Regulatory News – Bell Atlantic’s OSS Problems Spill Out of N.Y.

Posted:  05/2000

Government Throttles Deceptive
Long-Distance Advertising
BY KIM SUNDERLAND

To the delight of U.S. consumers, deceitful ads are on their way out if the federal government has anything to say about it.

And if carriers continue to play this way, they eventually will pay.

In new guidelines aimed at promoting truth-in-advertising (including dial-around “10-10” services), a joint policy statement from the FCC
(www.fcc.gov) and the Federal Trade Commission
(www.ftc.gov) protects consumers from unfair and deceptive advertising and marketing of long-distance services.

“This policy statement is a critical step in protecting the core rights of consumers in the competitive market,” FCC Chairman William E. Kennard said upon releasing the rules. “Together with truth-in-billing and freedom from slamming and cramming, it ensures that consumers will have the knowledge they need to select the carrier of their choice and be fairly charged for the services they use.”

The FCC guidelines were written to ensure advertising is truthful, complete and not misleading. It also describes what factors the FCC will consider to determine whether enforcement action could be brought against carriers for deceptive advertising practices.

“The big news is that the federal rules on advertising also apply to those selling telecommunications services,” says Jim
Veilleux, president of VoiceLog LLC (www.voicelog.com), a provider of third-party verification services. “And while the rules probably aren’t a surprise for the big long-distance carriers, the smaller carriers probably aren’t as aware of them.”

The smaller carriers must be aware that their telemarketing pitches and scripts can’t pretend that consumers aren’t aware of any intentional deception, he says.

“This is a wake-up call,” Veilleux says. “To ignore these rules, carriers do so at their
own peril.”

In a nutshell, advertising–print, broadcast or direct mail–must be clear, understandable, and without “lawyerly jargon,” Veilleux explains. The proximity and placement of certain information also is important. Smaller carriers should review their telemarketing scripts to ensure they adhere to these new guidelines, he adds.

“This industry provides American consumers with telecommunications services that are the finest in the world,” FTC Chairman Robert Pitofsky said in a statement. “This policy statement will help encourage industry to develop advertising that matches this high standard.”

Following a joint forum on the issue, the two federal agencies developed the FCC-FTC Policy Statement on Truth-in-Advertising, which offers the following guidance:

* All claims must be truthful, nonmisleading and substantiated;

* Carriers should disclose all costs consumers may incur, such as per-call minimum charges, monthly fees and universal service charges;

* Advertising should disclose any time and/or geographic restriction on the availability of advertised rates;

* The basis for comparative price claims should be disclosed, and only current information used in making claims; and

* Information should be disclosed in a clear and conspicuous manner, and without distracting elements so that consumers can understand it and make fully informed choices.

An explosion in competition and innovation in the telecom industry has been realized in recent years. Large and small carriers promote their services through national television, print and direct-mail advertising campaigns, which means advertising plays a critical role in informing consumers about their long-distance calling choices. In the case of dial-around services, advertising generally is the only source of information consumers have before incurring charges, the FCC reports.

The proliferation of ads for dial-around numbers, long-distance calling plans and other new telecom services, as well as an increase in the number of complaints regarding how the services are promoted, have raised questions regarding how truthful advertising applies in the marketplace, the commission says.

With accurate information, consumers benefit from being able to choose a carrier that cost-effectively meets their long-distance calling needs. But they can’t make informed decisions if the ads are deceitful.

“And ultimately the growth of competition in the long-distance market will be stifled,” the FCC says.

To eradicate deceptive advertising, the FCC has incorporated principles of the truth-in-advertising law that the FTC developed under Section 5 of the FTC Act, which offers guidance to carriers regarding how to comply with Section 201(b) of the Telecommunications Act of 1996.

Dissenting Opinion

FCC Commissioner Harold Furchtgott-Roth called the action another unfortunate stop in the majority’s self-defined jurisdictional mission to “do good.”

While he’s not against efforts to eliminate fraudulent advertising, Furchtgott-Roth says the FCC is overstepping its job description in enforcing the Telecom Act. He also says for the commission to enforce the guidelines, it will have to place much-needed resources in an area where it shouldn’t be operating.

“Our ‘moonlighting’ is not only questionable as a matter of law, it shortchanges the American people on the job they hired us to do,” he says.

Furchtgott-Roth adds that the FCC’s Democratic majority is responding to a perceived “gap” in federal regulatory authority over common-carrier advertising, although it is the exclusive responsibility of Congress, not the FCC, to assess and deal with these issues.

The Republican commissioner does not interpret the Telecom Act’s meaning of the term “practices”–within the context of Section 201–to cover advertising. If the majority reads “practices” to include advertising, then it is possible for “practices” to include a much broader meaning than what is intended, Furchtgott-Roth says.

“For example, are telephone company labor and employment policies ‘practices’ under the act?” he asks. “What about the use of energy-efficient equipment–is that
a ‘practice?'”

Additionally, Furchtgott-Roth says the action has consumed substantial FCC resources. His opinion is that further FCC resources for advertising regulation
are resources taken away from other consumer protection initiatives, such as interstate obscene and harassing phone calls, and slamming.

“Our resources would be better deployed in areas where the FCC has clear [and often sole] jurisdiction to protect consumers,” he says. “I believe our job is to fully and completely do the ‘good’ Congress charged us with under the statute long before we turn our attention to issues outside of our clear authority.”