[Federal Register Volume 65, Number 137 (Monday, July 17, 2000)]
[Notices]
[Pages 44053-44059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17995]


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FEDERAL COMMUNICATIONS COMMISSION

FEDERAL TRADE COMMISSION

[FTC File No. P974405]


Joint FCC/FTC Policy Statement for the Advertising of Dial-Around 
and Other Long-Distance Services to Consumers

AGENCIES: Federal Communications Commission and Federal Trade 
Commission.

ACTION: Notice of issuance of joint policy statement.

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SUMMARY: This document was issued by the Federal Communications 
Commission and the Federal Trade Commission to jointly address 
questions raised by the proliferation of advertisements for dial-around 
numbers, long-distance calling plans, and other new telecommunications 
services, as well as to address an increase in the number of complaints 
regarding how these services are promoted and how the principles of 
truthful advertising apply in this dynamic marketplace. Commissioner 
Furchtgott-Roth of the FCC dissented and issued a separate statement 
available from the FCC.

DATES: Adopted by the FCC on February 29, 2000. Adopted by the FTC on 
February 23, 2000. Jointly released on March 1, 2000.

FOR FURTHER INFORMATION CONTACT: Emmitt Carlton, Assistant Chief, 
Telecommunications Consumers Division, Enforcement Bureau, Federal 
Communications Commission, (202) 418-7320, or Lesley Fair, Attorney, 
Division of Advertising Practices, Bureau of Consumer Protection, 
Federal Trade Commission, (202) 326-3081. This document is available 
from the FTC's web site at http://www.ftc.gov/bcp/menu-call.htm or you 
may call the FTC's Consumer Response Center at (877) FTC-HELP. This 
document is available from the FCC's website at http://www.fcc.gov/Bureaus/Enforcement/Orders/2000/fcc00072.doc or you may visit the 
Reference Information Center at the FCC's headquarters located at 445 
12th Street, SW., Room CY-A257, Washington, DC 20554. The FCC reference 
center is open to the public Monday from 9:45 a.m. until 4:30 p.m. and 
Tuesday through Friday from 9:00 a.m. until 4:30 p.m. You may also 
reach the reference center at (202) 418-0270. As an alternative, 
information that is routinely available to the public can be obtained 
from International Transcription Services (ITS), a private government 
contractor. ITS has an office at the FCC's Washington, DC location and 
can be reached directly at (202) 857-3800.

SUPPLEMENTARY INFORMATION:

Policy Statement

I. Introduction

    1. In recent years there has been an explosion in competition and 
innovation in the telecommunications industry. Long-distance customers 
have reaped substantial benefits in the form of greater choice in 
deciding which carrier to use and a greater diversity in the prices 
charged for those calls. For example, dial-around (or ``10-10'') 
numbers allow consumers to bypass or ``dial-around'' their chosen long-
distance carrier to get a better rate in certain circumstances. 
Consumers also can opt for calling plans that offer a fixed per-minute 
rate during certain hours or on particular days.
    2. Numerous carriers, both large and small, promote their services 
through national television, print, and direct mail advertising 
campaigns. Because no one plan is right for everyone, advertising plays 
a critical role in informing consumers about the myriad choices in 
long-distance calling and, in the case of dial-around services, 
advertising is generally the only source of information consumers 
typically have before incurring charges. With accurate information, 
consumers benefit from being able to choose the particular carrier that 
meets their long-distance calling needs at the most economical price. 
However, if consumers are deceived by the advertising claims, they 
cannot make informed purchasing decisions and ultimately the growth of 
competition in the long-distance market will be stifled.
    3. The proliferation of advertisements for dial-around numbers, 
long-distance calling plans, and other new telecommunications services, 
as well as an increase in the number of complaints regarding how these 
services are promoted, have raised questions about how the principles 
of truthful advertising apply in this dynamic marketplace. To address 
these questions

[[Page 44054]]

the Federal Trade Commission and the Federal Communications Commission 
issue this Joint Policy Statement.
    4. Section 201(b) of the Communications Act of 1934, as amended, 
requires that common carriers' ``practices * * * for and in connection 
with * * * communications service, shall be just and reasonable, and 
any such * * * practice * * * that is unjust or unreasonable is hereby 
declared to be unlawful * * *. '' \1\ The FCC has found that unfair and 
deceptive marketing practices by common carriers constitute unjust and 
unreasonable practices under section 201(b).\2\ Principles of truth-in-
advertising law developed by the FTC under section 5 of the FTC Act \3\ 
provide helpful guidance to carriers regarding how to comply with 
section 201(b) of the Communications Act in this context.
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    \1\ 47 U.S.C. 201(b).
    \2\ Business Discount Plan, Inc., 14 FCC Rcd 340, 355-358 
(1998); AT&T Corp., 71 RR2d 775 (1992).
    \3\ 15 U.S.C. 45. Section 5 declares unlawful ``unfair or 
deceptive acts or practices in or affecting commerce.
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    5. The FTC's truth-in-advertising law can be boiled down to two 
common-sense propositions: (1) Advertising must be truthful and not 
misleading; and (2) before disseminating an ad, advertisers must have 
adequate substantiation for all objective product claims.\4\ A 
deceptive ad is one that contains a misrepresentation or omission that 
is likely to mislead consumers acting reasonably under the 
circumstances about a material fact.\5\ Material facts are those that 
are important to a consumer's decision to buy or use a product. 
Information pertaining to the central characteristics of the product or 
service is presumed material. The cost of a product or service is an 
example of an attribute presumed material.\6\
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    \4\ These principles are articulated in the FTC's Deception 
Policy Statement and Advertising Substantiation Policy Statement. 
See generally Federal Trade Commission Policy Statement on 
Deception, appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 
174 et seq. (1984) (``Deception Statement''); Advertising 
Substantiation Policy Statement, appended to Thompson Medical Co., 
104 F.T.C. 648, 839 (1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986), 
cert. denied, 479 U.S.1086 (1987). The FTC also has authority to 
challenge unfair trade practices. An unfair practice is one that 
causes or is likely to cause substantial injury to consumers which 
is not reasonably avoidable by consumers themselves and not 
outweighed by countervailing benefits to consumers or competition. 
15 U.S.C. 45(n). The majority of FTC advertising cases are brought 
pursuant to the FTC's deception authority.
    \5\ The FCC has taken a similar approach under section 201(b) of 
the Communications Act: ``BDP knew, or should have known, that 
customers acting reasonably under the circumstances would be misled 
and confused by misrepresentations regarding the material issue of 
BDP's identity, and that customers would rely on such 
misrepresentations to their detriment.'' Business Discount Plan, 14 
FCC Rcd at 356.
    \6\ Deception Statement, 103 F.T.C. at 182.
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    6. Advertisers are responsible for substantiating all objective 
express and implied claims that an ad conveys to reasonable consumers, 
regardless of whether the advertiser intended to convey those claims. 
In determining the claims that an ad conveys, the FTC looks to the 
``net impression'' conveyed to consumers--often described as ``the 
entire mosaic, rather than each tile separately.'' \7\ Even if the 
wording of an ad may be literally truthful, the net impression conveyed 
to consumers may still be misleading. The entire advertisement, 
transaction or course of dealing will be considered. The issue is 
whether the act or practice is likely to mislead, rather than whether 
it causes actual deception.
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    \7\ Id. at 179, quoting FTC v. Sterling Drug, Inc., 317 F.2d 
669, 674 (2d Cir. 1963).
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    7. An ad may be deceptive by omission. For example, an ad may be 
deceptive if it fails to disclose qualifying information that, in light 
of the representations made, would be necessary to prevent consumers 
from being misled. The failure to disclose is examined in light of 
expectations and understandings of the typical buyer regarding the 
claims made.\8\
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    \8\ The law does not require that every item of information that 
might be useful or interesting to consumers be disclosed in 
advertising. Only information necessary to prevent consumer 
deception on a matter of importance to them must be disclosed. See 
International Harvester Co., 104 F.T.C. 949, 1059-60 (1984).
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    8. In many circumstances, reasonable consumers do not read the 
entirety of an ad or are directed away from the importance of the 
qualifying phrase by the acts or statements of the seller. Depending on 
the circumstances, accurate information in the text may not remedy a 
misleading impression created by a headline because reasonable 
consumers may glance only at the headline. Written disclosures in fine 
print may be insufficient to correct a misleading impression. 
Legalistic disclaimers too complex for consumers to understand may not 
cure otherwise deceptive messages or practices. Qualifying disclosures 
must be legible and understandable. The totality of the ad or the 
practice must be evaluated with questions such as: How clear is the 
representation? How conspicuous is any qualifying information? How 
important is the omitted information? Do other sources for the omitted 
information exist? How familiar is the public with the product or 
service?
    9. At the outset, it is important to note that these fundamental 
principles apply across the board. For example, a misrepresentation or 
omission of material information in an advertisement for a dial-around 
service would likely be deceptive if the same misrepresentation or 
omission occurred in an ad for a long-distance calling plan. 
Furthermore, the same standards of truthfulness apply regardless of the 
medium advertisers choose to communicate their message to consumers. 
Although the most effective method for disclosing information to 
consumers may vary depending on the medium, the principles of truth and 
accuracy apply to advertisements conveyed via television, radio, 
magazines, newspapers, direct mail, telemarketing, the Internet, or 
oral representations made by customer service operators.\9\
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    \9\ The FTC's Telemarketing Sales Rule, (``TSR''), 16 CFR part 
310, provides specific provisions on what constitute material 
misrepresentations in the context of telemarketing, and what 
material information must be disclosed in order to avoid deceiving 
consumers through telemarketing. The TSR covers all 
``telemarketing''--defined as any plan, program, or campaign to sell 
goods or services through interstate telephone calls. It applies to 
all telemarketers, regardless of on whose behalf they are calling or 
what product or service they are selling, even telemarketing 
companies that call on behalf of organizations whose activities are 
exempt from FTC jurisdiction. Coverage of the Rule extends both to 
calls placed to and received from consumers, so long as the calls 
are part of a plan, program, or campaign to sell goods or services 
through interstate telephone calls.
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    10. In issuing this Policy Statement, the FCC and the FTC hope to 
provide guidance for carriers who market long-distance service. As a 
matter of clarification, we note that this Policy Statement does not 
preempt existing state law.

II. Discussion

A. Misrepresentations in Advertisements for Long-Distance Calling 
Services

    11. As a general matter, advertisers are free to highlight whatever 
attribute of their products or services they choose--quality, 
convenience, customer service, availability, price, or other benefit. 
However, once an advertisement makes an implied or express objective 
claim that conveys a material representation to reasonable consumers, 
the advertiser is responsible for the truthfulness of the 
representation and for substantiating the representation, regardless of 
whether the advertiser intended to convey those messages to consumers. 
If a claim is false, a disclosure that provides contradictory 
information is unlikely to cure the deception.

    Example #1: The headline of a direct mail ad for a dial-around 
service reads, ``All day. All night. All calls. 10 cents a minute.'' 
In fact,

[[Page 44055]]

the rate is applicable only for state-to-state calls after 7 p.m. 
and on weekends. Even an otherwise prominent disclosure to that 
effect will likely not be sufficient considering that the disclosure 
directly contradicts the express, and false, representations in the 
headline.

B. Material Information That Should Be Disclosed in Advertisements for 
Long-Distance Calling Services

    12. In situations where an advertisement makes claims that are not 
directly false but might be misleading in the absence of qualifying or 
limiting information, advertisers are responsible both for making any 
necessary disclosures and for ensuring that they are clear and 
conspicuous. The following are some of the types of disclosures that 
may be necessary to prevent price claims in long-distance telephone 
advertising from deceiving customers.
1. Minimum Per-Call Charges, Monthly Fees, and Other Cost-Related 
Information
    13. The central characteristic touted in most long-distance 
advertising is price. As noted above, price representations are 
presumptively material to consumers. What matters to consumers is not 
just the per-minute rate, but rather how that rate, along with all 
additional fees and charges, will ultimately be reflected in the 
charges they see on their monthly phone bills.\10\ Therefore, 
advertisers should exercise the greatest care in ensuring the accuracy 
of their claims related to price, including the clear and conspicuous 
disclosure \11\ of information such as minimum per-call charges, 
monthly fees, fees for additional minutes beyond the initial calling 
period, and other information that significantly affects the total 
charge of a particular call or calling plan or service.
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    \10\ For example, if a consumer paying 10 cents a minute and a 
$5.95 monthly fee places 100 minutes of calls per month, his or her 
total would be $15.95 a month or almost 16 cents per minute. This 
figure would contrast sharply with the ``10 cents a minute'' rates 
prominently touted in typical ads for long-distance calling plans.
    \11\ See Section III for a discussion of the factors to consider 
in assessing whether a disclosure is ``clear and conspicuous.''

    Example #2--Minimum Charges: An advertisement conveys the 
message that long-distance calls cost 10 cents a minute. In fact, 
all calls are subject to a 50 cents minimum charge. Given that 
reasonable consumers would likely conclude from the ``10 cents a 
minute'' representation that a one-minute call would cost 10 cents, 
and would not expect there to be a substantial additional charge, 
the advertiser's failure to clearly and conspicuously disclose the 
minimum fee in the ad would likely be deceptive.
    Example #3--Monthly Fees: An advertisement says that long-
distance calls cost 10 cents a minute. In fact, that rate is only 
available if customers pay a $5.95 monthly fee. Because the 
imposition of the monthly fee would significantly increase the 
consumer's per-minute charge, the advertiser's failure to clearly 
and conspicuously disclose the monthly fee in the ad would likely be 
deceptive.
    Example #4--Cost After Initial Promoted Calling Period: A 
company advertises ``all calls up to 20 minutes for only $1.00,'' 
but charges 10 cents for each additional minute. Consumers are 
likely to be misled by the affirmative claim in the absence of a 
disclosure about the significantly higher rate after 20 minutes. 
Because many consumers will make calls that last longer than 20 
minutes, the cost of each minute beyond the first 20 minutes' 
duration of a call is information that likely would be material to 
consumers considering whether to use the service. Thus, the 
advertiser's failure to clearly and conspicuously disclose in the ad 
the per-minute rate for calls longer than the initial calling period 
would likely be deceptive.
2. Time Restrictions or Limitations on the Availability of the 
Advertised Rate
    14. Given the importance of price information, any significant 
conditions or limitations on the availability of the advertised rates 
should also be clearly and conspicuously disclosed. Examples of such 
restrictions would include limitations on the time of day or day of the 
week that the rate applies or the fact that the rate is good only 
during a limited promotional or sale period.

    Example #5--Time Restrictions: A company's advertisements 
prominently feature the phrase ``10 cents a minute.'' In fact, the 
10 cents a minute rate is good only between 7 p.m. and 7 a.m. 
Consumers are likely to view this time limitation as a significant 
restriction on the availability of the advertised 10 cents a minute 
rate. The advertiser's failure to clearly and conspicuously disclose 
the limited hours in the ad would likely be deceptive.
    Example #6--Promotional Rates: A company's advertisements 
prominently feature the phrase ``5 cents a minute.'' Peel-off 
stickers, intended to be placed on the phone, featuring the 
``5 cents a minute'' offer accompany the advertisement. In fact, the 
5 cents a minute rate is a special promotional offer good only for 
60 days. Consumers are likely to view the limited duration of the 
5 cents a minute rate as a significant qualification. The 
advertiser's failure to clearly and conspicuously disclose this 
limitation in the ad would likely be deceptive. Furthermore, in this 
instance, the use of peel-off stickers advertising the 5 cents a 
minute rate without adequate disclosure of the limited duration of 
the offer would likely be deceptive because the stickers would 
remain on consumers' telephones long after the promotional rate had 
expired.
3. Geographic Restrictions
    15. Another important qualification that would likely be material 
to consumers and necessary to disclose to avoid deception is a 
significant geographic restriction on the applicability of an 
advertised rate. For example, many long-distance services and plans are 
limited to state-to-state calls. The disclosure of this information is 
particularly important because in-state long-distance rates are often 
substantially more expensive than state-to-state rates, a fact that may 
be surprising and significant to reasonable consumers. Where reasonable 
consumers may be deceived about such significant differences in price 
between in-state and state-to-state calls, the advertiser should 
clearly and conspicuously disclose whether the advertised service 
includes in-state calls, and the fact that such calls are charged at a 
higher rate, if such is the case.

    Example #7--Geographic Restrictions: A company advertises a 
``10 cents a minute'' rate. In fact, that rate is good only for 
state-to-state calls, and in-state calls may be charged at a 
significantly higher rate. The failure to clearly and conspicuously 
disclose in the ad, for example, that ``in state rates may be 
higher,'' would likely be deceptive.
4. The Use of the Phrase ``Basic Rates''
    16. Advertisers should also exercise care to adequately explain 
phrases such as ``basic rates'' in their ads. The meaning of an ad is 
evaluated from the point of view of the ``reasonable consumer''--the 
typical person looking at the ad. A telecommunications professional may 
understand the term ``basic rate'' to refer to a specific class of 
tariffed service, which may be billed at the most expensive rates. 
However, the typical consumer would likely interpret the phrase 
differently, concluding that it refers to the discounted rates he or 
she is normally charged by his or her selected carrier. Therefore, when 
making claims using such terms as ``basic rates'' or ``regular rates,'' 
advertisers should be mindful that those terms will be evaluated from 
the point of view of the reasonable consumer, and may be deceptive.

    Example #8--``Basic Rates'': A company offers consumers a 
directory assistance service for 99 cents. According to the 
television ad, callers who use this service can be connected to the 
requested number at no additional charge. In fact, consumers who opt 
to be connected to the requested number are connected via the 
advertiser's network and are billed at the advertiser's expensive 
per-minute rates. This information is disclosed only by a 
superscript reading ``basic rates apply.'' Reasonable consumers 
would expect to pay the promoted 99 cents charge, but would not 
likely expect to pay a charge greater than the amount their selected 
long-distance carrier would charge for a call to the

[[Page 44056]]

requested number. Because the consumer will be charged a rate higher 
than the consumer's presubscribed rate, use of the term ``basic 
rates apply,'' even if clearly and conspicuously disclosed, would 
not likely be sufficient to avoid deception. The advertiser's 
failure to disclose that the consumer will be charged a rate higher 
than the consumer's presubscribed rate would likely be deceptive.
5. Comparative Price Claims
    17. A technique commonly employed in long-distance advertising is 
the comparison of an advertiser's price to the prices of its 
competitors. By representing a competitor's rates, an advertiser is 
making an implied claim that these rates are reasonably current. As in 
the case of any other objective claim, the advertiser must have a 
reasonable basis for this representation. The time elapsing between the 
creation of an ad and the distribution of the ad to the public may 
vary, depending upon the medium in which the ad appears. This is a 
consideration in determining whether an advertiser possesses a 
reasonable basis for a claim that compared rates are reasonably 
current.

    Example #9--Comparative Price Claims: In an advertisement in a 
daily newspaper, an advertiser conveys the message that its rates 
are the lowest, using a chart that compares its per-minute rate to 
the rates offered by two competitors. The stated rates of one of the 
competitors are three months old, and the stated rate of the other 
is eight months old. By representing the competitors' rates, the 
advertiser is implying that those rates are reasonably current. If 
the information upon which the ad is based is outdated and the rates 
have changed materially, the ad would likely be deceptive.
    Example #10--Comparative Price Claims: An advertisement in a 
monthly magazine states that the advertiser's rates are better than 
those of another competitor. In January the advertiser verified that 
the competitor was offering the rate as stated in the ad. When the 
ad is published in February, it clearly and conspicuously discloses 
that the competitor's rate is as of January of this year. This 
disclosure is likely to be sufficient to avoid deception.
6. The Effect of the Use of Toll-Free Numbers and Other Alternate 
Sources of Information
    18. The fact that information about significant limitations or 
restrictions on advertised prices may be available by calling a toll-
free number or a clicking on a Web site is generally insufficient to 
cure an otherwise deceptive price claim in advertising. Advertisers are 
encouraged to use customer service numbers and Internet sites to offer 
consumers more information, but these sources cannot cure misleading 
information in the ad itself.\12\
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    \12\ See generally General Motors Corp., 123 F.T.C. 241 (1997); 
American Honda Motor Co., 123 F.T.C. 262 (1997); American Isuzu 
Motor Co., 123 F.T.C. 275 (1997); Mitsubishi Motor Sales of America, 
Inc., 123 F.T.C. 288 (1997); Mazda Motor of America, Inc., 123 
F.T.C. 312 (1997) (consent orders) (complaint alleging that ads 
touting ``zero down'' are deceptive even though fine print 
disclosures and/or point of sale or other sources make clear that 
significant costs apply at lease inception; order defining clear and 
conspicuous disclosure of terms in ads for car leases as ``readable 
[or audible] and understandable to a reasonable consumer'').
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    19. Dial-around services are unique in that consumers typically 
incur charges for using them before receiving any information other 
than what is conveyed in the dial-around service's advertising. This 
underscores the importance that significant restrictions and 
limitations on price claims be disclosed in the ad itself; users of 
those services must rely on the information contained in the ad as the 
basis for determining whether to choose a particular service. However, 
even if the use of an advertised service requires a consumer to 
interact further with the advertiser--for example, if a consumer must 
call a toll-free customer service number to switch to a different 
calling plan--it would still be deceptive if the advertisement failed 
to disclose significant restrictions necessary to qualify 
representations made in the ad.

    Example #11--Use of Toll-Free Numbers: A television 
advertisement for a long-distance calling plan prominently features 
the phrase ``10 cents a minute'' as a graphic and in the narration 
read by the spokesperson. The ad gives a toll-free number and tells 
consumers ``call now to switch.'' In fact, the 10 cents a minute 
rate is good only between 7 p.m. and 7 a.m. The inclusion of a 
superscript that reads ``call for restrictions'' would not likely be 
effective to qualify the claim.

C. Principles Related to the Clear and Conspicuous Disclosure of 
Material Information in Advertisements for Long-Distance Calling 
Services

    20. When the disclosure of qualifying information is necessary to 
prevent an ad from being deceptive, that information should be 
presented clearly and prominently so that it is actually noticed and 
understood by consumers. Disclosures should be effectively communicated 
to consumers. A fine-print disclosure at the bottom of a print ad, a 
disclaimer buried in a body of text unrelated to the claim being 
qualified, a brief video superscript in a television ad, or a 
disclaimer that is easily missed on an Internet Web site is not likely 
to be effective. To ensure that disclosures are effective, advertisers 
should use clear and unambiguous language, avoid small type, place any 
qualifying information close to the claim being qualified, and avoid 
making inconsistent statements or using distracting elements that could 
undercut or contradict the disclosure.
    21. In some cases, the FTC has specified the precise fashion in 
which qualifying disclosures must be conveyed.\13\ However, more 
frequently, the FTC has used the term ``clear and conspicuous'' to 
describe a general performance standard flexible enough to take into 
account both the consumer's right to accurate information necessary to 
make an informed purchase decision and the many ways that creative 
advertisers can effectively convey that information.\14\ Because the 
FTC considers the disclosure in the context of all of the elements of 
the ad, the focus is not on the wording of the specific disclosure in 
isolation, but rather on the overall or ``net'' impression that the 
entire advertisement--including the disclosure--conveys to reasonable 
consumers.\15\
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    \13\ See, e.g., Regulations Under the Comprehensive Smokeless 
Tobacco Health Education Act of 1986, 16 CFR 307.
    \14\ The FTC has also used phrases such as ``clear and 
prominent'' and ``of sufficient clarity and conspicuousness'' to 
articulate the same concept. 63 FR 25002, FTC's Notice Seeking 
Comment on the Interpretation of FTC Rules and Guides for Electronic 
Media (May 6, 1998).
    \15\ Deception Statement, 103 F.T.C. at 175-76. See also 
American Home Products, 98 F.T.C. 136, 374 (1981), aff'd, 695 F.2d 
681 (3d Cir. 1982).
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    22. Ordinarily, a disclosure is ``clear and conspicuous,'' and 
therefore is effectively communicated, when it is displayed in a manner 
that is readily noticeable, readable and/or audible, and understandable 
to the audience to whom it is disseminated. Factors that the FTC 
considers in evaluating the effectiveness of disclosures include:
     The prominence of the qualifying information, especially 
in comparison to the advertising representation itself;
     The proximity and placement of the qualifying information, 
vis-a-vis the representation that it modifies;
     The absence of distracting elements, such as text, 
graphics, or sound that may distract a consumer's attention away from 
the disclosure; and
     The clarity and understandability of the text of the 
disclosure.\16\
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    \16\ See generally General Motors Corp., 123 F.T.C. 241 (1997); 
American Honda Motor Co., 123 F.T.C. 262 (1997); American Isuzu 
Motor Co., 123 F.T.C. 275 (1997); Mitsubishi Motor Sales of America, 
Inc., 123 F.T.C. 288 (1997); Mazda Motor of America, Inc., 123 
F.T.C. 312 (1997) (consent orders) (complaint alleging that ads 
touting ``zero down'' are deceptive even though fine print 
disclosures and/or point of sale or other sources make clear that 
significant costs apply at lease inception; order defining clear and 
conspicuous disclosure of terms in ads for car leases as ``readable 
[or audible] and understandable to a reasonable consumer''). See 
also United States v. Mazda Motor of America, Inc., (C.D. Cal. Sept. 
30, 1999) (consent decree) ($5.25 million total civil penalty for 
violations of FTC and state orders related to disclosures in car 
leasing advertising).

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[[Page 44057]]

    23. Reference to an existing regulatory scheme provides 
considerable guidance. In 1992 Congress passed the Telephone Disclosure 
and Dispute Resolution Act (``TDDRA''), directing the FCC and the FTC 
to issue regulations governing, among other things, the advertising and 
marketing of pay-per-call services. TDDRA was enacted in response to a 
history of fraudulent or abusive practices. In adopting its Pay-Per-
Call Rule (previously called the 900-Number Rule),\17\ the FTC provided 
very specific provisions on how to make effective disclosures of 
material cost information in the context of advertising telephone-based 
entertainment or information programs that are billed to consumers' 
telephone bills. The basic principles embodied in the advertising 
provisions of the Rule show how the FTC determines whether a particular 
disclosure of cost information is clear and conspicuous in the context 
of advertising for pay-per-call services. According to the Rule's 
provisions governing the advertising of those services, the provider 
must ``clearly and conspicuously'' disclose in the advertisement the 
total cost of the call. If there is a flat fee for the call, the ad 
must state the total cost. If the call is billed on a time-sensitive 
basis, the ad must state ``the cost per minute and any minimum 
charges.'' If the call is billed on a variable rate basis, the ad must 
state the cost of the initial portion of the call, any minimum charges, 
and the range of rates that may be charged for the service including 
any other fees that will be charged for the service. Regardless of how 
the service is billed, the Rule requires that ``the advertisement shall 
disclose any other fees that will be charged for the service.''
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    \17\ 16 CFR part 308.
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    24. To ensure that consumers understand the central factor in the 
transaction--the cost of the call--the Rule specifies that all 
necessary disclosures must be made clearly and conspicuously. 
Initially, the Rule specifies that these disclosures must be made in 
the same language as the advertisement; for print disclosures, ``in a 
color or shade that readily contrasts with the background of the ad''; 
and for oral disclosures, ``in a slow and deliberate manner and in a 
reasonably understandable volume.'' However, the Rule outlines with 
more specificity the required type size of these disclosures, their 
proximity to the triggering information, and the necessity of both oral 
and visual disclosures for television ads.
    25. In print advertisements, the FTC Rule requires:
    (1) That the cost of the call shall be placed adjacent to each 
presentation of the pay-per-call number; and
    (2) That each letter or numeral of any necessary price disclosures 
shall be, ``at a minimum, one-half the size of each letter or numeral 
of the pay-per-call number to which the disclosure is adjacent.''
    26. For television advertisements, the FTC Rule requires:
    (1) That a visual disclosure shall appear adjacent to each visual 
presentation of the pay-per-call number;
    (2) That each letter or numeral of any necessary price disclosures 
shall be, ``at a minimum, one-half the size of each letter or numeral 
of the pay-per-call number to which the disclosure is adjacent'';
    (3) That a visual disclosure shall appear on the screen for the 
duration of the presentation of the pay-per-call number; and
    (4) That an oral disclosure shall be made at least once, 
simultaneously with a visual presentation of the disclosure.
    27. The measures that the FTC thought were necessary to ensure that 
cost disclosures were clear and conspicuous in the context of pay-per-
call services--the prominent disclosure of important cost information 
adjacent to the central feature of the ad--are certainly relevant to 
price advertising by dial-around services and long-distance calling 
plans. While not every single aspect of the Rule may be appropriate or 
required to ensure truthful, nondeceptive advertising by the long-
distance telephone industry, the Rule nonetheless offers guidance and a 
set of ``best practices'' to advertisers of dial-around and other long-
distance telephone services.
1. Prominence
    28. Disclosures that are large in size, are emphasized through a 
sharply contrasting color, and, in the case of television 
advertisements, remain visible and/or audible for a sufficiently long 
duration are likely to be more effective than those lacking such 
prominence. The FTC's experience consistently demonstrates that fine-
print footnotes and brief video superscripts are often overlooked. For 
example, in concluding that a television superscript was insufficiently 
clear and conspicuous to qualify a nutritional claim in a food ad, the 
FTC stated, ``[g]enerally recognized marketing principles suggest that, 
given the distracting visual and audio elements and the brief 
appearance of the complex superscript in the middle of the commercial, 
it is unlikely that the visual disclosure is effective as a corrective 
measure.'' \18\
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    \18\ Kraft, Inc. 114 F.T.C. 40, 124 (1991), aff'd, 970 F.2d 311 
(7th Cir. 1992), cert. denied, 479 U.S. 1086 (1987). See Thompson 
Medical Co., 104 F.T.C. 648, 797-98 & n. 22 (1984), aff'd, 791 F.2d 
189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987); Deception 
Statement, 103 F.T.C. at 180.
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    29. The FTC's analysis focuses not just on whether the type size of 
the disclosure is large enough to be readable when read in isolation, 
but rather whether the disclosure itself is prominent enough so that 
typical consumers will actually read and understand it in the context 
of an actual ad. Although the FTC has not, as a general rule, required 
disclosures to be identical in size and repeated the same number of 
times as the triggering representation, substantial disparities between 
the two reduce the likelihood that a disclosure will be clear and 
conspicuous.

    Example #12: In a full-page newspaper ad for a long-distance 
calling plan, the phrase ``10 cents a minute'' appears in 70-point 
type at the top of the page. In fact, the advertised 10 cents a 
minute rate applies only with a $3.95 monthly fee. The fee is 
disclosed in the body of the ad in 12-point type. Given the 
disparity in type size between the ``10 cents a minute'' claim and 
the $3.95 monthly fee, it is unlikely that the disclosure of the 
monthly fee is sufficiently clear and conspicuous to avoid 
deception.
    Example #13: In a 30-second television ad for a dial-around 
service, the phrase ``10 cents a minute'' is used four times by the 
narrator and appears as a graphic twice. A superscript appearing on 
the bottom of the screen for three seconds reads ``Rate available 
from 7 p.m. until 7 a.m., Monday through Friday and all day 
weekends.'' In fact, calls before 7 p.m. cost 25 cents per minute. 
Given the prominence of the ``10 cents a minute'' claim and the 
complexity and small print of the superscript, it is unlikely that 
the disclosure of the time restrictions is sufficiently clear and 
conspicuous to avoid deception
    Example #14: In a full-page newspaper ad for a long-distance 
calling plan, the phrase ``10 cents a minute'' appears in 70-point 
type at the top of the page. Immediately under it, the phrase ``plus 
$3.95 monthly fee'' appears in 35-point type. Given the proportional 
similarity in type size between the ``10 cents a minute'' claim and 
the $3.95 monthly fee and their proximity, the disclosure of the 
monthly fee is likely to be sufficient to avoid deception.
2. Proximity and Placement
    30. In addition to their size and duration, the proximity and 
placement of disclosures are important factors in determining whether 
they are clear and

[[Page 44058]]

conspicuous. The effectiveness of disclosures is ordinarily enhanced by 
their proximity to the representation they qualify, because reasonable 
consumers do not necessarily read an ad in its entirety.\19\ The 
placement of qualifying information away from the triggering 
representation--for example, in footnotes, in margins, or on a separate 
page of a multi-page promotion--reduces the effectiveness of the 
disclosure.\20\ Furthermore, when significant qualifying information 
about the cost of a long-distance plan or service is necessary to 
prevent the ad from misleading consumers, the use of an asterisk will 
generally be considered insufficient to draw a consumer's attention to 
a disclosure placed elsewhere in an ad.\21\
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    \19\ Deception Statement, 103 F.T.C. at 180-81.
    \20\ See, e.g., Dell Computer Corp., C-3888 (Aug. 6, 1999) 
(consent order); Micron Electronics, Inc., C-3887 (Aug. 6, 1999) 
(consent order); Haagen-Dazs Co., 119 F.T.C. 762 (1995) (consent 
order); Stouffer Foods Corp., 118 F.T.C. 746, 802 n.10 (1994).
    \21\ See, e.g., Frank Bommartino Oldsmobile, Inc., C-3774 (Jan. 
5, 1998) (consent order); Archer Daniels Midland Co., 117 F.T.C. 403 
(1994) (consent order).

    Example #15: A full-page newspaper advertisement for a company's 
long-distance calling plan features in 70-point type the statement, 
``7 cents a minute all the time'' followed by an asterisk. A 12-
point disclosure at the bottom of the page states, ``*$5.95 monthly 
fee applies.'' Given the disparity in prominence and location 
between the two lines of text, it is unlikely that the disclosure of 
the monthly fee is sufficiently clear and conspicuous.
    Example #16: A dial-around company promotes its services via a 
three-page direct mail letter sent to consumers. The envelope 
includes a depiction of a nickel surrounded by the phrase ``long-
distance calls for just 5 cents a minute,'' a depiction repeated on 
the first page of the letter. In fact, the 5 cents a minute rate is 
good only for state-to-state calls 20 minutes or longer. That 
information is prominently disclosed only on the last page of the 
letter. The disclosure of these material conditions on the third 
page of the letter would likely be ineffective.
    Example #17: In a 60-second television ad, a company wants to 
promote both its domestic and international dial-around service. In 
the first 50 seconds of the ad, the spokesperson refers to the 
company's rate as ``7 cents a minute'' three times with an 
accompanying graphic. In the last 10 seconds of the ad, the 
spokesperson says, ``And call 878-555-0000 to find out about our low 
international rates.'' During the 10-second segment in which the 
spokesperson discusses the company's international rates, the 
superscript appears ``7 cents a minute rate applies after 7:00 p.m. 
Monday-Friday and all day weekends.'' Given the lack of proximity 
between the ``7 cents a minute'' claim and the disclosure of the 
material time restriction, the superscript would likely not be 
considered clear and conspicuous.
    Example #18: A company wants to promote its international long-
distance service by reducing its regular prices during a special 
promotional period. The print ad features the prominent headline, 
``Big holiday sale! Call between November 1, 2000, and December 31, 
2000, and save on all international calls.'' The ad also features a 
box listing ten foreign cities. The list, prominently headed ``sale 
prices good through December 31, 2000'' gives the cost per minute to 
each of the advertised cities. Considering the close proximity 
between the promotional per-minute rates and the prominently 
displayed information that the advertised rates are good only until 
December 31, 2000, the disclosure would likely be effective.
3. Absence of Distracting Elements
    31. Even if a disclosure is large in size and long in duration, 
other elements of an advertisement may distract consumers so that they 
may fail to notice the disclosure. As the FTC has held, consumers may 
be ``directed away from the importance of the qualifying phrase by the 
acts or statements of the seller.'' \22\ Advertisers should take care 
not to undercut the effectiveness of disclosures by placing them in 
competition with other arresting elements of the ad.

    \22\ Deception Statement, 103 F.T.C. at 180-81.
---------------------------------------------------------------------------

    Example #19: A 30-second television advertisement for a dial-
around service features a famous movie star as a spokesperson. On 
three occasions, the celebrity states that calls completed through 
this service cost 10 cents a minute. The ad closes with a quick-cut 
montage of the celebrity talking on the telephone in front of the 
Grand Canyon, Niagara Falls, Golden Gate Bridge, and other visually 
arresting national landmarks. In fact, calls are subject to a 
50 cents minimum. This information is disclosed only through a 
visual superscript appearing at the bottom of the screen during the 
montage. Given the likelihood that consumers will focus on the 
quick-cut montage rather than on the superscript, it is unlikely 
that the disclosure would be considered clear and conspicuous.
4. Factors Relating Specifically to Television Ads
    32. In television ads, the same factors of prominence, proximity, 
and absence of distractions determine whether material information is 
disclosed in a manner that consumers notice and understand. Other 
considerations specific to television ads include volume, cadence, and 
placement of any audio disclosures.\23\ Disclosures generally are more 
effective when they are made in the same mode (visual or oral) in which 
the claim necessitating the disclosure is presented. Furthermore, 
research suggests that disclosures that are made simultaneously in both 
visual and audio modes generally are more effectively communicated than 
disclosures made in either mode alone.\24\ For example, the FTC's Pay-
Per-Call Rule requires that the price of a call to a 900-number service 
be disclosed in both the video and audio in a television ad. Thus, for 
television ads for long-distance services, a disclosure that includes 
both a sufficiently large superscript and a voice-over statement is 
likely to be more effective than a superscript alone.
---------------------------------------------------------------------------

    \23\ See generally General Motors Corp., 123 F.T.C. 241 (1997); 
American Honda Motor Co., 123 F.T.C. 262 (1997); American Isuzu 
Motor Co., 123 F.T.C. 275 (1997); Mitsubishi Motor Sales of America, 
Inc., 123 F.T.C. 288 (1997); Mazda Motor of America, Inc., 123 
F.T.C. 312 (1997) (consent orders) (complaint alleging that ads 
touting ``zero down'' are deceptive even though fine print 
disclosures and/or point of sale or other sources make clear that 
significant costs apply at lease inception; order defining clear and 
conspicuous disclosure of terms in television and other ads for car 
leases as ``readable [or audible] and understandable to a reasonable 
consumer''). See also United States v. Mazda Motor of America, Inc., 
(C.D. Cal. Sept. 30, 1999) (consent decree) ($5.25 million total 
civil penalty for violations of FTC and state orders related to 
disclosures in car leasing advertising); Kraft, Inc., 114 F.T.C. 40, 
124 (1991), aff'd, 970 F.2d 311 (7th Cir. 1992), cert. denied, 507 
U.S. 909 (1993); Thompson Medical Co., 104 F.T.C. 648, 797-98 
(1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 
1086 (1987).
    \24\ Maria Grubbs Hoy & Michael J. Stankey, Structural 
Characteristics of Televised Advertising Disclosures: A Comparison 
with the FTC Clear and Conspicuous Standard, J. Advertising, June 
1993, at 47, 50; Todd Barlow & Michael S. Wogalter, Alcoholic 
Beverage Warnings in Magazine and Television Advertisements, 20 J. 
Consumer Res. 147, 151, 153 (1993); Noel M. Murray, et al., Public 
Policy Relating to Consumer Comprehension of Television Commercials: 
A Review and Some Empirical Results, 16 J. Consumer Pol'y 145, 164 
(1993).

    Example #20: A 30-second television advertisement for a long-
distance calling plan features a spokesperson who on three occasions 
states that calls on the plan are ``10 cents a minute anytime.'' In 
addition, a graphic reading ``10 cents a minute anytime'' is 
depicted twice during the ad. In fact, the 10 cents a minute rate 
requires the payment of a $5.95 monthly fee. The only disclosure of 
the monthly fee is through a visual superscript at the end of the 
ad. Especially because the triggering representation--that calls on 
the plan are ``10 cents a minute anytime''was made both orally and 
visually, the visual superscript would likely be less effective in 
disclosing the monthly fee than had the same information been 
conveyed both orally and visually.

III. Ordering Clause

    33. Accordingly, it is ordered that this Policy Statement is 
adopted.


[[Page 44059]]


Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Federal Trade Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-17995 Filed 7-14-00; 8:45 am]
BILLING CODE 6750-01-P