In the Matter of
Pay Per Call Billing Rule Review
FTC File No. R611016
Klein, Zelman, Rothermel
TABLE OF CONTENTS
II. THE BAN VIOLATES THE FIRST AMENDMENT
III. THE MANNER IN WHICH INTERNATIONAL AUDIOTEXT SERVICES ARE ADVERTISED AND PROVIDED IS NEITHER UNFAIR NOR DECEPTIVE, AND ANY BAN ON SUCH SERVICES CONSTITUTES IMPERMISSIBLE OVERREACHING
IV. A BAN ON INTERNATIONAL AUDIOTEXT SERVICES AMOUNTS TO A RESTRICTION ON COMMON CARRIERS THAT ARE EXEMPT FROM THE FEDERAL TRADE ACT
V. THE PROPOSED BAN ON INTERNATIONAL AUDIOTEXT SERVICES IS AT ODDS WITH UNITED STATES PARTICIPATION IN THE INTERNATIONAL TELECOMMUNICATIONS UNION'S EFFORTS TO PROVIDE INTERNATIONAL PREMIUM RATE SERVICES
The International Audiotext Committee (hereinafter "IAC") by its attorneys, Klein, Zelman, Rothermel & Dichter L.L.P., hereby submits comments with respect to the proposed rules in the above-captioned matter, which were published in the Federal Register on October 30, 1998.
IAC is an ad hoc trade association of companies that provide or support audiotext services accessed through calls to international POTS lines. IAC's comments are limited to the proposed rules concerning such services. As will be shown below, by instituting a de facto ban on direct dialed international toll calls to access information services, the proposed rules violate the First Amendment, exceed the Commission's authority and jurisdiction, and constitute an impermissible restraint of international trade.
a. Nature of the Industry
What we here will refer to as "international audiotext services" includes all audiotext services accessed by dialing a POTS ("plain old telephone service") number outside of the United States. These services primarily are adult entertainment, chat or psychic services. Callers are charged the normal transmission rates for this call; that is, anyone calling an international audiotext number will be charged the same rate as s/he would be charged if this were what the Rules refer to as a "content neutral" call placed in the same manner.
Because normal transmission rates are charged for these calls, the cost of the call depends on a number of factors, including the caller's choice of carrier and calling plans (e.g., AT&T's "True Reach Savings"), the place from which the caller is dialing, the time of day (day, evening or night rates), the day of the week (weekday versus weekend rates), whether operator assistance is used, whether a calling card is used, and similar factors. For these reasons, it is not possible to apprise callers of the exact cost of the call, either in advertising or in a preamble.
Also because these are calls between POTS lines, other features required by TDDRA are infeasible or impossible to provide, such as kill messages.
b. Scope of the Alleged "Problem"
Although commentary to the proposed Rules contains numerous statements concerning the volume of "cramming" complaints generally, there is no information or discussion concerning the scope of the alleged problem with respect to international audiotext services accessed through POTS lines. In fact, IAC has attempted to obtain information from the Commission about complaints involving international audiotext services, but repeated requests to the Commission, made pursuant to the Freedom of Information Act, have been rebuffed.
The Commission's unwillingness to respond to these inquiries permits only one conclusion: that only a small fraction of "cramming" complaints involve international audiotext services, and that the absolute number of such complaints is minuscule.
Indeed, this appears to be more than an inference. It is IAC's understanding that another commenter made a FOIA request to the Commission similar to that made by IAC and received a total of four -- four -- complaints in response to its request. It therefore appears that the sole evidence of any grave and immediate danger from international audiotext services stems from the complaints of exactly four of the nation's citizens.
c. The Commission's Proposed Rules with Respect to International Audiotext Services
TDDRA was created to address pay-per-call services accessed through 900 numbers. As the Commission has conceded, TDDRA rules cannot be imported to international audiotext services because of the differences in how services are provided.
Rather than craft a set of rules specific to and compatible with this industry, and convinced (apparently without any facts with which to support its belief) that international audiotext services are a consumer issue, the Commission has decided simply to ban international audiotext services. Proposed §308.12 provides, in pertinent part, "[t]he vendor shall not offer a pay-per-call service that would result in any customer being assessed a charge for any local exchange telephone service or interexchange telephone service . . . ." In commentary to this change, the Commission notes that Title II and III consumer protections are not technologically possible for international audiotext services, and that therefore, these services are "inherently deceptive" and a "serious threat" that must be eliminated through a complete ban.
In the commentary, the Commission is expansive as to the nature of the potential threat to consumers, but strangely silent as to the specific nature of the alleged problem or deception. As noted, the NOPR provides no detail whatsoever as to the amount or nature of complaints it has received. Moreover, as noted earlier, despite three requests over four months, the Commission has refused to provide information about complaints it has received, and it appears that it has received four such complaints. It therefore must be assumed that the "inherent" deception and "serious threat" are pure speculation unsupported by the complaint history of this industry.
II THE BAN VIOLATES THE FIRST AMENDMENT
a. A Content Specific Ban on Lawful Services Violates the First Amendment
There is nothing unlawful about offering international long distance services. Anyone is free to place a call from the United States to a POTS number in another country and pay the cost of the transmission of that call. It also is lawful to provide and bill for international long distance services and to encourage consumers to place such calls. Thus, the means by which international audiotext services are offered plainly is lawful.
The Commission is not seeking to ban what it calls "content neutral" international long distance calls, nor solicitation of consumers to place such calls. Rather, what the Commission seeks to do here is to ban international long distance calls accessed through a POTS number -- an entirely lawful act -- solely because of the content of the call. The adult and psychic content of these calls is the only manner in which to distinguish that which the Commission is banning from that which plainly is lawful. Any prohibition based on content clearly violates the First Amendment.
Because this is a content-based regulation of speech, see United States v. Eichman, 496 U.S. 310, 110 S.Ct. 2404 (1990); Boos v. Barry, 485 U.S. 312, 108 S.Ct. 1157 (1988), and because [s]exual expression which is indecent but not obscene is protected by the First Amendment," Sable Communications of California, Inc. v. Federal Communications Commission, 492 U.S. 115, 126, 109 S.Ct. 2829, 2836 (1989), the Commission can adopt Rules for regulating such speech only to the extent that the Rules represent "the least restrictive means to further the articulated [compelling] interest". (Id.) To ensure that it has done so, the means adopted to regulate the speech must be closely scrutinized to determine whether an alternative exists that both furthers the Government's ends while minimizing the interference with First Amendment freedoms. (Id.) Thus, the existence of compelling ends alone is not sufficient, (id.), nor is it sufficient that alternative means may be somewhat less effective than the means chosen by the Commission to address the problem. 492 U.S. at 126, 109 S.Ct. at 2837-38.
Moreover, it is the Commission that has the heavy burden of proving that its interests could not be served by less restrictive means. Id. at 2836; see also Carlin Communications, Inc. v. Federal Communications Commission ("Carlin III"), 837 F.2d 546 (2nd Cir. 1988), cert. denied, 488 U.S. 924, 109 S.Ct. 305 (1988), quoting Carlin Communications, Inc. v. Federal Communications Commission ("Carlin I"), 749 F.2d 113, 131 (2nd Cir. 1984) ("the government bears the heavy burden of demonstrating that the compelling state interest could not be served by restrictions that are less intrusive on protected forms of expression."); Carlin Communications, Inc. v. Federal Communications Commission ("Carlin II"), 787 F.2d 846, 855 (2nd Cir. 1986); see also Fabulous Associates, Inc. v. Pennsylvania Public Utility Commission, 896 F.2d 780, 783-85 (3rd Cir. 1990) (quoting Carlin I). In finding that a less than complete ban on indecent material on the internet violated the First Amendment, the Supreme Court noted that "[t]he breadth of this content based restriction of speech imposes an especially heavy burden on the Government to explain why a less restrictive provision would not be as effective. . . ." Reno v. American Civil Liberties Union, 521 U.S. 844, 902, 117 S.Ct. 2329, 2348 (1997).
Thus, at the outset, the Commission must establish that it has articulated a compelling interest for banning international audiotext services. The Commission has failed to do so. It has not and will not disclose the number or the nature of complaints received by them, if any. All that the Commission has done is explain that its TDDRA wish-list of protections cannot be imported to international audiotext services, and its belief that as a result, such services are "inherently deceptive". Where there is absolutely no showing of actual deception or any actual problem, the Commission's theoretical fears do not amount to a "compelling" interest sufficient to ban expression on the basis of content.
Even if the Commission were able to surmount this hurdle -- and plainly, it cannot -- the burden would remain on the Commission to show that the outright ban on such services is the least restrictive means available to meet any legitimate concerns while still safeguarding First Amendment protections. An outright ban cannot -- almost by definition -- be the least restrictive means available. Previously the Commission has learned from industry representatives the measures it can take, for example, labeling all advertising with the phrase "international long distance rates apply". Some commenters have suggested that consumers be urged to call their carrier to inquire about rates by dialing "00", which connects the caller to his or her designated long distance carrier, which can advise the caller about the costs of the call.
The Commission may argue that such measures do not meet the full panoply of TDDRA protections, and it is clear that all TDDRA protections cannot be imposed on international audiotext services. It is well established that the least restrictive means must be used even if alternative methods may be somewhat less effective than the means chosen by the Commission to address the problem. Sable, 492 U.S. at 126, 109 S.Ct. at 2837-38. Thus, even if rules specific to international audiotext services did not offer the full TDDRA regulatory scheme, it is clear that the least restrictive means must be used.
Moreover, the Commission has entered into consent decrees in two cases that permit international audiotext in instances where certain disclosures are made. See F.T.C. v. Interactive Audiotext Services, CV-48-3049 (CBM) (1998) and F.T.C. v. Audiotext Connections, Inc., CV-97-0726 (DEH) (1977). The Commission has failed to show that the less restrictive requirements adopted in those cases are ineffective.
Because the Commission has failed to articulate a legitimate, compelling interest in banning international audiotext services, and because it has chosen the most, rather than the least restrictive means possible for meeting any compelling interest it may hereafter articulate, the ban on international audiotext services violates the First Amendment.
b. Even if The Regulations Were Content Neutral, They Are Not Narrowly Tailored as to Time, Place or Manner of Expression
Where a regulation is "content-neutral", i.e., it applies equally to protected and unprotected expression, it still must pass Constitutional muster under the following framework:
United States v. O'Brien, 391 U.S. 367, 377, 88 S.Ct. 1673, 1679 (1968), quoted in Members of City Council of City of Los Angeles v. Taxpayers for Vincent, 466 U.S. 789, 805, 104 S.Ct. 2118, 2128-29 (1984).
Assuming that the proposed Rules are within the constitutional power of the Commission, the Commission then must establish that they further an important or substantial governmental interest. In this case, as demonstrated above, the Commission has shown no governmental interest in banning international audiotext services, and apparently relies on four complaints as justification for this ban.
Even if the Commission could show a governmental interest, it also would have to show that it unrelated to the suppression of free speech and that "the incidental restriction on alleged First Amendment freedoms is no greater than is essential to the furtherance of that interest." Vincent, 466 U.S. at 808, 104 S.Ct. at 2130.
Assuming arguendo that the Commission's motives here are not intended to suppress adult or psychic entertainment -- although that is far from clear -- it is plain that the proposed ban exceeds what would be necessary to further any legitimate government interest. Such regulations must be reasonable as to "time, place or manner of expression" and must be "narrowly tailored to serve that interest.
Putting aside the total of four complaints, and assuming arguendo that the Commission has a legitimate interest in having a regulatory scheme similar to TDDRA in place for all audiotext calls, it is clear that it could do so by regulating the advertising for international audiotext services. That the Commission has failed to propose such lesser measures speaks more to the Commission's failure of imagination and stubborn insistence on the full range of TDDRA regulation in an industry that has engendered four of the nine thousand cramming complaints received by the Commission. Clearly, this ban is not narrowly tailored to meeting any legitimate governmental interest.
c. At A Minimum, International Audiotext Services Remain Protected Commercial Speech
At a minimum, international audiotext services would be considered commercial speech that are subject to similar protection.
In Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557, 100 S.Ct. 2343 (1980), New York banned advertising by electric utilities. In finding that the ban violated the First Amendment, the Court adopted a four part test for determining whether a ban on commercial speech passed constitutional muster:
447 U.S. at 566, 100 S.Ct. at 2351; see also Rubin v. Coors Brewing Co., 514 U.S. 476, 482, 115 S.Ct. 1585, 1589 (1995).
Further, "this Court has not approved a blanket ban on commercial speech unless the expression itself was flawed in some way, either because it was deceptive or related to an unlawful activity." 447 U.S. at 566, 100 S.Ct. at 2351, n.9.
For international audiotext services to be protected by the Constitution, they must "concern lawful activity and not be misleading". There is nothing unlawful about adult or psychic entertainment accessed through a normal international long distance call. There is nothing about these services that is inherently misleading, and as shown below, even an advertisement that provides only a 011 telephone number and nothing more is not, in and of itself, deceptive or misleading. Thus, international audiotext services are protected speech.
The next inquiry is whether the asserted governmental interest in banning international audiotext services is substantial. As shown above, the Commission has failed to articulate any interest, or any threat -- much less a substantial threat -- to that interest posed by international audiotext services. Rather, the Commission appears to speculate that without the full range of TDDRA protections, international audiotext services can never be provided in a fair or non-deceptive manner. The Commission may believe this, but it has utterly failed to prove it, and it may not substitute unfounded opinion for fact.
Even assuming that the Commission had shown a compelling interest, and further, that the regulation directly advances the governmental interest asserted, the regulation still cannot be more extensive than necessary to serve that interest. In this case, the regulation is a total industry ban. Clearly there are lesser restrictions available, such as advertising rules. The Commission has not even considered alternative, less restrictive measures, and plainly does not provide any reason why such measures could not be effective, except to note that they are not TDDRA compliant. As the Supreme Court has noted, "we require the government goal to be substantial, and the cost to be carefully calculated. Moreover, since the State bears the burden of justifying its restrictions. . . it must affirmatively establish the reasonable fit we require." Bd. of Trustees of State Univ. of N.Y. v. Fox, 492 U.S. 469, 480, 109 S.Ct. 3028, 3035 (1989). Absent any showing that lesser restrictions would not be effective, or that a complete ban on international audiotext services is a "reasonable fit" to the government's interests, the Rules are overly broad and violate the First Amendment.
III THE MANNER IN WHICH INTERNATIONAL AUDIOTEXT SERVICES ARE ADVERTISED AND PROVIDED IS NEITHER UNFAIR NOR DECEPTIVE, AND ANY BAN ON SUCH SERVICES CONSTITUTES IMPERMISSIBLE OVERREACHING
There is a well developed body of law defining unfair or deceptive practices. In each case, the practice included a statement or material omission tending to deceive consumers. No such claim can be made about international audiotext services.
A typical print advertisement for international audiotext services is located on a page of a publication containing numerous advertisements for audiotext services or during a series of television advertisements for audiotext services accessed through a multitude of dialing patterns. Attached as Exhibit B is a page from the March 9, 1999 Village Voice. These advertisements are for services accessed through 900, 540, 970 and 500 dialing patterns. The advertisement at the top left corner of the page is for an international audiotext call accessed through 011. This advertisement also indicates "Int'l Only". Many such ads contain the disclaimer "International Long Distance Rates Apply".
An advertisement containing only an international number, with or without a disclaimer about the international nature of the call, is not a deceptive or unfair practice. To find deception, there must be "a representation, omission or practice that is likely to mislead the consumer acting reasonably under the circumstances." Southwest Sunsites, Inc. v. F.T.C., 785 F.2d 1431 (9th Cir. 1986, cert. denied, 479 U.S. 828 (1986); F.T.C. v. Pantron I Corp, 33 F.3d 1088 (9th Cir. 1994); Cliffdale Associates, 103 F.T.C. 110, 165 (1984). Where an advertisement contains no untrue statements, the moving party has a heavy burden to show actual deception, as opposed to the potential for deception. Guardsmark, Inc. v. Pinkerton's Inc., 739 F.Supp. 173, 175 (S.D.N.Y. 1990). As the court in Guardsmark stated, for an advertisement to be deceptive, it must either be "false on its face" or "while literally true or ambiguous, the description is implicitly deceptive in context and has a tendency to mislead or deceive as demonstrated by evidence of consumer reaction". (Id.; see also Avis Rent A Car System, Inc. v. Hertz Corp., 782 F.2d 381, 386 (2nd Cir. 1986). To substantiate a claim under the second part of the test, "plaintiff must produce evidence about what the persons to whom the promotional statement is addressed found to be the message." Id. at 386; see also American Home Product Corp. v. Johnson & Johnson, 577 F.2d 160, 173 (2nd Cir. 1978).
An advertisement that provides only an international number, without more, is not deceptive or unfair, and provision of international audiotext services under these circumstances cannot be an unlawful trade practice. There simply is no way in which even the most profoundly naive or simpleminded consumer could fail to suspect that this is a call that will cost more than a local or long distance call. Such an advertisement contains no false statements. It does not imply that the call is free or of nominal cost. The advertisement is likely to contain some warning that it involves an international call. Such an advertisement virtually always appears amid advertising for premium cost pay-per-call services. If this were 1985, a consumer possibly could claim that s/he did not understand that this call would cost more than a local call; but this is 1999, and anyone who reads adult magazines or watches daytime television or visits any other form of entertainment in which adult or psychic advertising appears cannot help but be aware that such calls are not free. Thus, there can be no reasonable confusion over the nature and potential costs of the services involved.
In other words, the Commission is seeking to ban -- not regulate, but ban -- practices that do not even meet its own standards for deceptive or unfair trade practices. It seeks to do so without a scintilla of evidence that such services tend to deceive consumers, much less that there has been actual deception.
IV A BAN ON INTERNATIONAL AUDIOTEXT SERVICES AMOUNTS TO A RESTRICTION ON COMMON CARRIERS THAT ARE EXEMPT FROM THE FEDERAL TRADE ACT
15 U.S.C. 5711(c) and 5721(c) provide a limited exemption from the usual rule that common carriers are exempt from Commission regulation. TDDRA conferred FTC jurisdiction over common carriers in connection with their activities as service bureaus or pay-per-call service providers as well as for billing and collection activities; however it did so with respect to Titles II and III, which concern advertising and billing and collection matters. The FTC has never been empowered to regulate carriers across-the-board with respect to audiotext services.
Common carriers normally are exempt from the FTC's jurisdiction (see 15 U.S.C. 45(a)(2)) because they are subject to regulation elsewhere (i.e., before the Federal Communications Commission ("FCC") and various state public service or public utility commissions). The reason why the FTC was given limited jurisdiction over common carriers under TDDRA was to enhance enforcement powers for 900 rule violations. The FTC has not been afforded jurisdiction to control telephone companies' common carrier activities. The transport of an international call, irrespective of content, is a basic common carrier function subject to tariff and to the FCC's dispute resolution mechanisms.
In contrast, in these Rules the FTC seeks to ban the transport of international calls based upon content. There is no reason to conclude that Congress intended to give the FTC authority to expand the definition to reach traditional common carrier activity. There is no difference between the transport of international calls to a family member, business or live employee of an information service. In each instance, the caller's presubscribed interexchange carrier transports the call at its standard tariffed rate. IAC respectfully submits that the FTC's proposed pay-per-call definition and interpretation thereof exceeds the limited jurisdiction over common carriers conveyed to the FTC by Congress.
Telecommunications Act of 1996, H.R. Rep. No 458, 104th Cong. 2nd Sess., at 203 (1996).
These issues have no applicability here. These international audiotext services are calls are made to a POTS line in which the charge is only the normal cost of transmission; these are routine international long distance calls. The calls are carried and charges assessed by the long distance carrier of the household's choice. Unlike the functions performed by carriers in connection with 900 calls, when carriers provide transmission for these international audiotext calls, they are engaging in precisely the same functions as they do for non-audiotext international calls. When a carrier acts in its normal, routine capacity, the FTC has no jurisdiction over the terms under which those services will be provided. These services are fully and exclusively regulated by the FCC.
Thus, to the extent that the FTC seeks to ban international audiotext services where an information provider receives more than five cents per minute or fifty cents per call, it is intruding impermissibly on the FCC's jurisdiction. In this case, the FTC is telling carriers that they cannot enter into agreements in which they agree to pay more than those amounts for another party to stimulate international traffic. This is a matter particularly within the purview of the FCC, and in so doing, the FTC is acting outside of the scope of its jurisdiction by banning international audiotext services.
Additionally, as the Commission has noted in the commentary to the proposed rules, Congress changed the definition of "pay-per-call services" as it applies to the FCC's regulations under Title I of TDDRA by deleting the exception for "tariffed services," without authorizing either the FTC or the FCC to further modify the Title I definition in any way. The FTC's authority to change the definition only impacts Titles II and III of TDDRA. Thus, the FTC's proposed definition of "pay-per-call services" will only apply to this Rule and not to any regulations promulgated by the FCC pursuant to Title I of TDDRA.
As the Commission has noted, Congress did not confer on the FCC or the FTC the power to amend the definition of pay-per-call services under Title I. Thus, the FCC, which has primarily jurisdiction to regulate common carriers, is using -- must use -- a definition of pay-per-call services that excludes international audiotext services. The FTC's proposed Rules usurp from the FCC the power to regulate common carriers' provision of ordinary international long distance calls.
V THE PROPOSED BAN ON INTERNATIONAL AUDIOTEXT SERVICES IS AT ODDS WITH UNITED STATES PARTICIPATION IN THE INTERNATIONAL TELECOMMUNICATIONS UNION'S EFFORTS TO PROVIDE INTERNATIONAL PREMIUM RATE SERVICES
The International Telecommunications Union ("ITU") is the United Nations Specialized Agency in the field of telecommunications. The ITU, headquartered in Geneva, is an international organization within which governments, including the United States, and the private sector (including major United States common carriers) coordinate global telecom networks and services. One of its tasks is to standardize telecommunications on a worldwide basis.
The ITU recently completed work on a draft recommendation on Universal International Premium Rate Services ("IPRS"), in effect an international form of 900 dialing pattern. The United States played an instrumental role in formulating this recommendation, but IPRS is not in compliance with the proposed TDDRA regulations.
Thus, one sector of the US government, the FTC, is attempting to ban international audiotext services, while another sector of the government is encouraging such services and adopting detailed regulations and standards for it.
IAC believes that the ITU is the appropriate body for regulating international audiotext services and international telephony. The rules proposed by the FTC necessarily will impede international trade by eliminating trade between some US companies and international carriers. It is not within the FTC's purview to impose trade barriers, and to the extent that the proposed rules will do so, they are inappropriate and contrary to the participation of the United States in the ITU. Rather than unilaterally enacting regulations that restrain trade and impinge on international agreements, in contravention of the law of comity and acts and practices of PTT's worldwide, the FTC should present its concerns and proposals to the ITU.
For all of these reasons, the proposed rules with respect to international audiotext services are unconstitutional and invalid, and the Commission should decline to adopt them.
Dated: March 9, 1999
New York, New York
Klein, Zelman, Rothermel & Dichter L.L.P.
ATTORNEYS FOR THE INTERNATIONAL AUDIOTEXT ASSOCIATION