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August 2008 | Volume 27 / Number 3
On The Line

Los Angeles Is Setting a Terrible Precedent

By Tim Searcy

The American Teleservices Association tracks regulatory and legislative activity closely at the state and federal level. Sometimes, policy makers create policy that makes sense, but more often than not, new ideas seem to come from "Ripley’s Believe it or Not!" What the ATA had not counted on was activist city prosecutors to weigh in on teleservices issues… that is until now.

On June 9, the city prosecutor for the City of Los Angeles began proceedings against Time Warner Cable with three major contentions:

• Time Warner Cable failed to meet service levels agreed to with the Public Utilities Commission by failing to provide service within the city’s 24 hour limit.

• Time Warner Cable created advertising in a variety of forms that guaranteed prices would not increase, but at the same time removed some channels like Animal Planet and Turner Classic movies unless someone purchased a more expensive package.

• Time Warner engaged in unfair trade practices in soliciting the city for its business by promising one level of service and delivering a different level.

This is no small matter. According to the Los Angeles Times, "The New York-based company could face civil penalties of tens of millions of dollars." But we should all be more concerned with the downstream impacts in several areas of legal enforcement.

1. Activist city and county prosecutors are a group of enforcement professionals that until now, has not been engaged in teleservices except in relation to fraudulent or criminal activities. To have these kinds of officials involved in de facto regulation of the business goes beyond the charter of their offices. The American Teleservices Association has been actively engaged in getting the Federal Communications Commission to recognize its exclusive jurisdiction over interstate calling. Implicit in this petition is the acknowledgement that states have exclusive jurisdiction over intrastate calling. Although prosecutions of this type might gain great headlines for an elected official seeking to retain office or to seek a higher office, it misses the mark of proper jurisdiction. The states will need to put this potential nightmare to rest, and unfortunately, they are unlikely to do so.

2. Federal and state legislators will undoubtedly watch this scenario play out with a great deal of anticipation. As elected officials, if the courts were to uphold all three of the arguments above, there would be a field day for new legislative activity. It is certainly easy to understand why Congressional policy makers would like to have this case to look to for precedent. Once the concept of false advertising or unfair trade practices enters the mix, it becomes a quick step to new civil penalties and additional government authority. The speed of do-not-call’s funding adoption in the House and Senate clearly demonstrate a bias toward quick action the arena of consumer calls. This would not extend beyond the traditional outbound calls, and move to the very heart of our business, customer service.

3. Federal regulators are consumers too. Private conversations with many commission-level folks indicate there is an appetite to assist consumers with their customer service problems. Up until now, it has been difficult for these policy makers to form an argument that would be legally possible in terms of customer service calls. However, unfair trade and false advertising are both claims with real teeth and a large body of judicial review.

4. Civil action in the form of class action lawsuits may be the most frightening of the doomsday scenarios from this case. If consumers were to be deemed to have been truly wronged by cable companies or others, we know that lawyers would line up to declare these individuals to be considered a "class" of plaintiff, and thereby pursue much higher damages.

Reviewing this case has given me a chance to pause and consider what other forms of legitimate redress do consumers have instead of prosecution. Although we might agree that legally documented service levels have clauses and penalties which were negotiated and agreed to, much of the claims are fairly subjective. What if a consumer is angry, what are their choices?

Consumers have always had the power of the pocketbook. If a consumer cannot receive satisfaction from a vendor, then seek an alternative. It is more difficult in situations in which a firm enjoys a monopoly or near-monopoly status. However, alternatives to city prosecutors exist in many forms including public utilities commissions, the press, complaining to the corporate executives themselves in some cases, etc. Turning to the courts to solve a free market problem is an untenable and almost impossible means for insuring customer satisfaction.

Tim Searcy serves as the CEO of the American Teleservices Association (ATA).

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