Implications Of The New FCC Anti-Slamming Rules
BY JAMES VEILLEUX, VOICELOG LLC
In late December 1998, the Federal Communications Commission (FCC) adopted new rules to
combat slamming -- the unauthorized switching of a consumer's telephone service. The rules
eliminate the so-called "welcome package," require verification on inbound, as
well as outbound, telemarketing orders and require verification on carrier freezes (in
which the local company agrees not to change the customer's service without direct
instructions from the customer). In addition, the FCC decided to absolve consumers from
any payment to alleged slammers for the first 30 days of service.
Of all the changes, however, the most surprising was the FCC's decision to put the
first round of slamming dispute resolution in the hands of carriers. This aspect of the
rules -- which was not obvious when they were first announced -- could have the most
profound impact on the telecommunications industry of any of the rule changes. If you or
your client, if you are an outsourcer, is a telecommunications marketer, these changes
will directly affect you.
Verification Requirements Changed
Verification requirements for telecommunications orders have been changed -- dramatically
for some carriers and resellers, but not at all or not a great deal for others. The
biggest change is the requirement that all orders, whether from telemarketing, direct
sales or otherwise, be verified through one of the three methods now permitted by the FCC.
So, if you take orders from inbound calls, you will need to have those verified in some
In addition, the verification requirements for telecommunications orders have been
changed. The "welcome package," which was the only viable alternative to
third-party verification for telemarketers, has been eliminated. Carriers and resellers
are now restricted to three verification methods: letters of agency (LOA), third-party
verification (TPV) and electronic verification. In addition, there is new language that
defines what makes a third-party verifier truly independent, specifying that a TPV
provider must not be owned, managed, controlled or directed by the carrier and that there
can be no financial incentive for the TPV company to approve orders.
Finally, the FCC made it explicit that states could enforce the FCC rules themselves
and create additional verification requirements for intrastate service as long as they do
not conflict with the FCC's rules. Presumably, this means that state rules -- like
California's -- which are more restrictive than the FCC rules, are permissible.
Resolving A Slamming Dispute
The rule change that received the most attention is the "30 day" absolution
rule, which dictates that a consumer who is slammed is not required to pay for the first
30 days of service from the carrier that slammed him or her. The process for avoiding
payment is relatively confusing.
First, the absolution only applies if the customer has noticed that the carrier change
took place and refuses to pay. If the customer pays, he or she does not get back the money
-- only the difference between what was paid and what would have been paid to the former
Second, if the carrier accused of slamming wants to dispute the slamming charge and try
to collect payment for the first 30 days, it must go to the customer's former carrier with
proof of the order and the verification. The former carrier, which at this point is
presumed to have regained the customer, is required to investigate the slamming claim and
decide if the customer was slammed or the order is good. If the former carrier decides the
order is good, it then bills the customer for the first 30 days' service and sends the
funds to the alleged slammer -- now cleared -- when the customer pays.
The implications for the call center selling services or taking orders are twofold:
carriers will be much more cautious of sales programs that generate large numbers of weak
orders and will be very focused on making sure the orders meet the regulatory
If the customer does pay the bill of the alleged slammer, the process changes.
According to the new rules, the former carrier must investigate the slamming charge with
the carrier that is accused of slamming. Once questioned, the alleged slammer can either
send what it collected to the former carrier or send proof that the order was valid. If
the former carrier collects, it must refund to the customer the difference between what it
collects and what it would have charged at its own rates for that service. If the former
carrier does not collect, it is not required to pay the customer -- it must simply inform
him or her of the right to individually pursue a claim against the slammer.
If the accused slammer provides evidence of a good order, the customer can presumably
still press a claim if he or she does not agree with the evidence. Remember, too, that the
FCC explicitly allows states to enforce the FCC rules and to impose their own rules, as
long as they do not conflict, so the consumer can still make a complaint directly to the
Whether or not the customer pays, a carrier that slams is responsible for paying the
cost of switching the consumer back to the former carrier. In addition, a slammer must pay
for the former carrier's cost of collecting the money paid by the customer.
Carrier Freeze Rules
The last, but not least, section of the new rules deals with carrier freezes. A carrier
freeze occurs when the customer instructs the local exchange carrier not to execute a
carrier change without direct instructions from the customer. Carrier freezes can be
implemented for any type of service -- interLATA, intraLATA, local, etc. -- for which
there is competition.
The new rules are designed to keep incumbent local exchange companies from abusing the
freeze process as a way to inhibit competition. For example, local exchange companies are
required to offer freezes on a nondiscriminatory basis, regardless of the carrier the
customer selects and to include clear and neutral explanations of freezes in their
literature. Carriers must also verify a freeze -- using one of the three approved methods:
LOA, TPV or electronic verification. Finally, carriers must provide at least the following
two ways to lift a freeze: an LOA and a three-way call which the submitting carrier (the
carrier trying to get the order placed) can access.
Implications Of The New Rules
For call centers, the new rules mean both trouble and opportunity. It is very possible
that some carriers will choose to exit the telecommunications business or cut back on
aggressive marketing techniques that generate relatively weak orders. On the other hand,
the third-party verification business could boom, so call centers that offer that service
may see a big increase in business.
Call centers should also expect their telecommunications clients to be a lot more
concerned with meeting the rules and ensuring that the third-party verification suppliers
they use provide solid, easily accessible proof of the sale. If you do not already have a
voice logger and you sell telecommunications services, you may want to consider getting
one, since it provides another way to produce a recording of the sale.
The 30-day absolution will probably change the economics of new customer acquisition,
making it much more expensive to be overly aggressive or sloppy in acquiring customers. If
some carriers were to lose the first month's billing for 5 percent, 10 percent or 20
percent of their orders, their financial picture would be very different. Most carriers,
we suspect, will not see a dramatic increase in slamming complaints unless the biggest
carriers become very aggressive in their win-back campaigns.
The change in verification requirements also has some impact. TPV will add from $0.50
to $3.00 or more to the cost of an inbound or Internet-based order. Carriers that relied
on the welcome package will need to find a new verification method.
A very few carriers have used captive, company-owned or other less-than-independent
verification services for their orders. Since these were of doubtful legality in the first
place, it is unclear whether those carriers are likely to change their processes, although
some of them might if they want to defend against slamming claims and have a better chance
of getting paid.
Here are our best guesses on what the industry will do as a result of the new rules:
- More win-back programs. Carriers will find win-back programs to be an important tactical
and strategic tool. Tactically, re-selling ex-customers is generally more profitable than
selling to new customers, and the new rules should help that, since unscrupulous carriers
or their sales representatives can use the 30-day absolution as an incentive to switch
back. Strategically, it will be important not to lose more customers and their revenue
than competitors will. Call centers should consider suggesting win-back programs to their
- Carriers pursuing claims of lost revenue. We are unsure how many carriers will
aggressively pursue claims against alleged slammers for revenue the alleged slammer has
collected, but we believe that some of the larger carriers will. Whether or not carriers
will be aggressive is an open question, but the new rule says carriers must pursue the
slamming claim when brought to them by a customer, so we would expect some carriers to
take advantage of an area they must develop anyway. Look especially for some ILECs to use
this as a defensive weapon when local competition is really active.
- Getting paid for the first 30 days will become harder. This prediction states the
obvious, but there are some subtleties worth noting. We would expect some carriers or
their sales reps to encourage slamming claims during win-back campaigns. That is bad for
the industry as a whole. When an accused carrier wants to dispute a slamming claim, there
is very little incentive for the former carrier to conclude that the order was good, so
carriers that want to defend against slamming claims should be sure they have strong and
retrievable verifications. Even if the former carrier decides the customer was not
slammed, it will be reluctant to bill the customer and will have little reason to be
vigilant in paying the carrier that documents a good order. We expect many carriers to
decide that defending the slamming claim is not worth the trouble.
The new FCC anti-slamming rules will make things difficult for telecommunications
marketers who are selling aggressively by telemarketing. By extension, this will make life
difficult for the call centers that service those clients. On the other hand, there may be
increased opportunities in third-party verification win-back programs to offset some of
the loss in business.
For a complete analysis of the FCC rules, see VoiceLog's Web site at www.voicelog.com.
James Veilleux is president and founder of VoiceLog LLC, a company he formed with
two partners in early 1996. He has worked at MCI, Sprint and SkyTel and as a consultant to
Bell Atlantic, Iridium and Telecommunications Premium Services. His positions have
included telemarketing sales and support, market research, database marketing, direct mail
and customer communication, channel development, product and market management, partner
marketing and pricing and business analysis. VoiceLog LLC is a provider of third-party
verification services. Introduced in 1996, the VoiceLog system offers an automated
platform to dramatically lower costs, as well as special techniques to eliminate fraud in
telephone services sales.