[Federal Register Volume 60, Number 133 (Wednesday, July 12, 1995)]
[Rules and Regulations]
[Pages 35846-35854]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-16641]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 64

[CC Docket No. 94-129; FCC 95-225]


Unauthorized Changes of Consumers' Long Distance Carriers--
``Slamming''

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: On June 13, 1995, the Commission adopted a Report and Order 
(R&O) in CC Docket No. 94-129 (released November 10, 1994; FCC 95-225) 
adopting rules to prescribe the form and content of letters of agency 
for changing long distance carriers. The new rules are intended to 
protect consumers from unauthorized changes of their long distance 
carriers through the use of deceptive and misleading letters of agency 
(LOAs). An LOA is a document, signed by the customer, which states that 
a particular carrier has been selected as that customer's ``primary 
interexchange carrier'' (``PIC''). The Commission takes this action in 
response to the thousands of complaints received regarding unauthorized 
changes of consumers' PICs, a practice commonly known as ``slamming.'' 
The Commission also takes this action in response to the tens of 
thousands of additional complaints received annually by local exchange 
carriers (LECs) and state regulatory bodies. These rules and policies 
prohibit certain deceptive or confusing marketing practices of some 
interexchange carriers (IXCs) and are intended to significantly reduce 
consumer confusion over the use and function of the LOA. In crafting 
these rules, the Commission has balanced the industry's need for 
flexibility in marketing services to consumers and the need to protect 
consumers from deceptive marketing practices.

EFFECTIVE DATE: September 11, 1995.

FOR FURTHER INFORMATION CONTACT:
Wilbert E. Nixon, Jr., Enforcement Division, Common Carrier Bureau, 
(202) 418-0960.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order CC Docket No. 94-129 [FCC 95-225], adopted June 13, 1995 and 
released June 14, 1995. The full text of the Report and Order is 
available for inspection and copying during normal business hours in 
the FCC Reference Center, Room 239, 1919 M Street, NW., Washington, DC 
20554. The full text of this Report and Order may also be purchased 
from the Commission's duplicating contractor, International 
Transcription Services, 2100 M Street, NW., Suite 140, Washington, DC 
20037, (202) 857-3800.
Paperwork Reduction

    Public reporting burden for this collection of information is 
estimated to average 2 hours per response, including the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information. Send comments regarding this burden estimate 
or any other aspect of this 

[[Page 35847]]
collection of information, including suggestions for reducing the 
burden, to the Federal Communications Commission, Record Management 
Branch, Paperwork Reduction Project, and to the Office of Management 
and Budget, Paperwork Reduction Project, Washington, DC 20503.

Summary of Report and Order

    1. Specifically, the Commission adopts rules that prohibit the 
potentially deceptive or confusing practice of combining the LOA with 
promotional materials in the same document. These rules require that 
the LOA be a separate or severable document whose sole purpose is to 
authorize a change in a consumer's primary long distance carrier. Among 
other things, the Commission prescribes the minimum contents of the LOA 
and require that the LOA be written in clear and unambiguous language. 
Furthermore, the Commission prohibits all ``negative option'' LOAs and 
requires that LOAs contain complete translations if they employ more 
than one language. Finally, the Commission excepts from the ``separate 
or severable'' rule a check that serves as an LOA, so long as the check 
contains certain information clearly indicating that endorsement of the 
check authorizes a PIC change and otherwise complies with the 
Commission's LOA requirements.

Background

    2. Despite the adoption of consumer safeguards set forth in earlier 
orders, the Commission continued to receive complaints from consumers 
who allege that their PIC selections have been changed without their 
permission. Many of these complaints describe apparently deceptive 
marketing practices in which consumers are induced to sign a form 
document that does not clearly advise the consumers that they are 
authorizing a change in their PIC. Consumers, for example, have 
complained that the ``LOA'' forms were ``disguised'' as contest entry 
forms, prize claim forms, or solicitations for charitable 
contributions. The Commission has also received complaints against IXCs 
because of ``negative option LOA'' forms. These forms typically offer 
prizes to consumers if they return the forms and may ``require'' 
consumers to check a box at the end of the form if they do not want to 
change their long distance service. The characteristic common to all of 
these marketing practices is that the inducement is combined with the 
LOA and the inducement language is prominently displayed on the 
inducement/LOA form while the PIC change language is not, thus leading 
to consumer confusion. Consumers asserted that when they entered the 
contests, claimed the prizes, or responded to the charity 
solicitations, they did not intend to switch their long distance 
carriers.
    3. Consequently, the Commission, on its own motion, initiated this 
rule making proceeding. The Commission proposed rules to separate the 
LOA from all promotional inducements and make the LOA, which has been 
previously defined by the Commission, a separate document on a separate 
page, the sole purpose of which is to authorize a PIC change. The 
Commission also sought public comment on a number of related issues, 
including: (1) Whether LOAs should contain only the name of the rate-
setting carrier; (2) whether consumers should be liable for the long 
distance telephone charges billed by unauthorized carriers; (3) whether 
the Commission should adopt rules requiring that bilingual LOAs contain 
complete translations in both languages; and (4) whether the Commission 
should extend its PIC change verification procedures to consumer-
initiated 800 calls.

Discussion

    4. After the AT&T divestiture, the Commission sought to encourage a 
competitive long distance telephone market. To that end, the Commission 
gave significant weight to the argument that the only way for non-
dominant carriers to compete effectively with the dominant carrier was 
for all carriers to be allowed to market their services with 
significant flexibility. As competition in the long distance telephone 
market has emerged, the Commission's experience in balancing consumer 
protection concerns and IXC marketing flexibility has evolved. The 
Commission's initial decision not to require written LOAs prior to a 
PIC change indicated to the industry its willingness to allow IXCs to 
police their own marketing activities. Although it still believes self-
policing to be an integral consumer protection mechanism, the 
Commission cannot ignore the very large number of slamming complaints 
that consumers continue to submit to their local phone companies, to 
their state regulatory bodies, and to this Commission.
    5. For any competitive market to work efficiently, consumers must 
have information about their possible market choices and the 
opportunity to make their own choices about the products and services 
they buy. Slamming takes away those choices from consumers. Slamming 
also distorts the long distance competitive market because it rewards 
those companies who engage in deceptive and misleading marketing 
practices by unfairly increasing their customer base at the expense of 
those companies that market in a fair and informative manner. In light 
of the foregoing, the Commission finds it necessary to prescribe rules 
that it believes will serve as an informative and useful consumer 
protection mechanism and an important rule of fair competition for the 
long distance telephone industry, while recognizing the industry's need 
for flexibility in marketing services to consumers.
A. The Minimum Requirements for LOAs

    6. The Commission received nearly unanimous support for its 
proposed rule prescribing the general form and minimum content for an 
LOA. As proposed in Sec. 64.1150(e), the Commission will require that 
the LOA contain: (1) The subscriber's billing name and address and each 
telephone number to be covered by the PIC change order; (2) a line 
stating the subscriber's decision to change the PIC from the current 
interexchange carrier to the prospective interexchange carrier; (3) a 
statement that the subscriber designates the interchange carrier to act 
as the subscriber's agent for the PIC change; and (4) a statement that 
the subscriber understands that any PIC selection chosen may involve a 
charge to the subscriber for changing the subscriber's PIC. As stated 
in the Policies and Rules Concerning Unauthorized Changes of Consumers' 
Long Distance Carriers, Notice of Proposed Rule Making, 59 FR 63750 
(December 9, 1994), 9 FCC Rcd 6885 (1994) (NPRM), these provisions 
organize and restate the LOA requirements of Investigation of Access 
and Divestiture Related Tariffs, 50 FR 25982 (June 24, 1985), 101 FCC 
2d 911 (1985) (Allocation Order) and Policies and Rules Concerning 
Changing Long Distance Carriers, 57 FR 4740 (February 7, 1992), 7 FCC 
Rcd 1038 (1992) (PIC Verification Order) into one standard rule. This 
simplified restatement of current Commission requirements regarding 
LOAs was met with general acceptance by the commenters and thus was 
adopted as proposed. The Commission refrains from prescribing specific 
LOA language at this time. The Commission agrees with some of the 
commenters that differing state requirements and differences in the 
target market for individual promotional campaigns indicates that IXCs 
may be better able to tailor the specific language in a way that 
clearly informs the consumer of the impending choice. The Commission 
believes that IXCs can 

[[Page 35848]]
police themselves in this matter given clear guidance, and it believes 
that these rules give that guidance. Also, the Commission agrees with 
Sprint Communications Co. (Sprint) that this new rule and the existing 
telemarketing rules (Sec. 64.1100) should be consistent. The Commission 
therefore amends Sec. 64.1100(a) to read as follows: ``The IXC has 
obtained the customer's written authorization in a form that meets the 
requirements of Sec. 64.1150, below.''
    7. Nearly every entity choosing to comment on the matter supported 
the Commission's proposed prohibition of ``negative option'' LOAs. This 
type of LOA requires a consumer to take some action to avoid a PIC 
change. Because the Commission finds that such LOAs impose an 
unreasonable burden on consumers who do not wish to change their PICs, 
the Commission adopts the proposed prohibition. Further, the Commission 
agrees with the comments of Allnet that the proposed section might be 
construed as somewhat vague. The Commission therefore adopts some of 
Allnet's suggested language and modifies the provision to read: 
``Letters of agency shall not suggest or require that a subscriber take 
some action in order to retain the subscriber's current interexchange 
carrier.''
    8. Although many commenters oppose any Commission-prescribed LOA 
text, font, or type size, nearly all commenters agreed that ``[a]t a 
minimum, the letter of agency must be printed with a type of sufficient 
size and readable type to be clearly legible and must contain clear and 
unambiguous language.'' Although it adopts these general guidelines, 
the Commission refrains from prescribing a specific font or type size. 
Long distance telephone companies' marketing campaigns take on many 
different forms. Their services may be advertised in myriad ways, and 
in myriad type sizes, depending on the advertising medium and target 
audience. Therefore, the Commission will allow IXCs the flexibility to 
design the LOA in a manner that is complimentary to their associated 
promotional material. However, the Commission will require LOAs to be 
printed with type of sufficient size and readable type to be clearly 
legible to the consumer. This means that LOAs must generally be 
comparable in font and size to their associated promotional material.

B. The LOA as a Separate or Severable Document

    9. The Commission's proposal to separate the LOA physically from 
all promotional materials has drawn both comments favoring it and 
comments questioning it. Specifically, the Commission proposed that 
``[t]he letter of agency shall be a separate document whose sole 
purpose is to authorize an interchange carrier to initiate a primary 
interexchange carrier change. The letter of agency must be signed and 
dated by the subscriber to the telephone line(s) requesting the primary 
interexchange carrier change * * *. The letter of agency shall not be 
combined with inducements of any kind on the same document.'' The 
opponents of the Commission's proposal such as MCI Telecommunications 
Corporation (MCI) argue that this proposed rule ``may'' be found 
unconstitutional and that it ``goes farther than is necessary'' to 
protect consumers from slamming. Proponents of the Commission's 
proposed rule argue that separating the LOA from inducements is 
necessary to ensure that consumers will be clearly informed as to the 
actions they are being asked to make. In fact, some commenters contend 
the Commission does not go far enough to protect consumers. In response 
to these comments, the Commission first addresses whether the First 
Amendment to the Constitution would permit us to require the LOA to be 
a separate document. Then, the Commission addresses whether it is in 
the public interest for us to adopt this requirement.
1. First Amendment Considerations
    10. Notwithstanding MCI's First Amendment arguments, the rules the 
Commission has adopted in this proceeding meet the tests set out by the 
Supreme Court for permissible government regulation of commercial 
speech under the First Amendment. First of all, the rules adopted in 
this proceeding do not prohibit any speech, commercial or otherwise. 
They merely require that the carriers' method of delivery of that 
speech not confuse or mislead the consumer. The record in this 
proceeding is replete with comments supporting the Commission's 
conclusion that the present practices of many carriers have confused 
and misled thousands of consumers into thinking they were participating 
in some type of activity other than switching their long distance 
carrier, when, in reality, they were doing exactly that. The 
regulations that the Commission is adopting are designed to minimize 
this confusion by requiring that the language of the LOA be clear and 
unconfusing, contain specific information that will assure that the 
signer of the LOA can understand exactly what he or she is signing, and 
separate the LOA from any promotional materials so that the consumer is 
more likely to be able to differentiate commercial incentives offered 
by the carriers from the actual commitment to changing his or her 
primary interexchange carrier.
    11. The Supreme Court has held that the government may ban forms of 
communication more likely to deceive the public than to inform it. 
Central Hudson Gas & Electric Corp. v. Public Service Comm'n of N.Y., 
447 U.S. 557, 561 (1980). The Commission has tried to narrowly design 
its regulations to eliminate deception and yet still permit the free 
flow of information.
    12. The Supreme Court also has held that it is permissible to use 
some restrictions on the time, place, and manner of commercial speech 
provided that they are justified without reference to the content of 
the regulated speech, that they serve a significant government 
interest, and that in so doing they leave open ample alternative 
channels for the communication of the information. Virginia Board of 
Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 771 
(1976). The rules the Commission adopts here are restrictions in the 
manner of delivery and meet all of the requirements set out by the 
Supreme Court. Specifically, the Commission is restricting only the 
manner in which the material is presented: it must be clear and not 
confusing, it must include enough information to permit the customer to 
know what he or she is doing by signing the document and who his or her 
long distance carrier will be, and it must be separate or severable 
from other commercial incentives. As for a significant governmental 
interest, the very process of designating a primary long distance 
carrier has been established by this Commission as part of the process 
of providing options to consumers in choosing their interexchange 
services. The Commission created the LOA as a method for assuring that 
the consumer's choice was honored and to protect the consumer from 
unauthorized changes. The sheer volume of complaints that the 
Commission has received demonstrates that there are still some flaws in 
the system it has designed and that there is need for refinements to 
provide protection to the consumers from the present practices that 
have led to so many unauthorized conversions. Second, the Commission is 
not prescribing specific language either in the LOA or in any 
promotional materials; rather the Commission is specifying the minimum 
information that an LOA must include and have placed no restrictions on 
any promotional materials.
    13. Finally, as indicated above, the Commission has chosen the 
method of 

[[Page 35849]]
regulation that least impinges on the carriers' free choices of how to 
promote their services. The Commission is not proposing to restrict 
IXCs' use of their promotional materials, but merely is specifying that 
they be separate or severable from the actual document that authorizes 
a PIC change. Carriers are free to use whatever promotional materials 
they choose, and whatever avenues for distribution of those promotional 
materials that they choose. All the Commission is requiring is that 
they comply with its minimal requirement that the actual document 
authorizing a PIC change be separate or severable from the promotional 
materials so that it is clear to the consumer that signing that 
document will do just that. The Commission's goal is to minimize 
deceptive promotional practices and still permit the consumer to be 
informed about her or his choices.
2. Public Interest Considerations
    14. Based on its investigation of consumer complaints concerning 
LOAs, the Commission found that abuses have occurred and continue to 
occur at an increasing rate. Much of the abuse, misrepresentation, and 
consumer confusion occurs when an inducement and an LOA are combined in 
the same document in a deceptive or misleading manner. These complaints 
generally describe apparently deceptive marketing practices in which 
consumers are induced to sign a form document that does not clearly 
advise the consumers that they are authorizing a change in their PIC. 
As the Commission has described above, consumers have complained that 
the ``LOA'' forms were ``disguised'' as content entry forms, prize 
claim forms, or solicitations for charitable contributions. The 
characteristic common to all of these marketing practices is that the 
inducement is combined with the LOA and the inducement language is 
prominently displayed on the inducement/LOA form while the PIC change 
language is not, thus leading to consumer confusion.
    15. The Commission believes that consumers and industry alike 
should be clearly informed as to what will be expected to authorize a 
change of a consumer's long distance telephone service. The 
Commission's experience indicates that for fair competition to 
continue, consumers must have clear and unambiguous information about 
the actions and the choices they are being asked to make. Although it 
thinks that a consumer may reasonably choose to change long distance 
telephone services because of a carrier's inducements, the Commission 
is troubled by the number of consumers nationwide who are not given the 
opportunity to make that informed choice because they are deceived by 
an LOA that is disguised as a contest entry, prize claim form, or 
charitable solicitation. The Commission believes that the only way to 
ensure that the consumer can always make a truly informed choice from 
now on is to require that the LOA be a separate or severable document. 
The LOA must therefore be a separate document or must be severable--for 
example, attached by perforations that, when torn out, contains only 
authorizing language. Under this requirement, no IXC will be able to 
mix its promotional materials with the LOA in a deceptive or confusing 
manner.
    16. Although this rule may require some IXCs to change certain 
details in their use of such promotional tools, the Commission does not 
believe that its rule will seriously affect the basic effect and 
function of the IXCs' marketing campaigns. With regard to charitable 
solicitations, or contest and sweepstakes entries, IXCs can simply use 
their promotional materials to encourage consumers to sign the LOA. For 
example, it is conceivable that an LOA might be in the form of a 
postage-paid postcard attached along the ``inner spine'' of a magazine 
facing the IXCs' advertisement touting its service and inducements. It 
is also conceivable that an IXC might use a postage-paid postcard LOA 
that is initially attached to an airline ticket jacket by a perforated 
edge. The promotional materials and inducements would be relegated to 
the ``jacket'' portion of the airline ticket jacket and the LOA, a 
separate and distinct form, could be torn from the ``jacket'' portion 
and mailed separately. Finally, those IXCs using ``one-page'' 
promotional materials could employ a variation of this approach. They 
could use a single sheet with the IXC's promotional inducements on the 
top portion of the sheet and a separable postcard LOA on the bottom, 
initially attached to the sheet by perforations, but ultimately 
detached from the sheet and mailed. If the Commission's rules are 
followed and the LOA is properly captioned, consumers should be clearly 
informed as to the actions they are being asked to take. In light of 
this discussion, the Commission believes that the benefits gained by 
better informed consumers outweigh the possibilities of slightly 
deceased marketing flexibility that some IXCs might experience.
    17. MCI mistakenly construes the Commission's proposal as 
unreasonably restricting the use of their promotional materials. MCI 
argues that ``[w]ithout defining impermissible `inducements,' it is 
impossible to distinguish between legitimate commercial incentives, as 
distinct from deceptive practices that ought to be prohibited. If the 
Commission is seeking to foreclose all promotional materials or 
advertisements used with LOAs, its proposal is too sweeping.'' Contrary 
to MCI's assertions, the Commission is in no way prohibiting the use of 
marketing campaigns that include contest or sweepstakes entries, 
charitable solicitations, or checks. The Commission is merely taking 
the limited, necessary step of separating the Commission-prescribed 
authorizing document from the commercial inducements. The Commission 
takes this action because thousands of consumers have complained to us 
and tens of thousands more have complained to their LECs and state 
regulatory bodies that when they enter the contests, claim the prizes, 
or respond to the charity solicitations employed by some IXCs, they did 
not intend to switch their long distance carriers.
    18. The Commission does, however, believe a limited exception 
should be made for PIC change checks. Although some IXCs have used 
checks to mislead and deceive consumers to change their PICs, the 
Commission recognizes that other IXCs use checks in their marketing 
campaigns in an appropriate and non-misleading manner, which have 
resulted in minimal consumer compliant. AT&T and MCI assert that their 
``PIC change'' checks are clear and unambiguous and clearly inform the 
consumer that signing such a check will result in a PIC change. Both 
companies claim that their marketing material accompanying the check 
also informs the consumer that signing the check will result in a PIC 
change. Both companies also cite the absence of consumer complaints 
against their respective check marketing strategy as evidence that this 
form of marketing should not be prohibited by the Commission's 
``separate document'' LOA proposal.
    19. The Commission is persuaded by the arguments of AT&T and MCI, 
notwithstanding its negative experience with some IXCs that deceptively 
use checks to market their services. In an effort to narrowly tailor 
its requirements, the Commission finds that the checks that some 
carriers, such as AT&T and MCI use as LOAs can be excepted from its 
``separate or severable document'' requirement. Generally, such checks 
contain only the required LOA language and the necessary information to 
make them negotiable instruments (bank account number, payee's name, 
amount, etc.). When an 

[[Page 35850]]
``inducement'' check does not contain additional promotional 
information, the Commission thinks that it is unlikely that consumers 
will be unable to discern that the primary purpose of the check is to 
authorize a PIC change. Typically, a ``PIC change'' check from these 
IXCs contains a banner title that reads ``Endorse Check to Switch to * 
* *'' or ``Endorsement of this Check Switches Your Long Distance 
Service to * * *.'' Indeed, a survey of the consumer complaints that 
the Commission has received reveals that these checks are seldom the 
source of actual unauthorized conversions. To ensure that such checks 
do not mislead or confuse consumers, the Commission requires that a 
valid LOA/inducement check contain only the required LOA language and 
the necessary information to make it a negotiable instrument, and shall 
not contain any promotional language or material. The Commission 
requires carriers to continue to place the required LOA language near 
the signature line on the back of the check. In addition, the 
Commission requires that carriers print, in easily readable, bold-face 
type on the front of the check, a notice that the consumer is 
authorizing a PIC change by signing the check. The Commission thinks 
that this additional safeguard, along with all other requirements 
applicable to LOAs, will ensure that consumers are not confused or 
misled when carriers use inducement checks as a marketing tool.
    20. The Commission wants to emphasize that this provision should 
reduce complaints against most IXCs because consumers should be on 
clear notice that they are changing their long distance telephone 
service. Further, consumers and this Commission should, under this 
requirement, be better able to identify intentionally misleading 
practices. IXCs should easily be able to fashion LOAs that will be 
unlikely to engender complaints and thereby come under Commission 
scrutiny. The Commission sees serious problems with less specific LOA 
requirements that, under the guise of permitting more marketing 
``flexibility,'' would effectively require us to scrutinize many, 
perhaps most, LOAs in response to consumer complaints, as is now the 
case. Such a result would, the Commission thinks, be much more 
intrusive than its new rule, which should remove most LOAs from the 
realm of dispute. Therefore, the Commission adopts the rule to require 
the LOA to consist of a separate or severable document--that is, a 
document containing the minimum language required to authorize a PIC 
change as described in Sec. 64.1150(e), printed with a type of 
sufficient size and readable type to be clearly legible with no 
inducements. The Commission believes that this requirement will prevent 
certain current deceptive or confusing marketing practices, while 
recognizing the need of the industry for flexibility to market services 
to consumers.

C. Other Unauthorized Conversion Issues

1. The Carrier Named on the LOA
    21. In the NPRM, the Commission sought comment on whether LOAs 
should contain only the name of the carrier that directly provides the 
interexchange service to the consumer. The Commission recognizes that 
there may be more than one carrier technically involved in the 
provision of long distance service to a consumer. For example, there 
may be an underlying carrier whose facilities provide the long distance 
capacity and a resale carrier that actually sets the rates charged to 
the end user consumer. In some cases, there also may be a carrier that 
acts as a billing and collection or marketing agent.
    22. Most commenters agreed that only the name of the IXC setting 
the consumer's rates should appear on the LOA. Some resellers opposing 
this requirement claim that some consumers will not give them their 
business because the consumers want their telephone service handled by 
a large carrier. These commenters argue that allowing the small IXC 
reseller to use the name of the larger underlying carrier is not 
confusing to consumers and is necessary to bolster consumer confidence. 
Based on numerous consumer complaints, the Commission concludes that it 
is in fact confusing to consumers for an LOA to contain the name of an 
IXC that is not providing service directly to the consumer. Because the 
Commission's rules only affect the LOA and not promotional materials, 
small IXCs may choose to use those materials to promote their 
affiliations with larger carriers in order to gain greater consumer 
acceptance. The LOA may not be used for such a purpose, however. 
Therefore, the Commission will only permit the name of the rate-setting 
IXC on the LOA.
    23. In a related matter, several LECs have informed the Commission, 
that in some cases where the reseller sets the rates, consumers may be 
confused because the name of the underlying, facilities-based IXC may 
appear on the consumer's bill. BellSouth Telecommunications, Inc. 
(BellSouth) states that ``currently the provider of interexchange 
service named on a customer's telephone bill rendered by BellSouth is 
determined by the carrier identification code (CIC). CICs are issued by 
Bellcore to facility-based IXCs. Thus, BellSouth has no present 
capability for bill identification of companies which market to end 
users but do not own transmission facilities and do not have a CIC. 
Such capability could be achieved through the creation of a coding 
system to assign and maintain pseudo-CICs for non-facility-based 
IXCs.'' Although BellSouth states that it might be able to institute 
such a system within a year, BellSouth asserts that a national system 
of code administration and maintenance is preferred.
    24. The Commission recognizes that consumers may be confused if 
after they agree to switch their long distance service, the name of 
some other IXC appears on their bill. The Commission expects all IXCs 
that do not have a CIC to explain to their new customers that another 
IXC's name may appear on the customer's bill. The IXC may also describe 
any relationship it has with the IXC named on the bill. Further, the 
Commission urges LECs such as BellSouth to develop a coding system to 
assign and maintain pseudo-CICs for non-facility-based IXCs. The 
Commission defers a full examination of this issue to another 
proceeding.
    25. Finally, certain commenters have informed the Commission that 
the jurisdictions they operate in either allow for two primary 
interexchange carriers (``2 PICs'') or will likely allow ``2 PICs'' in 
the near future. Typically, these jurisdictions allow for a separate 
inter-state IXC and an intra-state IXC. Consumers may choose an IXC to 
provide them with either inter-state service, intra-state service, or 
both. The Commission's proposed Sec. 64.1150(e)(4) does not contemplate 
such a scenario and therefore it will modify the rule provision to 
accommodate 2-PIC jurisdictions as follows:

    (The LOA must state) that the subscriber understands that only 
one interexchange carrier may be designated as the subscriber's 
interstate primary interexchange carrier for any one telephone 
number. To the extent that a jurisdiction allows the selection of 
additional primary interexchange carriers (e.g., for intrastate or 
international calling), the letter of agency must contain separate 
statements regarding those choices. Any carrier designated as a 
primary interexchange carrier must be the carrier directly setting 
the rates for the subscriber. One interexchange carrier can be both 
a subscriber's interstate primary interexchange carrier and a 
subscriber's intrastate primary interexchange carrier * * *.


[[Page 35851]]

The Commission notes that the rule provision will, in effect, continue 
as originally proposed in those jurisdictions that do not recognize 2-
PIC, which at the adoption of these rules represents the vast majority 
of the jurisdictions in the United States. This rule provision should, 
however, be flexible enough to accommodate any new 2-PIC jurisdictions 
in the future.
2. Business vs. Residential Presubscription
    26. The Commission sought comment on whether business and 
residential customers should be treated differently with respect to its 
LOA requirements. Unlike the situation with many residential customers, 
LOA forms sent to businesses may not be received and processed by the 
person authorized to order long distance service for the business. In 
such a situation, even an LOA that is signed may result in an 
unauthorized change because the person who signed the LOA had no 
authority to do so. Most commenters contend that business and 
residential customers should be treated the same, ``as long as the 
requirements are reasonable for both types of customer.'' One of these 
commenters contends that

    If an LOA is clear and legible, it should not be subject to 
different rules based on the type of service provided. Carriers may 
have legitimate business reasons to combine marketing campaigns for 
different kinds of services, and may not even be able to distinguish 
between business and residence lines (e.g., where a business 
operates from the home).

Further, some suggest that a line be included on both the residential 
and the business LOA that indicates that the person signing the LOA is 
the person authorized to order service.
    27. The Commission is persuaded that there should be no distinction 
between business and residential customers with respect to its new LOA 
rules. Further, the Commission does not believe it necessary at this 
time to require a line on the LOA indicating who is qualified to 
authorize a PIC change. This may be an addition that a prudent IXC may 
include on an LOA, because it remains the responsibility of the IXC to 
determine the responsible party in such a contractual arrangement. The 
validity of an LOA will continue to depend on it having been signed by 
a person authorized to make the presubscription decision.
3. Consumer Liability Issues
    28. In the NPRM, the Commission asked whether any adjustments to 
long distance telephone charges should be made for consumers who are 
the victims of unauthorized PIC changes. Specifically, the Commission 
asked whether consumers should be liable for the long distance 
telephone charges billed to them by the unauthorized IXC and if so, to 
what extent. The Commission sought comment on whether consumers should 
be liable for: (a) The total billed amount from the unauthorized IXC; 
(b) the amount the consumer would have paid if the PIC had never been 
changed; or (c) nothing at all.
    29. The majority of commenters support option (b), the ``making 
whole'' approach. These commenters contend that consumers should be 
liable to the unauthorized carrier for the amount they would have paid 
if the PIC had never been changed. Consumer groups, some state 
regulatory bodies, and some local telephone companies argue that the 
only way to stop slamming is to deny the ``slammer'' revenue and the 
only way to do that is to absolve consumers of all billed toll charges 
from unauthorized IXCs. In addition, the Illinois Congressional 
Delegation has expressed its concern ``that many long-distance 
customers that have experienced this unauthorized switch in their 
service are forced to pay for services they did not order or knowingly 
approve.'' It has asked the Commission to ``examine the possibility of 
proposing a rule that will allow victims of `slamming' to forfeit 
responsibility for charges billed by the long-distance company which 
switched their service without proper authorization.'' Opponents of 
forgiving all charges argue that such a policy would lead to consumer 
fraud in that it ``would provide the unscrupulous with an incentive to 
claim wrongful conversion in order to avoid payment of legitimate long 
distance charges.'' They claim that such a policy ``would also impose 
undue penalties on carriers that had converted a consumer to their 
service in good faith only to find that the spouse or a relative from 
whom they had received authority for the PIC change was not actually 
empowered to grant that authority.''
    30. Despite the compelling arguments of those favoring total 
absolution of all toll charges from unauthorized IXCs, the Commission 
is not convinced that it should, as a policy matter, adopt that option 
at this time. The ``slammed'' consumer does receive a service, even 
though the service is being provided by an unauthorized entity. The 
consumer expects to pay the original rate to the original IXC for the 
service. Except for the time and inconvenience spent in obtaining the 
original PIC, consumers are not injured if their liability is limited 
to paying the toll charges they would have paid to the original IXC. 
The Commission recognizes, however, that this may not be the best 
deterrent against slamming. Some IXCs engaging in slamming may not be 
deterred unless all revenue gained through slamming is denied them. The 
Commission will investigate future slamming cases with the question of 
consumer liability in mind. At this time, the Commission believes that 
the equities tend to favor the ``make whole'' remedy and therefore 
support the policy of allowing unauthorized IXCs to collect from the 
consumer the amount of toll charges the consumer would have paid if the 
PIC had never been changed. The Commission expects all unauthorized 
IXCs to cooperate with consumers in the proper settlement of these 
charges. Failing this, through the complaint process, the Commission 
will prohibit unauthorized IXCs from collecting more than the original 
IXC's rates. However, the Commission recognizes that if ``slamming'' 
continues unabated--perhaps through abuses in areas other than the use 
of the LOA--it may have to revisit this question at a later date.
    31. The Commission also asked the public to comment on the effect 
that unauthorized PIC changes have on optional calling plans and the 
consumers enrolled in them. In cases of unauthorized PIC changes, the 
consumer may not be aware of the change for at least one billing cycle. 
Often, these consumers continue to pay a flat, minimum monthly charge 
to their previous carrier for a discount calling plan despite the fact 
that they are no longer presubscribed to that carrier. Most commenters 
agree that consumers should not be liable for optional calling plans if 
they are no longer connected to their original carrier, but several 
differ on exactly how the consumer should recoup their loss. Most 
commenters contend that the consumer should simply be absolved of all 
calling plan liability from the moment the consumer is slammed. Several 
commenters contend that the original carrier should bill the offending 
carrier for the lost revenue. Some commenters suggest that however it 
decides to handle consumer liability issues, the Commission should not 
expect LECs to resolve consumer/IXC disputes.
    32. The Commission agrees with the majority of commenters that the 
equities strongly favor absolving slammed consumers from liability for 
optional calling plan payments. It is reasonable that consumers should 
not have to pay for services they cannot enjoy in the manner they had 
contemplated. For example, consumers that only receive 

[[Page 35852]]
discounts on their residential telephone service as a benefit in return 
for optional calling plan premiums should not have to continue to pay 
those premiums if their residential telephone service is slammed. 
However, there may be cases where consumers receive benefits in 
addition to their presubscribed telephone service discounts, such as 
the use of a domestic or international ``calling card,'' not associated 
with a presubscribed telephone number. In such cases, consumers should 
be liable for some calling plan payment even if the presubscribed 
service has been changed, as long as those consumers are clearly 
informed upon initiation of the optional calling plan. Consequently, 
the Commission will not allow IXCs to collect optional calling plan 
premiums for slammed consumers, unless the IXC has stated clearly in 
its tariff that its presubscribed customers are liable for calling plan 
premiums in compensation for benefits in addition to the customer's 
presubscribed service, even if the presubscribed service is changed. 
The IXC will be required to give prior notice to its customers 
regarding its additional benefits and its compensation expectations 
through its tariff and its customer service material.
4. Fully Translated LOAs
    33. The non-English speaking population represents a growing market 
in this country that IXCs are targeting for their domestic and 
international business. Some of these consumers have alleged that the 
non-English versions of the LOA do not contain all of the text of the 
English versions of the LOA. As a result, material portions of the LOA 
are in only one language, typically English, which the non-English 
speaking consumers may not fully understand. The Commission sought 
public comment on whether it should adopt rules to govern bilingual or 
non-English language LOAs. Specifically, the Commission asked whether 
it should require all parts of an LOA translated if any parts were 
translated. The overwhelming majority of commenters stated that the 
Commission should adopt such a rule. The Commission agrees that such a 
requirement is necessary to ensure that all consumers can make informed 
choices. Therefore, the Commission requires all IXCs that choose to 
translate any part of the LOA to translate all parts of the LOA and 
consequently, it adopts Sec. 64.1150(f).
5. LOA Title
    34. Consumer groups, state regulatory bodies, and resellers contend 
that a consumer may be less confused and more informed if the LOA is 
titled in a more understandable style. For example, comments suggest 
titling the LOA document: ``An Order to Change My Long Distance 
Telephone Service Provider,'' ``Application to Change My Long Distance 
Company,'' or ``Order Form to Change My Long Distance Telephone 
Service.'' Although it will not prescribe a particular title for the 
LOA, the Commission agrees with these commenters and strongly suggest 
that all IXCs use a clear, easily understandable title.
6. Consumer-Initiated Calls
    35. Finally, the Commission asked the public how consumers have 
been affected by the IXC marketing practice of ``encouraging'' 
consumers to authorize a PIC change when they call an IXC's business 
number for other reasons. Typically, the consumers, in response to an 
advertisement, are just requesting general information about the IXC 
and do not intend to initiate a PIC change. The Commission is persuaded 
by some commenters, resellers, local telephone companies, and consumer 
groups who advocate extending the Commission's PIC verification 
procedures to consumer-initiated calls. Some commenters, however, argue 
that because the IXC does not initiate the call, the PIC order is not 
generated by telemarketing and, thus, the order verification 
protections in Sec. 64.1100 of the Commission's rules should not apply. 
Those commenters fail to explain adequately why a consumer who 
initially placed a call to an IXC's business number, presumably 
searching for information, should benefit less from rules designed to 
curb deceptive practices than the consumer receiving a call from a 
telemarketer. The Commission is not convinced there is enough of a 
difference between the two situations as to justify such vastly 
different treatment. The Commission agrees with Consumer Action that 
consumers ``responding to a 30-second television ad * * * calling to 
get answers to questions * * * are as subject to unauthorized 
conversion as a consumer who was called at home.'' The Commission also 
agrees that upon adoption of its rules, some ``IXCs may switch from 
mailing inducement-laden LOAs to mailing marketing pieces in which a 
consumer is urged to call a business number in order to receive a 
promised inducement'' where ``[a]n unauthorized conversion could easily 
take place on such a call.'' Therefore, the Commission will extend PIC 
verification procedures to consumer-initiated calls to IXC business 
numbers.
7. Preemption of State Law
    36. Although the Commission did not seek comment on the matter, 
some of the resellers urged the Commission to preempt inconsistent 
state law with regard to ``slamming.'' These commenters generally argue 
that ``[t]he Commission's LOA requirements should be applied nationwide 
and the individual states should not be allowed to impose their own LOA 
requirements in addition to those of the Commission.'' None of these 
commenters, however, cites specific state regulations that warrant 
federal preemption. At most, ACTA asserts that ``two state public 
utility commissions, Florida and South Carolina, * * * currently have 
on-going proceedings concerning the rules for consumer selection of 
interexchange carriers.'' Until and unless the Commission receives 
specific allegations of specific state statutes that warrant federal 
preemption, it cannot consider or act on these commenters' requests for 
federal preemption. The Commission notes that the record shows that 
state action regarding ``slamming'' appears to be consistent with its 
own. Therefore, the Commission declines at this time to preempt any 
state law regarding the unauthorized conversion of consumer's long 
distance service. The Commission will consider specific preemption 
questions on a case-by-case basis.

Regulatory Flexibility Act Final Analysis

    37. Need for Rules and Objective. The Commission has adopted rules 
designed to protect consumers from unauthorized switching of their long 
distance carriers and to ensure that consumers are fully in control of 
their long distance service choices.
    38. Issues Raised by the Public in Response to the Initial 
Regulatory Flexibility Analysis. No comments were received specifically 
in response to the Initial Regulatory Flexibility Analysis.
    39. Alternatives that would lessen impact. The Commission has 
considered alternatives suggested in the record and have found that 
they would not be comparably effective. Small entities may feel some 
economic impact in additional printing costs because of these new 
letter of agency requirements. Because the rules will not take effect 
for sixty (60) days, the Commission believes all IXCs, large and small, 
will have sufficient advance time to revise and print new LOAs.

Conclusion

    40. In this Report and Order, the Commission has adopted rules 
clearly 

[[Page 35853]]
delineating what must be included in an LOA document and, equally 
important, what may not be included in an LOA document. These rules are 
intended to limit the contents of an LOA document so that its sole 
purpose and effect are to authorize a PIC change. The proposed 
restrictions should eliminate consumer confusion about the intent and 
function of the LOA. Further, the Commission's policy decisions should 
further clarify its position regarding other ``slamming'' issues. The 
Commission wishes to make clear that although its evolutionary approach 
to the ``slamming'' problem has generally been one of regulatory 
restraint, it will not tolerate continued abuses against consumers and 
may revisit this question if warranted.
    41. The proposal contained herein has been analyzed with respect to 
the Paperwork Reduction Act of 1980 and found to impose new and 
modified third party reporting requirements on the public. 
Implementation of any new or modified requirement will be subject to 
approval by the Office of Management and Budget as prescribed by the 
Act.

Ordering Clauses

    42. Accordingly, it is ordered, pursuant to sections 1, 4(i), 4(j), 
201-205, 218, and 303(r) of the Communications Act of 1934, as amended, 
47 U.S.C. 151, 154(i), 154(j), 201-205, 218, 303(r), that 47 CFR part 
64 is amended as set forth below.
    43. It is further ordered, that the Chief of the Common Carrier 
Bureau is delegated authority to act upon matters pertaining to 
implementation of the policies, rules, and requirements set forth 
herein.
    44. It is further ordered, that this Report and Order will be 
effective sixty (60) days after publication of a summary thereof in 
Federal Register.

List of Subjects in 47 CFR Part 64

    Communications common carriers, Telephone.

Federal Communications Commission,
William F. Caton,
Acting Secretary.

Adopted Rules

    Part 64 of the Commission's rules and regulations, Chapter I of 
Title 47 of the Code of Federal Regulations, is amended as follows:

PART 64--MISCELLANEOUS RULES RELATING TO COMMON CARRIERS

    1. The authority citation for part 64 continues to read as follows:

    Authority: Sec. 4, 48 Stat. 1066, as amended; 47 U.S.C. 154, 
unless otherwise noted. Interpret or apply secs. 201, 218, 226, 228, 
unless otherwise noted.

    2. Section 64.1100 is amended by revising paragraph (a) to read as 
follows:


Sec. 64.1100  Verification of orders for long distance service 
generated by telemarketing.

* * * * *
    (a) The IXC has obtained the customer's written authorization in a 
form that meets the requirements of Section 64.1150.
* * * * *
    3. Section 64.1150 is added to Subpart K to read as follows:


Sec. 64.1150  Letter of agency form and content.

    (a) An interchange carrier shall obtain any necessary written 
authorization from a subscriber for a primary interexchange carrier 
change by using a letter of agency as specified in this section. Any 
letter of agency that does not conform with this section is invalid.
    (b) The letter of agency shall be a separate document (an easily 
separable document containing only the authorizing language described 
in paragraph (e) of this section whose sole purpose is to authorize an 
interexchange carrier to initiate a primary interexchange carrier 
change. The letter of agency must be signed and dated by the subscriber 
to the telephone line(s) requesting the primary interexchange carrier 
change.
    (c) The letter of agency shall not be combined with inducements of 
any kind on the same document.
    (d) Notwithstanding paragraphs (b) and (c) of this section, the 
letter of agency may be combined with checks that contain only the 
required letter of agency language prescribed in paragraph (e) of this 
section and the necessary information to make the check a negotiable 
instrument. The letter of agency check shall not contain any 
promotional language or material. The letter of agency check shall 
contain, in easily readable, bold-face type on the front of the check, 
a notice that the consumer is authorizing a primary interexchange 
carrier change by signing the check. The letter of agency language also 
shall be placed near the signature line on the back of the check.
    (e) At a minimum, the letter of agency must be printed with a type 
of sufficient size and readable type to be clearly legible and must 
contain clear and unambiguous language that confirms:
    (1) The subscriber's billing name and address and each telephone 
number to be covered by the primary interexchange carrier change order;
    (2) The decision to change the primary interexchange carrier from 
the current interexchange carrier to the prospective interexchange 
carrier;
    (3) That the subscriber designates the interexchange carrier to act 
as the subscriber's agent for the primary interexchange carrier change;
    (4) That the subscriber understands that only one interexchange 
carrier may be designated as the subscriber's interstate primary 
interexchange carrier for any one telephone number. To the extent that 
a jurisdiction allows the selection of additional primary interexchange 
carriers (e.g., for intrastate or international calling), the letter of 
agency must contain separate statements regarding those choices. Any 
carrier designated as a primary interexchange carrier must be the 
carrier directly setting the rates for the subscriber. One 
interexchange carrier can be both a subscriber's interstate primary 
interexchange carrier and a subscriber's intrastate primary 
interexchange carrier; and
    (5) that the subscriber understands that any primary interexchange 
carrier selection the subscriber chooses may involve a charge to the 
subscriber for changing the subscriber's primary interexchange carrier.
    (f) Letters of agency shall not suggest or require that a 
subscriber take some action in order to retain the subscriber's current 
interexchange carrier.
    (g) If any portion of a letter of agency is translated into another 
language, then all portions of the letter of agency must be translated 
into that language.

    Note: The following appendix will not appear in the Code of 
Federal Regulations.

Appendix

Comments Filed

ACC Corporation
Allnet Communication Services, Inc.
America's Carriers Telecommunications Association
AT&T Corp.
Communications Telesystems International
Competitive Telecommunications Association
Consumer Action
Florida Public Service Commission
Frontier Communications International Inc.
General Communication, Inc.
GTE Service Corporation
Hertz Technologies, Inc.
Hi-Rim Communications, Inc.
Home Owners Long Distance, Inc.
L.D. Services, Inc.
LDDS Communications, Inc.
Lexicom, Inc.
MCI Telecommunications Corporation
MIDCOM Communications Inc.
Missouri Public Service Commission, et al.
National Association of Attorneys General, et al.
New York Department of Public Service

[[Page 35854]]

NYNEX Telephone Companies
One Call Communications, Inc.
Operator Service Company
Pacific Bell and Nevada Bell
People of the State of California, et al.
Public Utility Commission of Texas
Southwestern Bell Telephone Company
Sprint Communications Co.
State of Michigan, Attorney General
State of Wisconsin, Attorney General
State of New York, Attorney General
Telecommunications Company of the Americas, Inc.
Telecommunications Resellers Association
Touch 1, Inc. and Touch 1 Communications, Inc.
William Malone

Reply Comments Filed

ACC Corporation
Alabama Public Service Commission
Allnet Communication Services, Inc.
Ameritech Operating Companies
AT&T Corp.
Bell Atlantic Telephone Companies
BellSouth Telecommunications, Inc.
Commonwealth Long Distance
Communications Telesystems International
Competitive Telecommunications Association
Custom Telecommunications Network of Arizona, Inc.
General Communication, Inc.
GTE Service Corporation
Hi-Rim Communications, Inc.
L.D. Services, Inc.
LDDS Communications, Inc.
Local Area Telecommunications, Inc.
MCI Telecommunications Corporation
National Association of Regulatory Utility Commissioners
Oncor Communications, Inc.
One Call Communications, Inc.
Operator Service Company
Pennsylvania Public Utility Commission
Pacific Bell and Nevada Bell
Southwestern Bell Telephone Company
Sprint Communications Co.
Telecommunications Resellers Association

[FR Doc. 95-16641 Filed 7-11-95; 8:45 am]
BILLING CODE 6712-01-M