, 
among other requirements.\50\
---------------------------------------------------------------------------
    \50\ Id.
---------------------------------------------------------------------------
    In addition, content providers must provide a confirmation message 
after affirmative consumer acceptance, including disclosures about the 
premium charge billed or deducted from the user's account.\51\
---------------------------------------------------------------------------
    \51\ Id.
---------------------------------------------------------------------------
    Following is an example of what the prescribed authorization 
process looks like from a consumer's perspective: a consumer would see 
an advertisement online, on television, or in-store, for downloading a 
song. The advertisement denotes the advertisement's sponsor, a 
description of the service or good being offered, its cost, the 
frequency of the service--which in this case was one song--information 
regarding customer support, opt-out information, and information 
regarding any additional carrier costs.
        FIGURE II: STEPS IN PRESCRIBED PSMS BILLING PROCESS \52\


    The advertisement would tell the consumer to send a text to the 
shortcode ``12345'' with the message ``music'' to buy the song list in 
the ad. The consumer would take this step, then receive a message 
confirming the content ordered, which would reiterate much of the 
information provided in the original advertisement, including program 
sponsor, price, frequency of product, how to ask for help with the 
product purchase, and any additional carrier costs. After confirming 
this content was accurate, the consumer was to authorize the purchase 
by sending an affirmative message, in this case ``Yes,'' to the 
``12345'' shortcode. The consumer would then receive a link to the 
product purchased.
---------------------------------------------------------------------------
    \52\ Graphic was provided to the Committee by the company Boku.
---------------------------------------------------------------------------
B. Voluntary Industry Oversight Over Third-Party Wireless Billing 
        Practices
    With respect to third-party billing via PSMS, the U.S. wireless 
industry developed industry-wide consumer protection standards. 
Industry-based member organizations created guidelines and 
recommendations for mobile marketers including parties involved in the 
marketing and sale of products consumers charge to the wireless phone 
bills through the PSMS system. Further, carriers developed their own 
individual policies for oversight of these charges. The following is a 
description of industry policies concerning the placement of third-
party charges on consumer wireless bills.
1. Industry-Wide Oversight
    The Mobile Marketing Association (MMA) and CTIA--The Wireless 
Association (CTIA) spearheaded a number of industry initiatives that 
were widely adopted throughout the industry for PSMS billing.\53\ MMA 
drafted the Global Code of Conduct and the U.S. Consumer Best Practices 
for Messaging to provide advertisers, aggregators, application 
providers, carriers, content providers, and publishers with guidelines 
for implementing shortcode programs.\54\ The guidelines provide 
detailed requirements for advertising and notice to consumers, along 
with the appropriate methods for authenticating consumer PSMS 
purchases.
---------------------------------------------------------------------------
    \53\ Mobile Marketing Association, Global Code of Conduct (July 15, 
2008); Mobile Marketing Association, U.S. Consumer Best Practices for 
Messaging, Version 7.0 (Oct. 16, 2012); and CTIA--The Wireless 
Association, Mobile Commerce Compliance Handbook, Version 1.0 (June 4, 
2012).
    \54\ Mobile Marketing Association, Global Code of Conduct at 1 
(July 15, 2008); Mobile Marketing Association, U.S. Consumer Best 
Practices for Messaging, Version 7.0 (Oct. 16, 2012). MMA defines 
``application provider'' as an organization that offers network based 
software solutions. Mobile Marketing Association, MMA Glossary--
Application Provider (2014) (online at http://mmaglobal.com/wiki/
application-provider). ``Publisher'' is defined as a company that 
provides WAP sites [a website that is specifically designed and 
formatted for display on a mobile device] and/or facilitates the 
delivery of advertising via one or more WAP sites; also, as a publisher 
of mobile content, such as games and personalization products. Mobile 
Marketing Association, MMA Glossary--Publisher (2014) (online at http:/
/mmaglobal.com/wiki/publisher).
---------------------------------------------------------------------------
    CTIA--in its Mobile Commerce Compliance Handbook--provides ``a 
unified standard of compliance for mobile carrier billing.'' The 
guidelines set forth principles for acceptable program content, opt-in 
procedures, and cancellation. Many of these are highlighted in the 
``Consumer Bill of Rights,'' which provide:

   Programs must use a two-factor authentication for all opt-
        ins.

   After opt-in, users should receive purchase confirmation of 
        their purchase, either on an additional screen or via a text 
        message.

   All offers must display clear, legible pricing information 
        adjacent to the call-to-action. Pricing information must appear 
        on all screens in the purchase flow.

   Billing frequency information should appear with pricing 
        information, and subscriptions should be labeled clearly as 
        such.

   Clear opt-out instructions must be provided before the 
        purchase is completed and before renewal billing each month.

   All offers must include customer care contact information in 
        the form of a toll-free phone number or an e-mail address. 
        Contact information should function and result in actual user 
        help.

   All offers must supply privacy policy access.

   Purchase flows should include clear descriptions of products 
        offered, and products marketed must match products delivered.

   Product descriptions on customers' wireless bills must 
        reflect accurately the product purchased. Descriptions should 
        include the billing shortcode and the program name.\55\
---------------------------------------------------------------------------
    \55\ CTIA--The Wireless Association, Consumer Bill of Rights (July 
1, 2013).

    CTIA in conjunction with an outside auditor would vet content 
providers that were seeking to lease shortcodes to market and charge 
products to consumers.\56\ Content providers that passed CTIA screening 
through the Common Short Code Administration could lease a shortcode 
from CTIA consistent with terms of a user agreement requiring 
compliance with industry best practices and standards, such as whether 
the vendor makes clear disclosures to the consumer about how to 
authorize purchases, or whether the consumer is signing up for a one-
shot versus a recurring charge.\57\
---------------------------------------------------------------------------
    \56\ CTIA has been screening all applicants for shortcodes by 
requiring basic identity and program information, such as the company 
name, corporate registration, and legal history. See Common Short Code 
Administration, About Short Codes Frequently Asked Questions--CTIA 
Vetting (online at http://www.usshortcodes.com/about-sms-short-codes/
sms-marketing-faqs.php#
.U8l0L6ggZss). CTIA has worked with Aegis Mobile and WMC Global to 
conduct the vetting process. See id.; Aegis Mobile, CTIA Vetting FAQ 
(online at http://www.aegismobile.com/resources/industry-documents/
ctia-vetting-faq/).
    \57\ Briefing by CTIA--The Wireless Association to Senate Commerce 
Committee Majority Staff (June 3, 2014); Mobile Marketing Association, 
U.S. Consumer Best Practices for Messaging, Version 7.0 at 23-24 (Oct. 
16, 2012); CTIA--The Wireless Association, Mobile Commerce Compliance 
Handbook, Version 1.0 at 3-4 (June 4, 2012). CTIA also included the 
same provisions in its updated Handbook. See CTIA--The Wireless 
Association, Mobile Commerce Compliance Handbook, Version 1.2 at 5, 7 
(Aug.1, 2013).
---------------------------------------------------------------------------
    Content providers that are permitted to charge consumers via the 
PSMS system have been subject to ongoing CTIA monitoring for compliance 
with industry standards surrounding program content, as well as opt-in 
and cancellation procedures.\58\ In 2010, CTIA began providing carriers 
and billing aggregators access to an online portal that provided the 
results of these reviews--or audits--in reports that detailed why and 
how guidelines were violated and that assigned a severity level to each 
failure. Under this system, each carrier has been responsible for 
determining what follow-up they would conduct with the violating 
vendor.\59\ In addition, carriers receive e-mail notification of new 
audit findings \60\ and weekly reports aggregating the audit failures 
across the mobile content market.\61\ These weekly reports have been 
compiled into monthly reports to the carriers, which also identify the 
PSMS billing aggregators that hosted content with the most 
failures.\62\
---------------------------------------------------------------------------
    \58\ See CTIA--The Wireless Association Launches Common Short Codes 
Media Monitoring Process, Business Wire (June 15, 2009) (online at 
http://www.businesswire.com/news/home/20090615005802/en/
CTIA%E2%80%93The-Wireless-Association-Launches-Common-Short-Codes
#.U8VyB6ggZss); WMC Global, Frequently Asked Questions (online at 
http://www
.wmcglobal.com/faq.html); CTIA, CTIA In-Market Monitoring Portal User 
Guide (online at http://www.wmcglobal.com/assets/
ctia_imm_portal_user_guide.pdf); Briefing by CTIA--The Wireless 
Association to Senate Commerce Committee Majority Staff (June 3, 2014).
    \59\ Briefing by CTIA--The Wireless Association to Senate Commerce 
Committee Majority Staff (June 3, 2014); CTIA--The Wireless 
Association, Mobile Commerce Compliance Handbook, Version 1.0, at 6-7 
(June 4, 2012).
    \60\ Id.
    \61\ Briefing by CTIA--The Wireless Association to Senate Commerce 
Committee Majority Staff (June 3, 2014).
    \62\ See, e.g., WMC Global for CTIA--The Wireless Association, In-
Market Monitoring Update January 2011, at 6 (Jan. 2011).
---------------------------------------------------------------------------
2. Individual Carrier Policies
    In responses to Committee inquiries, the four major carriers all 
reported that they comply with CTIA and MMA guidelines for third-party 
wireless billing, \63\ and contractually require the same from their 
billing aggregators and vendors.\64\ All carriers also highlighted 
several key components of their oversight policies:
---------------------------------------------------------------------------
    \63\ Letter from Executive Vice President, Federal Relations, AT&T, 
to Chairman John D. Rockefeller IV, at 4 (July 11, 2012); Letter from 
General Counsel, Verizon Wireless, to Chairman John D. Rockefeller IV, 
at 6 (July 11, 2012); Letter from Vice President--Government Affairs, 
Sprint Nextel, to Chairman John D. Rockefeller IV, at 2 (July 11, 
2012); Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 6 (July 11, 2012).
    \64\ See, e.g., Sample Advanced Messaging Agreement for Marketing 
Messaging Hubs provided by mBlox to the Senate Commerce Committee 
(stating ``At a minimum, programs shall be run in a manner that is 
congruous with the letter and spirit of the MMA Code of Conduct for 
Mobile Marketing'') (000360).

   Vetting of third-party vendors and their services beyond the 
        CTIA vetting process; \65\
---------------------------------------------------------------------------
    \65\ Letter from Assistant General Counsel, Verizon Wireless, to 
Senate Commerce Committee Majority Counsel, at 1-5 (July 12, 2013); 
Letter from Vice President--Government Affairs, Sprint Nextel, to 
Chairman John D. Rockefeller IV, at 3 (Mar. 22, 2013); Letter from 
Executive Vice President, Federal Relations, AT&T, to Chairman John D. 
Rockefeller IV, at 4-5 (July 11, 2012); Letter from Vice President, 
Federal Legislative Affairs, T-Mobile USA, to Chairman John D. 
Rockefeller IV, at 3 (July 11, 2012).

   The two-step authentication process known as the ``double-
        opt-in'' required for consumer approval of third-party services 
        charged on wireless bills \66\ (see discussion above in part 
        III.A);
---------------------------------------------------------------------------
    \66\ Letter from Executive Vice President, Federal Relations, AT&T, 
to Chairman John D. Rockefeller IV, at 5 (July 11, 2012); Letter from 
General Counsel, Verizon Wireless, to Chairman John D. Rockefeller IV, 
Attachment A, at 6 (July 11, 2012); Letter from Vice President--
Government Affairs, Sprint Nextel, to Chairman John D. Rockefeller IV, 
at 7 (July 11, 2012); Letter from Vice President, Federal Legislative 
Affairs, T-Mobile USA, to Chairman John D. Rockefeller IV, at 5 (July 
11, 2012).

   Monitoring of third-party vendor opt-in and opt-out 
        functionality as well as how they market to consumers; \67\
---------------------------------------------------------------------------
    \67\ One carrier stated that such audits are done ``randomly'' 
(Letter from Vice President--Government Affairs, Sprint Nextel, to 
Chairman John D. Rockefeller IV, at 8 (June 28, 2013)); while another 
stated they are done on at least a monthly basis (Letter from Assistant 
General Counsel, Verizon Wireless, to Senate Commerce Committee 
Majority Counsel, at 5-6 (July 12, 2013)).

   Monitoring of third-party vendors through consumer complaint 
        and refund thresholds; \68\ and
---------------------------------------------------------------------------
    \68\ Letter from Vice President--Government Affairs, Sprint Nextel, 
to Chairman John D. Rockefeller IV, at 5-6 (June 28, 2013); Letter from 
Vice President, Federal Legislative Affairs, T-Mobile USA, to Chairman 
John D. Rockefeller IV, at 4-5 (June 28, 2013); Letter from Executive 
Vice President, Federal Relations, AT&T, to Chairman John D. 
Rockefeller IV, at 4-5 (July 2, 2013); Letter from Assistant General 
Counsel, Verizon Wireless, to Senate Commerce Committee Majority 
Counsel, at 8 (July 12, 2013).

   Offering consumers the option to block third-party purchases 
        that, when implemented, restrict the purchase of any third-
        party content billed to a customers' mobile device.\69\
---------------------------------------------------------------------------
    \69\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 6 (July 11, 2012); 
Letter from Vice President--Government Affairs, Sprint Nextel, to 
Chairman John D. Rockefeller IV, at 4 (June 28, 2013); Letter from 
Executive Vice President, Federal Relations, AT&T, to Chairman John D. 
Rockefeller IV, at 7 (July 2, 2013); Letter from Assistant General 
Counsel, Verizon Wireless, to Senate Commerce Committee Majority 
Counsel, at 1 (July 12, 2013). Consumers are often made aware of these 
options at the time of purchase of a wireless plan, during customer 
service calls regarding the appearance of unauthorized charges on a 
bill, and on the carriers' websites.

    Three of the four carriers said they also have used ``first call'' 
resolution of consumer cramming complaints, in which the consumer is 
generally refunded their money on the first complaint call.\70\
---------------------------------------------------------------------------
    \70\ Letter from Vice President--Government Affairs, Sprint Nextel, 
to Chairman John D. Rockefeller IV, at 4 (June 28, 2013); Letter from 
Assistant General Counsel, Verizon Wireless, to Senate Commerce 
Committee Majority Counsel, at 6 (July 12, 2013); Update from AT&T, to 
Chairman John D. Rockefeller IV, at 2 (Mar. 11, 2013).
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IV. Committee Findings on PSMS Third-party Wireless Cramming
    Similar to telecom industry assurances about self-regulation of 
landline billing, from the outset of the Committee's review of cramming 
on wireless bills, the four major wireless carriers--AT&T, T-Mobile, 
Verizon, and Sprint--told the Committee that their procedures and 
practices effectively insulate consumers from cramming on charges 
incurred through the PSMS system. In July 2012 letters to the 
Committee, carriers characterized this voluntary system as a ``robust 
process designed to protect customers from unscrupulous actors,'' \71\ 
asserting that it provides consumers ``simplicity and security,'' \72\ 
that the outcome has been a ``consistent, secure, and reliable 
experience'' for the consumer,\73\ and that carriers have ``every 
incentive to avoid losing a customer due to unauthorized third-party 
charges.'' \74\ In July 2013 letters to the Chairman, all four carriers 
asserted that they had only strengthened their anti-cramming 
practices.\75\
---------------------------------------------------------------------------
    \71\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 3 (July 11, 2012).
    \72\ Letter from Executive Vice President, Federal Relations, AT&T, 
to Chairman John D. Rockefeller IV, at 1 (July 11, 2012).
    \73\ Letter from Vice President--Government Affairs, Sprint Nextel, 
to Chairman John D. Rockefeller IV, at 2 (July, 11 2012).
    \74\ Letter from General Counsel, Verizon Wireless, to Chairman 
John D. Rockefeller IV, at 1 (July 11, 2012).
    \75\ Letter from Assistant General Counsel, Verizon Wireless, to 
Senate Commerce Committee Majority Counsel, at 10-12 (July 12, 2013); 
Letter from Vice President--Government Affairs, Sprint Nextel, to 
Chairman John D. Rockefeller IV, at 6-8 (June 28, 2013); Letter from 
Vice President, Federal Legislative Affairs, T-Mobile USA, to Chairman 
John D. Rockefeller IV, at 6-7 (June 28, 2013); and Letter from 
Executive Vice President, Federal Relations, AT&T, to Chairman John D. 
Rockefeller IV, at 7-11 (July 2, 2013).
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    Over this same time period, major industry associations echoed 
these assurances.\76\ In June 2012 comments to the Federal 
Communications Commission, CTIA-The Wireless Association said that 
``the wireless industry is already successfully engaged in voluntary 
initiatives to prevent cramming,'' calling unauthorized third-party 
wireless billing a ``de minimis'' problem.\77\ Similarly, the Mobile 
Marketing Association asserted in May 2013 that the CTIA and MMA rules 
``are very effective.'' \78\
---------------------------------------------------------------------------
    \76\ See, e.g., Comments of CTIA--The Wireless Association, Federal 
Communications Commission, CC Docket No. 98-170 (June 25, 2012); 
Commentary of Mike Altschul, General Counsel, CTIA--The Wireless 
Association, Federal Trade Commission, Mobile Cramming, An FTC 
Roundtable (May 8, 2013).
    \77\ Comments of CTIA--The Wireless Association, Federal 
Communications Commission, CC Docket No. 98-170, at 1-2 (June 25, 
2012).
    \78\ Commentary of Cara Frey, General Counsel, Mobile Marketing 
Association, Federal Trade Commission, Mobile Cramming, An FTC 
Roundtable (May 8, 2013).
---------------------------------------------------------------------------
    However, documents and other information the Committee obtained and 
reviewed over the course of its inquiry indicate that--just as with 
landline cramming--industry has gained substantial profits from third-
party wireless billing while providing consumers inadequate protections 
against deceptive and fraudulent charges on their wireless bills. This 
section details the findings of the Committee majority staff.
A. Carriers Have Profited Tremendously from Third-Party Wireless 
        Billing
    It has been estimated that third-party wireless billing activities 
likely constitute a multi-billion dollar industry.\79\ The evidence 
reviewed by the Committee staff for a sample time frame between 2011 
and 2013 supports that analysis.
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    \79\ Commentary of Jim Greenwell, Chief Executive Officer and 
President, BilltoMobile, Federal Trade Commission, Mobile Cramming, An 
FTC Roundtable (May 8, 2013) (estimating the volume of such billing to 
be between $2 to $3 billion).
---------------------------------------------------------------------------
    For example, one carrier reported that nearly $250 million worth of 
PSMS charges were charged to its customers' accounts in 2011 alone, 
while another reported over $375 million in total charges for the same 
year.\80\ In addition, information provided by billing aggregators to 
the Committee shows that the combined revenues of content providers 
that had relationships with four top aggregators over 2011-2013 totaled 
over $1.2 billion.\81\ This amount--while substantial--does not reflect 
the entirety of the third-party wireless billing market, as multiple 
other aggregators were operating in the PSMS market during this time 
period,\82\ and other non-PSMS third-party billing mechanisms were 
emerging as well.\83\
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    \80\ Letters from Carrier Representatives to Chairman John D. 
Rockefeller IV (July 2012).
    \81\ Four out of five aggregators provided revenues of content 
providers to the Committee. Letter from Head of Corporate Affairs and 
Communications, Ericsson Inc., to Chairman John D. Rockefeller IV (Apr. 
19, 2013); Letter from Chief Administrative Officer and General 
Counsel, Motricity, Inc., to Chairman John D. Rockefeller IV (May 25, 
2013); Letter from Attorney, Mobile Messenger, to Chairman John D. 
Rockefeller IV (Apr. 21, 2014); mBlox Response to Chairman John D. 
Rockefeller IV (Apr. 21, 2014).
    \82\ Response letters from carriers listed many aggregators. Letter 
from Executive Vice President, Federal Relations, AT&T, to Chairman 
John D. Rockefeller IV, at 3 (July 11, 2012); Letter from General 
Counsel, Verizon Wireless, to Chairman John D. Rockefeller IV, at 
Attachment A (July 11, 2012); Letter from Vice President--Government 
Affairs, Sprint Nextel, to Chairman John D. Rockefeller IV, at 4 (July 
11, 2012); Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 1 (July 11, 2012).
    \83\ See, e.g., Commentaries of Jim Greenwell, Chief Executive 
Officer and President, BilltoMobile, and Martine Niejadlik, Compliance 
Officer and Vice President of Customer Support, Boku, Federal Trade 
Commission, Mobile Cramming, An FTC Roundtable (May 8, 2013).
---------------------------------------------------------------------------
    Further, information provided by the California Public Utility 
Commission (CPUC) shows that in 2012, over $191 million worth of third-
party charges were placed on consumers' wireless bills in California 
alone--and California has been estimated to constitute about 10 percent 
of the wireless market in the United States. Extrapolating and applying 
the California data across all 50 states, over a span of years, it is 
likely these numbers would climb into the billions.\84\
---------------------------------------------------------------------------
    \84\ Comments of California Public Utilities Commission, Federal 
Communications Commission, CC Docket No. 98-170, at 20 (Nov. 18, 2013).
---------------------------------------------------------------------------
    Information provided to the Committee by individual carriers 
indicates that major carriers reaped hundreds of millions of dollars 
annually from their role in placing third-party charges on wireless 
phone bills. Contracts reviewed by the Committee show that the carriers 
generally collected 30 percent to 40 percent of the total value of the 
charges placed.\85\ Individual charges are generally small--most often 
ranging from $1 to $20, with frequent reports of a $9.99 recurring 
monthly charge. However, the high volume of these charges yields 
substantial cumulative revenues. For example, one carrier reported 
processing over 120 million individual third-party transactions on 
consumer wireless bills in 2011.
---------------------------------------------------------------------------
    \85\ Committee staff reviewed a number of contracts between billing 
aggregators and wireless carriers that outlined the payment 
arrangements.
---------------------------------------------------------------------------
    In addition to the carriers' revenue shares, contracts reviewed by 
Committee staff show that certain carriers have collected additional 
fees that could also add to their profits. For example, one carrier 
also collected ``Excessive Premium Campaign Refund Rate Fees.'' These 
additional fees allow the carrier to charge $10.00 per customer care 
call once a content provider's refund rate exceeded 15 percent per 
month.\86\ Another carrier has imposed fees ranging from $25,000 to 
$100,000 where providers experience billing issues which include high 
levels of refunds.\87\
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    \86\ Sample aggregator contract provided to the Senate Commerce 
Committee (000179).
    \87\ Sample aggregator contract provided to the Senate Commerce 
Committee (000066-000067).
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B. Wireless Cramming has Likely Cost Consumers Hundreds of Millions of 
        Dollars
    The evidence reviewed by Committee staff indicates that wireless 
cramming has likely cost consumers hundreds of millions dollars over 
the past several years. This assessment is based on a review of data 
regarding refund rates, consumer complaint information provided by 
carriers and billing aggregators regarding unauthorized third-party 
charges, and a number of studies and law enforcement actions that have 
quantified the extent of wireless cramming.

1. Refund Rates

    Beginning in 2011, the California Public Utilities Commission 
(CPUC) required wireless carriers to provide data about refunds made 
directly to consumers. Numbers provided by CPUC show that between 2011 
and 2013, carriers returned over $60 million in refunds to customers 
out of $495 million in total third-party wireless charges, just with 
respect to California wireless consumers.\88\ While industry argues 
that refund rates are a ``flawed metric'' because refunds can be made 
for reasons other than cramming,\89\ CPUC explained its rationale for 
using this measure as follows:
---------------------------------------------------------------------------
    \88\ Between 2011 and 2013, carriers reported refunding $60,037,906 
out of $495,134,687 in total wireless charges, including $25,095,834 in 
2011, $23,250,885 in 2012, and $11,691,187 in 2013, with total billed, 
including $173,644,442 in 2011, $191,302,355 in 2012, and $130,187,888 
in 2013. Comments of California Public Utilities Commission, Federal 
Communications Commission, CC Docket No. 98-170 (Nov. 18, 2013) and e-
mail from CPUC Representatives to Senate Commerce Committee Majority 
Counsel (Apr. 23, 2014).
    \89\ See Reply Comments of CTIA--The Wireless Association, Federal 
Communications Commission, CC Docket No. 98-170, at 5 (Dec. 16, 2013) 
(arguing that ``refund amounts and refund rates are flawed metrics for 
assessing instances of unauthorized charges on wireless bills. Carriers 
have consumer-friendly refund policies that cover a variety of 
situations and transactions--much more than just unauthorized third-
party charges.'').

        [W]e use refunds as a proxy for complaints because when we had 
        complaint reporting, we would end up in endless semantic 
        digressions around the meaning of the word complaint. So refund 
        is something a little more tangible and we assume that in most 
        cases refunds are not made out of the blue but in relation to 
        some expression of dissatisfaction by the customer.\90\
---------------------------------------------------------------------------
    \90\ Commentary of Chris Witteman, Senior Staff Counsel, California 
Public Utilities Commission, Federal Trade Commission, Mobile Cramming, 
An FTC Roundtable (May 8, 2013).

CPUC also notes that this approach addresses concerns carriers have 
expressed that ``tallying subscriber complaints of unauthorized charges 
would be excessively burdensome.'' \91\
---------------------------------------------------------------------------
    \91\ Letter from Consumer Affairs Branch, California Public 
Utilities Commission, to Senate Commerce Committee Majority Counsel 
(Jan. 31, 2013).
---------------------------------------------------------------------------
    As noted earlier, the CPUC numbers concern activity on wireless 
accounts solely in California, which reflects approximately 10 percent 
of the total U.S. wireless market.\92\ If the rate of refunds and total 
charges billed reported to the CPUC were applied nationwide, the total 
refunds would likely have been well over $200 million out of $1.9 
billion in 2012 alone. Even assuming that a portion of the refunds 
reported to the CPUC are not related to cramming, these numbers provide 
substantial evidence that cramming on wireless bills has been a serious 
problem.
---------------------------------------------------------------------------
    \92\ Calculation of this percentage was based on the total number 
of wireless subscriber connections in California (34 million), and the 
United States (326.4 million) in 2012, as reported by CPUC and CTIA 
respectively. California Public Utilities Commission, 2012 Annual 
Report (Feb. 1, 2013); CTIA--The Wireless Association, Wireless Quick 
Facts (last updated June 2014) (online at http://www.ctia.org/your-
wireless-life/how-wireless-works/annual-wireless-industry-survey). 
Committee staff was unable to compare California and national wireless 
subscriber numbers for 2013, as CPUC's 2013 Annual Report did not 
include the number of wireless subscriber connections in California.
---------------------------------------------------------------------------
    Industry argues that numbers of refunds is not an accurate tool to 
assess the incidence of cramming due to the carriers very liberal 
refund policies. However, one carrier was able to provide a rough 
breakdown of refunds specifically attributable to complaints that 
charges were unauthorized--a category they titled ``Authorization of 
Charge Disputed''--and the results are still high. This carrier 
reported that 28.1 percent of total refunds issued in 2012 constituted 
the ``Authorization of Charge Disputed'' category.\93\ If this 
percentage were applied to the $200 million figure estimated above to 
reflect total nationwide wireless refunds for 2012, refunds 
attributable to cramming for that year would top $50 million nationwide 
in one year alone. Based on this analysis, over time, wireless cramming 
has likely cost American consumers hundreds of millions of dollars.
---------------------------------------------------------------------------
    \93\ Letter from T-Mobile USA, to Chairman John D. Rockefeller IV, 
at 5 (June 28, 2013).

---------------------------------------------------------------------------
2. Consumer Complaint Data

    Consumers also reported on wireless cramming via complaints to 
Federal and state law enforcement as well as to carriers and billing 
aggregators. One billing aggregator reported receiving over 7,000 
contacts from consumers in 2012 alone, over 30 percent of which 
involved requests for refunds.\94\ A FTC review of complaints from the 
Consumer Sentinel database, one of the major national resources for 
compiling local, state, and Federal consumer complaints, showed over 
2,000 complaints of unauthorized charges on wireless bills between 2010 
and 2013.\95\
---------------------------------------------------------------------------
    \94\ mBlox Response to Senate Commerce Committee (Mar. 25, 2014) 
(chart titled ``U.S. Cases (Jan-1-2012-March-31-2013)'').
    \95\ Federal Trade Commission, Consumer Sentinel Network Data Book 
for January--December 2012, at 84 (Feb. 2013) (showing 784 complaints 
for mobile unauthorized charges in 2010); Federal Trade Commission, 
Consumer Sentinel Network Data Book for January-December 2013, at 84 
(Feb. 2014) (showing complaints for mobile unauthorized charges was 626 
in 2011, 714 in 2012, and 363 in 2013).
---------------------------------------------------------------------------
    In addition, in a 2013 survey conducted by the Office of the 
Attorney General of Vermont, 60 percent of respondents reported that 
the third-party charges found on their wireless telephone bills were 
unauthorized.\96\
---------------------------------------------------------------------------
    \96\ Center for Rural Studies at the University of Vermont, Mobile 
Phone Third-Party Charge Authorization Study (May 5, 2013). Following 
the release of survey results, CTIA engaged an expert to conduct an 
analysis of the Vermont Study. The analysis highlighted concerns with 
the methodology used for the study. The analysis was submitted to the 
Federal Trade Commission by CTIA on June 24, 2013.
---------------------------------------------------------------------------
    Industry representatives have argued that complaint numbers were 
low and that the incidence of cramming on wireless bills was 
insignificant.\97\ However, consumer complaint tallies likely reflect 
numbers far lower than actual cramming occurrences. Evidence shows that 
consumers are frequently unaware that third-party charges are appearing 
on their telephone bills. FTC Commissioner Maureen Ohlhausen elaborated 
on this point as follows:
---------------------------------------------------------------------------
    \97\ See, e.g., Federal Communications Commission, CC Docket No. 
98-170, Comments filed by AT&T, Inc. (July 20, 2012), (Dec. 16, 2013); 
T-Mobile USA Reply Comments (July 20, 2012); and Verizon Wireless (June 
25, 2012).

        Indeed, we are aware of thousands of consumer complaints about 
        unauthorized charges on wireless bills. And we believe that 
        these complaints may well under represent the problem or under 
        report the problem. From surveys done in the landline cramming 
        context, we know that many consumers are unaware that third 
        parties can place charges on their phone bills. We also know 
        that consumers often fail to spot unauthorized charges on their 
        bills. They may simply look at the overall bill amount and pay 
        in full without doing a line-by-line review; or they may read 
        the bill and fail to spot the charges because they're buried 
        deeply within the bill or listed in generic sounding 
        categories, such as premium services.\98\
---------------------------------------------------------------------------
    \98\ Opening Remarks by Commissioner Maureen Ohlhausen, Federal 
Trade Commission, Mobile Cramming, An FTC Roundtable (May 8, 2013).

    Committee staff review of consumer complaints substantiates this 
viewpoint. Individual consumers often reported only finding the charges 
after paying them for extensive periods of time. For example, one 
consumer complained, ``I was billed for 18 months for $9.99 ($10.76 
after taxes) for something I had no clue about and up till [sic] today 
when I reviewed my bill I noticed these charges.'' Another consumer 
reported, ``Having automatically paid my bills for one year, I 
unfortunately just learned I was paying for unsolicited text messages 
for over a year.'' \99\
---------------------------------------------------------------------------
    \99\ Sprint Nextel Response to Chairman John D. Rockefeller IV 
(Mar. 22, 2013).
---------------------------------------------------------------------------
    Indeed, the complaint filed by the FTC against T-Mobile alleges 
that the bill statements received by customers did not adequately 
disclose PSMS charges.\100\ Customers reviewing their bill online 
allegedly could not see these charges by viewing a summary of the 
charges; only by clicking a series of links could they find premium 
service charges.\101\ Figure III below is a graphic from the FTC 
complaint in this case illustrating how the charges allegedly were 
shown on the consumers' paper statements.
---------------------------------------------------------------------------
    \100\ Complaint for Permanent Injunction and Other Equitable 
Relief, Federal Trade Commission v. T-Mobile USA, Inc., W.D. Wa., at 4-
9 (No. 2:14-cv-00967) (July 1, 2014).
    \101\ Id. at 5-6.
---------------------------------------------------------------------------
                FIGURE III: T-MOBILE BILL SUMMARY \102\


    Premium charges were not individually listed in the summary section 
of the bill. Though they were itemized in a ``Premium Services'' 
section several pages into the bill, the information was presented in a 
way that did not adequately explain that the charge was for a recurring 
subscription service authorized by the consumer.\103\ If these 
allegations are true, it is entirely possible that many consumers over 
a number of years had paid for third-party charges they did not 
authorize.
---------------------------------------------------------------------------
    \102\ Id. T-Mobile recently represented to Committee majority staff 
that the company has changed the way these charges are depicted in 
their wireless bills. Briefing by T-Mobile USA to Senate Commerce 
Majority Staff (July 17, 2014).
    \103\ FTC v. T-Mobile, supra note 100, at 6-9.

---------------------------------------------------------------------------
3. State and Federal Actions

    The charges detailed in numerous state and Federal law enforcement 
actions also underscore the broad consumer impact of wireless cramming. 
These cases have charged that consumers have been victims of cramming 
schemes costing them hundreds of millions of dollars. For example:

   In 2011, the Attorney General of Texas filed a lawsuit 
        against Eye Level Holdings, LLC, alleging that the defendants 
        collected millions of dollars through the placement of 
        unauthorized charges on the wireless telephone bills of 
        thousands of Texas residents.\104\
---------------------------------------------------------------------------
    \104\ Plaintiff's Original Verified Petition and Application for Ex 
Parte Temporary Restraining Order, Temporary Injunction, and Permanent 
Injunction, Texas v. Eye Level Holdings, LLC, et al., Tex. D. Ct., 
Travis County (No. 1:11-cv-00178) (Mar. 11, 2011).

   In 2013, Wise Media and its owners agreed to settle FTC 
        allegations that they caused more than $10 million in consumer 
        harm by placing unauthorized recurring $9.99 monthly fees on 
        consumers' wireless bills.\105\
---------------------------------------------------------------------------
    \105\ Press Release, Mobile Crammers Settle FTC Charges of 
Unauthorized Billing, Federal Trade Commission (Nov. 21, 2013) (online 
at http://www.ftc.gov/news-events/press-releases/2013/11/mobile-
crammers-settle-ftc-charges-unauthorized-billing).

   In June 2014, a district court issued a stipulated order for 
        a monetary judgment totaling over $150 million in a case 
        brought by FTC alleging defendants used deceptive websites to 
        cram consumer's wireless bills.\106\
---------------------------------------------------------------------------
    \106\ Press Release, Operators of Massive Mobile Cramming Scheme 
Will Surrender More than $10 M in Assets in FTC Settlement, Federal 
Trade Commission (June 13, 2014) (online at: http://www.ftc.gov/news-
events/press-releases/2014/06/operators-massive-mobile-cramming-scheme-
will-surrender-more-10m). The judgment was partially suspended based on 
defendants' inability to pay the full amount.

   In July 2014, the FTC charged T-Mobile with placing third-
        party charges on consumers' wireless bills despite clear 
        warnings that the charges were unauthorized, and engaging in 
        billing practices that made it difficult for consumers' to 
        discern fraudulent charges, alleging that these practices cost 
        consumer millions of dollars in injury.\107\
---------------------------------------------------------------------------
    \107\ Complaint for Permanent Injunction and Other Equitable 
Relief, Federal Trade Commission v. T-Mobile USA, Inc., W.D. Wa. (No. 
2:14-cv-00967) (July 1, 2014).

    Indeed, review of 2011-2013 data provided to the Committee by major 
billing aggregators regarding revenue generated by content provider 
clients shows that many of the top revenue generators in this time 
frame were ultimately the subject of state or Federal enforcement 
actions. According to this data, the subjects of enforcement actions 
generated approximately 23.5 percent of total revenue reported to the 
Committee for this time period--$289,037,831 of $1.2 billion.\108\
---------------------------------------------------------------------------
    \108\ Defendants named in state and Federal enforcement action 
include: Jesta Digital, Bullroarer, Mobile Media Products, Bune, Wise 
Media, Tatto, Eye Level Holdings, Anacapa Media LLC, Tendenci Media, 
Bear Communications LLC, MDK Media, Mundo Media, SE Ventures, GMK 
Communications, MindKontrol Industries LLC, and Network One Commerce 
Inc. Federal Trade Commission v. Jesta Digital, LLC, also d/b/a 
JAMSTER, D.D.C. (No. 1:13-CV-01272) (Aug. 20, 2013); Federal Trade 
Commission v. Tatto, et al., C.D. Cal (No. 2:13-cv13-8912-DSF-FFM) 
(Dec. 5, 2013); Federal Trade Commission v. Wise Media, LLC, et al., 
N.D. Ga. (No. 1:13cv1234) (Apr. 16, 2013); Texas v. Eye Level Holdings, 
LLC, et al., Tex. D. Ct., Travis County (No. 1:11-cv-00178) (Mar. 11, 
2011); Texas v. Mobile Messenger U.S. Inc., et al, Tex. D. Ct., Travis 
County (Nov. 6, 2013); Federal Trade Commission v. MDK Media, Inc., et 
al., C.D. Cal (No. 2:14-cv-05099-JFW-SH) (July 3, 2014).
---------------------------------------------------------------------------
    In short, the cumulative evidence revealed by enforcement actions, 
consumer complaints, refund rates, and studies, indicates that hundreds 
of millions of dollars in crammed charges have been placed on 
consumers' wireless bills over the past several years.
C. Carriers Were on Notice about Cramming and Other Vendor Problems
    Carriers should have known at least as early as 2008 that consumers 
were complaining of cramming on their wireless bills. Beginning in 
2008, the Florida Attorney General entered into enforcement settlements 
with Cingular (AT&T), Verizon, Sprint, and T-Mobile over allegations 
that unauthorized charges had been placed on their consumers' 
bills.\109\ These settlements created a ``best practices'' regime 
intended to ensure that consumers were receiving clear and conspicuous 
prices and terms of the content being purchased before such charges 
could be placed on a consumer's wireless bill.\110\
---------------------------------------------------------------------------
    \109\ AT&T Settles with Florida AG Over Mobile Content Ads, Mobile 
Marketer (Mar. 3, 2008); T-Mobile $600k Settlement with Florida AG 
Affects All Mobile Content Marketing, Mobile Marketer (July 22, 2010); 
Sprint Settles Cell Phone Cramming Charges in Florida, Consumer Affairs 
(Oct. 8, 2010).
    \110\ See, e.g., Verizon Settlement with Florida AG Affects All 
Marketing of Mobile Content, Mobile Marketer (June 29, 2009); In the 
Matter of Verizon Wireless LLC and Alltel Communications, LLC, 
Assurance of Voluntary Compliance at 5-13 (June 16, 2009). 
Specifically, the settlements resulting from the Florida actions 
require that certain provisions be included in the contracts between 
the carriers and any companies that ``advertise, aggregate billing for, 
offer and/or sell mobile content.'' These include: (1) a prohibition on 
using words like ``free,'' ``complimentary,'' ``without charge'' or 
other similar terms without clear and conspicuous disclosure that the 
consumer will have to pay for a subscription in order to receive the 
content; (2) specifications for font size and color on all consumer 
disclosures for web-based advertising for mobile content; and (3) 
certain price and billing disclosures must be made ``above the fold'' 
on the mobile ``submit'' and ``PIN submit'' pages. In addition to these 
best practices, the settlements also required the carriers to establish 
monetary compensation programs for consumers who had experienced 
unauthorized third-party billing charges. Id. at 4-10, 13-14.
---------------------------------------------------------------------------
    According to CTIA, shortly after the last settlement was signed in 
October 2010,\111\ this best practice regime was incorporated into the 
mobile billing standards against which the industry audited vendors for 
compliance.\112\ The CTIA audit reports that followed indicated that, 
three years after the Florida enforcement cases sounded the alarm about 
wireless cramming, the overwhelming majority of vendors allowed to 
charge consumers on wireless billing platforms were not meeting basic 
standards.
---------------------------------------------------------------------------
    \111\ Briefing by CTIA--The Wireless Association to Senate Commerce 
Committee Majority Staff (June 3, 2014).
    \112\ See Part III.B.1, supra.
---------------------------------------------------------------------------
    For example, with respect to the monthly reports CTIA provided 
carriers summarizing in-market auditing, the January 2011 report showed 
a failure rate of nearly 100 percent for marketing offers tested--or 
``intercepted''--by the auditors.\113\ Virtually all of the failures 
\114\ were for violations classified by CTIA as ``severity level one,'' 
meaning ``serious consumer harm.'' \115\ While monthly industry audit 
reports after January 2011 showed declining numbers of compliance 
failures, it was not until September 2011 that more interceptions were 
reported to have passed than failed.\116\ And in January 2012, audits 
still showed a 25 percent failure rate.\117\ After August 2012, the 
reports indicated passage rates of 95 percent or higher, meaning that 
95 percent of offers tested complied with CTIA guidelines.\118\
---------------------------------------------------------------------------
    \113\ WMC Global for CTIA--The Wireless Association, In-Market 
Monitoring Update January 2011, at 2 (Jan. 2011). According to the 
report, 18,304 offers were tested. Id. at 3. A copy of this report is 
attached as Exhibit A. In May 2011, the monthly in-market auditing 
reports began including specific breakdowns of premium messaging 
testing results and standard rate testing results, but the January 2011 
report does not provide that breakdown. CTIA has represented to the 
Committee that the PSMS testing in January 2011 had a failure rate of 
97 percent.
    \114\ The January 2011 In-Market Monitoring Update showed that 
99.57 percent of interceptions failed at severity level 1. Id. at 3.
    \115\ CTIA--The Wireless Association, Mobile Commerce Compliance 
Handbook, Version 1.0, at 6 (June 4, 2012). For example, the most 
common of the January 2011 violations concerned the ``no account holder 
authorization disclosure'' requirement concerning how to disclose that 
the account holder must authorize purchases. In-Market Monitoring 
Update January 2011, at 2 (Jan. 2011); CTIA--The Wireless Association, 
Mobile Commerce Compliance Handbook, Version 1.0 at 8 (June 4, 2012) 
(describing standards).
    \116\ According to the September 2011 report, 49 percent of the 
interceptions failed while 51 percent passed. WMC Global for CTIA--The 
Wireless Association, In-Market Monitoring Update September 2011, at 3 
(Sept. 2011).
    \117\ WMC Global for CTIA--The Wireless Association, In-Market 
Monitoring Update January 2012, at 3 (Jan. 2012).
    \118\ See, e.g., WMC Global for CTIA--The Wireless Association, In-
Market Monitoring Update September 2012, at 3 (Sept. 2012) (showing 96 
percent of interceptions passed); WMC Global for CTIA--The Wireless 
Association, In-Market Monitoring Update October 2012, at 3 (Oct. 2012) 
(showing 97 percent of interceptions passed), WMC Global for CTIA--The 
Wireless Association, In-Market Monitoring Update December 2012, at 3 
(Dec. 2012) (showing 98 percent of interceptions passed). Copies of 
relevant portions of the January 2012 and December 2012 reports are 
attached at Exhibit A.
---------------------------------------------------------------------------
D. Industry Self-Regulation Has Left Gaps In Consumer Protection
1. The Double Opt-In Safeguard Was Porous

    Many of the voluntary policies and practices industry instituted to 
protect against cramming in the PSMS system are similar to those 
industry touted in the landline context.\119\ However, as with law 
enforcement actions in the 2000s involving landline cramming,\120\ a 
series of recent state and Federal law enforcement cases concerning 
wireless cramming have highlighted potential vulnerabilities with 
industry's voluntary consumer protection system. In particular, recent 
actions raise concerns regarding the effectiveness of the double opt-in 
authorization.
---------------------------------------------------------------------------
    \119\ For example, similar to the policies described above, for 
third-party billing on landline phones, phone companies instituted 
policies providing for screening of vendors, the option for consumers 
to block third-party billing, and customer complaint thresholds that 
trigger corrective action. For a detailed discussion of industry self-
regulation initiatives to address cramming on wireline phone bills see 
Senate Committee on Commerce, Science, and Transportation, Staff Report 
on Unauthorized Third-Party Charges on Telephone Bills, at 30-33 (July 
12, 2011).
    \120\ Id. at 4-5.
---------------------------------------------------------------------------
    As discussed above, industry representatives have argued that a key 
protection against wireless cramming that was not present in the 
landline context is the ``double opt-in'' requirement,\121\ as it 
involves affirmative steps by the consumer that are ``immediate,'' 
``current,'' and ``actionable'' before billing can be activated.\122\ 
However, several cases brought at the state and Federal level in the 
last few years have detailed multiple ways content providers have 
circumvented the double opt-in. For example:
---------------------------------------------------------------------------
    \121\ Comments of CTIA--The Wireless Association, Federal 
Communications Commission, CC Docket No. 98-170, at 2 (June 25, 2012); 
Letter from General Counsel, Verizon Wireless, to Chairman John D. 
Rockefeller IV, at 2 (July 11, 2012) (noting there is no analogue to 
the double opt-in in the wireline billing context).
    \122\ Commentary of Mike Altschul, General Counsel, CTIA--The 
Wireless Association, Federal Trade Commission, Mobile Cramming, An FTC 
Roundtable (May 8, 2013).

   According to an FTC action brought in December 2013, content 
        providers operated a scam in which they billed consumers for 
        services that were not authorized through the use of misleading 
        websites. The complaint cites as an example a website that 
        offered to sign up consumers for Justin Bieber concert tickets 
        if consumers provided their phone number, and alleges 
        defendants likely used that phone information to sign up the 
        consumer for services without their knowledge.\123\
---------------------------------------------------------------------------
    \123\ Complaint for Permanent Injunction and Other Equitable 
Relief, Federal Trade Commission v. Tatto, et al., C.D. Cal (No. 2:13-
cv13-8912-DSF-FFM) (Dec. 5, 2013).

   According to the complaint in a separate FTC action brought 
        in April 2013, consumers received unsolicited text messages 
        from a third-party vendor and were charged on their wireless 
        bills for the vendors' services regardless of whether the 
        consumers had ignored the text message or had responded via 
        text message that they did not want the services.\124\
---------------------------------------------------------------------------
    \124\ Complaint for Permanent Injunction and Other Equitable Relief 
and Exhibits, Federal Trade Commission v. Wise Media, LLC, et al., N.D. 
Ga. (No. 1:13cv1234) (Apr. 16, 2013).

   A complaint brought by the Attorney General of Texas in 2011 
        claimed that the defendants used deceptive websites to entice 
        consumers to enter their wireless telephone numbers. According 
        to the complaint, defendants' websites would come up as 
        prominent sponsored links when consumers entered generic search 
        queries for information on topics such as ``song lyrics.'' 
        Defendants' link would not mention subscriptions or costs, and 
        if consumers clicked on the link they would be taken to a page 
        where they were encouraged to enter their phone number with 
        prominent instructions such as ``enter your cell phone number 
        to access the lyrics'' without any clear and conspicuous 
        disclosures that consumers were in fact signing up for paid 
        subscription services. The complaint further alleged that, to 
        conceal this flawed enrollment process from regulators, 
        carriers, and consumers re-visiting the site, defendants 
        created ``dummy'' websites that included larger, brighter, and 
        clearer disclosures on the service cost and subscription 
        nature.\125\
---------------------------------------------------------------------------
    \125\ Plaintiff's Original Verified Petition and Application for Ex 
Parte Temporary Restraining Order, Temporary Injunction, and Permanent 
Injunction, Texas v. Eye Level Holdings, LLC, et al., Tex. D. Ct., 
Travis County (No. 1:11-cv-00178) (Mar. 11, 2011). The case settled in 
2012.

    In another case brought by the Attorney General of Texas, 
defendants allegedly worked around the ``double opt-in'' requirement 
through the following process depicted with the accompanying graphics 
reproduced in Figure IV below.\126\ An online search for Olive Garden 
coupons would turn up a link for a 50 percent discount coupon, without 
disclosures regarding any fees or subscriptions charged for 
enrolling.\127\
---------------------------------------------------------------------------
    \126\ Plaintiff's Original Petition, Texas v. Mobile Messenger U.S. 
Inc., et al., Tex. D. Ct., Travis County, at 12 (Nov. 6, 2013).
    \127\ Id.
---------------------------------------------------------------------------
           FIGURE IV: INTERNET SEARCH PRODUCING PSMS WEBSITE


    Consumers who tried to download the coupon were required to enter 
their personal information including mobile phone number (see depiction 
of this screen in Figure V below). The complaint alleged that, by 
entering their mobile phone numbers, consumers unknowingly authorized a 
$9.99 per month subscription service providing monthly horoscopes.\128\ 
Consumers were not provided clear disclosures regarding the actual 
offer of the subscription service or its relevant terms and conditions 
unless consumers scrolled down.\129\
---------------------------------------------------------------------------
    \128\ Id. at 14-15.
    \129\ Id. at 15.
---------------------------------------------------------------------------
         FIGURE V: WEBSITE DRAWING CONSUMERS INTO PSMS CAMPAIGN


    In this case, the Texas Attorney General also alleged that content 
providers lured unknowing consumers to subscribe for deceptive PSMS 
campaigns through the use of website addresses that contained common 
typos and misspellings of the addresses of legitimate websites. These 
websites would encourage consumers to share personal information 
including their phone numbers in exchange for a promised gift 
card.\130\
---------------------------------------------------------------------------
    \130\ Id. at 18-22.
---------------------------------------------------------------------------
    Industry representatives have underscored that wireless cramming 
enforcement cases have involved conduct that circumvents consent 
mechanisms, and that generally the double-opt in mechanism was 
sound.\131\ However, conduct described in the above cases allegedly 
continued for time periods as long as several years, indicating 
substantial weaknesses in the wireless industry's ability to root out 
abuses of consumer authorization requirements.
---------------------------------------------------------------------------
    \131\ See, e.g., Commentary of Mike Altschul, General Counsel, 
CTIA--The Wireless Association, Federal Trade Commission, Mobile 
Cramming, An FTC Roundtable (May 8, 2013) (stating that the negative 
option, where companies would instruct the consumer to reply ``stop'' 
or be charged, in the double opt-in process, which was utilized by many 
of the subjects in law enforcement proceedings, was ``not compliant 
with the industry best practices'' and use of this negative option was 
``not playing by the rules''). See also Commentary of John Bruner, 
Chief Operating Officer, Aegis Mobile, Federal Trade Commission, Mobile 
Cramming, An FTC Roundtable (May 8, 2013) (stating, ``[W]hat we see in 
the market is not a violation of the double opt-in where it's being 
skipped necessarily. What we usually see is that consumers are either, 
through stacked marketing or deceptive advertising, double opting in 
and not realizing that they had purchased something. And, so, you know, 
the process, the physical process itself seems to be a very sound 
process for purchase. It's more the method leading up to getting a 
consumer to perform that function.'').

2. Tolerance for High Consumer Refund Rates Raises Questions about 
        Carrier 
---------------------------------------------------------------------------
        Commitment to Preventing and Addressing Cramming

    All four major carriers cited consumer refund thresholds as a tool 
for spotting potential vendor misconduct. However, the thresholds and 
response actions triggered by breach of these thresholds varied widely 
in the policies carriers described to the Committee.\132\ Documents 
produced to the Committee by billing aggregator Mobile Messenger 
regarding a subset of its vendors provided a further window into the 
role that refund threshold policies played in the industry's oversight 
of the PSMS billing system.\133\ Review of these documents revealed 
that carriers saw extremely high refund rates and high monthly refund 
totals for some vendors and were not consistent in how they followed up 
on red flags concerning vendor misconduct.
---------------------------------------------------------------------------
    \132\ See Section IV.B.1 for discussion of industry and consumer 
advocate views on the significance of refund rates.
    \133\ Mobile Messenger Subpoena Response to Chairman John D. 
Rockefeller IV (Mar. 31, 2013), (Apr. 21, 2014), (Apr. 22, 2014). 
Because documents produced to the Committee concerned a small number of 
vendors, findings of this review provide a sample rather than a 
comprehensive review of carrier practices, and a review of 
communications relating to other vendors would be necessary to draw 
broad conclusions about an individual carrier's practices generally.

---------------------------------------------------------------------------
a. Carrier Policies on Refund Thresholds

    Verizon Wireless, AT&T, Sprint, and T-Mobile established different 
refund threshold levels for triggering additional vendor review, and 
their policies also varied regarding specific prescribed follow-up 
steps. For example, Verizon Wireless's policy provided that if the 
refund rate for any one program in any month is between 5 percent and 
7.99 percent, all PSMS campaigns managed by that vendor would be 
suspended, and if the refund rate exceeded 8 percent, all PSMS 
campaigns of the vendor would be terminated.\134\ Billing aggregator 
documents indicate that the policy applied to shortcodes on Verizon's 
network was that suspension for refunds between 5 percent and 7.99 
percent meant a bar on acquiring new subscribers for a period of 90 
days.\135\ The policy applicable once refunds exceeded 8 percent 
involved both a bar on new subscribers and a requirement that existing 
subscribers be unsubscribed for shortcodes with subscriptions that 
brought in an average revenue of at least $5000 over the previous three 
months.\136\
---------------------------------------------------------------------------
    \134\ Letter from Assistant General Counsel of Verizon Wireless, to 
Senate Commerce Committee Majority Counsel, at 8 (July 12, 2013).
    \135\ E-mail from Mobile Messenger Sales Employee to Mobile 
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
    \136\ Id.
---------------------------------------------------------------------------
    AT&T, on the other hand, stated that it did not have a static 
threshold for refund rates but rather it adjusted the threshold ``over 
time to account for changes in the overall refund rate as observed.'' 
\137\ The company further stated it had a general disciplinary policy 
that could involve ``suspending or de-provisioning the short code, and/
or terminating the content provider'' from the carrier's network, but 
these steps were not tied to specific threshold violations.\138\ 
Billing aggregator documents indicate that as of May 2013, the policy 
applied to shortcodes on AT&T's network was to ``enforce a 30-day 
suspension on any shortcode with a combination of a failed audit and a 
refund rate of 18 percent.'' \139\
---------------------------------------------------------------------------
    \137\ Letter from Executive Vice President, AT&T, to Chairman John 
D. Rockefeller IV, at 4 (July 2, 2013).
    \138\ Id.
    \139\ E-mail from Mobile Messenger Sales Employee to Mobile 
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
---------------------------------------------------------------------------
    Sprint reported that its policy provided for a ``combination of 
metrics'' including refund rates to assess noncompliance, and was 
penalizing with ``lower revenue share'' those aggregators that work 
with vendors demonstrating noncompliance or a refund rate greater than 
10 percent.\140\ According to billing aggregator documents from May 
2013, the policy applied to shortcodes on Sprint's network was that a 
refund rate between 0 percent and 7 percent meant incentives and 
bonuses might apply; refunds between 7.01 percent and 12 percent 
merited a ``normal payout;'' and refunds greater than 12.01 percent 
meant Sprint would apply a ``25 percent penalty on the average monthly 
retail revenue . . . for the three-month period and risk of code 
termination.'' \141\
---------------------------------------------------------------------------
    \140\ Letter from Vice President, Government Affairs, Sprint 
Nextel, to Chairman John D. Rockefeller IV, at 5 (June 28, 2013).
    \141\ E-mail from Mobile Messenger Sales Employee to Mobile 
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
---------------------------------------------------------------------------
    Finally, T-Mobile stated that its refund threshold was 15 percent, 
at which point aggregator partners and vendors would be ``penalized 
financially in accordance with the terms of the aggregator's 
contract.'' \142\ Additional detail provided by billing aggregator 
documents indicates that the policy applied to shortcodes on T-Mobile's 
network was that T-Mobile would charge a vendor $10 for each refund/
customer care call after refund rate surpassed 15 percent;\143\ in 
addition, T-Mobile would apply a multi-step ``Refund Performance 
Improvement Plan'' (PIP) if a vendor's refund rate exceeded 15 percent 
and involved at least $10,000 in ``excessive refund fees.''
---------------------------------------------------------------------------
    \142\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 5 (June 28, 2013).
    \143\ E-mail from Mobile Messenger Sales Employee to Mobile 
Messenger Account Manager (May 30, 2013) (with subject line: ``05/29/
2013 Refund Report for AT&T/Sprint/T-Mobile/VZW (Anacapa)'') (AG-MM-
COMM-043461-043464).
---------------------------------------------------------------------------
    The documents indicate that the PIP program involved placing the 
vendor on a ``watch list'' for 12 months for remediation steps before 
T-Mobile would terminate the campaign.\144\ Once on the watch list, the 
vendor had three months to address the high refund rate or else in 
month four, new subscribers would be suspended for a one-month period. 
The vendor could resume new subscriptions in month five after this 
suspension, and had three additional months to address the refund rate. 
If, after month seven, the vendor still qualified for the ``watch 
list,'' the PIP program applied a two-month suspension of new 
subscribers in months eight and nine. The vendor could resume new 
subscriptions in month 10, but the campaign at issue would be 
terminated after month 12 if the vendor still met PIP criteria.\145\
---------------------------------------------------------------------------
    \144\ E-mail from Mobile Messenger Account Manager to Vendor 
Employee (Aug. 4, 2011) (with subject line: ``FW: Client Alert--Carrier 
Alert: T-Mobile--Modifications to Their Refund Performance Improvement 
Plan'') (AG-MM-COMM-016777-016779).
    \145\ Id.
---------------------------------------------------------------------------
    It is worth noting that even the lowest stated refund threshold 
rates of 5 percent-7.99 percent that were set forth in policies 
carriers described to the Committee are substantially higher than the 
threshold used for chargebacks levels on consumer credit card bills as 
a trigger for follow-up with the merchant whose chargebacks are at 
issue. For example, under VISA's chargeback policy, merchants will 
receive a notification and request for explanation if the ratio of 
transactions charged back to total transactions exceeds 1 percent, 
where the merchant has had over 100 transactions and 100 chargebacks in 
that month.\146\
---------------------------------------------------------------------------
    \146\ Briefing by VISA Representatives to Senate Commerce Committee 
Majority Staff (July 10, 2014).
---------------------------------------------------------------------------
    Documents received by the Committee from Mobile Messenger included 
a number of examples demonstrating the follow up actions taken by 
carriers after adverse audit findings or other red flags regarding 
particular shortcodes.\147\ However, documents also indicated there 
were instances where carriers were lax in overseeing or enforcing their 
own stated policies. This issue is illustrated in an e-mail chain 
between AT&T and Mobile Messenger in October 2013 when AT&T sent Mobile 
Messenger a notice of termination for content provider Anacapa, a 
client of Mobile Messenger, due to ``excessive CTIA Sev 1 [severity 1] 
audit failures.'' \148\
---------------------------------------------------------------------------
    \147\ See, e.g., Letter from Verizon Wireless Director to Mobile 
Messenger Compliance & Consumer Protection Employee (Oct. 20, 2011) 
(AG-MM-COMM-030220-22) (describing that Ontario Corp. had ``repeatedly 
violated the requirements applicable to premium messaging campaigns'' 
and ``given the repeated and serious nature of the violations, Verizon 
Wireless ha[d] decided that all premium messaging campaigns managed by 
the content provider must be terminated''); Spreadsheet created by 
Mobile Messenger listing status on several shortcodes of Sprint (last 
saved Aug. 10, 2011) (AG-MM-COMM-021051) (noting 5 terminated codes and 
several codes that were temporarily suspended); E-mail from AT&T Senior 
Account Manager to Mobile Messenger Employees (Jan. 14, 2013) (AG-MM-
COMM-125203-4) (noting AT&T termination of all short codes associated 
with AVL marketing); E-mail from T-Mobile Compliance to Mobile 
Messenger Employees (Oct. 4, 2013) (AG-MM-COMM-143991) (noting 3 
shortcodes that received 3 strikes under T-Mobile's PIP policy and 
directing Mobile Messenger employees to ``immediately terminate all 
billing and related services currently operating'' and the short 
codes).
    \148\ E-mail from WMC Global AT&T Account Manager to Mobile 
Messenger Employees (Oct. 15, 2013) (AG-MM-COMM-057077-057080). This 
document is attached at Exhibit B.
---------------------------------------------------------------------------
    In the course of the e-mail chain, an AT&T representative gives 
more explanation for the termination. He begins by noting that when 
Anacapa requested access to AT&T's billing platform in November 2012, 
Anacapa ``did not pass our internal vetting process, . . . and we 
rejected them from running PSMS campaigns.'' \149\ However, AT&T 
nonetheless let one of the Anacapa shortcode campaigns have access to 
the AT&T billing platform, as in fact AT&T had ``failed to reject'' 
that shortcode. Anacapa was able to bill consumers on AT&T's platform 
well into 2013, despite two AT&T suspensions of the Anacapa shortcode 
in the first part of 2013. Further, in May 2013 AT&T ``drafted'' a 
termination notice but again ``failed to deliver'' it.\150\ The October 
2013 e-mail summary also noted that AT&T had found that Anacapa had 
received twenty severity 1--``serious consumer harm''--audit findings 
across several of its shortcodes from October 2012 to October 2013, 
including two Severity 1 findings on the shortcode that was apparently 
erroneously allowed to use the AT&T network.\151\
---------------------------------------------------------------------------
    \149\ E-mail from AT&T Mobility Marketing Manager to Mobile 
Messenger Employees (Oct. 16, 2013) (AG-MM-COMM-056884-056885).
    \150\ Id.
    \151\ Id.

b. Some Vendors Had Exceedingly High Refund Rates that at Times Spanned 

---------------------------------------------------------------------------
        Several Months

    Documents reviewed by the Committee regarding a subset of vendors 
who contracted with billing aggregator Mobile Messenger indicate that 
some vendors experienced high monthly refund rates that in some cases 
topped 50 percent of monthly revenues and amounted to hundreds of 
thousands of dollars in refunds in a single month. For example, in a 
July 2011 Mobile Messenger e-mail to vendor representatives, Mobile 
Messenger employees reported violations of T-Mobile thresholds on 11 
different shortcodes for the preceding month, including one shortcode 
with a 50.5 percent refund rate and $55,974 in refunds for the month, 
and others with 43.7 percent, 38.4 percent, and 36.1 percent rates. The 
refunds for the 11 listed shortcodes totaled over $450,000 that 
month.\152\
---------------------------------------------------------------------------
    \152\ E-mail from Mobile Messenger Compliance & Analytics to 
NeoImage Employees (July 5, 2011) (AG-MM-COMM-112226-112227) (the 11 
shortcode refunds totaled $457,252.29). A copy of this e-mail is 
attached at Exhibit C. As indicated by this e-mail and other Mobile 
Messenger documents, NeoImage personnel had e-mail addresses at 
``mundomedia.com.'' See also Mobile Messenger Spreadsheet Response to 
Subpoena Item 2a and 2c (AG-MM-COMM-001128) (Apr. 21, 2014) (listing 
company directors with e-mail addresses, including NeoImage personnel 
with mundomedia.com addresses).
---------------------------------------------------------------------------
    A similar Mobile Messenger e-mail notification to vendor 
representatives in October 2012 notes that 11 shortcodes had exceeded 
AT&T's 18 percent refund threshold in the preceding month, including 
one shortcode with a refund ratio of 56.8 percent and $124,759 in 
refunds for the month, another with a ratio of 31.4 percent and 
$100,949 in refunds. The 11 shortcode refunds that month together 
totaled nearly $600,000.\153\ Documents indicate that other carriers 
also had high refund rates and high refund totals.\154\
---------------------------------------------------------------------------
    \153\ E-mail from Mobile Messenger Account Management Employee to 
NeoImage Employees (Oct. 9, 2012) (AG-MM-COMM-585462-585463) (the 11 
shortcode refunds totaled $594,479). This e-mail is attached at Exhibit 
C.
    \154\ See, e.g., E-mail notification from Mobile Messenger 
Compliance & Analytics to NeoImage Employees (Oct. 4, 2011) (AG-MM-
COMM-024918-024919) (noting that 8 of their shortcodes violated 
Sprint's threshold, with the highest rate at 28.79 percent and the 
refunds for all 8 totaling over $600,000 for the three-month period); 
E-mail from Mobile Messenger Compliance & Analytics to NeoImage 
Employees (June 7, 2011) (AG-MM-COMM-099369) (indicating that 6 
shortcodes had refund rates exceeding Verizon's thresholds in May, with 
the highest rate reported as 22.23 percent and refunds for all 6 
totaling over $340,000). These e-mails are attached at Exhibit C.
---------------------------------------------------------------------------
    Documents also show that refund rates on the same shortcode at 
times exceeded carrier thresholds for a number of months at a time. For 
example, Mobile Messenger sent e-mails to vendor representatives 
notifying them that refunds on shortcode 67145 exceeded AT&T's 
threshold in February 2012 (with a 33.9 percent refund rate);\155\ 
March 2012 (40.6 percent);\156\ and May 2012 (18.1 percent).\157\ 
Mobile Messenger sent similar notification e-mails that refunds on 
shortcode 85820 exceeded T-Mobile's threshold in December 2010 (20.06 
percent);\158\ February 2011 (34.13 percent);\159\ and March 2011 
(31.13 percent).\160\
---------------------------------------------------------------------------
    \155\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Mar. 9, 2012) (AG-MM-COMM-590211-590212).
    \156\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Apr. 2, 2012) (AG-MM-COMM-584986-584987).
    \157\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (June 5, 2012) (AG-MM-COMM-568009-568010). The Mobile 
Messenger document production did not appear to include an AT&T excess 
refund rate notification for the month of April 2012.
    \158\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Jan. 11, 2011) (AG-MM-COMM-060591).
    \159\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Mar. 3, 2011) (AG-MM-COMM-146312-146313).
    \160\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Apr. 4, 2011) (AG-MM-COMM-220607-220608).

c. Case Study on Vendor with High Refund Rates: Variation in Carrier 
        Response Underscores Broad Latitude Afforded by the Self-
---------------------------------------------------------------------------
        Regulatory System

    Documents indicate that different carriers employed different 
practices regarding follow-up on red flags such as high refund rates 
and adverse audit findings associated with shortcodes. For example, in 
October 2011, Verizon wrote to Mobile Messenger regarding several 
shortcodes used by Mobile Messenger client NeoImage.\161\ This group of 
shortcodes also included certain shortcodes that appeared on high 
refund rate notices sent by Mobile Messenger to vendor employees 
concerning all four major carriers in 2011.\162\
---------------------------------------------------------------------------
    \161\ Letter from Verizon Wireless Director to Mobile Messenger 
Compliance & Consumer Protection Employee (Oct. 20, 2011) (AG-MM-COMM-
032198-032199) (listing shortcodes 91097, 33999, 72449, 40684, 25692, 
89147, 88922, 21500, 86358, 56255, 53405, and 62131).
    \162\ E-mail from Mobile Messenger Compliance & Analytics to 
NeoImage Employees, Subject: Notice: AT&T Refund Ratio Exceeded (Mar. 
2, 2011) (AG-MM-COMM-145222-145223) (showing shortcode 89147 February 
refund rate was 45.52 percent); E-mail from Mobile Messenger Compliance 
& Analytics to NeoImage Employees, Subject: Notice: AT&T Refund Ratio 
Exceeded (Apr. 4, 2011) (AG-MM-COMM-220637-220638) (showing shortcode 
91097 March refund rate was 50.65 percent); E-mail from Mobile 
Messenger Compliance & Analytics to NeoImage Employees, Subject: 
Notice: Sprint Refund Ratio Exceeded (Aug. 1, 2011) (AG-MM-COMM-012239) 
(noting shortcode 53405 April 2011-June 2011 refund ratio was 31.67 
percent and 56255 was 15.95 percent); E-mail from Mobile Messenger 
Compliance & Analytics to NeoImage Employees, Subject: Notice: Verizon 
Refund Ratio Exceeded--June 2011 (July 5, 2011) (AG-MM-COMM-112223-
112224) (noting June refund rate for 56255 was 10.74 percent, 33999 was 
15.52 percent, 86358 was 11.8 percent, and 88922 was 11.15 percent); E-
mail from Mobile Messenger Compliance & Analytics to NeoImage 
Employees, Subject: Notice: T-Mobile Refund Ratio Exceeded (Sept. 2, 
2011) (AG-MM-COMM-290976-290977) (noting shortcode 33999 August refund 
rate was 19.05 percent).
---------------------------------------------------------------------------
    Verizon's October 2011 letter requested that, because of ``the 
repeated and serious nature'' of content provider violations of 
requirements concerning premium messaging campaigns, ``all of the 
premium messaging campaigns managed by the content provider must be 
terminated,'' and Verizon Wireless ``will not consider reactivation of 
the shortcodes, or any new campaigns from the content provider.'' \163\ 
The Verizon letter required the content provider to block all new 
subscriptions to the code and opt-out enrolled customers on a rolling 
basis ``at the time their subscriptions otherwise would be renewed.'' 
\164\
---------------------------------------------------------------------------
    \163\ Letter from Verizon Wireless Director to Mobile Messenger 
Compliance & Consumer Protection Employee (Oct. 20, 2011) (AG-MM-COMM-
032198-032199).
    \164\ Id.
---------------------------------------------------------------------------
    Consistent with this letter, billing statements for Mobile 
Messenger client NeoImage indicate that Verizon ceased allowing 
NeoImage shortcodes to bill on its platform starting in late 2011.\165\ 
However, the billing statements also indicate that the three other 
major carriers and many others continued to allow NeoImage to charge 
their customers through March 2013, the last date of statements 
provided to the Committee for NeoImage. In 2012, NeoImage charged a 
total of over $10 million to consumers' wireless bills across different 
carrier platforms.\166\
---------------------------------------------------------------------------
    \165\ See, e.g., Mobile Messenger, Settlement Statement for 
NeoImage December 1, 2011-December 31, 2011, at 10 (Jan. 2012) (showing 
a $11.25 balance due for Verizon Wireless); Mobile Messenger, 
Settlement Statement for NeoImage January 1, 2012-January 31, 2012, at 
10 (Feb. 2012) (showing a $10.75 due for Verizon Wireless); Mobile 
Messenger, Settlement Statement for NeoImage March 1, 2012-March 31, 
2012, at 7 (Apr. 2012) (Verizon does not appear on the statement).
    \166\ Mobile Messenger, Settlement Statement for NeoImage Jan. 1, 
2012-Jan. 31, 2012 (Feb. 2012) (AG-MM-042772-042781); Mobile Messenger, 
Settlement Statement for NeoImage Mar. 1, 2012-Mar. 31, 2012 (Apr. 
2012) (AG-MM-585109-585115); Mobile Messenger, Settlement Statement for 
NeoImage Apr. 1, 2012-Apr. 31, 2012 (May. 2012) (AG-MM-562235-562241); 
Mobile Messenger, Settlement Statement for NeoImage May 1, 2012-May 31, 
2012 (June. 2012) (AG-MM-568311-568318); Mobile Messenger, Settlement 
Statement for NeoImage June 1, 2012-June 31, 2012 (July. 2012) (AG-MM-
563935-563941); Mobile Messenger, Settlement Statement for NeoImage 
July 1, 2012-Aug. 31, 2012 (Sept. 2012) (AG-MM-588084-588098); Mobile 
Messenger, Settlement Statement for NeoImage Sept. 1, 2012-Sept. 31, 
2012 (Oct. 2012) (AG-MM-192132-102137); Mobile Messenger, Settlement 
Statement for NeoImage Dec. 1, 2012-Dec. 31, 2012 (Jan. 2013) (AG-MM-
591730-591735) (Mobile Messenger's production to Committee staff was 
missing settlement statements for several months for 2012 so NeoImage's 
total charge of $10 million is a conservative total).
---------------------------------------------------------------------------
    The billing statements produced by Mobile Messenger indicate that a 
number of carriers also continued to allow NeoImage to charge on their 
platforms for activity on several of the specific shortcodes that 
Verizon terminated in October 2011. For example, the statement for 
January 2012 shows that, with respect to campaigns on shortcode 89147, 
$107,000 in charges were placed with AT&T, $33,800 with T-Mobile, and 
$21,700 with Sprint.\167\ With respect to the same shortcode, the March 
2012 billing statement showed $81,100 in charges placed with AT&T, 
$20,600 with T-Mobile, and $16,300 with Sprint.\168\ Documents also 
indicate that in January 2012 refunds on this same shortcode exceeded 
refund thresholds for both T-Mobile and AT&T, with a 15.7 percent 
refund ratio for T-Mobile,\169\ and a 19.01 percent refund rate for 
AT&T.\170\
---------------------------------------------------------------------------
    \167\ Mobile Messenger, Settlement Statement for NeoImage Jan. 1, 
2012-Jan. 31, 2012, at 3, 5, 7 (Feb. 2012).
    \168\ Mobile Messenger, Settlement Statement for NeoImage Mar. 1, 
2012-Mar. 31, 2012, at 2, 3, 4 (Apr. 2012).
    \169\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Feb. 2, 2012) (with subject line: Notice: T-Mobile Refund 
Ratio Exceeded) (AG-MM-COMM-040764-040765).
    \170\ E-mail from Mobile Messenger Compliance Analytics to NeoImage 
Employees (Feb. 2, 2012) (with subject line: Notice: AT&T Refund Ratio 
Exceeded) (AG-MM-COMM-040831-040832).
---------------------------------------------------------------------------
    This example regarding NeoImage shortcodes illustrates that 
carriers had wide discretion in responding to indicia of vendor 
problems such as high refund rates.

3. Carriers Placed Questionable Reliance on Billing Aggregators as 
        Oversight 
        Partners

    In submissions to the Committee in 2012 and 2013, a number of major 
carriers emphasized the important and reliable role that billing 
aggregators played in ensuring that vendors comply with consumer 
authorization requirements and other industry standards. Sprint noted 
that in its experience, the company's ``reward/penalty system 
influences aggregators to work only with reputable content providers 
and to ferret out non-compliant PSMS campaigns.'' \171\ AT&T assured 
the Committee that ``in November 2012 the double opt-in procedures of 
all then existing Billing Aggregators were reviewed and certified'' as 
compliant with the company's consent management program.\172\ And T-
Mobile asserted last June that ``we are aware of no information that 
aggregator partners have played any role in cramming or otherwise 
facilitating improper third-party billing.'' \173\
---------------------------------------------------------------------------
    \171\ Letter from Vice President--Government Affairs, Sprint 
Nextel, to Chairman John D. Rockefeller IV, at 7 (July 11, 2012).
    \172\ Letter from Executive Vice President, Federal Relations, 
AT&T, to Chairman John D. Rockefeller IV, at 7 (July 2, 2013).
    \173\ Letter from Vice President, Federal Legislative Affairs, T-
Mobile USA, to Chairman John D. Rockefeller IV, at 3 (June 28, 2013).
---------------------------------------------------------------------------
    Major billing aggregators contacted in the Committee's inquiry also 
attested to their role in the industry's compliance system. For 
example, Mobile Messenger, one of the leading aggregators, underscored 
that it is ``committed to consumer protection,'' with a ``dedicated 
compliance team'' to review and test vendor campaigns,\174\ and that 
the company has spent ``considerable resources'' to ensure that the 
subscription and billing process and the company's content provider and 
advertiser clients abide by the ``robust'' industry guidelines.\175\
---------------------------------------------------------------------------
    \174\ Mobile Messenger Narrative Response to Chairman John D. 
Rockefeller IV (May 24, 2013) (MM Confidential 000004, 000050).
    \175\ Mobile Messenger Narrative Response to Chairman John D. 
Rockefeller IV (May 24, 2013) (MM Confidential 000050).
---------------------------------------------------------------------------
    However, the allegations in the November 2013 action by the Texas 
Attorney General \176\ raise serious questions about the effectiveness 
of aggregators as partners to carriers in combatting cramming as well 
as how closely carriers were scrutinizing aggregator practices. As 
noted above, in this action, the Texas AG alleged that Mobile Messenger 
was part of a ``deceptive scheme'' to trick consumers into signing up 
for unwanted ``services'' including ringtones, weekly text messages 
containing horoscopes and celebrity gossip, and coupons. According to 
the complaint, Mobile Messenger actively assisted content providers 
with circumventing consumer protections that carriers implemented, 
including the double opt-in and thresholds relating to consumer 
complaints and audit reports.\177\
---------------------------------------------------------------------------
    \176\ Plaintiff's Original Petition, Texas v. Mobile Messenger U.S. 
Inc., et al., Tex. D. Ct., Travis County (Nov. 6, 2013). This case 
remains open at the time of this report.
    \177\ Id.
---------------------------------------------------------------------------
    In addition, Mobile Messenger documents reviewed by Committee staff 
about a subset of Mobile Messenger vendors underscore that the company 
was in a position to see red flags about worrisome shortcodes and 
vendors from both the industry-wide audits as well as from reports of 
individual carrier refund rates and vendor penalties.\178\ And yet, in 
the case study discussed above, after one of the major carriers in 
October 2011 cut off all business with a vendor that had raised non-
compliance concerns and been the subject of high refund rates across 
major carriers, Mobile Messenger continued doing business with the same 
vendor through 2013.\179\ Such actions raise questions about whether 
Mobile Messenger served as a rigorous oversight partner with carriers 
in weeding out vendors with records of non-compliance with industry 
standards.
---------------------------------------------------------------------------
    \178\ See, e.g., E-mail from Mobile Messenger Account Manager to 
NeoImages Employees (Aug. 24, 2011) (AG-MM-COMM-022790-022795) and E-
mail from Mobile Messenger Sales Employee to Mobile Messenger Account 
Manager (May 30, 2013) (AG-MM-COMM-043461-043464) (cataloguing refund 
rates across major carriers for different vendors); Letter from Verizon 
Wireless Director to Mobile Messenger Compliance & Consumer Protection 
Employee, Re: Urgent Resolution of Violations (Oct. 20, 2011).
    \179\ See discussion supra at Section IV.D.2.c; see also Assignment 
of Rights and Amendment Among Neo Images, Inc., and Subscriber 
Management Services, LLC and Mobile Messenger US, Inc. (signed March 
19, 2012) (AG-MM-COMM 001964-2031).
---------------------------------------------------------------------------
V. Emerging Third-party Wireless Billing Technologies and Potential 
        Consumer Protection Issues
    Though commercial PSMS billing has now virtually ended among the 
major carriers,\180\ it is still possible for consumers to buy digital 
content online and bill those purchases to their wireless phone 
accounts. This is generally called the ``direct carrier billing'' 
payment option. Direct carrier billing is now offered by a variety of 
U.S. companies for music, applications, games, movies, and television 
shows, from retailers such as Sony, Facebook, Skype, and Rhapsody.\181\
---------------------------------------------------------------------------
    \180\ Some carriers still support PSMS billing for charitable 
donations and political contributions. Briefing by Verizon Wireless to 
Senate Commerce Committee Majority Staff (July 16, 2014); Briefing by 
Sprint Nextel to Senate Commerce Committee Majority Staff (July 16, 
2014); Briefing by T-Mobile USA to Senate Commerce Majority Staff (July 
17, 2014).
    \181\ Comments of CTIA--The Wireless Association, Federal 
Communications Commission, CC Docket No. 98-170, at 4 (Nov. 18, 2013).
---------------------------------------------------------------------------
    Direct carrier billing for social media and gaming purchases 
increased 30 percent year-over-year from 2009-2012.\182\ This option 
could become even more widely available in the future, for goods and 
services outside of digital content. According to CTIA, additional 
entities ``currently using or planning to adopt'' third-party billing 
include ``major news organizations, companies offering video streaming, 
gaming companies, parking services, and even pizza delivery services.'' 
\183\
---------------------------------------------------------------------------
    \182\ Id. at 3 (citing Study: Popularity of Direct Carrier Billing 
on the Rise, Mobile Payments Today (Sept. 4, 2012).
    \183\ Id. at 4-5.
---------------------------------------------------------------------------
    In discussions with Committee majority staff, carriers have 
differentiated between two methods of direct carrier billing: the 
``storefront'' approach and the ``billing aggregator'' approach. In the 
``storefront'' approach, consumers are given the option of billing 
their wireless account when making a purchase from a digital 
distribution platform that offers applications, music, movies, and 
games created by any number of vendors.\184\ Under this billing model, 
the carriers rely on the company offering the digital distribution 
platform to vet the vendors who create the digital content offered in 
their store.\185\ One example of the ``storefront'' billing method is 
the Google Play store. Since 2011, consumers have been able to make 
purchases from the Google Play store and bill them to their wireless 
account.\186\
---------------------------------------------------------------------------
    \184\ Briefing by Verizon Wireless to Senate Commerce Committee 
Majority Staff (July 16, 2014).
    \185\ Briefing by Google to Senate Commerce Committee Majority 
Staff (July 11, 2014); Briefing by Verizon Wireless to Senate Commerce 
Committee Majority Staff (July 16, 2014); Briefing by Sprint Nextel to 
Senate Commerce Committee Majority Staff (July 16, 2014); Briefing by 
T-Mobile USA to Senate Commerce Committee Majority Staff (July 17, 
2014).
    \186\ Briefing by Google to Senate Commerce Committee Majority 
Staff (July 11, 2014).
---------------------------------------------------------------------------
    Outside of the storefront approach, direct carrier billing is also 
an option for a number of additional vendors who utilize billing 
aggregators in order to place the charges on consumers' wireless 
accounts. In this model, both the carriers and aggregators vet each 
vendor before the vendor is permitted to bill consumers on their 
wireless accounts.\187\ A handful of these billing aggregators have 
emerged to act as middlemen between vendors and wireless carriers.\188\
---------------------------------------------------------------------------
    \187\ Briefing by Boku to Senate Commerce Committee Majority Staff 
(June 23, 2014); Briefing by BilltoMobile to Senate Commerce Committee 
Majority Staff (Feb. 24, 2014); Briefing by Verizon Wireless to Senate 
Commerce Committee Majority Staff (July 16, 2014); Briefing by Sprint 
Nextel to Senate Commerce Committee Majority Staff (July 16, 2014); 
Briefing by T-Mobile USA to Senate Commerce Committee Majority Staff 
(July 17, 2014).
    \188\ Examples include, among others, Boku, a San Francisco-based 
company, and BilltoMobile, a San Jose-based company, both of which 
contract with major U.S. wireless carriers. See BilltoMobile, Home Page 
(online at http://www.billtomobile.com/); Briefing by BilltoMobile to 
Senate Commerce Committee Majority Staff (Feb. 24, 2014); Boku, Home 
Page (online at http://www.boku.com/); Briefing by Boku to Senate 
Commerce Committee Majority Staff (June 23, 2014).
---------------------------------------------------------------------------
    With respect to direct carrier billing, to date there are no 
industry-wide best practices or central monitoring similar to what was 
in place for PSMS. Instead, oversight of direct carrier billing occurs 
at the individual carrier level.\189\ Policies described by several 
major carriers in briefings to Committee majority staff include the 
following features, among others:
---------------------------------------------------------------------------
    \189\ Briefing by CTIA--The Wireless Association to Senate Commerce 
Committee Majority Staff (June 3, 2014); Briefing by Sprint Nextel to 
Senate Commerce Committee Majority Staff (July 16, 2014); Briefing by 
Verizon Wireless to Senate Commerce Committee Majority Staff (July 16, 
2014); Briefing by T-Mobile USA to Senate Commerce Committee Majority 
Staff (July 17, 2014).

   Clear disclosures by the content provider to the consumer 
---------------------------------------------------------------------------
        regarding the terms of purchase;

   Clear designation of third-party vendor purchases on 
        consumers' phone bills; and

   Carrier monitoring of refund rates and consumer complaints.

Some carriers also said they place caps on third-party purchases from 
$25 to $80 per month, and for consumers that have more than one 
wireless line on their plan these caps apply per line.\190\
---------------------------------------------------------------------------
    \190\ Briefing by Sprint Nextel to Senate Commerce Committee 
Majority Staff (July 16, 2014); Briefing by Verizon Wireless to Senate 
Commerce Committee Majority Staff (July 16, 2014).
---------------------------------------------------------------------------
    As of now, direct carrier billing is primarily an option for 
digital content and only represents a small fraction of purchases made 
via computers and smartphones.\191\ However, as noted by the CTIA in 
comments to the FCC, U.S. companies are increasingly offering direct 
carrier billing for purchases.\192\ Direct carrier billing is a more 
widely utilized form of purchase internationally \193\ and with the 
continued growth in the unbanked and underbanked population in the 
United States, it is conceivable that direct carrier billing could 
become a more widely utilized payment option in the future.
---------------------------------------------------------------------------
    \191\ Briefing by Boku to Senate Commerce Committee Majority Staff 
(June 23, 2014); Briefing by Federal Reserve Bank to Senate Commerce 
Committee Majority Staff (July 18, 2014).
    \192\ See n. 181, supra.
    \193\ Briefing by Boku to Senate Commerce Committee Majority Staff 
(June 23, 2014); Briefing by Federal Reserve Bank to Senate Commerce 
Committee Majority Staff (July 18, 2014).
---------------------------------------------------------------------------
    Currently, major carriers assert that they are seeing minimal 
indicia of consumer complaints involving direct carrier billing, 
including very few consumer complaints and refund rates around 1 
percent-1.5 percent.\194\ However, in light of the extensive evidence 
of cramming that has occurred to date in both the landline and wireless 
contexts, and the potential that a growing number of consumers may use 
this payment option in the future, this staff report recommends that 
industry and policymakers:
---------------------------------------------------------------------------
    \194\ Briefing by Sprint Nextel to Senate Commerce Committee 
Majority Staff (July 16, 2014); Briefing by Verizon Wireless to Senate 
Commerce Committee Majority Staff (July 16, 2014); Briefing by T-Mobile 
USA to Senate Commerce Committee Majority Staff (July 17, 2014).

   Vigilantly monitor evolving third-party billing practices to 
        make sure that bad actors do not find ways to penetrate 
---------------------------------------------------------------------------
        barriers to cramming on these new systems; and

   Evaluate consumer protection gaps that occurred in the 
        landline and PSMS contexts to establish consistent policies 
        going forward that will provide consumers with appropriate 
        transparency in the third-party billing process and a clear 
        avenue of recourse where unauthorized charges occur.
                               Exhibit A


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                               Exuibit B








                               Exhibit C

















    Senator Blumenthal. Both this report and the Committee's 
earlier report on landline cramming make it abundantly clear 
that telephone carriers were not doing enough to protect their 
consumers from fraud. The key question is whether they are 
doing enough now. The carriers gave third-party access to their 
customers' bills, collected their cut, and then failed to make 
sure that the third parties were acting honestly. The massive 
fraud we have documented in these reports happened right under 
the telephone companies' noses. In the cases of both wireline 
and wireless cramming, the telephone companies had plenty of 
notice that crammers were placing fraudulent charges on their 
customers' bills. Thousands of consumers complained to both the 
companies and to State and Federal law enforcement agencies 
about this problem. And I know I received a lot of those 
complaints. I am sure that the FTC and Attorney General Sorrell 
and my colleagues did as well.
    The Federal Trade Commission and Attorneys General brought 
case after case, enforcement action after enforcement action 
against crammers. When confronted with evidence of widespread 
fraud in their billing systems, the telephone carriers promised 
to tighten their rules and do a better job of protecting 
customers. But then the crammers seemed to go back to business 
as usual.
    The telephone companies acted decisively only after the 
evidence of fraud became overwhelming and undeniable. In 2011, 
the major wireline carriers agreed to end third-party billing, 
and in November 2013, less than a year ago, the four major 
wireless carriers, AT&T, Sprint, T-Mobile, and Verizon, agreed 
to end third-party PSMS billing.
    Do not get me wrong. I do not think the telephone companies 
were happy or content that crammers were defrauding their 
customers. But they almost certainly welcomed the revenue that 
third-party billing was generating for them. The committee 
staff report released today found that the wireless carriers 
received 30 to 40 percent--30 to 40 percent of each charged 
that third parties placed on their customers' bill through 
PSMS. For every $9.99 monthly charge placed on a bill, the 
carriers kept $3 to $4. Their financial incentive to allow 
third-party billing seems to conflict with their responsibility 
to protect their customers from fraud. They may not have been 
happy about it, but the fraud sure benefited them.
    While the telephone carriers have discontinued certain 
types of third-party billing, their systems are still open for 
business. As we will hear today, the carriers are experimenting 
with new direct carrier billing techniques. I hope we will not 
be sitting here in several months or several years and 
discussing how they too failed to protect consumers from fraud. 
The time for effective action is now. The notice has been 
abundant that consumers are suffering, and I hope that these 
new measures will be truly effective.
    I am now happy to yield to the Ranking Member, Senator 
Thune.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Well, thank you, Mr. Chairman, for holding 
this hearing to discuss the unauthorized charges on mobile 
phone bills and the findings of Chairman Rockefeller's wireless 
cramming investigation. I commend the Chairman and staff for 
shining a light on these abuses.
    I understand, Senator Blumenthal, that you are graciously 
filling in for him today and appreciate that.
    Mobile payments are a growing way for consumers to pay for 
goods and services. Third-party billing is one way that 
consumers can take advantage of new technologies and customer 
conveniences. There are legitimate uses for this manner of 
billing. For instance, consumers can provide money to 
charities, support a political cause, or download the newest 
song or app and bill the purchase directly to their mobile 
telephone bill. Yet, despite the industry efforts to implement 
protections and state and Federal regulations in place to 
prevent cramming, unscrupulous actors have been able to game 
the system to take advantage of third-party billing.
    Of course, cramming is not a new phenomenon. In the late 
1990s Congress devoted a lot of time and attention to the issue 
of cramming on landline phone bills. This committee held a 
hearing on that issue again in 2011, highlighting the 
Chairman's investigation into cramming on landline phone bills 
and demonstrating the persistence of the problem.
    Some states have enacted laws to limit third-party billing 
in an effort to prevent cramming on landline phones, and most 
of the major phone carriers have ended most types of third-
party billing on landline phone bills. More recently, however, 
concerns have been raised about fraud on wireless phone bills, 
the topic of today's hearing and the chairman's more recent 
investigation.
    There are three key parties involved in placing third-party 
charges on consumers' wireless phone bills: the third-party 
content provider, the billing aggregator, and the phone 
carrier. From what I have seen, there are some content 
providers and even some aggregators that appear to be bad 
actors, but all of the parties involved could do more to 
protect consumers from cramming. While cramming has been 
identified as a problem, it has been challenging to accurately 
measure how many consumers have been affected by cramming.
    I appreciate that the wireless carriers and their 
association, CTIA, have taken a number of actions to prevent 
cramming of third-party charges on wireless phone bills. 
Significantly, this past November, the carriers decided to end 
most so-called premium SMS programs, which billed customers for 
text messages related to topics like daily horoscopes and 
sports alerts. In addition, at least one carrier has recently 
decided to end browser-based direct carrier billing. These 
steps show the carriers treat this issue seriously, but we will 
be asking whether they should do more.
    At the same time, it is important to underscore the 
extraordinary innovation and economic dynamism in the wireless 
communications space. The owners of approximately 188 million 
smart phones in this country spend more time with their mobile 
devices each day than they do going online with a laptop or a 
PC. While we must strive to protect consumers from fraud, we 
must also make sure that we do so in a way that does not stifle 
innovation.
    I look forward to hearing from CTIA, who is here today 
representing the wireless carriers, to discuss how the industry 
is working to address these issues. I also look forward to 
hearing from FTC Commissioner McSweeny, who is here for the 
first time since her confirmation; Mr. LeBlanc of the FCC; and 
Attorney General Sorrell. The FTC, FCC, and State Attorneys 
General play a key role in fighting cramming with their law 
enforcement efforts and by educating consumers about carrier 
billing.
    I also want to thank the South Dakota Public Utilities 
Commission and the South Dakota Attorney General, Marty 
Jackley, for their work in this area to better protect 
consumers. One recent government survey found that the Midwest 
is the most wireless connected region in the country, with 44 
percent of Midwesterners living in cell phone-only homes. This 
underscores the importance to my constituents of addressing 
wireless cramming.
    This hearing presents a good opportunity to recognize the 
good that everyone at the witness table is already doing to 
combat cramming. Industry, Congress, Federal agencies, and 
State Attorneys General all need to continue to work together 
on this issue to ensure that consumers are informed and 
protected against bad actors.
    I want to thank our witnesses for appearing here today, and 
I look forward to your testimony.
    Thank you, Mr. Chairman.
    Senator Blumenthal. Thank you very, very much, Senator 
Thune.
    I will introduce the witnesses, and then we will hear from 
you in this order.
    First of all, welcome to Commissioner McSweeny, your first 
appearance since your swearing in in April of this year. Prior 
to joining the Commission, Commissioner McSweeny served as 
Chief Council for Competition Policy and Intergovernmental 
Relations for the United States Department of Justice, 
Antitrust Division. She has a long and distinguished career in 
public service, serving as a Deputy Assistant to the President 
and Domestic Policy Advisor to the Vice President and a number 
of other positions in public service where she has significant 
experience in areas of competition and antitrust, as well as 
women's rights, domestic violence, judicial nominations, 
immigration and civil rights. She is a graduate of Harvard 
University and Georgetown University Law School.
    Attorney General Sorrell has served in Vermont as the 
Attorney General there since--I am trying to remember--in June 
of----
    Mr. Sorrell. 1997.
    Senator Blumenthal.--1997. I knew it was about 13 years 
that we served together. And before that, he was a prosecutor 
and distinguished law enforcement officer. He received the 
National Association of Attorney General Kelly Wyman Award 
given annually to the outstanding Attorney General and served 
as president of that organization for a year between 2004 and 
2005. He is a graduate of the University of Notre Dame, magna 
cum laude, and Cornell Law School. And I know he knows a lot 
about this subject because I have worked with him on it and 
appreciate your being with us today.
    Travis LeBlanc, who is the Acting Chief of the Enforcement 
Bureau of the Federal Communications Commission, is a graduate 
of Princeton University and the Yale Law School, among other 
institutions, and has served, before his present position, in 
the California Attorney General's Office as Special Assistant 
Attorney General in charge of the enforcement bureau--I am 
sorry--as Special Assistant Attorney General in charge of 
technology, high-tech crime, privacy, antitrust, and health 
care issues. And he also advised the California Attorney 
General on significant appellate and constitutional matters.
    Mr. Altschul, Michael Altschul, is Senior Vice President 
and General counsel of CTIA, The Wireless Association. He has 
served in that capacity since September of 1990, if I am not 
mistaken, and was a trial attorney in the Antitrust Division of 
the United States Department of Justice between 1980 and 1990. 
Before then, he was in private practice. He is a graduate of 
Colgate University and New York University Law School.
    We welcome you all. We thank you for all of your public 
service. All of you have been involved in public service. And 
if we can begin with you, Commissioner McSweeny.

STATEMENT OF HON. TERRELL McSWEENY, COMMISSIONER, FEDERAL TRADE 
                           COMMISSION

    Commissioner McSweeny. Thank you very much, Senator 
Blumenthal and Ranking Member Thune and Senator Johnson, for 
inviting me here today. I am Terrell McSweeny and I am the 
newest member of the Federal Trade Commission.
    I appreciate the opportunity to appear here today and also 
the leadership that this committee has shown on mobile cramming 
and, indeed, on cramming generally.
    I also want to thank the other witnesses for their 
perspectives and for the collaboration the Federal Trade 
Commission has received from the Federal Communications 
Commission and State Attorneys General in addressing this 
important consumer protection issue.
    For more than 15 years, the Commission has been working 
with Congress to stop fraudsters that place unauthorized 
charges on consumers' telephone bills. The FTC began targeting 
landline cramming in the late 1990s and since then has brought 
more than 30 cases resulting in hundreds of millions of dollars 
in judgments.
    As consumers have migrated to smart phones and mobile 
payment systems, we have turned our attention to the problem of 
unauthorized charges on mobile phone accounts. Mobile cramming 
scams can take a variety of forms. Sometimes consumers are 
tricked into subscribing for services by third-party merchants 
who use false pretenses to collect their telephone numbers, 
such as promises of free concert tickets or $1,000 gift cards. 
In other cases, consumers are targeted by deceptive ads. In one 
example, consumers were targeted with an ad for virus 
protection software for their phone and instead were subscribed 
to ring tones for $9.99 a month.
    Generally, these unauthorized subscriptions are 
automatically renewed and the charges for them are racked up 
month after month. Frequently consumers are unaware that they 
are being billed for third-party services because charges are 
often difficult to locate on phone bills, and it is rarely 
clear that they are unassociated with phone service. And many 
consumers who have prepaid accounts or auto-pay bills do not 
receive bills at all or may not routinely inspect them.
    Since the spring of 2013, the Federal Trade Commission has 
brought six enforcement actions aimed at combating these types 
of mobile cramming scams. We have obtained stipulated orders in 
three of these matters with judgments totaling more than $160 
million.
    Earlier this month, the Trade Commission announced our 
first case against a telecommunications company, T-Mobile. In 
that case, the FTC is alleging that T-Mobile deceptively 
described cramming charges on phone bills and unfairly 
continued to charge customers even after it became aware of 
telltale signs that charges were unauthorized.
    These enforcement actions reinforce that basic consumer 
protections apply in the mobile environment just as they do in 
the brick-and-mortar world.
    Along with our law enforcement efforts, the Commission has 
engaged with industry and consumer advocates to develop 
recommendations to better protect consumers while enabling 
innovation and access to mobile payment systems. In a report 
issued this week, the Commission staff recommends that carrier 
and industry participants take the following additional steps 
to reduce fraud and improve reliability of mobile carrier 
billing.
    First, they should make it clear to customers and consumers 
that they can block all third-party charges on their accounts 
if they wish to.
    Second, they should ensure that advertising, marketing, and 
opt-in processes for third-party charges are not deceptive.
    Third, they should take action when refund requests, 
complaints, and other factors indicate a merchant is cramming 
unauthorized charges.
    Fourth, they should clearly delineate third-party charges 
on bills.
    And fifth, the industry should implement effective and 
consistent dispute resolution for consumers who wish to dispute 
charges or obtain refunds.
    As consumers increasingly turn to their mobile phones as 
payment mechanisms, it is critical that carriers and other 
industry participants proactively address mobile cramming.
    Unfortunately, crammers have been able to come up with 
creative and evolving ways to harm consumers. That is why the 
FTC remains committed to working with this committee and with 
Members of Congress and our State and Federal partners such as 
the State Attorneys General and the Federal Communications 
Commission to continue our efforts to shut down scammers as 
they appear.
    I am pleased to answer any questions.
    [The prepared statement of Commissioner McSweeny follows:]

           Prepared Statement of The Federal Trade Commission
I. Introduction
    Chairman Rockefeller, Ranking Member Thune, and members of the 
Committee, my name is Terrell McSweeny, and I am a Commissioner at the 
Federal Trade Commission (``FTC'' or ``Commission'').\1\ I appreciate 
this opportunity to appear before you today to discuss the Commission's 
experience addressing mobile cramming. I am pleased to be testifying 
alongside my partner at the Federal Communications Commission, with 
which the FTC has worked collaboratively to combat the problem of 
mobile cramming. I also would like to commend this Committee and you, 
Mr. Chairman, for the work you have done to investigate and address 
this important consumer protection issue.
---------------------------------------------------------------------------
    \1\ While the views expressed in this statement represent the view 
of the Commission, my oral presentation and responses to questions are 
my own and do not necessarily reflect the view of the Commission or any 
Commissioner.
---------------------------------------------------------------------------
    Mobile cramming is the act of placing unauthorized third-party 
charges on mobile phone accounts. It occurs when consumers are signed 
up and billed for third-party services, such as ringtones and recurring 
text messages containing trivia or horoscopes, without the consumers' 
knowledge or consent. Companies that place crammed charges sometimes 
obtain consumers' phone numbers without any contact with consumers. 
Other times, these entities use deceptive means to obtain consumers' 
mobile phone numbers--such as in connection with offering free prizes--
and then begin charging their phone accounts for recurring third-party 
charges for purported services unrelated to the offer. These 
unauthorized charges often appear buried in phone bills and have 
generic descriptors such as ``usage charges.'' As a result, many 
consumers do not notice the charges or do not understand that they are 
unrelated to their phone service. Moreover, some consumers have prepaid 
accounts and do not receive bills at all, while others auto-pay their 
bills and therefore may not routinely inspect them. And many consumers 
do not even receive the services for which they are being charged.
    Mobile cramming is a significant problem that threatens to 
undermine confidence in the developing payment method known generally 
as ``carrier billing,'' which offers consumers the opportunity to 
charge goods and services to their mobile phone accounts. As 
stakeholders have noted, carrier billing of third-party charges may be 
particularly beneficial for unbanked and underbanked consumers. 
Additionally, consumers have used text messages to donate funds to a 
charitable organization, with the charge placed on their mobile phone 
account. As carrier billing has developed, however, fraud has become a 
significant problem for consumers.
    For the past two decades, one of the Commission's top priorities 
has been ensuring that consumer protections keep pace with 
technological developments, including emerging mobile products and 
services, while encouraging innovations that benefit consumers and 
businesses. In the past few years the Commission has focused on mobile 
cramming as a key consumer protection issue.\2\ Among other things, 
since the spring of 2013, the Commission has brought five mobile 
cramming cases against merchants, resulting in substantial monetary 
judgments.\3\ And, earlier this month, the Commission filed its first 
action against a telecommunications company, T-Mobile USA, for mobile 
cramming.\4\ These actions all reinforce the basic principle that a 
company must obtain a consumer's express, informed consent before 
placing charges on their bills--which applies to the mobile environment 
just as it does to brick-and-mortar companies.
---------------------------------------------------------------------------
    \2\ The FTC has jurisdiction under the FTC Act over market 
participants engaged in third-party billing. See FTC v. Verity Int'l, 
Ltd., 443 F.3d 48, 59-60 (2d Cir. 2006); In re Detariffing of Billing 
and Collection Servs., 102 F.C.C.2d 1150 30-34 (1986).
    \3\ To date, defendants have stipulated to final judgments, 
partially suspended based on inability to pay, totaling more than $160 
million. See FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. Ga. 
2013); FTC v. Jesta Digital, LLC, No. 1:13-cv-01272 (D.D.C. 2103); FTC 
v. Tatto, Inc., No. 2:13-cv-08912-DSF-FFM (C.D. Cal. 2013). See also 
FTC v. Acquinity Interactive, LLC, No. 14-60166-CIV (S.D. Fla.) 
(amended complaint filed June 16, 2014); FTC v. MDK Media, Inc., No. 
2:14-cv-05099-JFW-SH (C.D. Cal.) (complaint filed July 3, 2014).
    \4\ FTC v. T-Mobile USA, Inc., No. 2:14-cv-00967 (W.D. Wash. filed 
July 1, 2014).
---------------------------------------------------------------------------
    In addition to its enforcement work, the Commission has recommended 
the adoption of certain baseline consumer protections,\5\ encouraged 
public dialogue among industry stakeholders through a public roundtable 
in May 2013,\6\ and, just this week, authorized the release of a Bureau 
of Consumer Protection staff report providing additional information 
about mobile cramming and discussing recommended approaches to address 
it.\7\
---------------------------------------------------------------------------
    \5\ See Reply Comment of the Federal Trade Comm'n, Fed. Commc'ns 
Comm'n CG Docket No. 11-116 (July 20, 2012), at 7, 12, available at 
http://www.ftc.gov/sites/default/files/documents/advocacy_documents/
ftc-reply-comment-federal-communications-commission-concerning-
placement-unauthorized-charges/120723crammingcomment.pdf [hereinafter 
``FTC Reply Comment''].
    \6\ See Fed. Trade Comm'n, Mobile Cramming Roundtable (May 8, 
2013), available at http://www.ftc.gov/news-events/events-calendar/
2013/05/mobile-cramming-ftc-roundtable [hereinafter ``Roundtable''].
    \7\ See Fed. Trade Comm'n Staff, Mobile Cramming: An FTC Staff 
Report (2014), available at http://www.ftc.gov/system/files/documents/
reports/mobile-cramming-federal-trade-commission
-staff-report-july-2014/140728mobilecramming.pdf [hereinafter ``Mobile 
Cramming Report''].
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    This testimony begins with an overview of the Commission's and this 
Committee's work to address landline cramming, which has provided the 
foundation for the Commission's recent efforts to address mobile 
cramming. The testimony then discusses publicly available evidence 
regarding the scope of the mobile cramming problem, and the 
Commission's recent enforcement actions to combat it. Finally, the 
testimony discusses the recommendations in the FTC staff report 
released this week.
II. Landline Cramming
    As this Committee has recognized, the issue of unauthorized third-
party billing on landline phone bills has been a problem for well over 
a decade. The Committee's investigation and 2011 staff report have 
played critical roles in illuminating this important consumer 
protection issue. Indeed, the Committee's staff report estimated that 
landline cramming has likely cost consumers billions of dollars.\8\
---------------------------------------------------------------------------
    \8\ See Majority Staff of S. Comm. on Commerce, Sci., & Transp., 
Office of Oversight & Investigations, Unauthorized Charges On Telephone 
Bills, (July 12, 2011), at ii, available at http://
www.commerce.senate.gov/public/?a=Files.Serve&File_id=3295866e-d4ba-
4297-bd26-571665f40756.
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    The FTC has brought more than 30 enforcement actions under Section 
5 of the FTC Act to halt landline cramming practices and provide 
restitution to consumers.\9\ These cases have resulted in tens of 
millions of dollars in refunded charges and stringent court orders to 
prevent future cramming violations. Over the years, the FTC also has 
worked closely with Federal and state partners, including State 
Attorneys General and the Federal Communications Commission, to combat 
the problem, and has engaged in consumer and business education to 
raise awareness about the issue. In addition, the FTC has sought input 
on the problem from industry participants, consumer groups, and other 
stakeholders, including by holding a workshop devoted to cramming in 
2011.\10\ Based on this multi-faceted experience, the FTC has advocated 
a number of measures to address landline cramming.\11\
---------------------------------------------------------------------------
    \9\ See, e.g., FTC v. Hold Billing Servs., Ltd., No. 98-cv-00629-FB 
(W.D. Tex.) (contempt motion filed Mar. 28, 2012); FTC v. Inc21.com 
Corp., 745 F. Supp. 2d 975 (N.D. Cal. 2010), aff'd, 2012 WL 1065543 
(9th Cir. Mar. 30, 2012); FTC v. Nationwide Connections, Inc., No. 06-
80180 (S.D. Fla. Sept. 18, 2008) (stipulated order).
    \10\ Fed. Trade Comm'n, Examining Phone Bill Cramming: A Discussion 
(May 11, 2011), available at http://www.ftc.gov/bcp/workshops/cramming.
    \11\ See Comment of the Fed. Trade Comm'n, Fed. Commc'ns Comm'n CG 
Docket No. 11-116 (Oct. 24, 2011), at 5-6, available at http://
www.ftc.gov/os/2011/12/111227crammingcom
ment.pdf.
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III. FTC Enforcement Actions
    Over the past few years, it has become apparent that unauthorized 
third-party charges were appearing not only on landline bills but also 
on mobile accounts. The use of mobile devices has grown so rapidly 
that, according to industry, mobile devices now outnumber people in the 
United States.\12\ Building on its experience in the landline arena, 
the Commission has looked closely at how cramming has spread to mobile 
accounts. The Commission devoted a portion of the FTC's 2011 cramming 
workshop to the topic of mobile cramming, filed a comment in an FCC 
proceeding in July 2012 recommending certain baseline consumer 
protections,\13\ and held a separate roundtable in May 2013 
specifically to address mobile cramming.\14\ FTC staff also addressed 
the issue in its April 2013 report on mobile payments.\15\ Further, 
this week, the Commission released a staff report on mobile cramming 
recommending best practices for industry to prevent and remedy mobile 
cramming.\16\
---------------------------------------------------------------------------
    \12\ See, e.g., Cecilia Kang, A Nation Outnumbered By Gadgets, 
Washington Post, Oct. 12, 2011, available at http://
www.washingtonpost.com/business/economy/a-nation-outnumbered-by-
gadgets/2011/10/11/gIQAhjdhdL_story.html.
    \13\ See FTC Reply Comment, supra note 5.
    \14\ See Roundtable, supra note 6.
    \15\ See Fed. Trade Comm'n Staff, Paper, Plastic . . . or Mobile? 
An FTC Workshop on Mobile Payments (2013), at 7-8, available at http://
www.ftc.gov/sites/default/files/docu
ments/reports/paper-plastic-or-mobile-ftc-workshop-mobile-payments/
p0124908_mobile_payme
nts_workshop_report_02-28-13.pdf.
    \16\ Mobile Cramming Report, supra note 7.
---------------------------------------------------------------------------
    As noted above, since the spring of 2013, the Commission also has 
brought six enforcement actions to prevent mobile cramming and provide 
restitution for injured consumers. Thus far, the Commission has 
obtained strong relief in the three actions that have been fully or 
partially resolved:

   Tatto, Inc. & Bullroarer, Inc. In this case, the FTC alleged 
        that a widespread mobile cramming operation engaged in 
        deceptive and unfair practices, for example by running web 
        advertisements that promised consumers a chance to win prizes 
        such as free Justin Bieber tickets and then solicited their 
        phone numbers.\17\ Consumers did not receive the Justin Bieber 
        tickets, but rather, as the Commission has alleged, it is 
        likely that consumers were signed up for the defendants' 
        subscription plans.\18\ The primary corporate defendants and 
        their operator have agreed to a partially suspended judgment of 
        more than $150 million.\19\
---------------------------------------------------------------------------
    \17\ Complaint for Permanent Injunction and Other Equitable Relief, 
at 10, FTC v. Tatto, Inc., No. 2:13-cv-08912-DSF-FFM (C.D. Cal. Dec. 5, 
2013), available at http://www.ftc.gov/sites/default/files/documents/
cases/131216bullroarercmpt.pdf.
    \18\ See id.; Memorandum In Support of Plaintiff's Ex Parte 
Application For Temporary Restraining Order With An Asset Freeze and 
Other Equitable Relief, And Order to Show Cause Why A Preliminary 
Injunction Should Not Issue, at 12, FTC v. Tatto, Inc., No. 2:13-cv-
08912-DSF-FFM (C.D. Cal. Dec. 5, 2013).
    \19\ See Stipulated Order for Permanent Injunction and Monetary 
Judgment Against Defendants Tatto, Inc., Shaboom Media, LLC, Bune, LLC, 
Mobile Media Products, LLC, Chairman Ventures, LLC, Galactic Media, 
LLC, Virtus Media, LLC, and Lin Miao, FTC v. Tatto, Inc., No. 2:13-cv-
08912-DSF-FFM (C.D. Cal. June 11, 2014), available at http://
www.ftc.gov/system/files/documents/cases/140613bullroarerstiporder.pdf. 
The judgment was partially suspended based on defendants' inability to 
pay, but the defendants that have settled to date have surrendered more 
than $10 million in assets to be used for restitution.

   Jesta Digital, LLC. In this case, the FTC alleged that the 
        defendant lured consumers into purchasing a monthly 
        subscription for ringtones using deceptive virus scan ads.\20\ 
        According to the complaint allegations, some consumers saw 
        banner ads on their mobile devices while playing a popular 
        mobile app that falsely claimed a virus had been detected. 
        Clicking on the ad led to a screen with a button stating ``Get 
        Now'' above the phrase ``Protect your Android [phone] today.'' 
        Consumers who clicked ``Get Now,'' and then a button on a 
        subsequent page marked ``Subscribe,'' were then subscribed to 
        the $9.99 per month ringtone subscription plan, though the 
        nature and cost of the subscription were never adequately 
        disclosed. Indeed, some consumers were subscribed even if they 
        clicked on parts of the screen other than the ``subscribe'' 
        button. Moreover, if consumers actually attempted to subscribe 
        and download Jesta's so-called anti-virus software to their 
        mobile devices, the download often failed. To obtain consumers' 
        purported authorization for the charges, Jesta used a process 
        known as WAP or Wireless Access Protocol billing,\21\ which 
        captures consumers' phone numbers from a mobile device. Thus, 
        consumers never even entered their phone numbers prior to being 
        billed.\22\ Under the terms of the settlement, the company must 
        provide refunds to injured consumers and pay an additional $1.2 
        million to the FTC.\23\
---------------------------------------------------------------------------
    \20\ Complaint for Permanent Injunction and Other Equitable Relief, 
at  8-25, FTC v. Jesta Digital, LLC, No. 1:13-cv-01272 (D.D.C. Aug. 
20, 2013), available at http://www.ftc.gov/sites/default/files/
documents/cases/2013/08/130821jestacmpt.pdf [hereinafter ``Jesta 
Digital Complaint''].
    \21\ WAP opt-in involves consumers responding to an offer displayed 
on the mobile web by clicking on a confirmation button from the phone 
two separate times. This process captures the consumer's phone number 
without the need for the consumer to enter it manually.
    \22\ See Jesta Digital Complaint, supra note 20, at  8-28.
    \23\ See Stipulated Final Order for Permanent Injunction and 
Monetary Judgment Against Jesta Digital, LLC, FTC v. Jesta Digital, 
LLC, No. 1:13-cv-01372 (D.D.C. Aug. 23, 2013).

   Wise Media LLC. The FTC filed suit in April 2013 against the 
        merchant Wise Media, LLC, which purported to sell recurring 
        subscriptions to text message services providing ``love tips,'' 
        horoscopes, diet tips, and similar kinds of ``alerts'' for 
        $9.99 a month.\24\ The company claimed that consumers signed up 
        for the services by entering their information into websites, 
        receiving PIN codes by text messages, and inputting the PINs 
        into the websites. The FTC alleged that many consumers did not 
        notice the charges, which were often buried in their phone 
        bills, including, in at least one consumer's case, on page 18 
        of the consumer's bill.\25\ Consumers who discovered the 
        charges widely reported that they had never heard of Wise Media 
        or signed up for the services; the FTC alleged that consumers 
        were simply billed without authorization.\26\ In November 2013, 
        a court entered a stipulated order with a judgment for more 
        than $10 million and a ban that prohibits Wise Media from 
        placing charges on mobile phone bills altogether.\27\
---------------------------------------------------------------------------
    \24\ Complaint for Permanent Injunction and Other Equitable Relief, 
at 7-8, FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. Ga. Apr. 16, 
2013), available at http://www.ftc.gov/sites/default/files/documents/
cases/2013/04/130417wisemediacmpt.pdf.
    \25\ Memorandum in Support of Motion for Temporary Restraining 
Order, at 6, 10-11, FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. 
Ga. Apr. 16, 2013) [hereinafter ``Wise Media TRO Memo''].
    \26\ Id. at 6-9.
    \27\ Stipulated Order for Permanent Injunction and Monetary 
Judgment Against Defendants Brian M. Buckley and Wise Media, LLC, at 4-
6, FTC v. Wise Media, LLC, No. 1:13-cv-1234-WSD (N.D. Ga. Nov. 22, 
2013), available at http://www.ftc.gov/sites/default/files/documents/
cases/131121wisemediabuckleystip.pdf.

    The Commission is litigating two similar actions against content 
providers. In FTC v. Acquinity Interactive, LLC, the Commission alleges 
that crammers sent text messages promising free $1,000 gift cards and 
iPads as a way to deceive consumers into ``confirming'' their phone 
number and entering PINs on a website; this resulted in consumers being 
signed up for unwanted premium text messaging services and incurring 
charges of $9.99 per month on their mobile phone accounts.\28\ In 
another case, against MDK Media, Inc., the Commission alleges that a 
content provider similarly used the lure of ``free'' gift cards to 
collect consumers' phone numbers and crammed consumers for subscription 
services such as horoscope alerts.\29\
---------------------------------------------------------------------------
    \28\ Amended Complaint for Permanent Injunction and Other Equitable 
Relief, FTC v. Acquinity Interactive, LLC, No. 14-60166-CIV (S.D. Fla. 
June 16, 2014), available at http://www.ftc.gov/system/files/documents/
cases/140707revenuepathcmpt.pdf.
    \29\ Complaint for Permanent Injunction and Other Equitable Relief, 
FTC v. MDK Media, Inc., No. 2:14-cv-05099-JFW-SH (C.D. Cal. July 3, 
2014).
---------------------------------------------------------------------------
    Earlier this month, the Commission filed suit against T-Mobile USA, 
alleging that it unlawfully charged consumers for unauthorized monthly 
text message subscriptions offered by third-party merchants.\30\ The 
complaint alleges that T-Mobile deceptively described these charges on 
its phone bills in a manner that made it difficult for consumers to 
discover them. For example, T-Mobile's online bill summaries lumped 
third-party charges into a line item labeled ``Use Charges'' that could 
include charges for both T-Mobile's own text services and for third-
party charges.\31\
---------------------------------------------------------------------------
    \30\ See Press Release, FCC Investigates Cramming Complaints 
Against T-Mobile (July 1, 2014), available at http://www.fcc.gov/
document/fcc-investigates-cramming-complaints-against-t-mobile.
    \31\ See Complaint for Permanent Injunction and Other Equitable 
Relief, FTC v. T-Mobile USA, Inc., No. 2:14-cv-00967,  11-20 (W.D. 
Wash. July 1, 2014) [hereinafter ``T-Mobile Complaint'']
---------------------------------------------------------------------------
    Additionally, according to the complaint, T-Mobile continued to 
charge consumers even after becoming aware of telltale signs that the 
charges were unauthorized. The complaint alleges that T-Mobile's own 
internal documents showed that consumers increasingly were calling T-
Mobile to complain about unauthorized third-party charges. It also 
alleges that large numbers of consumers sought refunds and the refund 
rate--the ratio of refunds to charges billed for a particular period of 
time such as a month--for some subscriptions was as high as 40 percent 
in some months. Further, the complaint states that T-Mobile continued 
to bill consumers for charges from third-party merchants for years 
after those merchants were the subject of law enforcement or other 
legal action for cramming, and after news articles and industry alerts 
detailed cramming behavior and other deceptive behavior by those 
merchants. On the same day the FTC filed its complaint, the FCC 
announced that it had opened its own investigation into T-Mobile's 
practices in regard to cramming.\32\
---------------------------------------------------------------------------
    \32\ See id.,  21-36.
---------------------------------------------------------------------------
    A number of lessons can be drawn from these actions, as well as the 
enforcement actions brought by our state law enforcement partners.\33\ 
First, many entities have been able to cram charges onto mobile phone 
accounts using similar practices, and the amount of money at stake has 
been substantial. The Wise Media, Jesta Digital, and Tatto/Bullroarer 
cases alone involved settlements totaling more than $160 million.
---------------------------------------------------------------------------
    \33\ State law enforcement actions are discussed in more detail at 
pages 11-12 of the Mobile Cramming Report, supra note 7. The fact 
patterns described by the states are similar to those described in the 
Commission's actions.
---------------------------------------------------------------------------
    Second, the level of consumer complaints and refund requests has 
understated the overall harm. Carriers have received a large number of 
complaints and refund requests related to third-party charges on mobile 
accounts, but the evidence indicates that many consumers do not notice 
the unauthorized charges, which often are buried in their mobile phone 
bills and, as alleged in the T-Mobile matter, appear under non-
descriptive headers mixed in with charges for phone services.\34\ 
Further, consumers with prepaid mobile phone accounts do not receive a 
bill at all; unauthorized charges are simply deducted from their 
available balance of minutes.
---------------------------------------------------------------------------
    \34\ See Mobile Cramming Report, supra note 7, at 14-15, 17-18.
---------------------------------------------------------------------------
    Third, even when consumers notice unauthorized charges and have 
requested refunds, they have reported difficulties obtaining refunds 
from carriers. Many complain that carriers refuse to give more than two 
months' worth or other limited amounts of refunds, even if consumers 
learn that crammed charges have appeared on their bills for longer 
periods of time.\35\ In other instances, carriers have told consumers 
to contact the merchant for a refund, a request that the merchant often 
denies.\36\
---------------------------------------------------------------------------
    \35\ Id. at 14, 33.
    \36\ See Wise Media TRO Memo, supra note 25, at 11-12; Mobile 
Cramming Report, supra note 7, at 14.
---------------------------------------------------------------------------
IV. Staff Recommendations on Best Practices to Address Mobile Cramming
    The Commission has advocated certain baseline consumer protections 
to combat mobile cramming, and the staff report released this week 
provides staff's additional recommendations for industry best 
practices. Stakeholders in the mobile billing industry generally have 
relied on a set of voluntary guidelines to attempt to address cramming, 
but as demonstrated above, these have not been effective in stopping 
cramming.\37\
---------------------------------------------------------------------------
    \37\ Until recently, the Mobile Marketing Association (``MMA''), a 
trade association that promotes mobile marketing, had taken the lead in 
publishing best practices for merchants who wish to place charges on 
mobile phone bills using Premium SMS, but the MMA itself did not 
enforce those best practices. See Mobile Cramming Report, supra note 7, 
at 23-25.
---------------------------------------------------------------------------
    In making its recommendations, Commission staff considered how the 
mobile carrier billing industry has evolved. Until recently, the 
dominant type of carrier billing has been ``Premium SMS'' billing. 
Premium SMS typically involves a text-messaging component, whereby a 
consumer purportedly authorizes charges by texting a particular five or 
six-digit number known as a ``short code.'' Since the adoption of 
smartphones with advanced mobile web browsing capabilities and the 
greater use of mobile apps, there has been an increasing use of other 
forms of third-party billing arrangements, known as ``direct carrier 
billing'' arrangements. In direct carrier billing arrangements, a 
consumer does not necessarily need to send or receive a text message to 
initiate or complete a transaction that is billed to a mobile account. 
Instead, a consumer can initiate a transaction on a mobile website or 
within a mobile app, and the merchant can have the charge placed on the 
consumer's mobile account through back-end arrangements that involve 
the mobile carriers. In late 2013, after the Commission had held its 
mobile cramming roundtable and Federal and state agencies had brought 
numerous law enforcement actions highlighting the prevalence of mobile 
cramming, the four largest mobile carriers stated their intention to 
discontinue one form of third-party billing--Premium SMS billing for 
commercial transactions.\38\ Direct carrier billing, in contrast, is 
expected to continue growing, and it appears likely to supplant Premium 
SMS as the preferred mode of carrier billing. Regardless of the type of 
carrier billing involved, it is important for companies to provide 
basic consumer protections.
---------------------------------------------------------------------------
    \38\ See, e.g., Ina Fried, AT&T, Sprint, T-Mobile, Verizon Dropping 
Most Premium Test Service Billing in Effort to Combat Fraud, 
AllThingsD.com, Nov. 21, 2013, http://allthingsd.com/20131121/att-
sprint-t-mobile-verizon-all-dropping-most-premium-text-service-billing-
in-effort-to-combat-fraud/.
---------------------------------------------------------------------------
Providing consumers the option to block third-party charges
    The Commission has advocated that mobile providers give consumers 
the option to block all third-party charges from their mobile phone 
accounts.\39\ Providing a blocking option would significantly benefit 
consumers who wish to avoid third-party charges while imposing minimal 
costs to consumers who wish to use their mobile accounts for third-
party billing. At activation, consumers should be informed that third-
party charges may be placed on their accounts, and they should be given 
the opportunity to block all charges at that time. This option should 
be clearly and prominently disclosed to consumers while the accounts 
are active, including on the carriers' websites.
---------------------------------------------------------------------------
    \39\ See FTC Reply Comment, supra note 5, at 12.
---------------------------------------------------------------------------
    Staff also suggests that carriers should consider offering 
consumers the ability to block or allow only specific providers, or to 
block commercial providers only, as this may benefit consumers who wish 
to use their mobile accounts for only certain kinds of third-party 
charges. Allowing more granular blocking would permit consumers to 
continue to authorize third-party charges such as charitable or 
political donations.\40\
---------------------------------------------------------------------------
    \40\ Mobile Cramming Report, supra note 7, at 22.
---------------------------------------------------------------------------
Strategies for Detecting and Preventing Mobile Cramming
    Industry participants have adopted a range of strategies to attempt 
to detect and prevent mobile cramming. The staff report discusses many 
of these in detail and recommends best practices for improvement. These 
strategies address two key issues: avoiding deceptive practices that 
lead to unauthorized charges on mobile accounts, and ensuring that 
consumers are providing express, informed consent to third-party 
charges on mobile accounts.
    The staff report notes that merchants are responsible in the first 
instance for ensuring that their practices--including any advertising, 
marketing, and opt-in processes--are not deceptive, pursuant to the FTC 
Act. Further, information about price is important to consumers and 
should be disclosed clearly and conspicuously before charging a 
consumer's telephone account for a good or service.\41\ Thus, at a 
minimum, pricing information should be on the same page and immediately 
next to the purchase or buy button, entry of a PIN, or other invitation 
for a consumer to agree to a charge for a product or service. 
Additionally, advertising and purchase confirmation screens should 
clearly disclose that the charge is being billed to a specific 
telephone account. While industry guidelines have in the past focused 
extensively on the text-message based Premium SMS opt-in process, the 
basic consumer protection principles outlined in the report should 
apply regardless of the type of carrier billing used.
---------------------------------------------------------------------------
    \41\ See Fed. Trade Comm'n Staff, Revised.com Disclosures: How to 
Make Effective Disclosures in Digital Advertising (2013), at 10, 
available at http://www.ftc.gov/sites/default/files/attachments/press-
releases/ftc-staff-revises-online-advertising-disclosure-guidelines/
130312
dotcomdisclosures.pdf.
---------------------------------------------------------------------------
    The staff report also recommends that carriers and billing 
intermediaries should implement reasonable procedures to scrutinize 
risky or suspicious merchants and terminate or take other appropriate 
steps against companies engaging in unlawful practices. For example, 
the report recommends that if a carrier or billing intermediary 
discovers that a merchant has run a campaign containing deceptive 
advertising, or discovers the merchant engaged in unauthorized billing 
on landline phones, the carrier or intermediary should closely monitor 
other campaigns run by that third party or its affiliates to ensure 
compliance.\42\ Carriers and intermediaries can use monitoring 
techniques that compensate for known tactics that fraudsters use to 
evade detection of deceptive advertisements and sign-up processes. 
Industry participants also can adopt a policy of terminating serious 
and repeat offenders.\43\
---------------------------------------------------------------------------
    \42\ Mobile Cramming Report, supra note 7, at 26-27.
    \43\ While there are costs to effective monitoring, there are also 
substantial benefits to both industry and to consumers. Industry 
participants can lower expenses related to the processing of refund 
requests and handling of customer complaints. And consumers avoid being 
crammed with unauthorized charges.
---------------------------------------------------------------------------
    Additionally, the report recommends that industry take stronger 
steps to ensure that consumers have opted-in to charges as represented 
by merchants. In Premium SMS, mobile carriers typically have relied on 
the merchant's representation--passed on by the billing intermediary--
that a consumer opted-in to a charge. However, as the enforcement 
actions described above demonstrate, those representations are often 
unreliable. One option is to move toward more centralized control of 
the consumer opt-in process and authorization records, which appears to 
be the trend for at least some part of the industry.\44\
---------------------------------------------------------------------------
    \44\ See Mobile Cramming Report, supra note 7, at 28-30. 
Centralization may shift some compliance costs, in the short term, from 
the merchants to carriers and billing intermediaries. However, it 
should benefit consumers and industry participants by making it more 
difficult for unscrupulous merchants to place unauthorized charges and 
by streamlining dispute resolution when a consumer claims a charge was 
unauthorized.
---------------------------------------------------------------------------
    Finally, the staff report notes that monitoring consumer refund 
requests, and taking appropriate action when there are indications of 
unauthorized charges, can be a highly effective means of detecting and 
stopping cramming. Businesses providing other payment mechanisms use 
similar approaches to root out unauthorized charges. For example, 
credit card networks typically investigate merchants with chargeback 
rates of 1 percent, a threshold that is less than one-tenth of the 
refund rates seen in the cramming context.\45\ While refund rates may 
differ across different types of payment methods, a representative from 
the Mobile Giving Foundation has suggested that charitable donations 
charged to a mobile bill and processed through the Foundation typically 
have a refund rate of under 1 percent overall.\46\
---------------------------------------------------------------------------
    \45\ See id. at 13-14 For example, in the Wise Media case, the 
monthly refund rates for some services on one carrier were as high as 
40 percent. Wise Media TRO Memo, supra note 24, at 10.
    \46\ See Fed. Trade Comm'n, Mobile Cramming Roundtable Transcript 
(May 8, 2013), J. Manis, Mobile Giving Foundation, at 58, available at 
www.ftc.gov/sites/default/files/documents/public_events/
Mobile%20Cramming%20Roundtable/30508mob.pdf.
---------------------------------------------------------------------------
Adequate Disclosure of Third-Party Charges
    Another important step in preventing cramming is ensuring that 
consumers are adequately informed of all third-party charges on their 
accounts. Carriers should clearly and conspicuously disclose all 
charges for third-party services in a non-deceptive manner. In 
particular, the name of the third-party service and any associated bill 
heading should relate to the product offered and not suggest an 
affiliation with the carrier's service. And, in order for carriers to 
make these disclosures, billing intermediaries and merchants should 
provide accurate information about these charges to them.
    For consumers who auto-pay their bills, and may be especially 
unlikely to review the charges, or consumers who have prepaid phone 
plans, staff has urged carriers to consider whether a separate 
notification of third-party charges is warranted.
Consumer Dispute Protections and Refunds
    The Commission has explained that mobile carriers should provide a 
clear and consistent process for customers to dispute suspicious 
charges on their mobile accounts and obtain reimbursement.\47\ And 
indeed, FTC enforcement actions show that it is difficult for consumers 
to obtain refunds, and that refunds often are limited to only some 
months' worth of charges, even when consumers discover they incurred 
crammed charges for a longer time period.\48\ A clear and consistent 
process is particularly important in this context because no Federal 
statutory protections have been applied to consumer disputes about 
unauthorized charges placed on mobile carrier accounts. Consumers 
therefore have different dispute rights when using carrier billing than 
when using other payment mechanisms. For example, consumers have 
dispute resolution rights and liability limits for unauthorized credit 
card charges under Regulation Z, including a right to withhold payment 
while the dispute is pending, \49\ and for unauthorized debit card 
charges under Regulation E, including a requirement that funds debited 
in an unauthorized transaction be returned to a consumer's account 
within ten days, pending further investigation.\50\
---------------------------------------------------------------------------
    \47\ FTC Reply Comment, supra note 5, at 12.
    \48\ Mobile Cramming Report, supra note 7, at 14, 33.
    \49\ See 12 C.F.R. Sec. Sec. 1026.12, 1026.13.
    \50\ See 12 C.F.R. Sec. Sec. 1005.6, 1005.11.
---------------------------------------------------------------------------
    The staff report further suggests that mobile carriers also can do 
more to provide redress to consumers who have been crammed. For 
example, in the landline billing context, industry members have stated 
that consumers can withhold payment on disputed charges during the 
dispute period without a cut-off in phone service or accrual of 
interest. Industry should extend this protection to the mobile billing 
context, and inform consumers about it. The staff report also suggests 
that carriers be more proactive in notifying consumers when a third 
party's billing activities are terminated for unauthorized charges, in 
order to allow them to request a refund if appropriate.
V. Conclusion
    Thank you for the opportunity to provide the Commission's views on 
mobile cramming. The Commission is committed to protecting consumers 
from mobile cramming and we look forward to continuing to work with the 
Committee and Congress on this important issue.

    Senator Blumenthal. Thank you, Commissioner.
    Attorney General Sorrell?

             STATEMENT OF HON. WILLIAM H. SORRELL, 
               ATTORNEY GENERAL, STATE OF VERMONT

    Mr. Sorrell. Senator Blumenthal, Ranking Member Thune, 
thank you for inviting me to be here today to participate in 
this hearing and to speak from the perspective of the State 
AGs.
    I do want to make it clear that although Vermont is the 
lead state in a 47-state effort right now to combat wireless 
cramming, that I am speaking only on behalf of myself today.
    It was over 10 years ago that Vermont started addressing 
the problem of landline cramming, and our focus was on the 
third-party providers and not on the carriers. But from 
enforcement actions and settlements, we have recouped for 
25,000 Vermonters over $2 million in refunds. If you want to 
take Vermont at two-tenths of 1 percent of the U.S. population 
and look at that nationally, just from the companies that we 
looked at and have settled with, that would be over 125 million 
Americans and over $1 billion lost to landline cramming. And 
that is just from those companies that we have taken action 
against.
    Ultimately, self-regulation, we realize, did not work in 
the landline cramming arena, and our State legislature banned 
essentially all third-party charges on landlines.
    And then about 3 years ago, our office with other AGs 
turned to the wireless arena. But instead of going at the 
third-party providers, we focused on the four large cell phone 
or wireless carriers. And we conducted a survey in Vermont 
involving all Vermonters with third-party charges on their cell 
phone bills on the part of two large carriers over a two-month 
period in the summer of 2012. We retained the University of 
Vermont Center for Rural Studies to conduct the survey, and 
what that survey turned up was that approximately 60 percent of 
those Vermonters with third-party charges from those carriers 
on their cell phone bills during those 2 months--they had been 
crammed. They did not know the charges were there. They were 
not availing themselves of those charges.
    And perhaps more compelling is the fact that 80 percent of 
those surveyed were not aware that charges on their cell phone 
bill were not exclusively for services provided by their own 
carrier.
    And other AG's have found similar results as they have 
looked at this issue in their States.
    Now, as you and the Ranking Member have pointed out, there 
has been some progress in that the four big carriers last 
November essentially got out of the PSMS business, and 
consequently, complaints to us have sort of fallen off a cliff.
    But we are very much looking forward and wanting to avoid 
recurrences of wireless cramming in the future and also be 
aware of new methodologies, new technologies, and opportunities 
for consumers to be scammed. So we want to protect going 
forward. We also want to see that those customers who have been 
crammed are made whole by their carriers, and we hope that 
there will be enhanced consumer education efforts to avoid 
recurrences going forward.
    This is a national problem. We very much hope that the 
Federal regulators will step up and be aggressive and, if 
appropriate, that the Congress will take action to better 
protect American consumers going forward. In the wireless 
arena, self-regulation has failed, and with my Federal partners 
and the Congress, we need to step up.
    Thank you very much.
    [The prepared statement of Mr. Sorrell follows:]

   Prepared Statement of Hon. William H. Sorrell, Attorney General, 
                            State of Vermont
Summary
    Chairman Rockefeller, Ranking Member Thune, and members of the 
Committee, thank you for the opportunity to testify today. The 
placement of unauthorized charges on telephone bills, also known as 
``cramming,'' has victimized many of my constituents in Vermont, and 
many of your constituents as well, including consumers, small 
businesses, and even large organizations. Cramming is a practice of 
significant interest to me, and one that the Vermont Attorney General's 
Office has been combatting, on behalf of Vermonters and citizens 
nationwide, for well over a decade.
    Cramming is a huge, nationwide problem that has been pervasive in 
both landline and mobile telecommunications and has cost American 
consumers many billions of dollars. Cramming involves consumers being 
charged amounts on their phone bills without authorization, usually for 
goods and services ``sold'' by third-party vendors ranging from $9.99 
to $24.99 \1\ per month that the consumer neither requested nor used. 
Among the things that make cramming so pernicious and persistent is the 
continuing lack of consumer awareness that their trusted telephone 
carriers are able and willing to place charges on their telephone bills 
for goods and services sold by disreputable third parties. Not only do 
consumers not expect unanticipated third-party charges on their bill, 
they rarely recognize the charges that do appear on their bills as 
unauthorized third-party charges. Those few consumers that do detect 
unauthorized third-party charges--at least with respect to mobile 
cramming--have not consistently been able to obtain full refunds from 
their carriers or the carriers' third-party partners.
---------------------------------------------------------------------------
    \1\ These dollar amounts are typical for crammed charges on mobile 
phones.
---------------------------------------------------------------------------
    A number of regulatory approaches have proven to be ineffective in 
curbing cramming. In both the landline and mobile contexts, the 
telecommunications industry has largely been permitted to engage in 
``self-regulation.'' As this laissez-faire approach evinced its failure 
with respect to landline cramming, Vermont tried a notice-regime, 
requiring consumers to be notified in writing before receiving a third-
party charge from their landline carrier. It is under these failed 
policies that cramming blossomed into the national, industry-wide, 
multi-billion dollar problem law enforcement officials and regulators--
and, increasingly, consumers--across the country are familiar with 
today.
Cramming is a Huge Problem that has Cost Consumers Many Billions of 
        Dollars
    As the Committee is well aware, cramming has been recognized by 
many for its size and cost to consumers. In July 2011, this Committee 
concluded that landline cramming--a problem that had then been in 
existence for over a decade--had cost consumers a ``substantial 
percentage'' of $2 billion annually in ``recent years.'' \2\ In 2012, 
Consumer Reports estimated that landline and mobile cramming together 
could be costing American consumers up to $2 billion per year.\3\
---------------------------------------------------------------------------
    \2\ S. Comm. On Commerce, Sci. and Transp., 112th Cong., 
Unauthorized Charges on Telephone Bills: Staff Report for Chairman 
Rockefeller (July 12, 2011).
    \3\ Beware of Bogus Phone Bill Fees; Consumers Could Be Losing Up 
to $2 Billion a Year, Consumer Reports, August 2012, available at 
http://www.consumerreports.org/cro/magazine/2012/08/beware-of-bogus-
phone-bill-fees.
---------------------------------------------------------------------------
    Based upon Vermont's experience, if anything, these estimates of 
consumer loss are low. To date, as a result of my Office's 
investigations into dozens of third-party merchants and billing 
aggregators involved in landline cramming, 25,000 Vermonters have 
recouped nearly $2.3 million in crammed landline charges.\4\ My Office 
has no reason to believe that these companies disproportionately 
targeted Vermont consumers. Moreover, there are many more such 
companies that perpetrated cramming that my Office has not 
investigated.\5\ Thus, it is reasonable to conclude that approximately 
1.25 million Americans have lost a staggering $1.15 billion to the 
entities Vermont has investigated and settled with to date alone and 
that these figures represent just a fraction of total consumer loss due 
to landline cramming.\6\
---------------------------------------------------------------------------
    \4\ Press Release, Office of the Attorney General of Vermont, A.G. 
Settles Case for $1.6 Million in Ongoing Effort to Combat ``Cramming'' 
(Nov. 12, 2013), available at http://ago.vermont.gov/focus/news/a.g.-
settles-case-for-$1.6-million-in-ongoing-effort-to-combat-cramming.php.
    \5\ Unauthorized Charges on Telephone Bills: Why Crammers Win and 
Consumers Lose: Hearing before the S. Comm. on Commerce, Sci., and 
Transp., 112th Cong. 112-171 (2011) [hereinafter Hearing] (statement of 
Elliot Burg, Senior Assistant Atty Gen., State of Vermont).
    \6\ See State & County QuickFacts, Vermont, United States Census 
Bureau (July 8, 2014), http://quickfacts.census.gov/qfd/states/
50000.html (estimating United States and Vermont populations for 2013).
---------------------------------------------------------------------------
    On the wireless side, the magnitude of consumer loss is equally 
daunting. As the Committee may be aware, my Office recently retained 
the University of Vermont's Center for Rural Studies to conduct a 
survey to determine the mobile cramming rate in Vermont for the 
customers of two major wireless carriers--that is, the proportion of 
third-party charges placed on mobile phones that were unauthorized.\7\ 
Through the study, a sample of 2,400 Vermonters who had third-party 
charges placed on their mobile telephone bills during August and/or 
September of 2012 were contacted by my Office; we asked them about 
5,388 third-party charges for a total of $43,250.96 that had been 
placed on their mobile phone bills over the course of those two months. 
Over 60 percent of the surveyed consumers reported the charges were 
crammed, bringing consumer losses over a two month period for these 
2,400 Vermonters alone to over $25,950.58. Extrapolating nationwide, 
the Vermont survey suggests a similar survey done on a national scale 
would reveal that a sample of 1.2 million Americans lost $12,975,290 to 
mobile cramming during August and September of 2012 alone. My Office 
believes that carriers started placing third-party charges on mobile 
phone bills in Vermont as early as 2006. Even if only 5 percent of 
American consumers have ever experienced third-party charges on their 
mobile phone bills, consumer losses for mobile cramming alone may have 
exceeded $10 billion between 2007 and 2013.\8\
---------------------------------------------------------------------------
    \7\ See Jane Kolodinsky, Mobile Phone Third-Party Charge 
Authorization Study: Vermont, Center for Rural Studies at the 
University of Vermont (May 5, 2013). available at http://
ago.vermont.gov/assets/files/Mobile%20Phone%20Third-
Party%20Charge%20Authorization%20
Study.pdf
    \8\ Based on the 84 months from January 2007 through December 2013; 
while my Office's understanding is that the practice of placement of 
third-party charges on mobile telephones began as early as 2004, we are 
not aware of cramming complaints predating 2006.
---------------------------------------------------------------------------
Cramming is a Pervasive, Nationwide and Industrywide Problem
    This Committee is well aware of the depth and breadth of the 
landline cramming problem; I expect the Committee's work in recent 
years has uncovered the fact that mobile cramming is similarly nation 
and industrywide. Vermont, like other jurisdictions around the country, 
fielded an increasing number of consumer complaints about mobile 
cramming from 2006 to 2013.\9\ While these complaints are voluminous, 
it is generally believed that they represent only a very small fraction 
of the consumers who have been improperly charged for third-party goods 
and services on their mobile phone bills.\10\ Nevertheless, consumer 
complaints implicate the entire third-party charge industry; naming 
more than a dozen mobile carriers and hundreds of third parties, 
including content providers and billing aggregators.\11\
---------------------------------------------------------------------------
    \9\ Letter from Nat'l Ass'n of Att'ys Gen. to Donald Clark, Sec'y, 
Fed. Trade Comm'n 2-3 (June 24, 2013) (on file with Fed. Trade Comm'n), 
available at: http://www.ftc.gov/sites/default/files/documents/
public_comments/2013/06/564482-00015-86106.pdf [hereinafter Letter].
    \10\ Id.
    \11\ Id.
---------------------------------------------------------------------------
    Importantly, mobile cramming is a problem that victimizes consumers 
no matter what mobile carrier they choose. Indeed, in a recent study of 
over 750 consumer complaints received by 28 jurisdictions, several 
state attorneys general discovered that 14 mobile carriers were 
implicated in cramming. Moreover, the following themes of consumer 
complaints were consistent across those carriers as well as across the 
country, and across time:

        Typically, consumers complain of having been signed up for a 
        premium text messaging subscription service (or ``PSMS'' 
        subscription) without their knowledge or authorization, costing 
        them $9.99 or more on their mobile phone bill each month.

        Some of these subscriptions purport to be for goods such as 
        ringtones and wallpaper, but many more are for ``alerts''--a 
        service in which the content provider purports to send periodic 
        texts to the consumer with information about weather, traffic, 
        news, or sports, for example, or with inspirational messages, 
        horoscopes, celebrity gossip, or trivia.

        Consumers typically complain that they do not desire and do not 
        use the goods and services for which they are being billed. 
        Some consumers report that they do not even receive the alerts 
        for which they have been charged.

        While consumers can sometimes recall having gotten spam text(s) 
        or having entered their mobile phone numbers into a website 
        immediately prior to being signed up for a subscription service 
        (often to receive a ``free'' good or service), just as often--
        if not more often--consumers simply have absolutely no idea how 
        they came to be signed up for the subscription.

        Consumers are often crammed by more than one content provider 
        and, many times, after they have already asked their mobile 
        carrier to place a block on their account to stop third party 
        billing altogether.

        Consumers that detect that they have been crammed on their 
        mobile phone bills typically do so after they have been paying 
        for a subscription service for several months.

        Even consumers who do not text and have no access to the 
        Internet (and thus, cannot have opted in to a third party good 
        or service through a typical method) report having been 
        crammed. Too often, these consumers are elderly.\12\
---------------------------------------------------------------------------
    \12\ Letter, supra note 9, at 3--4.

    These are the very same issues my Office hears about when it 
communicates with Vermont consumers about mobile cramming.\13\ Thus, it 
should come as no surprise that my Office believes that many of the 
allegations contained in the Federal Trade Commission's recent 
complaint against T-Mobile are representative of behaviors engaged in 
by carriers throughout the industry.\14\
---------------------------------------------------------------------------
    \13\ Id. at 4, 6.
    \14\ See Complaint, Fed. Trade Comm'n v. T-Mobile USA, Inc., No. 
2:14-cv-00967 (W.D. Wash. July 1, 2014), available at http://
www.ftc.gov/system/files/documents/cases/140701tmobile
cmpt.pdf (alleging, inter alia, that T-Mobile charged consumers for 
unauthorized third-party subscriptions despite clear indications that 
the charges were unauthorized, that T-Mobile retained a significant 
portion of the revenue obtained through such charges, and that T-Mobile 
bills obscured the nature and source of such charges on consumers' 
mobile telephone bills).
---------------------------------------------------------------------------
Most Third-Party Charges are Crammed Charges
    It is my Office's conclusion that most third-party charges are 
crammed charges. My Office has conducted three consumer surveys 
regarding cramming since the Fall of 2011. According to these surveys, 
in excess of 60 percent of third party charges are unauthorized 
(``crammed''). As stated above, according to our 2013 mobile third 
party authorization study, over 60 percent of third-party charges on 
mobile phone bills were crammed charges. Previously, in the fall of 
2011, my Office spoke to over 100 Vermont consumers by phone about 
their experience with third-party charges on their mobile telephone 
bills; a full 92 percent of the consumers said the charge was crammed, 
while only 8 percent of the consumers reported that the charge was 
authorized.\15\ Finally, nearly 90 percent of consumers surveyed in 
connection with my Office's first landline billing aggregator 
investigation reported that the third-party charges on their landline 
bills were unauthorized.\16\ We are aware of no studies that contradict 
these findings.
---------------------------------------------------------------------------
    \15\ Letter, supra note 9, at 4.
    \16\ Hearing, supra note 5, at 2.
---------------------------------------------------------------------------
Third-Party Charges have Enriched Industry while Offering Consumers 
        Little Value
    It is no secret that the landline and mobile telecommunications 
industries have profited to the tune of billions of dollars from 
placing third-party charges on landline and mobile telephone bills.\17\ 
And yet, consumers have gained very little as a result. Consumers not 
only report that they are crammed for third-party services that they 
did not want or authorize, but that they would have no reason to value 
such offerings. A number of the landline consumers my Office spoke to 
in connection with our first landline billing aggregator investigation 
indicated they had no reason to order the voice-mail service for which 
they were charged; the respondents gave such explanations as, ``[I] 
have an answering machine [and so] would never use this service,'' ``I 
had voice-mail from the phone company [and] did not need [another 
service],'' and ``[I] can't imagine agreeing to voice-mail since we 
have always had a personal voice recorder.'' \18\ Further, 73 percent 
of the consumers my Office interviewed in 2011 said they would have had 
no reason to purchase the goods or services for which they were billed 
on their mobile phone--for example, one consumer had been charged for 
stock alerts, but owned no stocks and did not follow the market.\19\ 
Finally, while consumers typically complain they do not desire and do 
not use the goods and services for which they are charged on their 
phone bills, some consumers report they have not even received the 
goods and services for which they have been charged.\20\ It is, 
therefore, of no surprise that there was no consumer outcry following 
the mobile carriers' decision to exit the Premium Short Message Service 
(``PSMS'') platform--widely believed to be responsible for the lion's 
share of the mobile cramming problem--in November of 2013. Likewise, my 
Office has received no negative feedback from consumers following 
Vermont's passage of the 2011 ban on most third-party charges on 
landline bills. The only logical conclusion: contrary to industry 
talking points,\21\ very few, if any, consumers received any real value 
from this billion-dollar industry.
---------------------------------------------------------------------------
    \17\ S. Comm. On Commerce, Sci. and Transp., 112th Cong., supra 
note 2, at iii; Complaint, Fed. Trade Comm'n v. T-Mobile USA, Inc., No. 
2:14-cv-00967, at 3-4.
    \18\ Hearing, supra note 5, at 2.
    \19\ Letter, supra note 9, at 4.
    \20\ Id. at 3.
    \21\ Michael F. Altschul, Senior Vice President and Gen. Counsel, 
CTIA: The Wireless Association, Fed. Trade Comm'n Workshop: Bill Shock 
and Cramming (Apr. 17, 2014, 9:00 AM) http://www.fcc.gov/events/
workshop-bill-shock-and-cramming.
---------------------------------------------------------------------------
Cramming goes Undetected by Consumers
    Cramming is a particularly serious problem because consumers do not 
know the underlying activity--the placement of third-party charges on 
phone bills--is happening. Consumers do not expect third-party charges 
to appear on their phone bills because they do not understand it is 
possible for third parties to charge them this way. Often third-party 
charges appear on phone bills without the consumer having taken any 
action at all. This problem is exacerbated by the fact that such 
charges are not readily discernible on the billing statements.
    The data consistently show that consumer awareness about the third-
party charges on their landline and mobile telephone bills is very low 
in Vermont. According to our 2013 mobile cramming survey, in excess of 
78 percent of the consumers reported that, prior to receiving the 
survey, they had been unaware they could be billed for goods and 
services provided by third parties on their mobile phone bills.\22\ In 
my Office's 2011 mobile cramming survey, significantly more than half 
of the consumers did not know that the third-party charge was on their 
bill until they were informed of the charge by my Office, nor did they 
know that they could be billed for third-party goods and services on 
their mobile phone bills prior to being informed of the charge in 
question.\23\ Finally, according to the consumers surveyed in 
connection with my Office's first landline aggregator investigation, 
only 27.4 percent of consumers noticed the third-party charge on their 
landline bills within three months of being charged.\24\
---------------------------------------------------------------------------
    \22\ Kolodinsky, supra note 7, at 8.
    \23\ Letter, supra note 9, at 4.
    \24\ Hearing, supra note 5, at 2.
---------------------------------------------------------------------------
    The national picture is no different; consumers often do not know 
how they came to be signed up for third-party charges on their phone 
bills. A recent national mobile-cramming complaint analysis indicated 
the following were among the themes of consumer complaints:

        While consumers can sometimes recall having gotten spam text(s) 
        or having entered their mobile phone numbers into a website 
        immediately prior to being signed up for a subscription service 
        (often to receive a ``free'' good or service), just as often--
        if not more often--consumers simply have absolutely no idea how 
        they came to be signed up for the subscription.

        Consumers that detect that they have been crammed on their 
        mobile phone bills typically do so after they have been paying 
        for a subscription service for several months.

        Even consumers who do not text and have no access to the 
        Internet (and thus, cannot have opted in to a third party good 
        or service through a typical double opt-in method) report 
        having been crammed. Too often, these consumers are 
        elderly.\25\
---------------------------------------------------------------------------
    \25\ Letter, supra note 9, at 3-4.

    Consumers also routinely report that they do not understand their 
mobile phone bills and/or they find it difficult to detect the source 
of the third-party charges appearing on their bills.\26\ Some consumers 
have even complained of having been crammed by third parties whose 
names (or whose subscription/product names) make it very difficult to 
detect that a third party was involved.\27\ Consumers often express 
confusion about their mobile phone bills, and report that they had no 
idea they could be charged on their mobile phone bills for goods and 
services provided by third parties.\28\ As a result, consumers are 
typically charged on their mobile phone bills for third-party 
subscriptions for multiple months before they recognize they have been 
crammed.\29\
---------------------------------------------------------------------------
    \26\ Id. at 7.
    \27\ Id. at 3, n. 4 (explaining that national consumers named the 
following third parties and/or campaigns in their complaints: ``General 
Texting,'' ``General Texting Co.,'' ``General Texting, LLC,'' ``General 
Texting.com,'' ``Premium Axcess,''[sic], ``Premium Customer Care,'' 
``Premium SMS,'' ``Premium Text Messaging,'' ``Text Savings,'' and 
``Text Savings, LLC.'').
    \28\ Letter, supra note 9, at 7.
    \29\ Id.
---------------------------------------------------------------------------
Consumers Do Not Obtain Full Refunds for Cramming
    At least with respect to mobile cramming, consumer experience with 
obtaining refunds is inconsistent. While some consumers are able to get 
full refunds from their mobile carrier, many are not.\30\ Vermont 
consumers have likewise reported mixed success with obtaining refunds 
from their mobile carriers; while some are able to obtain full refunds, 
others are only able to obtain a partial refund.\31\ Still others are 
unable to get any refund from their mobile carrier, or are promised 
refunds they never receive.\32\ Consumers also report that carriers 
refer them to the third-party content provider to seek refunds, and/or 
that they are unable to reach the content provider, or, if they do 
reach the content provider, are unable to get a full, or even partial, 
refund.\33\
---------------------------------------------------------------------------
    \30\ Id. at 3-4.
    \31\ Id. at 6.
    \32\ Id.
    \33\ Id. at 3-4.
---------------------------------------------------------------------------
The Time is Ripe for a New Approach
    After over a decade of fighting landline cramming with enforcement 
actions against third-party merchants and billing aggregators, my 
Office successfully advocated for legislation prohibiting most third-
party charges on landline telephone bills.\34\ This statutory approach 
takes account of actual consumer expectations--i.e., that consumers do 
not anticipate they will be charged on their phone bills for third-
party goods and services--is straightforward to enforce, and does not 
interfere with other methods of receiving payment for services 
provided.\35\ Most importantly, we believe the law has worked.\36\
---------------------------------------------------------------------------
    \34\ See 9 Vt. Stat. Ann. tit. 9 Sec. 2466 (2014) (prohibiting most 
third-party charges from being placed on Vermonters' landline telephone 
bills).
    \35\ Hearing, supra note 5, at 4.
    \36\ In the approximate two years since the ban became effective, 
my Office has received no more than 2 complaints about unauthorized 
third-party charges on landline bills that postdate the ban.
---------------------------------------------------------------------------
    My Office decided to take another approach when turning our 
attention to mobile cramming. After launching dozens of investigations 
into third-party content providers and mobile billing aggregators, my 
Office began pursuing carriers for billing for unauthorized charges, 
first on behalf of Vermont, and then on behalf of--now--46 states.\37\ 
In November of 2013, the Nation's four largest mobile carriers--
Verizon, AT&T, Sprint and T-Mobile--decided to stop charging their 
customers for commercial PSMS, a platform which accounted for the 
majority of third-party charges on mobile phones, and for the 
overwhelming majority of cramming complaints.\38\ My Office believes 
that billing for commercial PSMS has now ceased industry-wide, and has 
heard from Offices around the country that mobile-cramming complaints 
have slowed to a trickle, no doubt as a result. While the mobile 
carriers' exit of PSMS is undoubtedly very positive for consumers, it 
was a voluntary move on the part of industry and carries with it no 
guarantee of future action with regard to PSMS or other, similar 
platforms such as Direct to Consumer Billing (``DCB''). Non-PSMS mobile 
cramming complaints are few in number, but do exist.\39\ Moreover, we 
expect platforms, such as DCB, that are more appropriate for 
consumption by consumers with smartphones (rather than feature phones, 
to which PSMS was keyed) to be on the rise.
---------------------------------------------------------------------------
    \37\ See Press Release, Office of the Attorney General of Vermont, 
AT&T Mobility, Sprint and T-Mobile Will Stop Billing Problematic Third-
Party Charges (November 21, 2013), available at http://ago.vermont.gov/
focus/news/att-mobility-sprint-and-t-mobile-will-stop-billing-
problematic-third-party-charges.php (referring to a then-45-state 
matter).
    \38\ Id.; Ina Fried, AT&T, Sprint, T-Mobile, Verizon Dropping Most 
Premium Text Service Billing in Effort to Combat Fraud, All Things D 
(November 21, 2013), http://allthingsd.com/20131121/att-sprint-t-
mobile-verizon-all-dropping-most-premium-text-service-billing-in-
effort-to-combat-fraud/.
    \39\ Note also that my Office's 2013 study was of all third-party 
charges, and not just PSMS charges.
---------------------------------------------------------------------------
    It is my opinion that a new approach would be appropriate on a 
Federal level as well. While my Office's legislative advocacy has 
effectively stopped landline cramming in Vermont, we believe our law-
enforcement leadership has merely pressed the ``pause'' button on 
mobile cramming. As we look forward to a world that becomes more 
mobile-device oriented, the time is right for all of us to take stock 
of the major lessons learned--the potential for enormous consumer loss, 
low consumer awareness about the practice, the difficulty of getting 
consumer redress--to ensure that cramming does not fool us again.

    Senator Blumenthal. Thank you very much, Attorney General 
Sorrell.
    Mr. LeBlanc?

                  STATEMENT OF TRAVIS LeBLANC,

               ACTING CHIEF, ENFORCEMENT BUREAU,

               FEDERAL COMMUNICATIONS COMMISSION

    Mr. LeBlanc. Senator Blumenthal, Ranking Member Thune, and 
Senator Johnson, my name is Travis LeBlanc. I am the Acting 
Chief of Enforcement at the Federal Communications Commission. 
Thank you for the opportunity to appear before you to highlight 
the FCC's efforts to deter, disrupt, and dismantle cramming, 
the fraudulent practice of placing unexpected or unauthorized 
charges on consumers' telephone bills.
    Cramming is a significant problem, causing countless 
consumers to unwittingly open their wallets for products and 
services they never wanted. A report released in 2011 by 
Chairman Rockefeller showed that phone companies placed 
approximately $2 billion in third-party charges on their 
subscribers' landline bills each year and that most of these 
charges were unauthorized. In many of these cases, consumers 
were unaware that they had been crammed because charges were 
buried in multi-page bills, not clearly described, or small 
enough in amount to go unnoticed. As consumers embrace 
paperless billing and automated payments, the propensity 
increases for cramming to go undetected. Consumers' increased 
reliance on mobile phones makes the problem of cramming even 
thornier.
    Today 90 percent of American adults have cell phones and a 
majority own smart phones. These phones are used not only for 
calls but also for a wide array of purchases in the real and 
virtual world. While the adoption of new mobile technologies 
and services presents exciting new opportunities for consumers, 
it also creates new opportunities for crammers who, I should 
add, target not only adult consumers but also children, small 
businesses, nonprofits, and religious organizations. We must 
make sure that our consumer protections keep up with new 
technologies and billing practices.
    Since 2010, of the thousands of cramming complaints the FCC 
has received, the proportion of those about unauthorized 
charges on wireless bills has grown from 15 to 58 percent. To 
be clear, these are complaints from consumers who believe they 
were crammed. Yet, because so many consumers do not even know 
they have been crammed, these numbers are just the tip of the 
iceberg.
    As the Federal agency with primary oversight of the 
Nation's telephone carriers, the FCC has approached the problem 
of cramming comprehensively using a combination of enforcement, 
regulation, and consumer education. The Commission has taken 14 
enforcement actions since 2010 against carriers for placing 
unauthorized charges on consumers' phone bills. These actions 
amount to approximately $123 million in monetary forfeitures, 
settlements, and refunds to injured consumers. Just in the last 
2 weeks, we have taken three actions against carriers involving 
over $10.5 million in proposed penalties and payments to the 
Treasury.
    A prime area for mobile cramming enforcement involves 
carriers who have charged their own subscribers via premium 
text messages around $10 a month for unauthorized third-party 
services such as horoscopes and stock quotes. This is the 
alleged fraudulent activity at issue in the FCC's cramming 
investigation of T-Mobile and the Federal Trade Commission's 
complaint against it. We have no reason to believe that T-
Mobile was the only carrier to engage in this conduct. To 
leverage our shared expertise and resources, the Federal 
Communications Commission worked collaboratively with the FTC 
on the T-Mobile investigation, and we look forward to 
continuing our partnerships with the FTC, State Attorneys 
General, and other law enforcers in the future.
    We have also targeted our enforcement toward mobile and 
landline carriers who place unauthorized charges for their own 
services on customers' bills and, of course, carriers who act 
as third-party crammers by placing unauthorized charges on 
other carriers' bills. This month, we entered into a $1.2 
million settlement with Assist 123 for allegedly placing 
unauthorized PSMS charges for subscription services like movie 
listings and lottery results on consumers' wireless and 
landline phone bills.
    On the regulatory side, the FCC adopted truth-in-billing 
rules 15 years ago designed to help consumers detect cramming 
or other fraud in connection with their telephone bills. The 
Commission has now asked whether it should prohibit carriers 
from billing for third-party products and services unless the 
subscriber expressly opts in, whether it should ban carriers 
from charging for any third-party products and services, and 
whether it should expand all of the existing truth-in-billing 
rules to wireless carriers so that third-party charges are more 
conspicuous to consumers. It is expected that the FCC will 
consider any rule changes within the next several months.
    On the education side, the FCC has been engaging consumers 
through written and video guides, tip sheets, and other 
materials aimed at empowering them to identify and report 
cramming. The Commission has also held a comprehensive public 
workshop on cramming in 2013, and to keep abreast of new and 
emerging kinds of cramming, as well as new carrier billing 
practices, the FCC is planning to host a workshop or similar 
event on these topics in the next 6 months.
    In sum, through its enforcement, regulatory, and consumer 
education efforts, the FCC is using its authority to protect 
consumers from these unauthorized charges, and we will continue 
to do so whenever and wherever crammers exploit innovative 
communications technologies, consumer trust, and the 
pocketbooks of American families.
    Senator Blumenthal, Ranking Member Thune, and members of 
the Committee, it has been an honor to appear before you today, 
and I look forward to answering your questions.
    [The prepared statement of Mr. LeBlanc follows:]

 Prepared Statement Travis LeBlanc, Acting Chief, Enforcement Bureau, 
                   Federal Communications Commission
    Chairman Rockefeller, Ranking Member Thune, and members of the 
Committee, I am Travis LeBlanc, Acting Chief of the Enforcement Bureau 
at the Federal Communications Commission. Thank you for the opportunity 
to appear before you to highlight the FCC's efforts to combat the 
harmful practice of placing unexpected or unauthorized charges on 
consumers' telephone bills, a practice known as cramming.
The Cramming Problem
    Cramming is a significant problem, and one that, by its nature, has 
caused countless consumers to unwittingly open their wallets for 
products and services they never wanted. A report released in 2011 by 
Chairman Rockefeller after a year-long investigation of cramming on 
landline telephone bills showed that telephone companies placed 
approximately $2 billion worth of third-party charges on their 
subscribers' bills each year, and that most of these charges were 
unauthorized.\1\ Fifteen to twenty million U.S. households are 
estimated to have been victims of cramming on their landline telephone 
bills,\2\ and most do not even know it. Historically, many consumers 
have been completely unaware that their carriers are permitted to 
charge them for third-party products and services, and do not know to 
look for third-party charges on their telephone bills. Even those who 
are aware of the possibility often fail to spot unauthorized charges on 
their bills, because the charges have been hidden from scrutiny: they 
have been buried in multi-page bills, not clearly described, or small 
enough in amount to go unnoticed.\3\ Consumer deception is a hallmark 
of cramming. The Commission took action in 2012 to help wireline 
consumers detect--or simply avoid--cramming, but unfortunately 
consumers continue to be crammed.
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    \1\ Unauthorized Charges on Telephone Bills, U.S. Senate Committee 
on Commerce, Science & Transportation, Office of Oversight & 
Investigations, Majority Staff, Staff Report for Chairman Rockefeller 
(rel. July 12, 2011), available at http://www.commerce.senate.gov/
public/?a=Files
.Serve&File_id=3295866e-d4ba-4297-bd26-571665f40756.
    \2\ Empowering Consumers to Prevent and Detect Billing for 
Unauthorized Charges (``Cramming''), Report and Order and Further 
Notice of Proposed Rulemaking, 27 FCC Rcd 4436, 4437 (2012) (``FCC 
Cramming Order'').
    \3\ Id. at 4444.
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    Today's hearing is about the fact that cramming is not just a 
problem for those with landline telephones. Since 2010, the FCC has 
received more than 5,000 complaints about cramming, and the proportion 
of those about unauthorized charges on wireless bills has grown from 
about 15 percent in 2008-2010 to 58 percent in 2013. Because so many 
consumers do not even realize that they have been crammed, or lack the 
time or knowledge to complain to the FCC, these numbers represent just 
the tip of the iceberg. A 2012 analysis by the Illinois Citizens 
Utility Board found that the percentage of fraudulent third-party 
charges on Illinois consumers' wireless bills skyrocketed in just one 
year, from about 26 percent to 51 percent.\4\ It is critical that 
cramming on wireless bills not be overlooked, especially now, when 
Americans are becoming increasingly reliant on their mobile phones. The 
Pew Research Center estimates that 90 percent of American adults have a 
cell phone, including 74 percent of Americans 65 and over.\5\ According 
to the Centers for Disease Control and Prevention, two in five U.S. 
households have ``cut the cord'' entirely from their landline phones 
and are using only mobile phones.\6\
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    \4\ Citizens Utility Board, Analysis: Frequency of Cellphone 
``Cramming'' Scam Doubles in Illinois, CUB Concerned Wireless Customers 
Targeted as Landline Law Tighten (Dec. 4, 2012), available at http://
www.citizensutilityboard/pdfs/NewsReleases/20121204_CellPhoneCram
ming.pdf.
    \5\ Pew Research Internet Project, Cell Phone and Smartphone 
Ownership Demographics, available at http://www.pewinternet.org/data-
trend/mobile/cell-phone-and-smartphone-ownership-demographics/.
    \6\ Centers for Disease Control and Prevention, National Center for 
Health Statistics, Wireless Substitution: Early Release of Estimates 
From the National Health Interview Survey, July-December 2013, (July 
2014), available at http://www.cdc.gov/nchs/data/nhis/earlyrelease/
wireless201407.pdf.
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    Crammers are predators. They evolve with consumers. As consumers 
migrate to wireless phones and away from landlines, we expect that the 
same kind of predators that profited from unauthorized landline charges 
will look to wireless bills for new and creative ways to defraud 
consumers. Today, a majority of Americans (58 percent) have a 
smartphone.\7\ The rise in wireless phone dependence introduces new 
ways for bad actors to profit from sneaky billing practices. This is 
because modern smartphones are not just phones that facilitate only 
voice communications, but sophisticated handheld computers that enable 
consumers to engage in a wide array of activities, from interactive 
gaming, to buying a coffee in a cafe, to shopping online from wherever 
they are. Consumers with Android phones, for example, can charge all of 
their app purchases to their phone bills, a form of direct-carrier 
billing.\8\ The more consumers' mobile phone bills become like credit 
card bills--reflecting a host of different purchases--the more 
difficult it may become to spot unauthorized charges.
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    \7\ Pew Research Internet Project, Cell Phone and Smartphone 
Ownership Demographics, available at http://www.pewinternet.org/data-
trend/mobile/cell-phone-and-smartphone-ownership-demographics/.
    \8\ See, e.g., Ingrid Lunden, ``Amazon's Carrier Billing Deal With 
Bango To Kick In This Year--Changes For The Appstore And Amazon 
Ahead?,'' TechCrunch, Mar. 20, 2013, available at http://
techcrunch.com/2013/03/20/amazons-carrier-billing-deal-with-bango-to-
kick-in-this-year
-changes-for-the-appstore-and-amazon-ahead/; Kevin Parrish, ``Google 
Play Offers Option to Charge Purchases to Your Bill,'' Tom's Guide, May 
3, 2012, available at http://www
.tomsguide.com/us/Google-Play-Carrier-Billing-AT-T-Android-Sprint,news-
15070.html.
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    If there is any good news, it is that in 2012, major landline 
carriers announced that they would discontinue most third-party 
billing,\9\ and in 2013, major wireless carriers followed suit,\10\ at 
least with respect to third-party billing via premium short messaging 
services, or PSMS. Perhaps as a result of these agreements and 
increased government scrutiny, cramming complaints are trending 
downward. Of course, to the extent that the practice of cramming 
decreases due to private sector commitments, that is commendable. 
Unfortunately, that has not proven to be a silver bullet to the heart 
of cramming; we have not seen the practice of cramming cease entirely. 
Therefore, strong enforcement is still needed and perhaps additional 
regulation as well. Protecting consumers is the common goal that we all 
share, and the FCC stands ready to use the full spectrum of its 
authority to thwart bad actors and prevent consumers from being 
defrauded.
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    \9\ Press Release, U.S. Senate Committee on Commerce, Science, & 
Transportation, Another Major Phone Company Agrees to End Third-Party 
Billing on Consumer Phone Bills (Mar. 28, 2012), available at http://
www.commerce.senate.gov/public/index.cfm?p=PressReleases&Content
Record_id=0245033e-6fe4-420d-8ed3-cdb39ed6537f.
    \10\ Press Release, Office of the Vermont Attorney General, AT&T 
Mobility, Sprint, and T-Mobile Will Stop Billing Problematic Third-
Party Charges (Nov. 21, 2013), available at http://www.atg.state.vt.us/
news/att-mobility-sprint-and-t-mobile-will-stop-billing-problematic-
third-par
ty-charges.php.
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The FCC's Role in Combatting Cramming
    As the Federal agency with primary oversight of the Nation's 
telephone carriers, the FCC approaches the problem of cramming through 
a combination of enforcement, regulation, and consumer education. On 
the enforcement side, the Commission has taken fourteen enforcement 
actions since 2010 for placing unauthorized charges on consumers' phone 
bills. Collectively, these actions are valued at no less than 
$122,750,000, including monetary forfeitures the Commission has sought 
to impose, payments the FCC has ordered enforcement targets to make to 
the U.S. Treasury in connection with settlements, and refunds the FCC 
has ordered the targets to make to injured consumers. Just in the last 
two weeks, the FCC has taken three of these enforcement actions, which 
proposed over $10.5 million in penalties and payments to the U.S. 
Treasury.
    On the regulatory side, the FCC has adopted ``truth-in-billing'' 
rules designed to help consumers detect cramming or other unauthorized 
activities associated with their phone service, and is considering 
expansion of the rules. It is expected that the Commission will 
consider any rule changes within the next several months. We also 
anticipate that the Commission will conduct a workshop or similar event 
in light of continually evolving third-party billing technologies and 
practices. And on the education side, the FCC has been engaging 
consumers through written and video guides, tip sheets, and other 
materials aimed at empowering them to identify and report cramming.
    The FCC's power to address cramming comes from its statutory 
authority over carriers. The Communications Act of 1934 is the FCC's 
enabling statute, and Section 201(b) is one of its cornerstones. That 
section declares unlawful all ``unjust and unreasonable'' charges and 
practices ``for and in connection with'' an ``interstate or foreign or 
communication service by wire or radio.'' \11\ Over fifteen years ago, 
the FCC found that cramming constituted an unjust and unreasonable 
practice.\12\ Section 201(b), as well as Section 258, the anti-slamming 
provision of the Act, are the sources of authority for its truth-in-
billing rules.
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    \11\ 47 U.S.C. Sec. 201(b).
    \12\ Long Distance Direct Direct, Inc., Notice of Apparent 
Liability for Forfeiture, 14 FCC Rcd 314 (1998).
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Enforcement
    Under the Communications Act, the FCC has a variety of enforcement 
tools available to achieve compliance. Most often, the FCC initiates a 
forfeiture proceeding for violations of the Communications Act, 
including Section 201(b). Generally speaking, the first step in the 
process is for the FCC to issue a notice of apparent liability for 
forfeiture, or NAL. The Communications Act authorizes the FCC to impose 
a penalty of up to $160,000 for each violation, or each day of a 
continuing violation, up to a maximum of $1,575,000 for a continuing 
violation. Typically, the FCC proposes a forfeiture of $40,000 for each 
apparent cramming violation, although in recent cases it has 
substantially increased that amount for egregious violations. The 
Enforcement Bureau is generally open to settling a matter in lieu of 
initiating a forfeiture proceeding. As a condition of settlement, the 
FCC may require a carrier to reimburse consumers who were injured by 
its unlawful practices.
    The FCC's cramming enforcement actions have arisen from three basic 
kinds of bad conduct. The first is what I will call ``billing carrier 
cramming,'' and involves a carrier, either landline or wireless, 
billing its own subscriber for a third-party product or service. In 
connection with mobile service in the United States, this has most 
often involved the carrier charging its subscribers, via PSMS, around 
$10 per month for services such as flirting tips, horoscopes, lottery 
results, and stock quotes. This is the alleged fraudulent activity at 
issue in the FCC's recently-announced investigation of T-Mobile, and 
the Federal Trade Commission's complaint in Federal district court 
against the carrier.\13\ The FCC and the Federal Trade Commission 
worked collaboratively on this investigation in order to harmonize our 
respective enforcement as well as to leverage our respective expertise. 
T-Mobile allegedly crammed hundreds of millions of dollars of PSMS 
charges onto its subscribers' phone bills from third parties whom the 
carrier knew, or should have known, did not have authorization to bill 
its subscribers. Indeed, some of the third parties had refund rates, or 
``charge-backs,'' of 40 percent, and some had been sued for fraud. We 
are pleased with our collaboration with the Federal Trade Commission on 
the T-Mobile investigation and look forward to continuing to partner 
with the Federal Trade Commission in the future.
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    \13\ Press Release, Federal Communications Commission, FCC 
Investigates Cramming Complaints Against T-Mobile, (rel. July 1, 2014), 
available at http://transition.fcc.gov/Daily_
Releases/Daily_Business/2014/db0701/DOC-327998A1.pdf.
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    The second type of FCC cramming enforcement action is what I will 
call ``third-party carrier cramming.'' It involves a fraudulent carrier 
placing an unauthorized charge for its own product or service on a 
consumer's phone bill issued by another carrier, typically the 
consumer's local phone bill. Fraudulent conduct of this type was at 
issue, in four NALs the Commission released in 2011, which collectively 
proposed forfeitures of nearly $12 million.\14\ These third-party 
carriers assessed charges for their own ``dial-around'' long-distance 
service of around $10-15 per month on consumers' local phone bills. 
Each of the third-party carriers assessed its charges on at least tens 
of thousands--if not hundreds of thousands--of bills for the service in 
the year preceding the enforcement action. When the FCC investigated 
how many consumers the carriers had actually provided service to during 
that time, incredibly, two of the carriers disclosed that they had 
serviced only about 20 to 25 consumers, and the other two carriers 
could or would not answer the question. Further, earlier this month, 
the FCC settled with another carrier, Assist 123, LLC, for allegedly 
placing unauthorized PSMS charges for subscription services like 
directory assistance, movie listings, driving directions, and lottery 
results, on consumers' landline and wireless phone bills. The 
settlement requires Assist 123 to pay $1.3 million to the U.S. 
Treasury.\15\
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    \14\ Cheap2Dial Telephone, LLC, Notice of Apparent Liability for 
Forfeiture, 26 FCC Rcd 8863 (2011) ($3,000,000); Main Street Telephone 
Co., Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 8853 
(2011) ($4,200,000); Norristown Telephone Co., LLC, Notice of Apparent 
Liability for Forfeiture, 26 FCC Rcd 8844 (2011) ($1,500,000); VoiceNet 
Telephone, LLC, Notice of Apparent Liability for Forfeiture, 26 FCC Rcd 
8874 (2011) ($3,000,000).
    \15\ Assist 123, LLC, Order, 2014 WL 3512917 (Enf. Bur. 2014).
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    Another flavor of ``third-party carrier cramming'' is often 
connected with ``slamming''--the unauthorized switch of a consumer's 
preferred carrier. In the last fourteen months, the FCC has issued five 
NALs against carriers for apparently switching or attempting to switch 
consumers' long-distance service through deceit and trickery, and then 
charging the consumers for a new carrier's service they did not 
authorize or want. Collectively, the NALs proposed forfeitures of 
nearly $28 million.\16\ According to the NALs, the modus operandi for 
most of these third-party carriers involved their agents cold-calling 
consumers, pretending to be affiliated with a consumer's existing 
provider, offering improved or upgraded service, recording the consumer 
supposedly authorizing such improved or upgraded service with the 
existing provider, and then using that ``authorization'' to switch, or 
attempt to switch, the consumer's existing long-distance service to the 
third-party carrier. In several of these cases, the FCC found the 
conduct so egregious that it proposed additional penalties beyond 
doubling or tripling the ``base'' forfeiture of $40,000 for cramming. 
Indeed, in one enforcement action that the FCC took this month, the 
agency found that the carrier, Optic Internet Protocol, Inc., 
apparently not only may have tricked consumers to obtain purported 
authorization, but also fabricated the recordings it offered to 
regulatory authorities as proof of authorization.
---------------------------------------------------------------------------
    \16\ Optic Internet Protocol, Inc., Notice of Apparent Liability 
for Forfeiture, 2014 WL 3427582 (rel. July 14, 2014) ($7,620,000): 
Central Telecom Long Distance, Inc., Notice of Apparent Liability for 
Forfeiture, 2014 WL 1778549 (rel. May 5, 2014) ($3,960,000); U.S. 
Telecom Long Distance, Inc., Notice of Apparent Liability for 
Forfeiture, 29 FCC Rcd 823 (2014) ($5,230,000); Advantage 
Telecommunications Corp., Notice of Apparent Liability for Forfeiture, 
28 FCC Rcd 6843 (2013) ($7,600,000); Consumer Telecom, Inc., Notice of 
Apparent Liability for Forfeiture, 28 FCC Rcd 17196 (2013) 
($3,560,000).
---------------------------------------------------------------------------
    In some of the slamming/cramming cases, the FCC has alleged that 
the rogue carrier also billed consumers directly for its service, 
because the rogue carrier was not successful in pushing its charges 
onto the consumers' local exchange carrier bill. Conduct of this type 
does not involve cramming for unauthorized third-party charges, because 
the carrier is placing the charge for its own service on its own bill. 
This conduct nevertheless involves placing an unauthorized charge on a 
telephone bill, and the FCC has found that it also constitutes an 
unjust and unreasonable practice that violates Section 201(b) of the 
Communications Act.\17\
---------------------------------------------------------------------------
    \17\ See, e.g., Advantage Telecommunications Corp NAL., supra note 
16.
---------------------------------------------------------------------------
    Since 2010, the FCC has pursued two major wireless carriers for 
allegedly placing unauthorized charges for their own services on their 
own bills. Both cases involved the carriers allegedly charging their 
subscribers for data services the subscribers did not expressly 
authorize.\18\ The FCC ordered both carriers to notify affected 
customers of the applicable charges, to offer refunds, and to make a 
payment to the U.S. Treasury in lieu of a penalty. One of the cases 
required the carrier to refund at least $52.8 million to affected 
consumers, and to pay $25 million to the U.S. Treasury.
---------------------------------------------------------------------------
    \18\ AT&T, Order & Consent Decree, 27 FCC Rcd 13492 (Enf. Bur. 
2012); Cellco Partnership d/b/a Verizon Wireless, Order & Consent 
Decree, 25 FCC Rcd 15105 (Enf. Bur. 2010).
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Rulemaking/Regulation
    The FCC is also addressing cramming on the regulatory side. Fifteen 
years ago, the FCC adopted its first ``truth-in-billing'' rules, in 
order to help consumers detect cramming, slamming, and other fraud in 
connection with their telephone bills and telecommunications services. 
In 2009, the FCC issued a Notice of Inquiry to explore whether, and if 
so, how, to amend its ``truth-in-billing'' rules; in 2011, in response 
to continued cramming problems, the FCC issued a Notice of Proposed 
Rulemaking to strengthen its rules; and in 2012, the agency in fact did 
so.\19\ Among other things, the current ``truth-in-billing'' rules 
require both landline and wireless carriers to clearly and 
conspicuously: (1) identify the name of each service provider 
associated with a billed charge; (2) identify any change in any service 
provider from the preceding billing cycle; (3) provide a brief, non-
misleading, plain language description of the services billed; and (4) 
display a toll-free number for subscribers to dispute, or inquire 
about, any billed charge. The ``truth-in-billing'' rules also require 
landline--but not wireless--carriers to: (1) separate charges by 
service provider; (2) set forth charges from third parties for non-
telecommunications services in a distinct section of the bill; and (3) 
notify subscribers that the carrier offers subscribers the opportunity 
to block third-party charges on their bills, if in fact the carrier 
does so.\20\
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    \19\ See FCC Cramming Order, supra note 2.
    \20\ 47 C.F.R. Sec. 64.2400-2401.
---------------------------------------------------------------------------
    When the FCC strengthened its rules in 2012, it also issued a 
Further Notice of Proposed Rulemaking on whether it should expand the 
coverage of the rules still more. The FCC asked whether it should 
expand all of the existing rules to wireless carriers; whether it 
should prohibit carriers from assessing charges for third-party 
products and services on a subscriber's bill absent the subscriber 
expressly opting in; or whether it should altogether ban carriers from 
assessing charges for third-party products and services, at least on 
the same bills that contain charges for regulated telecommunications 
services. The FCC asked for additional comment on these and other 
issues last year, with the comment period officially closing in 
December 2013. The FCC is now poised for action in that docket, and 
expects to consider any rule changes within the next several months.
    To keep abreast of new and emerging kinds of cramming as well as 
new carrier billing technologies and practices, the FCC is also 
planning to host a workshop or similar event on these topics in the 
next six months.
Consumer Education
    In addition to its enforcement and regulatory work, the FCC also 
works to educate consumers about cramming. The agency has issued both 
printed and video consumer guides, as well as tip sheets on how to 
identify and report cramming.\21\ The Commission also held a 
comprehensive public workshop on cramming in 2013. These outreach 
efforts, many of which involved close coordination with groups such as 
AARP, are intended to alert consumers to the fact that their carriers 
may charge them for third-party products and services on their 
telephone bills, and encourage consumers to review their bills 
carefully each month, paying attention to even small charges, as well 
as the descriptions offered for all charges, and who is responsible for 
them. The materials also encourage consumers to call their carriers 
about any charges they question, and any provider identified on the 
bill associated with such charges. In addition, our consumer education 
materials explain the FCC's ``truth-in-billing'' rules in plain 
English, and tell consumers how to file complaints with not only the 
FCC, but also the Federal Trade Commission and state public service 
commissions.
---------------------------------------------------------------------------
    \21\ Federal Communications Commission, Cramming: Unauthorized, 
Misleading, or Deceptive Charges Placed on Your Telephone Bill (last 
visited July 24, 2014), available at http://www.
fcc.gov/guides/cramming-unauthorized-misleading-or-deceptive-charges-
placed-your-telephone-bill; Federal Communications Commission, Cramming 
Tip Sheet for Consumers (last visited July 24, 2014), available at 
http://www.fcc.gov/encyclopedia/cramming-tip-sheet-consumers.
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Enforcement Bureau Reforms
    The FCC is proud of these strong enforcement actions, which are 
deterring cramming, but we will continue our commitment to do more to 
protect consumers. Since I joined the FCC four months ago, my first 
priority has been to make sure the great people and resources of the 
Enforcement Bureau are used as effectively and efficiently as possible. 
The Enforcement Bureau is embracing a modern enforcement philosophy 
that says we need to be smarter about how to deploy our limited 
resources. In many instances, that means working more closely and more 
frequently with our fellow law enforcement partners at the Federal and 
state levels, just as we have in the cramming context.
    We are focused on ensuring the widest possible compliance with the 
law and rules that have the most impact on Americans in the 21st 
Century. For example, America's growing reliance on wireless phones 
leaves them increasingly vulnerable to unlawful privacy-invading 
robocalls and text-message spam. Cellular and Global Positioning System 
(GPS) jammers that can disrupt critical infrastructure and public 
safety networks are more and more widely available and must also 
continue to be the focus our enforcement efforts. And the recently 
announced Strike Force within the Enforcement Bureau will combat fraud, 
waste, and abuse in the Universal Service Fund (USF). It is our duty to 
vigorously protect the integrity of the USF programs by ensuring that 
program funds are used for their intended purposes.
    We are also in the vanguard of the FCC's Commission-wide Process 
Reform efforts. For many outside the Commission, our most significant 
efforts in this area are already evident in our firm commitment to 
speedy resolution of both routine and significant matters. The reforms 
we have already adopted, and those in process, will ensure that the 
Commission's team of prosecutors will have the best chance at doing the 
most good for the greatest number of Americans.
    Fundamentally, we are creating an Enforcement Bureau that is an 
efficient and smart prosecutorial unit. We are striving to be data-
driven, nimble, creative, strategic and collaborative. Ultimately, I 
hope this will be good for consumers, good for industry, and just plain 
good government.
Conclusion
    The FCC is the Nation's Federal regulatory authority over 
telecommunications carriers, and Congress has empowered the agency to 
combat unjust and unreasonable practices by carriers, as well as to 
adopt rules governing the conduct of carriers. Through its enforcement, 
regulatory, and consumer education work, the FCC is actively using 
these powers to address cramming and other unlawful acts by carriers 
that place unexpected and unauthorized charges on consumers' phone 
bills. We look forward to continued cooperation with the Committee and 
other regulatory authorities at both the Federal and state levels 
toward the common goal of protecting consumers from these unjust and 
unauthorized charges.

    Senator Blumenthal. Thank you very much.
    Mr. Altschul?

               STATEMENT OF MICHAEL F. ALTSCHUL,

           SENIOR VICE PRESIDENT AND GENERAL COUNSEL,

                CTIA--THE WIRELESS ASSOCIATION

    Mr. Altschul. Thank you, Senator Blumenthal, Ranking Member 
Thune, and members of the Committee. On behalf of CTIA, thank 
you for the opportunity to participate in today's hearing and 
address the steps the wireless industry has taken and is taking 
to address cramming.
    At the outset, I want to be clear. CTIA and its members 
share the Committee's concern, the regulators' concern, and the 
public's concern about cramming. Placing an unauthorized, 
misleading, or deceptive third-party charge on a consumer's 
wireless bill is wrong and simply not acceptable.
    That is why in November 2013, wireless carriers ended their 
support of premium SMS services except for charitable and 
political giving and inmate calling services. Moreover, 
carriers allow customers to block all third-party charges and 
have worked to make it easier for consumers to obtain refunds 
for unauthorized or fraudulent charges.
    CTIA originally became involved in the industry's efforts 
police premium SMS through the association's role as the common 
short code administrator. As I think you know, common short 
codes are used by commercial entities ranging from Dunkin' 
Donuts to Walmart, as well as by noncommercial entities, 
including government, charities, and political campaigns. From 
their start, users of common short codes issued by CTIA have 
been subject to written, publicly available guidelines 
administered both by the Mobile Marketing Association and CTIA. 
Not only do these guidelines reflect broadly accepted consumer 
best practices, between 2008 and 2010 these guidelines were 
incorporated as industry requirements in a series of State 
consent actions.
    It is fair to say that CTIA and its carrier members 
discovered that trust alone was not sufficient to ensure 
compliance with these guidelines. The industry stepped up its 
efforts from trust to trust but verify through industry and 
individual carrier monitoring of all short code campaigns. And 
then when fraudsters went to great lengths to evade these 
monitoring efforts, CTIA added vetting to its monitoring 
efforts to confirm the identity of content providers and root 
out known offenders.
    Although the annual complaint rates published by the FCC, 
FTC, and provided by State Attorneys General do not suggest a 
significant problem in this area as a result of both its own 
investigations and the Federal and State enforcement actions, 
the industry recognized that wireless customers and carriers 
were being victimized by determined fraudsters who crafted 
elaborate schemes to defeat the industry's self-regulation and 
third-party monitoring. Accordingly, wireless carriers chose to 
discontinue support for premium short code campaigns, as you 
have noted, in late last year except for the charitable and 
political campaign donations.
    CTIA continues to monitor and vet all common short code 
leases and lessees. When monitoring identifies a problem, that 
information is sent to the carriers so they may take corrective 
action. These efforts and the national carriers' decisions to 
end support for premium short code campaigns should combine to 
significantly reduce the opportunity for third parties to use 
carrier billing platforms as a tool to commit fraud.
    With the elimination of premium short codes for commercial 
campaigns, the remaining opportunities for third-party charges 
to appear on wireless bills are limited to instances involving 
direct carrier billing. Although CTIA has no direct involvement 
in this area, it is our understanding that each of the carriers 
employs stringent vetting and safeguards to guard against abuse 
of this process, and as reported to this committee and included 
in the staff report, there have been very few consumer 
complaints associated with direct carrier billing and refund 
rates are around 1 to 1.5 percent.
    As this committee's staff report recommends, the wireless 
industry is prepared to vigilantly monitor evolving third-party 
billing practices to make sure that bad actors do not find ways 
to penetrate barriers to cramming on direct carrier billing and 
other new systems, evaluate consumer protection gaps that have 
occurred in the context of landline and PSMS to establish 
consistent policies going forward that will provide consumers 
with appropriate transparency to the process and a clear avenue 
of recourse where unauthorized charges occur.
    Moreover, the wireless industry already has adopted many of 
the recommendations proposed by the Federal Trade Commission 
staff report, including giving consumers the option of blocking 
all third-party charges on their phone accounts, monitoring 
advertisements and vetting merchants to ensure that 
advertising, marketing, and opt-in processes are not deceptive 
and the price information is clearly disclosed, ensuring that 
consumers provide their express informed consent to charges 
before it is billed to their mobile bill, as well as 
investigating and taking appropriate action when consumer 
complaints indicate a merchant may be cramming charges.
    And we look forward to considering other ways to make 
third-party charges more clear and conspicuous on carrier bills 
and enabling consumers to dispute suspicious charges and obtain 
refunds for unauthorized charges through a clear and consistent 
dispute resolution process.
    So thank you again for this opportunity to address your 
concerns and address the steps the wireless industry has taken 
to safeguard wireless consumers from unauthorized, misleading, 
or deceptive charges.
    [The prepared statement of Mr. Altschul follows:]

 Prepared Statement of Michael F. Altschul, Senior Vice President and 
            General Counsel, CTIA--The Wireless Association
    On behalf of CTIA--The Wireless Association, thank you for the 
invitation to participate in today's hearing. At the outset, I want to 
be clear--CTIA and its members share the Committee's concern about 
cramming. Placing an unauthorized, misleading, or deceptive third party 
charge on a consumer's wireless bill is wrong and simply not 
acceptable. That's why, in November of 2013, wireless carriers ended 
their support of Premium SMS services, except for charitable and 
political giving and inmate calling services. Moreover, carriers allow 
customers to block all third-party charges and have worked to make it 
easier for consumers to obtain refunds for unauthorized or fraudulent 
charges.
    CTIA became involved in the industry's efforts to police Premium 
SMS and the associated carrier billing for these services through the 
Association's role as the Common Short Code Administrator. Common Short 
Codes allow mobile users to engage and interact with a brand or service 
by using a short five-digit address to send text messages to a mobile 
application. CTIA, as the Common Short Code Administrator, assigns 
Common Short Codes to applicants allowing a single code to be used for 
the same application across multiple wireless service providers. Common 
short codes are used by commercial entities ranging from Dunkin Donuts 
to Wal-Mart, as well as by non-commercial entities, including 
government, charities, and political campaigns.
    Short code campaigns can be employed to provide life saving 
information. For example, the Federal Emergency Management Agency's 
text message program offers regular safety tips for specific disaster 
types and allows for a search to find the nearest shelters and disaster 
recovery centers by texting ``43362'' (``4FEMA'').\1\ Another highly 
successful program is the Text4Baby campaign that has leveraged the 
power of mobile technology to help more than 700,000 new mothers and 
expectant women keep themselves and their babies healthy since the 
program's creation.\2\ Not all short code campaigns are so serious--
they also can be used for purposes as varied as voting for one's 
favorite player or summoning an usher during a Major League baseball 
game.
---------------------------------------------------------------------------
    \1\ http://www.fema.gov/text-messages
    \2\ https://www.text4baby.org/.
---------------------------------------------------------------------------
    While the overwhelming majority of short code campaigns involve no 
charge other than the carrier's standard rate for SMS messages, short 
codes also can enable users to support charities or political 
candidates. For example, the American Red Cross employed common short 
code 90999 to raise money for disaster relief in the wake of the 
Haitian earthquake in 2010, with donors contributing more than $43 
million. A 2012 study by the Pew Internet and American Life Project 
found that 1 in 10 Americans has made a charitable donation through a 
text message.\3\ Similarly, after the Federal Elections Commission 
granted limited approval for Federal candidates, political committees, 
and political parties to collect political contributions through text 
message campaigns, the Obama for America and the Romney campaigns began 
using common short codes to solicit small dollar donations via mobile 
devices.\4\ Each of these programs was, and remains, opt-in for 
consumers. Short codes have also been employed by state Departments of 
Correction to enable collect calls placed by inmates to be completed 
and billed to the mobile phone of the called party,\5\ often a family 
member, who may be among the nearly 40 percent of American adults who 
have chosen to go ``wireless-only'' and forego subscribing to a 
wireline telephone.\6\
---------------------------------------------------------------------------
    \3\ Pew Internet and American Life Project, REAL TIME CHARITABLE 
GIVING, (Jan. 12, 2012), available at http://pewinternet.org//media//
Files/Reports/2012/Real%20Time%20Cha
ritable%20Giving.pdf at 2.
    \4\ http://www.huffingtonpost.com/2012/08/23/obama-text-message-
donations_n_1824250
.html and http://www.newsmax.com/Politics/Romney-text-messages-
donations/2012/08/31/id/450534/.
    \5\ http://www.txtcollect.com/.
    \6\ http://www.cdc.gov/nchs/data/nhis/earlyrelease/
wireless201407.pdf at 2.
---------------------------------------------------------------------------
    From their start, commercial, charitable, and political uses of 
common short codes issued by CTIA have been subject to written, 
publicly available guidelines administered both by the Mobile Marketing 
Association \7\ and CTIA.\8\ Carriers have looked to the ``connection 
aggregators'' who link content providers to wireless carriers to 
supervise and enforce the consumer best practices and carrier-specific 
practices. In 2008, a year in which the Federal Communications 
Commission received only about 345 wireless cramming complaints from 
the Nation's then 270 million wireless customers,\9\ the wireless 
industry, both individually and through CTIA, began independent 
monitoring of all short code campaigns to detect any violations of the 
consumer best practices.
---------------------------------------------------------------------------
    \7\ http://www.mmaglobal.com/files/bestpractices.pdf.
    \8\ http://www.ctia.org/docs/default-source/default-document-
library/industry-best-practices.pd
f?sfvrsn=0, http://www.ctia.org/docs/default-source/default-document-
library/guidelines-for-mo
bile-giving-via-wireless-carrier-s-bill.pdf?sfvrsn=0 and http://
www.ctia.org/docs/default-source/default-document-library/guidelines-
for-federal-political-campaign-contributions-via-wireless-carrier-s-
bill.pdf?sfvrsn=0.
    \9\ Empowering Consumers to Prevent and Detect Billing for 
Unauthorized Charges (``Cramming''), Report and Order and Further 
Notice of Proposed Rulemaking 27 FCC Rcd 4436 (rel. April 27, 2012)(at 
para. 20).
---------------------------------------------------------------------------
    Over the next few years, the number of consumer wireless complaints 
filed with both the Federal Communications Commission and the Federal 
Trade Commission remained low and continued to decrease even with the 
significant growth in the number of wireless connections. While neither 
the FCC \10\ nor FTC \11\ complaint data suggested there was a 
significant problem in this area, the industry recognized that both 
wireless customers and their carriers were being victimized by 
fraudsters who crafted elaborate schemes to defeat the industry's self-
regulation and third-partying monitoring. Where problems were alleged 
or identified, CTIA and its member companies worked with law 
enforcement officials to identify solutions and shut down entities that 
pursued cramming schemes. \12\
---------------------------------------------------------------------------
    \10\ Id. at para. 20-21. The last time the FCC directly reported 
wireless-related cramming figures was in 2002--at which time there were 
92 complaints. Since then, wireless-related cramming complaints were 
too few to be included in the FCC's quarterly reports on Informal 
Complaints and Inquiries.
    \11\ The FTC's 2013 Consumer Sentinel report lists the number of 
complaints about ``Mobile: Unauthorized Charges or Debits'' for 2011, 
2012, and 2013 as 626, 714, and 363. See http://www.ftc.gov/system/
files/documents/reports/consumer-sentinel-network-data-book-january-
december-2013/sentinel-cy2013.pdf at 84. To put those numbers in 
context, in 2011 there were 306,300,207 active subscriber units, so 
complaints averaged 2.0 per million subscribers. In 2012, the wireless 
industry served 321,716,905 active subscriber units, with complaints 
amounting to 2.2 per million subscribers. In 2013, subscribership rose 
to 326,914,000 active subscriber units, meaning complaints represented 
1.1 per million subscribers, or just 0.0001 percent and a decline of 49 
percent from 2012.
    \12\ See, for example, the statement by the Texas Attorney General, 
https://www.texasattor
neygeneral.gov/oagnews/release.php?id=4576, and the cases brought 
against Mobile Messenger, https://www.texasattorneygeneral.gov/
newspubs/releases/2013/Mobile-Messenger-POP.pdf, and Eye Level 
Holdings, https://www.texasattorneygeneral.gov/newspubs/releases/2011/
030911eye
levelholdings_pop.pdf.
---------------------------------------------------------------------------
    As a further safeguard to consumers, beginning in February 2012, 
CTIA contracted with an outside vendor to verify information supplied 
to the Common Short Code Administration registry by companies seeking 
to lease short codes for premium SMS campaigns. CTIA's vendor uses 
numerous commercially-available databases such as Lexis/Nexis, Dun & 
Bradstreet, and the Better Business Bureau to confirm that the Content 
Provider displayed in the registry represents a legitimate company and 
is identified correctly in the registry. This vetting service satisfies 
the requirement of the California Public Utilities Commission that 
carriers be responsible for the content of their bills. Any 
discrepancies discovered during the vetting process are communicated 
directly to the carriers. Although the national carriers chose to 
discontinue support for premium short code campaigns in late 2013,\13\ 
CTIA has expanded the scope of its vetting to include all common short 
code lessees.
---------------------------------------------------------------------------
    \13\ Ina Fried, ``AT&T, Sprint, T-Mobile, Verizon Dropping Most 
Premium Text Service Billing in Effort to Combat Fraud,'' All Things D 
(Nov. 21, 2013), available at http://allthingsd.com/20131121/att-
sprint-t-mobile-verizon-all-dropping-most-premium-text-service-billing-
in-effort-to-combat-fraud/#ina-ethics and http://www.atg.state.vt.us/
news/att-mobility-sprint-and-t-mobile-will-stop-billing-problematic-
third-party-charges.php.
---------------------------------------------------------------------------
    In addition to this front-end vetting, CTIA continues to work with 
outside vendors to ensure that codes are used in compliance with the 
applicable guidelines. When monitoring identifies problems, that 
information is sent to the carriers so they may take corrective action. 
These efforts and the national carriers' decisions to end support for 
premium short code campaigns (with the limited exceptions for charities 
and political campaigns) should combine to significantly reduce the 
opportunity for third-parties to use carrier billing platforms as a 
tool to commit fraud.
    With the carriers' decisions to no longer support premium short 
codes for commercial campaigns, the remaining opportunities for third-
party charges to appear on wireless bills are limited to instances 
involving direct carrier billing. Although CTIA has no first-hand 
knowledge of carrier practices in this area, it is our understanding 
that each of the national carriers employs stringent vetting and 
safeguards to guard against any abuse of the process.
    Thank you for the opportunity to participate in today's discussion.

    Senator Blumenthal. Thanks very much, Mr. Altschul.
    I have a few questions. Then I will turn to Senator Thune.
    As all of you are aware, the third-party wireless billing 
has involved three major players: the carriers, the third-party 
vendors, and the billing aggregators that act as middlemen. In 
this business, there is a lot of finger-pointing as to who is 
to blame, where the buck should stop. And law enforcement cases 
have now alleged wrongdoing at every stage of that billing 
process from vendors to billing aggregators to the recent 
action that you mentioned, Commissioner, by the FTC against T-
Mobile. But all of that finger-pointing may not be of much 
benefit to consumers.
    So the question is: where should the buck stop? Since the 
wireless carriers control the billing platform and they have 
ongoing relationships with their customers and they have been 
taking $3 to $4 out of every $10 vendors charge to consumers on 
this platform, Mr. Altschul, should the buck not stop with the 
wireless carriers?
    Mr. Altschul. The carriers will take responsibility for 
charges on their bills and urge their customers to look at 
their bills carefully and call the carrier if they have any 
questions or if they detect anything that is suspicious on a 
bill.
    Senator Blumenthal. If they were making less money, would 
there be a greater incentive to take stronger action?
    Mr. Altschul. Well, the amount that is collected, as you 
know from the fact that the carriers have discontinued the 
service, has not influenced the carriers' decisions to, first 
and foremost, protect their consumers. And carriers, of course, 
whatever they choose independently to charge, also have costs 
associated with providing this service. The carriers provide 
their own independent monitoring and vetting, in addition to 
the industry's efforts. There are costs associated with what 
they call onboarding and activating these systems in their 
billing systems and maintaining support. So what is collected 
and what is kept can be very different charges.
    Senator Blumenthal. Let me ask the others on the panel 
whether that level of revenue and the percentage that the 
wireless carriers make on those charges serves as a 
disincentive to take more effective action. And conversely, 
what kind of incentives would lead perhaps to the wireless 
carriers to take more effective action?
    Commissioner McSweeny. I would start by saying that in the 
Federal Trade Commission's view, carriers and all of the 
participants in the sector have a role to play here. And 
certainly we believe that while some steps that have been taken 
are very promising, there are additional steps that are 
necessary and that should be taken to protect consumers.
    As you point out, there are some questions about whether 
there are perverse incentives here, and I would also add that I 
have seen estimates that direct carrier billing is expected to 
grow. So while PSMS may have stopped, there is certainly some 
prospect here for a very vibrant direct carrier billing 
industry going forward.
    Accordingly, we think the carriers have a role to play in 
protecting consumers and in improving the integrity of this 
kind of billing process both by ensuring better dispute 
resolution and consistent dispute resolution processes, but 
also by making it clear to consumers that they can block third-
party charges and by taking steps to terminate or scrutinize 
merchants that may be involved in cramming unauthorized charges 
on their phone bills.
    Senator Blumenthal. Attorney General Sorrell?
    Mr. Sorrell. Thank you, Senator.
    First, in answer to your question, the buck stops with the 
carriers. There are others responsible, but that is where the 
buck stops. It is the carriers that decided to contract with 
the third-party providers and to pass along their bills and, as 
you suggested, keep 30 to 40 cents on the dollar of every 
payment made by the carriers' customers.
    I am pleased to hear Mr. Altschul say that the carriers 
will take care of their customers when they call and question 
charges on their bills. But the reality has been very mixed in 
the past on this. Some carriers had a rather robust 
reimbursement mechanism. Others would reimburse only 2 months 
no matter how long the $9.99, the $20, or $29.99 a month was on 
customers' bills and being paid. And some of the carriers 
referred their own customers to the third-party providers. In 
my view, for recurring monthly charges, the carriers should be 
obligated to confirm their customers' consent to those 
billings. And I do not think there is any question but that the 
hundreds of millions dollars, if not billions of dollars, that 
the carriers have made as their share of their customers being 
crammed is a huge incentive for them to look the other way.
    Senator Blumenthal. Mr. LeBlanc, do you want to add 
something?
    Mr. LeBlanc. I will keep it short. I will echo the comments 
of Commissioner McSweeny, as well as Attorney General Sorrell, 
and also just to mention one further point which is the 
carriers here actually are acting as the platform for these 
charges. And as the platform, they bear a responsibility to 
ensure that the conduct that is taking place on their platform, 
that it is not deceiving and defrauding their customers. So we 
completely agree with our fellow law enforcement partners that 
the carriers bear accountability.
    Senator Blumenthal. Thank you.
    My time has expired. I am going to come back to some of 
these questions and also give Mr. Altschul an opportunity to 
respond if he wishes. And I will turn to Ranking Member Thune.
    Senator Thune. Thank you, Mr. Chairman.
    Commissioner McSweeny, the FTC's complaint in the T-Mobile 
case states that the FTC and the FCC have ``concurrent 
enforcement jurisdiction over mobile telephone companies' 
billing and collection of third-party charges for non-
telecommunications services,'' but it does not cite to any 
authority for that statement. Given the so-called common 
carrier exception, could you explain the authority for this 
claim in the FTC's complaint?
    Commissioner McSweeny. The FTC has jurisdiction over 
carriers when they are engaged in non-common carrier activities 
such as billing for third-party services, which is the conduct 
at issue in this case. It is established by the relevant case 
law.
    Senator Thune. Are there other activities that the FTC 
might characterize as a non-telecommunications activity by the 
carriers that the FTC would then claim jurisdiction over?
    Commissioner McSweeny. I would hesitate to give you an 
exhaustive list, but I imagine hypotheticals in which carriers 
are billing for third-party services. For example, if a carrier 
wants to put billing for a weight loss product on their phone 
bill, then we would consider that kind of conduct covered by 
the FTC Act.
    Senator Thune. Mr. LeBlanc, in your opinion, what 
independent agency is best equipped to regulate and enforce 
wireless cramming matters for telecommunications carriers?
    Mr. LeBlanc. Well, as Senator Blumenthal pointed out at the 
beginning, there are a number of different entities that are 
involved in any cramming. There are the third-party content 
providers. There are the aggregators, as well as the carriers. 
At the FCC, we have primary jurisdiction over the carriers. We 
do not have the ability under our authority to reach the third 
parties which the FTC, for example, does, as well as our 
partners at the State level as well. So from our perspective, 
we think that it is necessary that you have Federal FTC, FCC, 
as well as State involvement to get to all three parties.
    Senator Thune. But in your view, though, the FCC is best 
equipped to deal with the carrier component of that.
    Mr. LeBlanc. Certainly on the regulatory side, there is no 
question about it, Ranking Member Thune. We are the only 
authority that has the ability to promulgate regulations to 
prevent and to respond to this through rulemaking. On the 
enforcement side, we have worked very much over the last 4 
years in fact in particular on cramming at the carrier level, 
and we are going to continue to vigorously enforce in that 
area.
    Senator Thune. Mr. Altschul, the Chairman's report on 
wireless cramming discusses emerging third-party wireless 
billing technologies such as the practice known as ``direct 
carrier billing.'' Is this ``direct carrier billing'' practice 
being widely used by the wireless carriers?
    Mr. Altschul. At present, the most popular and prevalent 
use is for billing for purchases made on various web app 
stores, in particular, Google Play. And when the customer goes 
to the Google Play store, Google presents the customer with a 
number of payment options, including credit cards and direct 
carrier billing, and presents and walks the customer through a 
number of screens and disclosures to obtain their knowing 
consent to the direct carrier billing.
    Senator Thune. Should we be concerned that this practice 
will have the same risk of cramming for consumers as premium 
text messaging did?
    Mr. Altschul. I think everyone needs to be vigilant to make 
sure that this remains a safe and trusted payment vehicle. But 
as you know, as mentioned in the reports that came out this 
week, the Federal Reserve Bank of Boston and others have noted 
that there are many consumers who are unbanked or under-banked 
and a mechanism such as direct carrier billing provides a 
mechanism, another on-ramp to many of these Internet and 
information services.
    Senator Thune. And it appears that the burden is on the 
consumer to identify unauthorized charges on their bills. The 
FTC in its recently released report--recommended that when a 
carrier terminates a third-party's billing activities for 
unauthorized charges, the carrier also should notify consumers 
who incurred charges from the third party to inform them about 
the termination so that they can request a refund.
    What is CTIA's response to this recommendation by the FTC's 
staff? And should carriers do more, such as sending an e-mail 
or making a phone call, to proactively alert customers of 
potentially fraudulent activity?
    Mr. Altschul. Well, first, we endorse the recommendation. 
It seems to be universal that customers need to look at their 
bills, whether they are paper, online, and be aware and be 
prepared to call and question any charges they do not 
recognize.
    Second, with respect to carrier activities, I think the 
record in these reports shows that in certain instances 
carriers have done just that. Carriers actually are at a bit of 
a disadvantage in that they do not know which of their 
consumers may or may not have opted into existing programs. 
Some of these programs may strike those of us in this room as 
not of much value, but not just in your home states but at the 
Georgetown Safeway, take a look when you go through the 
checkout counter at the horoscopes, the tabloids, the other 
magazines that sell exactly the same kind of content that had 
been marketed through these carrier billing mechanisms. And 
there is a legitimate interest among many Americans for these 
services. The carriers just are not in a position to know who 
has been defrauded. Certainly they are not in as good a 
position as the customer when they look at their bill.
    Senator Thune. But should they do more in the form of e-
mails, phone alerts, just to be proactive?
    Mr. Altschul. Well, again, in appropriate cases, they have 
done this and they certainly should continue to do it. Yes.
    Senator Thune. Mr. Chairman, thank you. My time has 
expired.
    Senator Blumenthal. Thank you very much.
    Senator Johnson?

                STATEMENT OF HON. RON JOHNSON, 
                  U.S. SENATOR FROM WISCONSIN

    Senator Johnson. Thank you, Mr. Chairman.
    Ms. McSweeny and Mr. LeBlanc, both of you in your testimony 
talked about enforcement actions. So it sounds like this is 
being regulated, it is being enforced. Is there any authority 
that you do not have to conduct proper enforcement? I will 
start with you, Ms. McSweeny.
    Commissioner McSweeny. Thank you, Senator.
    I think we are using the enforcement authority that we have 
appropriately to combat scammers, and we do have adequate 
authority. I would note there is no civil penalty authority in 
this area for the FTC, but we have been able to take action to 
stop conduct and to get consumer redress.
    Senator Johnson. Mr. LeBlanc, do you feel you have full 
authority? Is there anything else you would need in law?
    Mr. LeBlanc. Senator Johnson, we are right now at the 
Commission looking at promulgating revised rules with respect 
to cramming. Those rules are asking questions about whether or 
not to block all third-party charges, whether to permit opt-in, 
whether to apply the same truth-in-billing rules that we use in 
the landline context to the wireless context. We look forward 
to the resolution of that in the next several months. That 
would offer us new opportunities to look at new avenues that we 
would have.
    Senator Johnson. But, again, you are going to write the 
regulations. You believe you have the authority to write those 
regulations and enforce them?
    Mr. LeBlanc. Yes.
    Senator Johnson. Mr. Altschul, would the industry challenge 
that authority?
    Mr. Altschul. We have filed comments questioning the FCC's 
existing authority over non-telecommunications services and 
billing for such services. I notice in Mr. LeBlanc's prepared 
testimony, he rests his authority or the Federal Communications 
Commission's authority over billing in Title II of the 
Communications Act. That is the so-called common carrier 
provision. And as Senator Thune raised in his questions, that 
does create a tension between the overlapping jurisdiction 
between the agencies here.
    Senator Johnson. So you would question the authority then? 
To resolve this by regulation----
    Mr. Altschul. Without detouring into the old debate about 
net neutrality and what should be Title II and not Title III, 
whether billing services for non-communications services are 
properly characterized as a communications service or not could 
stand to be clarified. Yes.
    Senator Johnson. In both the testimony of Attorney General 
Sorrell and I believe Mr. LeBlanc, they both claimed that the 
majority of third-party charges were cramming. Do you agree 
with that?
    Mr. Altschul. I do not, in my role in the association, have 
visibility into the universe of charges. But, no, I think that 
there have been many, and I would say the majority of charges 
have been charges that consumers have accepted and opted into. 
I am not denying that there has been cramming and that any 
cramming is too much cramming.
    Senator Johnson. But do you think that may be an 
overstatement that the majority of third-party charges are 
cramming?
    Mr. Altschul. That strikes me as an overstatement, yes.
    Senator Johnson. What type of standards or what type of 
screening do the carriers provide to try and limit this?
    Mr. Altschul. Well, as documented not just in my testimony 
but in both the Federal Trade Commission and Senate Commerce 
Committee staff reports that were released this week, the 
industry, both through the association and individually, 
contracts with third-party auditors. The auditors do three 
kinds of auditing of every premium SMS and standard SMS 
message. They monitor the marketing to make sure that marketing 
has all the necessary disclosures, does not misuse the word 
``free,'' and provides meaningful notice and opportunity to 
consent and----
    Senator Johnson. Let me just stop you. Those disclosures 
can be very long. Right? They are probably contained in a very 
long statement that people just click.
    Mr. Altschul. Well, the Federal Trade Commission actually 
has published some very helpful guidance on how to use the word 
``free,'' how big the asterisk has to be. And we have boiled 
down these disclosures so they can fit on the first screen that 
the customer looks at. And the Florida Assurance of Voluntary 
Compliance, which is a form of consent decrees, really 
specified how these can be done in a way that at least the 
Florida AG thought would protect consumers.
    Senator Johnson. I interrupted you.
    Mr. Altschul. Well, that is the first monitoring is media 
monitoring.
    The second monitoring is that for every short code--and we 
now have the standard codes that are still being used on the 
networks--the monitoring firms subscribe. They make sure all 
the necessary disclosures--if somebody sends stop to stop a 
subscription service, that the service is stopped and likely do 
that on a monthly basis.
    And finally, the industry has added last year vetting of 
every applicant for a short code because we were, frankly, 
deceived and burned by a scheme where repeat offenders hid 
their identity, went around the United States, used mail box--
post office boxes and employee names rather than corporate 
names to get additional codes when their prior codes had been 
cutoff. So now we confirm that every applicant is a brick-and-
mortar operation. We can find them in established directories 
on the Internet and so on.
    So those are the three kinds of monitoring the industry 
does for SMS messages. And I understand it is very similar to 
what the monitoring carriers are doing for direct carrier 
billing.
    Senator Johnson. Thank you.
    Thank you, Mr. Chairman.
    Senator Blumenthal. Thanks very much.
    Senator Nelson?

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Ladies and gentlemen, just so you know 
where I am coming from, as the former elected regulator of 
insurance products in Florida, I actually worked with our fraud 
division against insurance companies that billed for, charged 
for insurance services that the customer did not ask for, could 
not afford. And as a result, we sent some people to jail. Now, 
you need to know where I am coming from. So I do not have a lot 
of patience when I hear on somebody's wireless service that 
they are getting billed for things that they do not want or do 
not know about.
    Now, could we require consumers to affirmatively opt in to 
allow third-party billing of services at the time they execute 
a contract for wireless services? What do you think?
    Commissioner McSweeny. Well, Senator, I think it is a great 
question. I would point out that in the Federal Trade 
Commission's view, we think there are a lot of legitimate uses 
for mobile carrier billing, and that many consumers will want 
to take advantage of them.
    What is very important here, though, is that consumers have 
adequate information, that they understand clearly that they 
have the right in many cases to block third-party charges for a 
phone if they elect to, and that they be able to take a look at 
their bill and understand where the third-party charges are and 
who they are from. Very often, they really do not have adequate 
transparency to see that the charge is unrelated to their phone 
service. So it is difficult to identify on the bill. And the 
information is not clearly presented around rights to block 
third-party charges.
    I would also note that there is inconsistent dispute 
resolution among the carriers when customers do identify 
problems. So we really are urging clearer and more consistent 
dispute resolution, which would be consistent with the kinds of 
measures that are present in other industries.
    Senator Nelson. Do you think there ought to be an 
independent consumer ombudsman at your agency to resolve 
consumer complaints?
    Commissioner McSweeny. I think it is a very interesting 
proposal and one that I would have to give more thought to. At 
the moment, I think the Commission is doing a good job using 
its enforcement powers to go after scammers where we see them, 
to respond quickly to consumer complaints, and to provide 
consumer education material, which I think is very, very 
valuable. It is important for people to understand that right 
now, they are their own first line of defense against these 
kinds of practices, and that if you see something on your bill 
that you do not understand, you can contact your carrier, or 
you can contact the FTC, and we will respond.
    Senator Nelson. I am not sure that there is enough public 
awareness. And that is one of the reasons, thanks to the 
chairman and Chairman Rockefeller and the Ranking Member, that 
we are having this hearing.
    What do you think about an independent ombudsman, Mr. 
LeBlanc?
    Mr. LeBlanc. The independent ombudsman is a very 
interesting idea, Senator. The concern that we see right now 
from the enforcement perspective at the FCC is that consumers 
do not have substantial protections when it comes to dispute 
resolution. In the credit card industry, for example, if a 
consumer has a dispute about something on their credit card 
bill, they have certain rights. They have a right to dispute 
the billing errors by notifying the credit card companies. They 
can have a right to withhold payment for damaged goods, for 
example. Here there are no such rights when they have an actual 
concern about something. And so it is helpful certainly to have 
an additional person, an ombudsman or the FTC, the FCC, State 
Attorneys General, State public utilities commissions that are 
there that they can go to to complain when they believe that 
they have been charged for unauthorized charges.
    Senator Nelson. When you have that many choices, I cannot 
keep up with that. That is only one. I go to the next one.
    Let me give you an example. A $9.99 a month charge for 
daily horoscopes or celebrity gossip. It was very cleverly 
designed. It is small enough that consumers may have missed it 
when they were paying their bill, and taking $9.99 from 
consumers month after month really adds up. So when you 
multiply these charges across millions of customers, you can 
see how this can become such a big industry.
    So, Commissioners, tell me. Would any of you want to 
comment about how a small charge like $9.99 or less a month can 
make a big impact on consumers?
    Commissioner McSweeny. I think it absolutely does make a 
big impact, especially as you point out, it is very easy for 
consumers to rack up these charges month after month before 
even recognizing that they are being crammed, if they do at 
all. And in some cases, the charges may be more than $9.99 or a 
consumer may be experiencing cramming from more than one third 
party.
    We have had recent cases where we have indications that 
more than a million consumers have been charged, and there have 
been hundreds of millions in consumer harm associated with the 
conduct. So I think it is very significant, sir.
    Mr. LeBlanc. I would add to that, Senator, that in 2011 
Chairman Rockefeller released a report on cramming that found 
that it added up to $2 billion annually. That is a lot of 
money. A lot of Americans in this country live paycheck to 
paycheck. These charges we are finding are ones that very few 
people even notice. Many people are not even aware that third-
party billing is possible on their telephone bill. So it is of 
great concern that $9.99 adds up and they are unable to 
actually get all of these removed, if they catch it 2, 3, 4 
years down the road.
    Mr. Altschul. One solution which the Federal Trade 
Commission report recommends and the industry supports is to 
move the disclosure and consent process away from the merchant 
to the aggregator or the carrier so that there is clear 
responsibility for obtaining and maintaining the record of the 
customer's consent to be charged for whatever service is on 
their bill.
    Senator Nelson. That sounds like a good suggestion. What do 
you think, Attorney General Sorrell?
    Mr. Sorrell. I am not so sure about the aggregator. The 
buck stops with the carrier, as I said earlier, and for 
recurring charges, I think the carrier should be the one to 
have to confirm the consent.
    But, you know, quite apart from putting these third-party 
charges in a separate section of the bill so someone knows that 
it is a service that is not afforded by the carrier, for the 
real scam artist they had names like ``Text Savings'' or ``Text 
Savings, LLC.'' And I think the worst case I have heard or 
maybe the best depending on your perspective where the Texas 
AG's Office found a bill that--the third-party bill was 
``refund.'' So for those minority of consumers who are aware 
that third-party charges may be on their bill, these scam 
artists were masking what they were doing with what they put on 
the bill, and the carriers took a blind eye in passing along 
``refund'' on their customers' bills when it was not a refund. 
It was a charge.
    Senator Blumenthal. Thank you, Senator Nelson.
    Senator Markey?

               STATEMENT OF HON. EDWARD MARKEY, 
                U.S. SENATOR FROM MASSACHUSETTS

    Senator Markey. Thank you, Mr. Chairman, very much and 
thank you for holding today's very important hearing.
    So let us be clear. The practice of cramming, forcing 
consumers to pay for fraudulent charges on their phone bills, 
costs consumers dearly. Cramming is wrong. Cramming is 
scamming. It is that simple.
    Our focus today should be entirely on how to stop fraud now 
and in the future.
    My first question. We are talking a lot today about 
cramming on wireless phone bills, which is very important. But 
what about the potential for abuse on broadband bills or on 
bills for bundled services where consumers pay for a telephone, 
broadband, and TV in one bill? Plenty of opportunity for 
cramming and scamming.
    Mr. LeBlanc, is the FCC taking steps to look into whether 
broadband, bundled services is an emerging problem today?
    Mr. LeBlanc. Senator Markey, crammers are predators. They 
evolve with consumers. Wherever consumer bills are, they are 
likely to try to pop up if third-party charges are allowed. We 
are trying to keep up and get in front of the crammers as they 
evolve. There is no question that to the extent that we are 
talking about wireless bills today, which include mobile 
broadband as part of the bill, that the investigation we have 
into T-Mobile, as well as the Assist 123 case that we recently 
did this month, show that there are concerns on wireless bills.
    Senator Markey. Is the FCC looking right now at your rules, 
your enforcement strategies with regard to bundled services, 
broadband, telephone, TV, and then the cramming that occurs as 
part of the bill? Are you looking at that right now?
    Mr. LeBlanc. We just put out last week an enforcement 
advisory about transparency in the commercial terms of service 
around mobile and broadband.
    Senator Markey. And broadband.
    Mr. LeBlanc. And broadband. And we indicated that we are 
going to focus enforcement in that area.
    Senator Markey. OK.
    Ms. McSweeny, do you want to talk about what the Federal 
Trade Commission is doing with regard to broadband cramming?
    Commissioner McSweeny. I would say I think the Federal 
Trade Commission believes that we have the authority to take 
action to protect consumers from fraud and from unfair 
practices. And we believe that these protections extend to the 
mobile environment and beyond, just as they exist in the brick 
and mortar world.
    Senator Markey. Mr. Sorrell, we have industries that take 
actions with voluntary guidelines on the books, which are 
always good for good people. They do not have the murder 
statute on the books for my mother or yours. They are not going 
to be committing murders, only for the bad people. That is why 
you have laws on the books.
    So how do you feel about that as to its adequacy of 
ensuring that the bad actors in this space are not still free 
to act in anti-consumer ways, knowing that any sanction is 
voluntary and industry-driven rather than having a governmental 
sword behind the threat if they violate the consumer 
protections which we are trying to advance?
    Mr. Sorrell. Thank you, Senator.
    Self-regulation in Vermont's experience did not work in the 
landline cramming arena, and it has not worked in the wireless 
arena. Where there are bad actors, there must be regulatory 
efforts to identify them and hold them accountable.
    Senator Markey. I want to give you, Mr. Altschul, a chance 
to talk about that issue, voluntary versus mandatory, just so 
that all the good players in the wireless sector are not tarred 
by the actions of a few.
    Mr. Altschul. Thank you, Senator.
    Well, first, I could not agree more. These crammers and 
fraudsters are predatory and they do move from one service to 
another. As one door shuts, they try another.
    We do support voluntary efforts. Our experience, with 
hindsight always being 20/20, is we built a wall. The bad guys 
came over it with a ladder. We raised the wall. The bad guys 
came back with a taller ladder, and so on and so forth. So I 
think that with that experience, the industry is responsible 
for protecting its consumers in the first instance.
    There is no shortage of enforcement agencies at the Federal 
and State level. They have said today--and we know from their 
enforcement actions--they are energetic. They have ample 
enforcement authority to go after bad guys, and we support 
that. In fact, the industry and the association has assisted 
them in those efforts.
    Senator Markey. May I ask one final question, Mr. Chairman? 
Thank you.
    And it is a related subject and it is that I am the House 
author of the Telephone Consumer Protection Act of 1991, and I 
feel as strongly today as I did 2 decades ago that consumers 
should not be subject to intrusive calls from telemarketers, 
whether they are at home or on their mobile phones. By banning 
most autodial and prerecorded calls to landlines and mobile 
phones and establishing the Do-Not-Call List, which I am very 
proud of, the law created a zone of privacy that remains 
popular with consumers to this day. As a matter of fact, every 
consumer every time they get a call from somebody they do not 
know, they say how did they get my number. So they are 
conditioned now to think that they do not have a right to call 
someone who is not receptive to it.
    For the Federal Trade Commission and the FCC, please tell 
me about your efforts to enforce this law and keep up with the 
changing technologies that seek to circumvent these 
protections. It seems to be increasing as a problem once again.
    Mr. LeBlanc. Senator Markey, I recognize that you were the 
driver of the Do-Not-Call law, and thank you for your 
commitment to it.
    There is no question that to date even the number one 
complaint that we get at the FCC is Do-Not-Call, by far, 
consumer complaints. We just recently in the last 3 months took 
the largest enforcement action under Do-Not-Call that we have 
taken in our history where we settled a case for $7.5 million 
with a carrier and we continue to aggressively enforce the TCPA 
there, as well as in the robo call context.
    Senator Markey. I can only encourage you to be even more 
aggressive. It really ticks people off.
    Ms. McSweeny?
    Commissioner McSweeny. Senator, I would just second our 
appreciation for the TCPA as an important pro-consumer law, and 
I would add that we are very proud of our track record on Do-
Not-Call at the FTC--we have more than 200 million people 
signed up, I think, by last count--and take the responsibility 
of continuing to protect those consumers very seriously. We are 
trying to work with technologists to address the robocall 
problem that typically tries to thwart the Do-Not-Call 
registry, and we are taking new steps to try to address those 
issues.
    Senator Markey. And if I could just say this. We all grew 
up kind of conditioned to our phone in our living room ringing, 
and it could be somebody soliciting us. And we have a law 
saying do not solicit anymore. But when your cell phone rings, 
you are saying to yourself, well, the only people who have my 
number are my family and my friends. How did you get my number? 
And it just ticks people off. So the more aggressive you can 
be, I think the happier the American people will be.
    Thank you, Mr. Chairman.
    Senator Blumenthal. Senator Klobuchar, I am sure, has some 
questions. I will just give her a chance to be seated. And if 
you like, I can fill in time or I can yield to you.
    Senator Klobuchar. Well, if you are just filling in, I can 
handle it.
    Senator Blumenthal. I have got some questions.
    Senator Klobuchar. Why do you not go ahead.
    Senator Blumenthal. You know, I think that this testimony 
has been very valuable, and I want to elaborate on some of the 
questions that have been asked.
    First of all, the comparison inevitably has to be made to 
the other payment mechanisms that encounter similar problems 
with unauthorized charges. And they voluntarily, for example, 
credit card networks, typically investigate merchants when 
there are charge-backs, when there are requests for refunds 
above a certain rate. In other words, for any one of these 
chargers, whether valid or invalid, if there are refund 
requests above a certain rate, they investigate. For the credit 
card networks, that threshold is 1 percent. For the wireless 
carriers, my understanding is that it is 10 times as high, 10 
percent, or higher, which indicates a much less vigorous level 
of vigilance.
    I think you mentioned, Commissioner, that you thought 
greater scrutiny was one answer here, and perhaps that is what 
you meant by that answer. You did not elaborate on it, but you 
do in your testimony mention those numbers, and I am wondering 
whether perhaps you can elaborate on that point.
    Commissioner McSweeny. I think it is a very important 
point, and in some of our cases, we have actually seen refund 
rate requests at 40 percent which is, as you point out, 
significantly higher than you see in other industries. So we do 
think that there needs to be much more scrutiny both by 
intermediaries and by carriers of merchants that have high 
refund rates and a much more consistent and aggressive approach 
to terminating those merchants or reviewing their activities.
    Senator Blumenthal. Mr. Altschul, does that not make sense 
to you that there should be investigative efforts, intense 
scrutiny when refunds are higher than 1 or 2 percent?
    Mr. Altschul. I agree. Actually the statements of the State 
AG in Texas thanked the industry for working with the State's 
efforts in the cases that that Attorney General brought.
    Senator Blumenthal. But apparently the industry practice is 
very different from that one instance.
    Mr. Altschul. The Committee staff's own report released 
today indicates that for direct carrier billing for charitable 
campaigns, it is 1 percent or less and for direct carrier 
billing, it is 1 to 1.5 percent, which is in the range that you 
have described for credit card investigations.
    Senator Blumenthal. I want to come back to this area of 
questioning, but I will yield to Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Oh, thank you very much, Senator 
Blumenthal. Thank you for holding this hearing and thank you, 
Senator Thune.
    Two years ago, as I know you have discussed--I am sorry I 
was away chairing a hearing, contact lenses actually, with the 
Antitrust Subcommittee. But two years ago, the FCC finally took 
additional regulatory action on wireline cramming following up 
on pressure from this committee, and one of the things that I 
was concerned about at the time, while I thought the action was 
important, that there were not protections put in place for 
wireless customers. And as I said in my filing at the FCC at 
the time, quote, with more and more households cutting the cord 
on their landline phones, the FCC should take all necessary 
steps to prevent crammers from finding new opportunities with 
wireless bills.
    While I am encouraged that the FCC recently refreshed its 
record on truth-in-billing regulations in relation to wireless 
protections, we need to continue to look for ways to address 
the current and future evolution of crammers and actions that 
need to be taken.
    I am a cosponsor of Senator Rockefeller's Fair Telephone 
Billing Act, which would address cramming as we know on 
wireline phones, and I hope this committee can work together to 
pass this legislation and continue to look at action on 
wireless cramming as well.
    I guess I will start with you, Mr. LeBlanc, as well as Mr. 
Sorrell. In 2012, the FCC updated its truth-in-billing rules, 
which included protections for consumers from wireline 
cramming, as I just noted. However, the argument was made that 
there was not enough evidence of cramming on wireless. Two 
years later, it is extremely clear that wireless cramming is a 
huge problem, and the FCC still has not expanded cramming 
protections for wireless.
    Mr. LeBlanc, will the FCC take regulatory action this year 
to protect wireless consumers from cramming, and what about 
some kind of additional enforcement action?
    Mr. LeBlanc. Thank you, Senator Klobuchar, and thank you 
very much for your comments as well that you filed with the FCC 
over the last couple years.
    The record in that matter closed in December 2013, and we 
anticipate that it will be ready for a decision within the next 
several months. So we are hopeful that we will see a change. 
Some of the issues that are presented to the Commission right 
now involve whether all third-party charges should be banned 
entirely, also whether we should have an opt-in process, and 
then finally ensuring that the truth-in-billing rules that 
apply in the landline context also apply in the wireless 
context. So it is ripe right now for a decision and we hope to 
have an answer within the next several months.
    On the enforcement side, we are vigorously tailoring our 
enforcement resources toward the issues that affect average 
Americans today in the 21st century. And there is no question 
that the wireless space and cramming concerns in that space are 
those issues. We have just recently announced the investigation 
of T-Mobile, and we have no reason to believe that T-Mobile was 
the only wireless carrier that was engaging in cramming.
    Senator Klobuchar. Thank you. And I was aware of that 
action. Thank you.
    Attorney General, do you think there should be more action 
here on the Federal level on the wireless issue?
    Mr. Sorrell. Thank you, Senator. As the lead state of a 47-
state effort to try to----
    Senator Klobuchar. That would be called a softball.
    [Laughter.]
    Mr. Sorrell. But I already hit it earlier before you came 
in. So I will just hit it again.
    It is a huge problem and there is some good news in that 
the major carriers have gotten out of the PSMS business, and 
complaints to us have fallen off at the State level about 
wireless cramming. But now our focus is, one, trying make our 
constituents who have been crammed whole for the wrongs of the 
past, but also to work with Federal regulators to assure that 
there is not a recurrence of wireless cramming or a close 
cousin using new technologies going forward.
    Senator Klobuchar. And then, Commissioner McSweeny, you 
mentioned in your testimony, as did the Attorney General, that 
consumers are not aware that their cell phone carriers are able 
to add third-party charges to their bills and that they are not 
checking their bills, which is always an issue. I remember 
doing an event on this in Minnesota and I found like some math 
teacher, of course, checked his bill and figured it out, and a 
Lutheran minister. He also checked.
    How long do you think it takes the average consumer to 
notice an unauthorized charge on their account, and how are you 
working to better inform consumers? And how under-reported do 
you think wireless cramming is?
    Commissioner McSweeny. I think the six cases that the FTC 
has brought so far address mobile cramming--and I would say 
stay tuned. I am sure we will have more. Two things are very 
important here. One, the vast majority of customers who have 
been crammed do not realize it. So we are, I think, seeing the 
proverbial tip of the iceberg. And two, people really are 
having a hard time getting redress and getting refunds if they 
are lucky enough to identify charges that may be on their 
account.
    So we think consumer education is very important. We have 
consumer education materials available. But as you point out, 
they recommend people review their bill and try to identify any 
charges that they do not understand. This can be very 
complicated, and in most cases, identifying third-party charges 
on bills is almost impossible. They generally look like phone 
bill charges. So we recommend people take that step. We hope 
they do. We are available as a resource at the FTC. Of course, 
the FCC is a resource, as well as our State Attorneys General. 
And we are urging industry to really take a look and try to 
make these kinds of third-party services more clear to 
consumers on their bills.
    Senator Klobuchar. Do you know what the average charge is 
for one of these cramming, whether it is wireline or wireless? 
What do you think the costs are? I know it is hundreds of 
millions of dollars. But how often did they get the full 
refund?
    Commissioner McSweeny. Well, what we typically see are 
subscription services that range from $9.99 to $14.99 a month. 
But, again, people can be crammed by multiple third parties. So 
they may be billed more than just that $9.99. And very often it 
takes some time for consumers to even realize it is occurring 
to them. So it can occur and accumulate over a matter of months 
or even years.
    We have heard cases and had cases where people tried to get 
refunds and have not succeeded or have only gotten a couple of 
months' worth. So that is a significant problem.
    Senator Klobuchar. All right. Well, we encourage you to 
keep working on this. I think you know our Attorney General in 
Minnesota, Laurie Swanson, has been very aggressive about these 
cases and worked hard on them, and we have done some of this 
work together. I am glad that Senator Blumenthal as a former 
Attorney General understands how important it is as well. So we 
will continue to push on this issue. But thank you very much, 
all of you, for being here.
    Senator Blumenthal. Returning to the question I was about 
to ask you--and I appreciate your comment that your belief is 
that there are investigative efforts in some areas after the 
threshold reaches a percentage and a half. I take it then that 
you would not object to a requirement that there be 
investigative scrutiny after, let us say, a 2 percent----
    Mr. Altschul. The devil is always in the details. Certainly 
not. I would be certainly willing to look into it.
    One of the interesting things in the Vermont consumer 
survey that Attorney General Sorrell mentioned--and it was 
filed in the FCC docket--is how often in the customer responses 
you discover that a lot of these charges were what sometimes 
are called teachable moments in families with family plans. And 
the survey response indicates that a child on a family plan 
made a charge without the parents' consent. This is a serious 
issue. It is in violation of FTC rules, though maybe not a 
conflict because the users may be over 13. So not all of the 
refunds are attributed to lack of knowledge, just maybe 
perhaps, as I said, lack of adult supervision.
    So that is why a refund rate per se is a very crude metric. 
And if that is the metric, you may find carriers being less 
liberal with their refund policies to stay under that line. 
That is a not a desire that the industry wants, and I am sure 
the Committee wants.
    Senator Blumenthal. I would not set the threshold at the 
level of refunds. I would set it at the level of requests for 
refunds. And I take it that you would not, barring viewing some 
of the details, object to, let us say, 2 or 3 percent.
    Mr. Altschul. No. In fact, the actual numbers in the public 
record from the monitoring or the reports received by the FCC 
and Federal Trade Commission and the State AG's over a period 
of 4 years are below that number, and yet that number, as we 
have heard today, does not necessarily indicate the scope of 
the problem. So that is why the devil is in the details.
    Senator Blumenthal. OK. Well, maybe we will work on some of 
the details.
    Comparing again the consumer disputes in this area as 
compared to some others, as you know, when a consumer disputes 
a vendor charge on their phone bill, they have far less 
protections--far fewer protections than a consumer who disputes 
a credit card charge. Those consumers have a statutory right to 
reasonable investigation of the dispute and they cannot be 
penalized for a bad credit report for failing to pay the charge 
during the investigation, unlike consumers who dispute a vendor 
charge on a phone bill.
    Let me ask the members of the panel whether perhaps those 
same protections in the credit card or credit charge area 
should be extended to charges on phone bills.
    Mr. Sorrell. In my view that makes sense, Senator.
    Commissioner McSweeny. I would note that the FTC's view is 
to suggest continued voluntary regulation at this point and a 
series of steps that we believe the industry and carriers 
should take. Personally, I would be very interested in working 
with you on that issue.
    Senator Blumenthal. Thank you.
    Mr. LeBlanc?
    Mr. LeBlanc. Senator, I would echo both Attorney General 
Sorrell, as well as Commissioner McSweeny, and say it is 
squarely a policy question that should definitely be 
considered.
    Mr. Altschul. If I might add.
    Senator Blumenthal. Yes, please.
    Mr. Altschul. While not an expert in payment mechanisms, I 
am sufficiently aware it is a mess of different levels of 
protection. And if this committee and Congress has the 
appetite, what they should do is take on the entire range of 
credit cards, debit cards, prepaid cards, charges to all kinds 
of additional third-party mechanisms because the current 
landscape is a total mess of differing and sometimes 
conflicting rights and obligations.
    Senator Blumenthal. Well, I am not sure how to interpret 
that answer. You would not object but only if it is more far-
reaching?
    Mr. Altschul. You have chosen to compare the credit cards 
with the protections that consumers have. That is just one of 
the existing regulatory schemes that exists for payment 
mechanisms today. There are other payment mechanisms which 
exist which have very similar rules and regulations as carrier 
billing which, as we have heard today, the Federal Trade 
Commission and Federal Communications Commission oversees.
    Senator Blumenthal. Well, let me take another area that is 
very comparable to yours. In the landline industry, industry 
members have stated that consumers can withhold payment on 
disputed charges. Is that true in the wireless area?
    Mr. Altschul. It is not part of the FCC's truth-in-billing 
rules, and that was because the FCC found that wireline 
service, at least at the time, was something that households 
had and had a right to without interruption. Wireless--there 
were additional choices and very low barriers to getting 
additional wireless service.
    Senator Blumenthal. Would you object to that rule as 
applied to your industry?
    Mr. Altschul. Once again, the devil is in the details. But 
certainly I think the industry would be open to discussing.
    Senator Blumenthal. Do you, by the way, have evidence that 
you could give us? I know you disputed the contentions made by 
the members of the panel that the majority of charges are 
unrequested. Do you have facts or data or studies that you 
could submit?
    Mr. Altschul. I do not. The one study, as we all know, that 
is in the record is from Vermont. Our association has filed 
some comments in the FCC docket just pointing out some of the 
flaws in that study. But that study itself indicates that there 
are a lot of reasons and a lot of inconsistent reasons why 
these charges show up on customer bills.
    Senator Blumenthal. Do you have a number that you can 
attribute to unauthorized or----
    Mr. Altschul. I do not.
    Senator Blumenthal. So on what basis are you disputing that 
the majority are unrequested or unauthorized?
    Mr. Altschul. As I believe I represented, it is my belief, 
based on my experience and the experience of my peers and 
friends, that the majority of charges on customer bills are 
charges that customers have opted into and consented to. I know 
I have looked at my charges. I hope you have looked at your 
bills as well.
    Senator Blumenthal. You described this problem as de 
minimis, I think, before the FTC not all that long ago.
    Mr. Altschul. We described the number of complaints 
received by the FTC as de minimis.
    Senator Blumenthal. Do you still believe it is de minimis?
    Mr. Altschul. Based on what we said at the time, the number 
of complaints reported by the agencies remain de minimis. The 
scope of the problem has been demonstrated to be significant, 
and that is why the industry has discontinued their support of 
premium SMS charges.
    Senator Blumenthal. You agree that it is significant?
    Mr. Altschul. Significant, yes.
    Senator Blumenthal. Attorney General Sorrell, I am not sure 
whether it has been mentioned yet, but I think you did in your 
testimony say that in Vermont these third-party charges were 
actually banned by statute on landlines.
    Mr. Sorrell. On landline, yes, Senator.
    Senator Blumenthal. In your testimony, you also call for 
a--and I am quoting--new approach. What about the idea of 
banning third-party charges on wireless?
    Mr. Sorrell. I think given what is happening in the 
marketplace and how smart phones I believe are now a majority 
of cell phones in America, that I am concerned that an outright 
ban would have unintended consequences that might well be 
harmful to consumers. An opportunity for one to block all 
third-party charges on their phone or to block certain types of 
charges makes sense to me, but I would be concerned that if I 
took the position that what we have done in landline should 
also apply to the wireless arena, that although it would take 
care of a lot of bad actions by a lot of bad actors, that it 
might also tend to harm consumers and the economy going 
forward.
    Senator Blumenthal. Well, I tend to agree with you. I do 
not know whether any other members of the panel would have 
observations.
    Commissioner McSweeny. I would agree and second what the 
Attorney General said. I think from the FTC's perspective and 
certainly my personal perspective, there are a lot of 
innovations in mobile carrier billing right now that are very 
beneficial to consumers. And at the moment, one of the primary 
gaps here is the fact that consumers may have the ability to, 
but do not know that they can, block these third-party 
transactions if they wish to. Again, they may not wish to 
because they may be taking advantage of that service, but then 
it can be very difficult for them to see where the third-party 
charges are showing up in their bills. And as we have 
discussed, they do not have the same consistent dispute 
resolution procedures available to them, should they wish to 
dispute the charges.
    Senator Blumenthal. I am going to turn to Senator 
Klobuchar. I apologize. I did not know that you had more. I am 
sorry.
    Senator Klobuchar. No. I am just listening, believe it or 
not. The usual line in the Senate: everything has been said, 
but I have not said it. I am not using that today.
    [Laughter.]
    Senator Klobuchar. You have been saying everything in a 
very good way.
    Senator Blumenthal. Thank you.
    I have just a few more questions. The Commission actually 
has advocated, as you point out in your testimony, that 
consumers have the right to block these charges on a selective 
basis, in part perhaps to avoid the kind of teaching moments 
that Mr. Altschul has raised. I think that recommendation was 
made back in 2012. Can you bring us up to date as to what the 
FTC's position is now?
    Commissioner McSweeny. It is my understanding--and I would 
defer to Mr. Altschul on this--that most of the carriers 
provide this as an option. And we articulate this in the report 
we released this week. Very few consumers are aware of it, and 
the information about the option is not readily available. So 
the FTC does include it in consumer education materials, and we 
think it is a valuable option, especially perhaps if you want 
to make sure that a phone a young person in your family has 
access to cannot include third-party charges on it. But it is 
not widely used and I think that is because people really do 
not understand that it is available or what it even means.
    Senator Blumenthal. A lot of these issues really seem to 
come back to consumers knowing what they are doing, paying 
attention, being educated. And I hope that this hearing will 
play at least some part in raising awareness, but I think with 
all due modesty, outside of this building, outside of 
Washington, D.C., there are probably very few people who will 
be watching their bills more closely simply because we had this 
hearing today. And so I think there are a number of areas where 
we can work together to ensure that consumers are not only 
educated but better protected.
    And Attorney General Sorrell has very commendably and 
interestingly suggested that a new approach is necessary in 
this area. And I would welcome more specific ideas from the 
State Attorneys General, from the FTC, and the FCC, and of 
course, from the industry as to how we can do better.
    If there are no other questions from the panel, we will 
keep the record open for 2 weeks.
    I want to thank the staff for its really excellent work on 
the report that was released today. It is a profoundly 
important document, and rather than listen to me talk about it, 
I hope people will read it. I hope the American public looks at 
it. I hope it gains greater currency because it is truly eye-
opening and important.
    So record will remain open for two weeks. We welcome other 
comments.
    And with that, the hearing is adjourned.
    [Whereupon, at 4:30 p.m., the hearing was adjourned.]
                            A P P E N D I X

     Response to Written Question Submitted by Hon. Cory Booker to 
                         Hon. Terrell McSweeney
    Question. When it comes to consumer education, which mobile 
stakeholders should bear the responsibility for ensuring consumers are 
adequately informed about billing practices and equipped with the tools 
needed to challenge unauthorized activity on their phone bills? Is this 
incumbent on the carriers, or do others bear responsibility, as well?
    Answer. All of the stakeholders in the mobile ecosystem should play 
a role in ensuring that consumers are adequately informed about billing 
practices and equipped with the tools needed to challenge unauthorized 
charges, and carriers can play a particularly important role in 
providing their customers with adequate information about third-party 
charges.
    For instance, third-party providers of services charged to mobile 
bills should clearly and conspicuously disclose the cost of their 
services to consumers up front, and advertising and purchase 
confirmation screens should clearly disclose that the charge is being 
billed to a specific telephone account. Merchants also should ensure 
that the means used to obtain authorization for such charges is not 
deceptive. Billing intermediaries can take steps to ensure that 
consumers have consented to the charges placed on their bills, such as 
by scrutinizing risky or suspicious merchants.
    Mobile carriers should take a lead role in ensuring that consumers 
are adequately informed, because they are uniquely situated in several 
respects. Mobile carriers are the only parties that can and should 
inform consumers at the time that they sign up for service that charges 
for third-party services may be placed on their telephone bills. 
Carriers can also give consumers the ability to block third-party 
charges from their bills, and inform consumers of that option at sign-
up and while the accounts are active. And mobile carriers are 
responsible for the format and content of the telephone bills that 
consumers receive, so they are in the best position to ensure that 
third-party charges are clearly disclosed.
    Carriers are also the natural first point of contact for consumers 
who wish to inquire or complain about third-party charges, so they 
should develop fair and efficient dispute resolution procedures and 
refund policies to address such complaints.
    To assist industry efforts to combat mobile cramming and educate 
consumers, the FTC has issued consumer education materials and a Staff 
Report on Mobile Cramming that includes recommended best practices for 
industry members. See http://www.consumer.ftc.gov/articles/0183-
mystery-phone-charges; http://www.consumer.
ftc.gov/blog/hiding-plain-sight; http://www.ftc.gov/reports/mobile-
cramming-fede
ral-trade-commission-staff-report-july-2014.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                         Hon. Terrell McSweeny
    Question 1. Is the recent T-Mobile cramming case the first time the 
FTC has taken enforcement action against a telecommunications carrier?
    Answer. The T-Mobile case is the first enforcement action the FTC 
has brought against a telecommunications carrier for deceptive or 
unfair practices under the FTC Act.

    Question 2. Do you believe the exemption from the FTC's 
jurisdiction of communications common carriers inhibits the FTC's 
consumer protection mission? Please explain your answer.
    Answer. While the FTC's jurisdiction over telecommunications 
companies when they are engaged in non-common carrier activities like 
billing for third-party services is well supported, the exemption 
encourages telecommunications companies to contend otherwise, leaving 
the matter open to litigation. Furthermore, non-common-carrier 
activities can be mingled with common-carrier activities (such as 
pricing and advertising of bundled services). These issues can inhibit 
our consumer protection mission. The common carrier exemption can also 
frustrate effective consumer protection under FTC principles when 
dealing with advertising, marketing, and billing practices for common 
carrier activities.

    Question 3. Do you believe the communications common carrier 
exemption is outdated or should be repealed?
    Answer. Yes, the common carrier exception was implemented in the 
1930s, at a time when telephone companies provided basic services that 
were heavily regulated monopolies. That economic and regulatory model 
no longer applies. Today, consumers would be better served by the 
repeal of the common carrier exemption. As communications technologies 
and platforms have continued to evolve, market participants may offer a 
range of communications-related services to consumers, some of which 
are subject to common carrier requirements under the Communications Act 
but many of which are not. Consumers should expect and receive the same 
protections against unfair or deceptive acts or practices in the 
context of common carrier services as in other services.

    Question 4. Would repealing the communications common carrier 
exemption lead to duplicative jurisdiction with the FCC? Why or why 
not? Please explain your answer.
    Answer. The FTC and the FCC already share concurrent jurisdiction 
in certain areas, such as mobile cramming by telecommunications 
companies. The two agencies cooperate and coordinate with one another, 
which furthers consistency and allows each agency to use its own 
statutory tools to combat serious problems like mobile cramming that 
have caused many millions of dollars of harm. For example, the FTC Act 
provides the FTC with the authority to seek equitable injunctive and 
monetary relief for consumers--including refunding money that was 
unfairly or unjustly taken, while the Communications Act gives the FCC 
authority to impose monetary forfeiture on a party that is paid to the 
U.S. Treasury.

    Question 5. Wouldn't repealing the communications common carrier 
exemption lead to potentially inconsistent enforcement activities by 
the FTC and the FCC, which could undermine effective guidance to 
industry and ultimately the protection of consumers of 
telecommunication services? Please explain your answer.
    Answer. The FTC and the FCC coordinate with each other to make sure 
that we are sending consistent messages to the industry and maximizing 
the effective use of our resources. Further, in areas that cause 
serious consumer harm, such as mobile cramming, it is important that 
each agency has the ability to use the different tools in its arsenal 
to combat the problem, such as consumer redress for the FTC and civil 
penalties for the FCC. It is important to note that concurrent 
jurisdiction is common. For example, we share jurisdiction with the 
CFPB over a wide swath of industries. We coordinate by, for example, 
notifying each other of investigations and other activities to avoid 
``double-teaming'' a particular target. The presence of two agencies 
acting to address serious consumer protection issues has worked well, 
providing ``more cops on the beat.'' For example, just last month the 
FTC and the CFPB announced a joint Federal and state law enforcement 
sweep, which targeted companies peddling fraudulent mortgage relief 
schemes to distressed homeowners. By combining resources, the agencies 
were able to engage in more robust enforcement in an area causing 
significant consumer injury. Similarly the two agencies coordinate with 
each other to provide guidance to industry. For example, in June 2013, 
the FTC and the CFPB co-hosted a roundtable to examine the flow of 
consumer data throughout the debt collection process. In a similar 
fashion, we also work cooperatively with the FDA and the Department of 
Justice in areas where we have concurrent jurisdiction.

    Question 6. The FTC's complaint in the T-Mobile case states that 
the FTC and the FCC have ``concurrent enforcement jurisdiction over 
mobile telephone companies' billing and collection of third-party 
charges for non-telecommunications services,'' but does not cite to any 
authority for this statement. During the hearing, you stated that this 
authority is established by ``relevant case law,'' but did not specify 
any cases.
    Please provide citations to any and all statutes, regulations, and 
case law that you believe establish the FTC's authority, and explain 
why the FTC believes these cases, statutes, and regulations establish 
the FTC's authority to sue T-Mobile notwithstanding the common carrier 
exemption.
    Answer. I expect this issue to be fully briefed in the T-Mobile 
litigation depending on the arguments raised by the defendant. In the 
interim, I am attaching the brief filed by the agency in FTC v. Verity 
Int'l Ltd., 194 F. Supp. 2d 270 (S.D.N.Y. 2002) that discussed this 
issue. In that case, the court found that the FTC has jurisdiction over 
a billing aggregator placing charges on consumers' telephone bills, 
explaining that ``the better considered authorities . . . agree that 
whether an entity is a common carrier for regulatory purposes depends 
on the particular activity at issue.'' Id. at 274-75; aff'd 443 F.3d 48 
(2d Cir. 2006).

    Question 7. Two of your colleagues on the Commission, Commissioner 
Wright and Commissioner Ohlhausen, have indicated they believe that 
``the FTC's competencies as an antitrust enforcement and consumer 
protection agency, combined with the expertise it has developed in 
matters related to the Internet and broadband access, position the FTC 
well to deal with the difficult legal, economic, and technological 
issues related to net neutrality.'' Do you agree with this statement? 
Please explain your answer.
    Answer. The issue of net neutrality raises a host of complicated 
legal, technical, and economic issues. We look forward to seeing how 
the FCC addresses them in its proceeding. While antitrust enforcement 
is vital to protecting a competitive marketplace, it is not always the 
most effective way to address policy issues in the economy. Sometimes 
the public interest is best protected through a combination of 
antitrust enforcement and well-designed regulation.
                               Attachment






































                                 ______
                                 
    Response to Written Questions Submitted by Hon. Cory Booker to 
                             Travis LeBlanc
    Question 1. When it comes to consumer education, which mobile 
stakeholders should bear the responsibility for ensuring consumers are 
adequately informed about billing practices and equipped with the tools 
needed to challenge unauthorized activity on their phone bills?
    Answer. Consumers have a direct relationship with their carriers, 
and they trust that their carriers' bills will be accurate. Therefore, 
as a good business measure, all carriers should timely and adequately 
inform their customers about their billing practices and equip them 
with tools needed to challenge unauthorized activity on their phone 
bills. Additionally, third parties who place charges on consumers' 
phone bills and any other entities that have direct relationships with 
consumers by providing goods or services directly to consumers should 
also bear this responsibility. This is particularly important as the 
mobile ecosystem prepares to embrace new innovations that would allow 
consumers to pay for third party goods and services through their phone 
bill.
    To help empower consumers in a world that is increasingly dependent 
on wireless communications, the FCC is currently considering a 
rulemaking that could extend wireline ``cramming'' rules to the 
wireless industry. For instance, wireline phone companies are required 
to place third-party charges in a separate section on customer bills 
and prominently disclose options for blocking such charges. The record 
was recently refreshed, and the FCC is now poised for action in that 
docket within the next several months.

    Question 2. Is this incumbent on the carriers, or do others bear 
responsibility, as well?
    Answer. As discussed above, mobile carriers and the third parties 
who place charges on consumers' phone bills should bear responsibility 
for ensuring consumers are adequately informed about billing practices 
and equipped with the tools needed to challenge unauthorized activity 
on their phone bills. Additionally, these duties should also apply to 
any other entities that have direct relationships with consumers 
wherein consumers pay for goods or services through their phone bill.
    Also, as the Federal agency with primary oversight of the Nation's 
telephone carriers, the FCC approaches the problem of cramming through 
regulation, enforcement, and consumer education. It is important that 
we continue to educate consumers about third-party charging practices 
and how to respond to unauthorized charges on wireless bills. The FCC 
engages consumers through written and video guides, tip sheets, and 
other materials that empower consumers to prevent cramming, or identify 
and report it if it occurs. For example, the FCC held a public workshop 
in 2013 that brought together industry members, consumer advocates, and 
regulators to focus more attention on the cramming problem and offer 
consumers practical tips. We also partner in our outreach efforts with 
groups representing populations particularly vulnerable to cramming, 
such as AARP.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                             Travis LeBlanc
    Question 1. Do you believe the exemption from the FTC's 
jurisdiction for communications common carriers frustrates effective 
consumer protection with regard to billing practices in the 
telecommunications industry? Please explain your answer.
    Answer. I do not believe that the exemption from the FTC's 
jurisdiction for communications carriers frustrates effective consumer 
protection with regard to billing practices in the telecommunications 
industry. Over the years, the FCC has taken many enforcement actions to 
protect consumers from deceptive billing practices in the 
telecommunications industry. These actions have proposed forfeiture 
penalties, as well as required carriers to redress injured consumers 
and adopt rigorous compliance plans. The FCC has also adopted truth-in-
billing rules to protect consumers from deceptive billing practices, 
and initiated a proceeding that considers the expansion of existing 
protections for consumers. The FCC expects to conclude this proceeding 
in the next several months. As a result, the exemption from the FTC's 
jurisdiction for common carriers does not frustrate effective consumer 
protection because the FCC is acting to protect consumers of 
telecommunications services.

    Question 2. Do you believe the communications common carrier 
exemption is outdated or should be repealed? Please explain your 
answer.
    Answer. I do not believe that the communications common carrier 
exemption is outdated or should be repealed. The FCC is the Federal 
agency with the expertise and experience to serve as the primary 
regulatory and enforcement oversight authority for the Nation's 
telecommunications carriers. For decades, the FCC has exercised this 
authority through a combination of regulation, enforcement, and 
consumer education. The regulations that the FCC has adopted continue 
to protect consumers while also ensuring that all the people of the 
United States have rapid, efficient, and nationwide communications 
services with adequate facilities at reasonable charges. While the 
portfolio of enforcement actions that the Commission takes have evolved 
over time with changes in technology and industry practices, the 
Commission and the Enforcement Bureau are fully committed to ensuring 
that the Communications Act as well as the FCC's rules and regulations 
are efficiently and effectively enforced to protect American consumers 
in the 21st Century.

    Question 3. Do you believe the FCC should remain the agency with 
primary jurisdiction over the telecommunications industry?
    Answer. Yes.

    Question 3a. Would repealing the communications common carrier 
exemption alter the jurisdiction of the FCC? Please explain your 
answer.
    Answer. I do not believe that the communications common carrier 
exemption should be repealed. That being said, the FCC's jurisdiction 
is not tied to the FTC Act. As a result, repealing the common carrier 
exemption in the FTC Act would not alter the FCC's jurisdiction. 
However, granting another Federal agency jurisdiction over the 
activities of common carriers increases the risk of inconsistent 
actions by the agencies as well as inconsistent requirements for 
regulatees.

    Question 4. Does the communications common carrier exemption need 
to be repealed or modified in order to better enable the FCC and the 
FTC to work together to protect consumers of telecommunication 
services? Please explain your answer.
    Answer. No. It is not necessary to modify or repeal the common 
carrier exemption in the FTC Act in order to better enable the FCC and 
the FTC to work together to protect consumers of telecommunications 
services. The FCC and the FTC regularly collaborate and cooperate to 
protect consumers. For example, as discussed at the hearing, the FCC 
and the FTC coordinated our enforcement activities with respect to T-
Mobile's alleged cramming via premium short messaging services. Our two 
agencies worked collaboratively on that investigation in order to 
harmonize our respective enforcement as well as to leverage our 
respective expertise. As other examples of our effective working 
relationship, the FCC has taken enforcement action against prepaid card 
providers for deceptive marketing based on FTC referrals; we have 
participated in each other's workshops on areas of mutual interest; and 
the agencies meet and confer routinely on Do-Not-Call and robocall 
enforcement. We at the FCC are pleased with our collaborations with the 
FTC and look forward to continuing to partner with the FTC in the 
future.

    Question 5. As you know, call completion is a significant problem 
in rural America. To date, however, only three companies have reached 
agreement on consent decrees to address the issues, and persistent 
problems continue. Why has the Commission not taken more forceful and 
widespread enforcement action in this area?
    Answer. I agree that rural call completion has been a significant 
problem; it can interfere with an individual's ability to communicate 
with family and friends, seek help in an emergency, and conduct 
important business. As a result of the Commission's investigations, 
Level 3, Windstream, and Matrix made substantial payments to the U.S. 
Treasury and agreed to institute comprehensive compliance plans 
designed to ensure future compliance with the Commission's rules. These 
investigations also informed the Commission's rural call completion 
rulemaking, which resulted in the adoption of the new rules that 
require providers to record, retain, and report to the Commission call 
completion data for long distance calls. When these rules go into 
effect, the data that providers file should highlight which providers 
have unacceptably low call completion rates and facilitate the 
Commission's ability to take additional enforcement action on an 
ongoing basis. In addition, the data collection should deter call 
completion problems by informing providers about their own performance, 
as well as the performance of each of their intermediate providers.

    Question 6. The Commission adopted record keeping and reporting 
requirements in the Fall of 2013 to address the call completion issue, 
but the rules have not been implemented. To the extent investigative 
efforts are hampered by the lack of records, why have the rules not yet 
gone into effect--nine months after they were adopted?
    Answer. Pursuant to the Paperwork Reduction Act (PRA), any rules 
that necessitate ``information collections'' from 10 or more entities, 
such as the recordkeeping, retention, and reporting requirements 
adopted in the Fall of 2013, must obtain Office of Management and 
Budget approval before taking effect. Although the Commission received 
OMB pre-approval for the collection proposed in the Notice of Proposed 
Rulemaking, the Rural Call Completion Order that the Commission adopted 
modified, and in some respects expanded, the recordkeeping, retention 
and reporting burdens. The revised scope of the final rules generated 
additional PRA comments. The Commission is currently working on a 
submission to OMB that: (1) addresses the arguments raised during this 
separate notice and comment process; and (2) is designed to obtain 
prompt approval from OMB.

    Question 7. Many believe that call completion problems can be 
traced to sub-standard intermediate providers. What will the Commission 
do to ensure that only quality intermediate providers are used to route 
calls and why has the Commission not taken enforcement action against 
poor performing intermediate providers?
    Answer. The Commission has taken enforcement action against 
intermediate providers. Each of the three companies that have entered 
into consent decrees with the Commission--Level 3, Windstream, and 
Matrix--acts as an intermediate provider and carries significant 
quantities of wholesale traffic. Matrix primarily serves as an 
intermediate provider for other carriers. Level 3 is subject to 
potential additional penalties for substandard performance as an 
intermediate provider under the terms of its consent decree if its 
wholesale call completion rates to rural areas are more than five 
percentage points below its wholesale call completion rates to non-
rural areas.
    Moreover, the Commission's new rules require covered long distance 
providers to record and retain detailed information regarding call 
completion rates for each intermediate provider that the long distance 
provider uses to terminate calls to rural areas. Many long distance 
providers did not previously record this information. After the new 
rules take effect, identifying sub-standard performance among 
intermediate providers should be easier for long distance providers. 
This should deter them from using intermediate providers that perform 
poorly.
    The new rules should also facilitate future enforcement actions by 
the Commission, which can request data regarding individual 
intermediate provider performance from long distance providers. 
Moreover carriers may be liable for call completion problems caused by 
the intermediate providers they employ. The 2012 Rural Call Completion 
Declaratory Ruling stated that ``it is an unjust and unreasonable 
practice in violation of section 201 of the [Communications] Act for a 
carrier . . . to fail to ensure that intermediate providers, least-cost 
routers, or other entities acting for or employed by the carrier are 
performing adequately.'' This is in accordance with section 217 of the 
Act, which provides that carriers are liable for the acts of their 
agents or other persons acting on their behalf. By holding the 
originating providers responsible for rural call completion problems 
stemming from the actions of their intermediate providers, the rules 
encourage originating providers to choose their downstream providers 
more carefully, with a better eye toward call completion rates.
    In addition, covered providers can reduce their recordkeeping, 
retention, and reporting burdens by using fewer than two intermediate 
providers. If a long distance provider choosing this option experiences 
call completion problems, it should be able to quickly identify and 
remove the problematic intermediate provider.
    Prospectively, the Rural Call Completion Order sought comment on 
whether the Commission should extend its recordkeeping and reporting 
rules to intermediate providers, and whether we should impose 
certifications or other obligations on such entities. We are currently 
analyzing the comments.

    Question 8. When the Commission issued its rural call completion 
report and order, it requested comment on additional rules. When will 
the Commission issue an order addressing the additional proposals?
    Answer. Since releasing the Rural Call Completion Order, the 
Commission has received comments and ex parte presentations on the 
record suggesting additional steps and proposals that might improve 
rural call completion rates or reduce reporting burdens. We are 
analyzing the record to determine the best path forward.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Cory Booker to 
                          Michael F. Altschul
    Question. With fewer people using landlines, the number of 
wireless-only households is growing, particularly among young and low-
income people. Cramming is a deeply troubling and deceptive practice 
that seems to be keeping pace with this significant growth in mobile 
technology. Additionally, as the use of legitimate billing of third-
party services (such as apps and downloads) increases, it seems as 
though the mobile space presents additional challenges for consumers 
and their ability to discern unauthorized charges on their cell-phone 
bills. I am pleased to see the FTC issued recommendations to carriers 
on how to combat mobile cramming. What is the industry's response to 
the recommendations the FTC outlined?
    Answer. You are quite correct that the number of wireless-only (and 
wireless-primary) households is growing. The Center for Disease 
Control's National Center for Health Statistics has tracked wireless-
only households, and the percentages of adults and children under 18 
who live in wireless-only households, for most of the past decade. 
According to its 2013 survey (reporting on data through December 2012), 
nearly 40 percent of Americans have chosen to `cut the cord' and live 
exclusively in wireless only homes. Overall, your state lags the Nation 
in the movement toward wireless-only households, although Essex County 
appears to be very close to the national average, with 40.2 percent of 
adults 18 and over living in wireless-only households.
    As I testified to on June 30, the wireless industry already has 
adopted many of the FTC's recommendations. Commercial, charitable, and 
political uses of common short codes issued by CTIA are subject to 
written, publicly available consumer protection guidelines. Moreover, 
CTIA monitors advertisements to ensure compliance with these guidelines 
and that advertising and price information is clearly disclosed. As a 
further safeguard to consumers, beginning in February 2012, CTIA 
contracted with an outside vendor to verify information supplied to the 
Common Short Code Administration registry by companies seeking to lease 
short codes for premium SMS campaigns. CTIA's vendor uses numerous 
commercially-available databases such as Lexis/Nexis, Dun & Bradstreet, 
and the Better Business Bureau to confirm that the Content Provider 
displayed in the registry represents a legitimate company and is 
identified correctly in the registry. When monitoring identifies 
problems, that information is sent to the carriers so they may take 
corrective action. These efforts and the national carriers' decisions 
to end support for premium short code campaigns (with the limited 
exceptions for charities and political campaigns) should combine to 
significantly reduce the opportunity for third-parties to use carrier 
billing platforms as a tool to commit fraud. In addition, wireless 
companies provide customers the ability to block all third party 
charges (see: AT&T: http://www.att.com/shop/wireless/services/
purchase_blocker-sku6800254.html#fbid=pwxABFfDn2W; Sprint: http://
support.sprint.com/support/article/Find_out_about_Premium_Messaging
/case-cx832318-20091116-
142129?ECID=vanity:premiummessaging&question_box=
block billing&id16=block billing; T-Mobile: http://support.t-
mobile.com/docs/DOC-2745?cm_sp=THE%20SOURCE_Support-_-
Upgrades%20%26%20Planscontent_
blocking_txt; Verizon: https://wbillpay.verizonwireless.com/vzw/nos/
safeguards/SafeguardProductDetails.action?productName=serviceblock). 
Wireless carriers are reviewing all of the Commission's recommendations 
with the shared goal of protecting consumers from deceptive 
advertisements and fraud, and helping dispute unauthorized charges and 
obtain refunds through a clear and consistent dispute resolution 
process.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                          Michael F. Altschul
    Question 1. Is the recent T-Mobile cramming case the first time the 
FTC has taken enforcement action against a telecommunications carrier?
    Answer. To CTIA's knowledge, it is the first time the FTC has taken 
enforcement action against a telecommunications carrier for a carrier-
provided service. The FTC has brought actions against carriers for 
violations of the Fair Credit Reporting Act (FCRA).

    Question 2. Do you believe the current exemption from the FTC's 
jurisdiction for communications common carriers frustrates effective 
consumer protection and industry guidance with regard to billing 
practices in the telecommunications industry?
    Answer. Currently, the FCC imposes Truth-in-Billing requirements on 
telecommunications carriers. If Congress eliminated the FTC's common 
carrier exemption while keeping the FCC's rules in place, wireless 
carriers would be subject to two potentially conflicting sets of 
Federal requirements administered by two different Federal agencies. 
Such an outcome would lead to consumer and carrier confusion, and would 
frustrate effective consumer protection. In addition, dual Federal 
regulation would result in increased costs to taxpayers by funding two 
agencies to do similar work, while at the same time increasing 
compliance costs for carriers, also likely to be passed on to 
consumers.

    Question 3. Do you believe the communications common carrier 
exemption is outdated or should be repealed? Please explain your 
answer.
    Answer. Any determination affecting the common carrier exemption in 
the FTC Act should await the outcome of the current ``Net Neutrality'' 
debate and the regulatory status of carrier services. Any changes to 
agency authority over communications carriers should ensure that there 
is not dual Federal regulation and that Federal authority preempts 
state authority.

    Question 4. Do you believe repealing the communications common 
carrier exemption would alter the jurisdiction of the FCC? Please 
explain your answer.
    Answer. While repealing the common carrier exemption by itself 
would not alter the FCC's jurisdiction, such an outcome should 
logically be coupled with a change in the FCC's jurisdiction in order 
to avoid dual Federal regulation.

    Question 5. Do you believe repealing the communications common 
carrier exemption is necessary to enable the FTC and FCC to work 
together to protect consumers of telecommunications services?
    Answer. No. Repealing the exemption without altering the FCC's 
jurisdiction could create two potentially conflicting Federal regimes, 
which could undermine coordinated FTC and FCC actions to protect 
consumers.