Comment Before the Federal Communications Commission Concerning Payment Service Offering in the Commercial Mobile Radio Services

Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of )
)
Calling Party Pays Service Offering in ) CC Docket No. 97-207
the Commercial Mobile Radio Services )
)
)
)
Comment of the
FEDERAL TRADE COMMISSION
September 17, 1999*
__________________________________________________________
*Inquiries regarding this Comment should be directed to
Bureau of Consumer Protection
Staff Attorney, Adam Cohn (202) 326-3411
__________________________________________________________

1NPRM at 1.
215 U.S.C. § 41 et seq. The Commission also has responsibilities under 40 additional
statutes, e.g., the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., which establishes
important privacy protections for consumers’sensitive financial information. The Commission
also enforces over 30 rules governing specific industries and practices, e.g., the Telemarketing
Sales Rule, 16 C.F.R. Part 310, which defines and prohibits deceptive telemarketing practices and
other abusive telemarketing practices.
315 U.S.C. § 45(a).
415 U.S.C. § 5701 et seq. and 47 U.S.C. 228.
- 1 -
I. The FTC’s Interest in this Proceeding
The Federal Trade Commission (FTC or Commission) welcomes this opportunity to
present its views on important consumer protection issues raised in the above-captioned
proceeding. In this proceeding, the Federal Communications Commission (FCC) has issued a
Notice of Proposed Rulemaking (NPRM) with the purpose of removing “regulatory obstacles to
the offering to consumers of Calling Party Pays (CPP) services by Commercial Mobile Radio
Services (CMRS) providers.”1
The FTC is an independent administrative agency charged with promoting the efficient
functioning of the marketplace by taking law enforcement action against commercial practices
injurious to consumers, and by increasing consumer choice by promoting vigorous competition.
The Commission fulfills this mandate by enforcing the Federal Trade Commission Act (FTC
Act).2 Our comments on the issues presented in the NPRM are based on our experience in
enforcing Section 5 of the FTC Act3 and in promulgating and enforcing the FTC’s Pay-Per-Call
Rule pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992.4

5 Cliffdale Associates, Inc., 103 F.T.C. 110, 165, appeal dismissed sub nom., Koven v.
FTC, No. 84-5337 (11th Cir. 1984) (hereinafter Cliffdale). It is deceptive to omit “material
information, the disclosure of which is necessary to prevent [a] claim, practice, or sale from being
misleading.” Id. at 177. Express claims, or deliberately-made implied claims used to induce the
purchase of or payment for a particular product or service, are presumed to be material.
Thompson Medical Co., Inc., 104 F.T.C. 648, 816 (1984), aff’d, 791 F.2d 189 (D.C. Cir. 1986),
cert. denied, 479 U.S. 1086 (1987). Information concerning the cost of a product or service also
has been found to be material. Cliffdale at 174.
615 U.S.C. § 45(n). See also Orkin Exterminating Company, Inc. v. FTC, 849 F.2d 1354,
1363-68, reh'g denied, 859 F.2d 928 (11th Cir. 1988), cert. denied, 488 U.S. 1041 (1989); and
American Financial Services v. FTC, 767 F.2d 957, 972-78 (D.C. Cir. 1985), cert. denied, 475
U.S. 1011 (1986).
- 2 -
A. Section 5 of the FTC Act
Section 5 of the FTC Act prohibits “unfair or deceptive acts or practices in or affecting
commerce” and applies to a wide range of business practices, including advertising, marketing,
and billing and collection. Deception occurs under Section 5 “if, first, there is a representation,
omission, or practice that, second, is likely to mislead consumers acting reasonably under the
circumstances, and third, the representation, omission, or practice is material.”5 Section 5 also
prohibits “unfair” acts or practices. A practice is “unfair” if it causes substantial injury to
consumers, if the harm is not outweighed by any countervailing benefits, and if the harm is not
reasonably avoidable.6 The Commission pursues both deceptive and unfair practices under
Section 5 either through administrative law enforcement actions or through federal district court
actions seeking temporary and permanent injunctive relief and, ultimately, restitution to injured
consumers.

7Advertisements often induced consumers to call 900 telephone numbers to claim fabulous
prizes, to access “free” services, or to talk with celebrities (e.g., “Kids: call this number to talk
live to Santa Claus”). These ads typically contained no cost disclosures at all. The few cost
disclosures that were made in advertisements lacked clarity and were buried in mouseprint. When
consumers called the 900 numbers, they were put on hold or otherwise kept on the telephone for
extended periods, all the while running up significant but unknown charges. When consumers
received charges on their telephone bills, often for calls placed by their children, their LECs told
them that they had to pay or their phone service would be disconnected.
815 U.S.C. 5701 et seq. and 47 U.S.C. 228.
- 3 -
B. The Pay-Per-Call Rule and the Telephone Disclosure and Dispute Resolution
Act of 1992
Pay-per-call transactions became widely available in the late 1980s in the form of 900
numbers. By the early 1990s, advertisements for 900-number services were widely disseminated
in print publications, on billboards, and on television and radio. Deception and fraud were
rampant in these advertisements, in the operation of pay-per-call services, and in the billing and
collection of charges for these services.7
Against this backdrop, Congress enacted the Telephone Disclosure and Dispute
Resolution Act of 19928 (TDDRA). TDDRA creates the statutory framework for FCC and FTC
regulation of pay-per-call services and other telephone-billed purchases. TDDRA is divided into
three discrete parts. Title I directs the FCC to issue rules governing telephone common carriers’
provision of service to pay-per-call providers. Title II directs the FTC to issue rules governing
the advertising and operation of pay-per-call services, including requirements regarding the free
“preamble” disclosure message to be played at the start of most pay-per-call programs. To
address the problems encountered by consumers who received charges from pay-per-call and
other telephone service vendors, Title III of TDDRA directs the FTC to issue rules for billing and

9The dispute resolution provisions of the Rule apply to all “telephone-billed purchases,” a
term that includes all pay-per-call services, but is significantly broader than that term. The term
telephone-billed purchase currently includes the purchase of any good or service (other than the
purchase of long-distance or local telephone services) that is completed as the result of placing a
telephone call, subsequent dialing, or comparable action of the caller. 16 C.F.R. 308.7(a)(6); 15
U.S.C. 5724(1). The FTC has proposed an expansion of the definition of telephone-billed
purchase. FTC Proposed Pay-Per-Call Rule, 63 Fed. Reg. 58524, 58541 (hereinafter “Proposed
Pay-Per-Call Rule”).
10The dispute resolution system for credit card charges is set forth in the Fair Credit Billing
Act, 15 U.S.C. §§ 1666 et seq.
11Proposed Pay-Per-Call Rule at 58526.
12The audiotext providers profit from these international audiotext schemes by sharing in
the “settlement payments” made to the terminating long distance carrier.
13Currently, TDDRA regulations only apply to audiotext services offered over 900
numbers. The FTC has proposed an expansion of the Pay-Per-Call Rule provisions to cover all
audiotext services, regardless of dialing pattern. Proposed Pay-Per-Call Rule at 58533-35.
- 4 -
collection of charges for “telephone-billed purchases”9 – rules that were to be modeled after the
dispute resolution system for credit card charges.10
The TDDRA regulations have largely been successful in reducing the abuses that plagued
the 900-number industry during the early 1990's.11 However, following the implementation of
these regulations, new frauds have appeared, which were carefully structured to evade the
TDDRA regulatory regime. The first of these was the use of sham contracts that resulted in
consumers being charged for the purchase of telephone information and entertainment (audiotext)
services as a result of calling 800 or other toll-free numbers. The second, and more pervasive
fraud involved the use of alternative dialing patterns (dialing patterns other than 900), such as
international telephone numbers,12 to sell audiotext services without providing the cost
disclosures, free preamble, and dispute resolution protections that were required by TDDRA.13

14Pub. L. 104, 701, 110 Stat. 56 (1996) [codified at 47 U.S.C. 228 and at 15 U.S.C.
5714(1)].
15Proposed Pay-Per-Call Rule at 58527-29.
- 5 -
Finally, in 1997 we witnessed the widespread emergence of “cramming” – the appearance on
consumers’telephone bills of unauthorized charges for a variety of telephone-billed purchases.
Utilizing the rulemaking authority set forth in TDDRA as well as additional authority provided by
Section 701(b) of the Telecommunications Act of 1996,14 the FTC has proposed amending its
Pay-Per-Call Rule to address all of these abuses.15
II. Summary of the FTC’s Consumer Protection Concerns in this Proceeding
Under most circumstances in the United States today, a consumer who has subscribed to
wireless telephone service is responsible for paying for airtime and other charges associated with
both incoming and outgoing calls. Under a CPP calling plan, the person calling a wireless
customer who had signed up for a CPP plan would incur at least some of the airtime charges
associated with the call that he or she placed.
We note four important consumer protection concerns that arise from the offering of CPP
plans to consumers and businesses, based on our experience in enforcing Section 5 of the FTC
Act and in promulgating, enforcing, and revising the Pay-Per-Call Rule under TDDRA. First, we
comment on the proposed consumer notification system to be used to inform a “calling party” that
an attempted call is to a CPP-subscribed telephone number. Disclosure of accurate and
meaningful cost information is very important. In addition to our comments here, the FCC may

16The distinctions between an interconnection and a non-interconnection approach to CPP
are discussed in more detail in section III.B, infra.
1716 C.F.R. part 308.
18Proposed Pay-Per-Call Rule at 58533-35.
- 6 -
wish to look to provisions of the Pay-Per-Call Rule for guidance in creating a nationwide system
of caller notification.
Second, we note that one form of CPP – one based on a non-interconnection approach16 –
would share some important similarities to pay-per-call and may be susceptible to problems that
are similar to those seen in the early days of pay-per-call. To help alleviate these potential
problems with non-interconnection CPP, the FCC may wish to look to several of the consumer
protections provided by the Pay-Per-Call Rule, such as cost disclosures, blocking, and dispute
resolution procedures.
Third, we note that some CPP service offerings may run counter to the FTC’s recent law
enforcement activities and regulatory oversight to halt practices that evade the FTC’s Pay-Per-
Call Rule.17 Currently, many of the Pay-Per-Call Rule’s core requirements (advertising disclosure
requirements, free “preamble” message at the beginning of each program) apply only to those
services offered over the 900-number platform. As mentioned above, some vendors have
attempted to evade the Pay-Per-Call Rule by offering their audio information or audio
entertainment services over a multitude of different non-900 platforms. In response, the FTC has
proposed to broaden the scope of the Rule to cover these programs.18 To avoid any potential
conflict between the actions proposed in the NPRM and the FTC’s efforts to prevent evasion of

- 7 -
its Pay-Per-Call Rule, the FCC may wish to consider taking certain actions in this proceeding to
prevent CPP from becoming a platform for pay-per-call services.
Finally, the FCC may want to consider providing a means for the “billed party” in a CPP
transaction to control his or her costs. Although it may be convenient to think in terms of the
interests of the “calling party” and the “called party,” this is not quite accurate. It is not the
“calling party” who will be required to pay the bill for the call to the CPP-subscribed number.
Rather, the person who will be required to pay this charge – the “billed party” -- is actually the
telephone subscriber whose telephone is used to call the CPP-subscribed service. In non-
interconnection CPP, this raises special concerns because of the potential lack of privity between
the billed party and the CMRS carrier. Regardless of whether the FCC adopts an interconnection
or a non-interconnection approach to CPP, the FCC may wish to consider the interests of the
“billed parties” by providing them with the tools to avoid unauthorized charges for calls to CPP
services.

19NPRM at 13-14.
- 8 -
III. Analysis
A. The FCC May Wish to Consider Implementing a Notification System that
Accurately Discloses the Cost of a Particular Call to a CPP service.
The NPRM proposes that a system of uniform notification be developed, and seeks
comment on what elements that notification system should contain.19 The NPRM proposes that
the notification include the following elements:

20NPRM at 20-21.
2116 C.F.R. § 308.5(a).
22The Pay-Per-Call Rule also requires additional preamble disclosures, such as a disclosure
regarding parental consent for callers under 18. 16 C.F.R. § 305(a)(4).
23NPRM at 20.
- 9 -
(1) Notice that the calling party is making a call to a wireless subscriber
that has chosen the CPP option, and that the calling party therefore
will be responsible for payment of the charges.
(2) Identification of the CMRS provider.
(3) The per minute rate, and other charges, that the calling party will be
charged by the CMRS provider.
(4) Notice that the calling party will have an opportunity to terminate
the call prior to incurring any charges.20
The FTC’s Pay-Per-Call Rule requires a similar cost-free notification or “preamble”21 for
all calls to pay-per-call services. This approach has ensured that callers to pay-per-call services
receive important information about the service they are attempting to access, and provides them
the opportunity to avoid uncertainty about the charges that will result. As with the FCC’s
proposal here, the preamble requirement in the Pay-Per-Call Rule requires the disclosure of the
name of the provider, the cost of the service, and the notice of the opportunity to hang up before
charges accrue.22 Based on our positive experience with the preamble in the context of the Pay-
Per-Call Rule, we support the proposal to create a uniform notification announcement, and we
generally agree with the elements that the FCC has proposed be a part of such notification system.
We also support the proposal to develop specific language for the announcement “in cooperation
with the states, consumers, and industry representatives.”23 Such a balanced approach to

- 10 -
developing the announcement would help ensure that callers received the most important
information in a useful form, without extraneous and confusing additional disclosures.
The notification proposal, however, does raise two potential concerns. First, the proposed
disclosure of “the per minute rate, and other charges, that the calling party will be charged by the
CMRS provider” may be construed by some CMRS providers to permit disclosure of highly
general information about costs, such as a range of possible rates depending on the time of day,
the day of the week, whether the CPP subscriber was “roaming,” or other factors. We are
concerned that providing such a wide range of potential costs might not be particularly useful to
consumers, and might be potentially confusing or even misleading. The main benefit of a
disclosure would be to provide consumers with the material information necessary to decide
whether to stay on the telephone or hang up before incurring charges. To make this decision,
consumers would likely need accurate information about the cost that they will incur in placing
that particular call. The FCC may wish to clarify that the disclosure would provide material
information about the charges that will be incurred for that particular call.
Second, the notification disclosure to consumers that they will have an opportunity to
terminate the call prior to incurring “any” charges may be misleading. This disclosure has the
potential to mislead consumers because, in some instances, consumers may incur
telecommunications charges other than those related to CPP. For example, if a wireline
subscriber in Oregon placed a “1+” long-distance call to a number in Florida that happened to be a
CPP-subscribed number, that caller could incur long-distance rates for the call, notwithstanding
the fact that the call also will generate CPP charges to the Oregon subscriber. To remedy this

24NPRM at 21.
25NPRM at 23.
- 11 -
problem, we suggest that more precise wording be used in the notification that does not imply
that the entire call would be free if the caller hangs up before the end of the notification message.
The NPRM also seeks comment on the desirability of moving to a simpler, more
streamlined notification system – one that would not include rate information – after consumers
have become accustomed to CPP and are aware of the additional charges involved.24 We believe
it is important that consumers be able to determine the cost of a service prior to purchasing that
service. At this early stage in the development of CPP, it may be premature to consider
implementing a notification system that does not include the disclosure of rate information. It
may be easier to weigh the costs and benefits of such a proposal after consumers have started to
become familiar with CPP. Thus, the FCC may wish to defer a decision on this issue at this time.
Finally, we wish to highlight a potential violation of the FTC’s Pay-Per-Call Rule. One of
the suggestions in the NPRM for an alternative notification option indicates that one company
uses a nationwide single, toll-free number to access its Paging Party
Pays (PPP) offering, because it eliminates the complication of
multiple routing and pricing structures in using regional LECs for
billing and collection. The caller is then provided a notification that
informs them that they are paging a PPP subscriber, and that a
specified charge will appear on their bill if they proceed with the
call.25
This alternative notification system might be in violation of the FTC’s Pay-Per-Call Rule because
it charges a telephone subscriber on the basis of the fact that a call to a toll-free number was

26Specifically, the Pay-Per-Call Rule states that “any person is prohibited from using an
800 number or other telephone number advertised or widely understood to be toll free in a
manner that would result in . . . the calling party being assessed, by virtue of completing the call, a
charge for the call.” 16 C.F.R. § 308.5(i). Incidentally, the FTC has proposed amending this
section to remove the reference to the “calling party” and prohibit “any customer” from being
assessed a charge for such a call. Proposed Pay-Per-Call Rule at 58564.
27In recent years, the FTC has brought law enforcement actions under Section 5 targeting
the practice of charging consumers on the basis of a call to a toll-free number. International
Telemedia Associates, Inc., No. 1-98-CV-1925 (N.D. Ga, filed July 10, 1998) (unfair practice to
bill line subscriber for services that line subscriber did not purchase or receive, based on the use,
or purported use, of a line subscriber’s telephone to call to a toll-free number); FTC v. Interactive
Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998) (unfair practice to
bill consumers whose telephones were used by someone else to access and purchase defendants’
entertainment services by dialing non-blockable toll-free numbers).
2847 C.F.R. 64.1501(a), 64.1504 and 64.1606.
29In the context of discussing “presubscription agreements” to charge consumers for
services offered over toll-free numbers, the FTC stated that “it is essential that the consumer who
will be billed for a service agree, in advance, to pay for the service after receiving clear and
conspicuous disclosure of all the material terms of the agreement.” Proposed Pay-Per-Call Rule
at 58538.
- 12 -
placed from that subscriber’s telephone.26 The practice may also be in violation of Section 5 of
the FTC Act.27 Similarly, this system may also be in violation of one or more of the FCC’s
regulations implementing TDDRA.28 Absent some specific agreement with the person who will
be charged for the call, the FTC believes that toll-free numbers should remain free.29 Under both
the current and the proposed revisions to the Pay-Per-Call Rule, if a consumer wishes to make a
purchase over a toll-free number, the vendor must charge that consumer for the service (for
example, by credit card or separate agreement), and may not apply any charge to the telephone
bill of the person whose telephone was used to make the toll-free call.

30NPRM at 35.
31Id.
32We avoid the use of the term “caller” here, as elsewhere in this comment, because it is
not necessarily the “caller” or the “calling party” who is billed for a CPP call. Importantly, the
bill would be sent to the subscriber whose telephone was used to place the call to the CPP-
- 13 -
B. The FCC May Wish To Consider Implementing Consumer Protections for
Non-Interconnection CPP that are Comparable to the Protections Available
in Pay-Per-Call.
The NPRM discusses two different potential systems for structuring CPP, an
interconnection approach, and a non-interconnection approach. The non-interconnection shares
some similarities with the billing system used for pay-per-call services. Thus, if the FCC chooses
to adopt a non-interconnection approach to CPP, it may wish to consider taking steps to reduce
the susceptibility of CPP to the types of abuses that were seen in the pay-per-call industry prior to
promulgation of TDDRA.
1. Interconnection Approach to CPP.
Under the interconnection approach, which is the system used in Europe and elsewhere,30
the LEC would bear the sole responsibility for charging the customer whose telephone was used
to place the call to the wireless telephone. Under this system, the customer whose telephone was
used to place the call has no contact with the wireless carrier terminating the call. Instead, the
charges for a call to a CPP service would be handled through expansion of existing
interconnection agreements between wireline (i.e., LECs) and wireless (CMRS) carriers.31 Thus,
when a wireline subscriber places a call to a CPP-subscribed wireless telephone, the called party’s
wireless carrier imposes a wireless termination access charge on the LEC of the person whose
telephone was used to place the call.32 The LEC could then recoup the charge from the consumer

subscribed number.
33NPRM at 36.
34The interconnection model is roughly comparable to the system currently used in the
United States for wireline long distance traffic. Although there may be many different carriers
involved in any given long distance call (an originating LEC, a long distance carrier, a terminating
LEC), the consumer receives only one bill for the call. The multiple carriers that may be involved
in carrying a long distance call charge each other for the use of their services. The fees charged
by the various different carriers involved in the transmission become a part of the fee charged by
the consumer’s chosen carrier.
35Or from the LEC on behalf of such vendor.
- 14 -
“if it so chose.”33 Under the interconnection approach to CPP, a consumer in a competitive
environment would be able to shop around for a LEC that charged the lowest prices for calls to
CPP wireless telephones.34
2. Non-Interconnection Approach to CPP.
Under a non-interconnection model, rather than having the carriers handle the CPP
charges, the telephone subscriber whose telephone is used to place a call to a CPP service would
be charged directly by the CMRS carrier terminating the call. This system is comparable to pay-
per-call, where the person whose telephone is used to place a call receives a bill from the vendor
who operates the pay-per-call number35 – a vendor with whom the consumer may have no prior
existing relationship. In non-interconnection CPP, as in pay-per-call, the recipient of the call has
maximum control over the rates that will be paid by the person whose telephone was used to
place the incoming call to the wireless telephone. In non-interconnection CPP, a person desiring
to call a particular CPP number would have no ability to shop around for lower costs for a

36This assumes that the caller would be made aware of the cost of the call before the call
was connected.
37NPRM at 14.
- 15 -
particular call. Instead, one would have a simple choice: either pay the rates set by the carrier
chosen by the recipient of the call, or hang up the telephone.36
3. Pay-Per-Call and Non-Interconnection CPP Share Important Similarities.
As a result of the structural similarity of the non-interconnection approach to CPP to pay-
per-call, non-interconnection CPP may also share some of the attendant problems that have been
experienced in the pay-per-call industry. For instance, in both pay-per-call and non-
interconnection CPP, the call recipient has complete control over the cost of the call, but may
have no incentive to disclose that cost accurately to the caller. Indeed, there may actually be an
incentive to avoid accurate disclosure of the cost. The Pay-Per-Call Rule’s free preamble and
mandatory advertising disclosures help solve this problem in the context of pay-per-call.
Similarly, the free notification message37 discussed above would go a long way towards
addressing this potential problem in the context of CPP.
Another similarity between pay-per-call and non-interconnection CPP is that, in both
contexts, the subscriber whose telephone is used to place the call to the service has little control
over the cost of that service. In both contexts, the cost of the service is determined entirely by the
recipient of the call. In some cases, these fees will be quite reasonable. In other cases, the fees
may be very high. While cost disclosure provides significant protection against potential harm to
consumers, it is important to recognize that, in many instances, the consumer who receives the bill
for the service will not be the same person who placed the call and received the cost disclosures.

3847 C.F.R. 64.1508.
3916 C.F.R. 308.7. The FTC has proposed several substantive amendments to this dispute
resolution procedure. 63 Fed. Reg. at 58550-55. In addition to looking at the current Pay-Per-
Call Rule, the FCC may wish to look to these proposed amendments in addressing the potential
problem of billing disputes relating to non-interconnection CPP charges.
- 16 -
In the pay-per-call context, consumers can avoid the risk of incurring these unpredictable charges
by selecting 900-number blocking at no charge.38 As discussed in more detail below, the FCC
may wish to consider implementing a similar form of blocking for CPP calls.
Non-interconnection CPP is similar to pay-per-call in another important respect. In pay-
per-call, telephone subscribers may receive charges from vendors with whom they have no
preexisting relationship. Similarly, in non-interconnection CPP, telephone subscribers may receive
charges from CMRS carriers with whom they have no preexisting relationship. Some of these
vendors or CMRS carriers will be trustworthy, honest, and responsible entities, and some of them
will not. Either way, since the telephone subscriber may have no preexisting (or future)
relationship with the vendor or CMRS carrier, there is less incentive for the vendor or CMRS
carrier to implement an adequate process for resolving disputes with customers that receive
charges for their services. The Pay-Per-Call Rule implements a comprehensive dispute resolution
procedure that gives consumers the opportunity to dispute charges for pay-per-call services in
roughly the same manner in which they can dispute charges that appear on their credit cards.39
Among other things, consumers can use the procedures mandated by the Pay-Per-Call Rule to
dispute charges for calls to pay-per-call services that were never placed, and can dispute charges
for pay-per-call services that differ from the charges promised in advertisements or the preamble

40Pursuant to Congressional authority granted in Section 701(b) of the
Telecommunications Act of 1996, the FTC has proposed that these services be covered by the
FTC’s Pay-Per-Call Rule, and subject to the advertising disclosure requirements, the free
“preamble” requirements, and various other requirements of the Pay-Per-Call Rule. Proposed
Pay-Per-Call Rule at 58533-34.
- 17 -
message. The FCC may wish to look to these dispute resolution procedures in determining what
actions a CMRS carrier should take in responding to disputes relating to CPP charges.
C. The FCC May Wish to Take Steps to Prevent Some CPP Services From
Falling Victim to Deceptive, Unfair, and Abusive Practices Similar to Those
Prohibited by TDDRA and the Pay-Per-Call Rule, and From Becoming a
Haven for Evasion of TDDRA.
Some CPP calling plans may be particularly susceptible to certain types of fraudulent and
abusive practices. For example, some abuse of CPP may occur if CMRS carriers began
structuring CPP calling plans in a manner that provides a material benefit to the CPP subscriber
based on the number or duration of incoming calls. Such a system could be a ready opportunity
for abuse by unscrupulous subscribers, who could have an incentive to generate a high number of
incoming calls, and to keep (incoming) callers on the telephone as long as possible. In the FTC’s
recent Notice of Proposed Rulemaking announcing the Proposed amendments to the Pay-Per-Call
Rule, the FTC opined that, where a charge for a service is generated on the basis of a call and a
portion of that charge is paid, directly or indirectly, to someone who provides or purports to
provide information or entertainment over that telephone call, this creates a situation that is
especially susceptible to certain types of unfair and deceptive practices.40
Our experience with pay-per-call shows that where there is an opportunity to make money
based on the volume or duration of calls received to a certain number, there will be unscrupulous
persons ready to seize the opportunity through abusive practices. In many cases, a notice or

41For example, in one case, an Internet web site promised consumers the opportunity to
view “free” adult-oriented images by downloading a particular “viewer” software program. Upon
downloading and installing this software, the consumer’s computer turned off the modem speaker,
surreptitiously disconnected from the Internet, and dialed an international telephone number.
Once connected to the international number, the computer was reconnected to the Internet via a
server located outside the United States, and was able to “surf” the web as usual. The
consumer’s computer thus remained connected to the Internet through that international call as
long as the computer was left on – costing some consumers thousands of dollars in international
toll charges. The defendants who operated this deceptive web site shared in the revenue
generated by the international calls through an arrangement with the international carrier. The
more calls and the longer they lasted, the more revenue the defendants received. Over a million
minutes were generated to the number before the FTC obtained a court order shutting it down.
This case is but one example that demonstrates the seriousness of these concerns about the fraud
and abuse potential of non-interconnection CPP. FTC. v. Audiotex Connection, Inc., No. 97-0726
(E.D.N.Y., filed Feb. 13, 1997).
- 18 -
“preamble” message may be highly effective in preventing these types of practices. However, this
may not always be the case. The FTC’s enforcement experience encompasses many highly
innovative scams designed to generate a high call volume to numbers where the call recipient
receives some material benefit based on the volume or duration of calls received.41 Four
illustrative hypothetical examples amplify the wide range of possible (and not altogether unlikely)
schemes that might exist if CPP plans could be structured so that CMRS subscribers were able to
materially benefit from the volume or duration of incoming calls to the services.
Example A: CMRS carrier offers CPP plan where each incoming minute costs $3.00 per minute,
and each outgoing minute costs $0.30 per minute. Under this CPP plan, for each minute of
incoming calls received by the subscriber, the subscriber receives five “free” minutes of outgoing
calls. An unscrupulous subscriber places small advertisement in local newspaper advertising
lucrative job opportunity, and listing the CPP subscribed telephone number as the contact. The
job opportunity does not actually exist, but the advertisement generates enough calls so that the
unscrupulous subscriber never pays any money for the outgoing calls from his or her wireless
telephone. Even with clear cost disclosures in a recorded notice, callers to the CPP service are
injured because they call the number (and continue on the call even after cost disclosures) based
on the deceptive representation that they will receive valuable information.
Example B: A software company hires dozens of new technical assistants to answer consumer
questions about a complicated new software program. In order to offset costs of hiring the

42Prior to the promulgation of the Pay-Per-Call Rule, the FTC brought a number of cases
to halt this type of practice. Audio Communications, Inc., 114 F.T.C. 414 (July 24, 1991) (unfair
practice to induce children to dial a 900 number without providing adequate means to ensure
parental authorization); Phone Programs, Inc., 115 F.T.C. 977 (Dec. 10, 1992) (unfair practice to
induce children to dial 900 number without providing any reasonable means for persons
responsible for payment to exercise control over the transaction).
4316 C.F.R. § 308.3(e), 308.5(h).
- 19 -
technical assistants, the software company directs its subsidiary CMRS carrier to create a CPP
plan where both incoming and outgoing minutes are billed at $3.00 per minute. In its brochures
and advertisements, the software company instructs consumers with questions to call telephone
numbers subscribed to this CPP plan. The technical assistants answer all customer inquiries from
telephones subscribed to that plan. To further offset costs, the software company encourages its
assistants to take several calls at once, keeping several consumers on hold and paying the $3.00
per minute. Although these CPP services are virtually indistinguishable from the typical 900
number service, consumers who call these services will receive few or none of the legal
protections for those services guaranteed by Congress under the TDDRA. Notably, consumers
may not be able to block access to these calls via TDDRA-blocking, and they will not be able to
avail themselves of the dispute resolution provisions specified by Congress for all telephone-billed
purchases.
Example C: A CMRS carrier offers a CPP plan that provides its customers with a 75% “bonus”
for every minute of billed airtime. Incoming and outgoing calls are billed at $4.99 per minute.
The CMRS provider discovers that the CPP plan is popular with “psychic friends” and providers
of adult-oriented chat services. One subscriber to the CPP plan advertises during television
programs directed at children, and instructs the children to call a CPP number to “talk to Santa
Claus.”42 Although these CPP services are virtually indistinguishable from the typical 900 number
service, consumers who call these services will receive few or none of the legal protections for
those services guaranteed by Congress under the TDDRA. The FTC’s Pay-Per-Call Rule,
promulgated under TDDRA, prohibits marketing to children in the manner described in this
example.43
Example D: A CMRS carrier offers a CPP plan that provides its customers with a 10% “bonus”
for every minute of billed airtime. Incoming and outgoing calls are billed at $0.30 per minute.
Some unscrupulous customers make a regular habit of calling their CMRS telephone number from
hotel telephones, or from telephones within a large institution utilizing a PBX system, such as a
hospital or university. This generates additional “bonus” money for the subscriber, with costs
being borne by the hospital or university -- institutions that never received the cost disclosures
specified by the FCC’s NPRM.
The FCC may wish to consider taking measures to protect against these types of abuses.

44“Information providers” are vendors who provide or purport to provide audio
information or audio entertainment over the telephone, and recover their costs for providing that
information or entertainment by collecting a portion of the charge billed to the person whose
telephone is used to make the call.
- 20 -
To achieve this goal, we suggest that FCC consider implementing three policies:
(1) A prohibition against CMRS carriers offering CPP plans where the CMRS
subscriber will receive any material benefit tied to the number or duration of calls
placed to the CMRS telephone number;
This provision would prevent unscrupulous CMRS subscribers from abusing CPP plans to
defraud consumers, as in examples A and D, above.
(2) A prohibition against CMRS carriers offering CPP plans that share any revenue
with any person or entity providing (or purporting to provide) any information or
entertainment that callers would purportedly obtain by calling a CPP-subscribed
line.
This provision would prevent “information providers”44 from abusing CPP services to use them as
a vehicle to provide pay-per-call services, as in examples B and C, above. Without such a
restriction, an information provider could simply find a CPP service where the rates for incoming
calls were set high enough to cover not only the actual transmission costs to the service, but also
to cover the cost of providing that information or entertainment program. The information
provider could simply negotiate an arrangement to share in the revenue (either directly or
indirectly) generated by calls to the CPP service.
(3) A requirement that a CMRS carrier maintain a strictly “content neutral” position
with respect to any CPP service, prohibiting a CMRS carrier from exercising any
control, influence, or interest over the content of a CPP call.
This provision would prevent information providers from disguising themselves as common
carriers. In some circumstances, the FTC has seen fraudulent information providers
masquerading as “common carriers” and charging exorbitant “long-distance rates” to consumers

45To the extent that a common carrier in engaged in the provision of basic common carrier
transmission services, the FTC lacks jurisdiction to prohibit that entity from engaging in unfair or
deceptive practices under Section 5 of the FTC Act. 15 U.S.C. § 45(a)(2). However,
notwithstanding this restriction, the FTC does have jurisdiction to apply the provisions of the Pay-
Per-Call Rule to common carriers. 15 U.S.C. 5711(c) and 5721(c).
46NPRM at B-12.
- 21 -
who access certain information or entertainment lines. We are aware of instances where
information providers have disguised themselves as “carriers” and have billed consumers for these
information or entertainment programs in the form of “conference calls,” “calling card charges” or
some other content-neutral offering. Thus, these bogus carriers attempt to shield themselves from
coverage by the FTC’s Pay-Per-Call Rule and to elude the FTC’s jurisdiction under Section 5 of
the FTC Act,45 while still committing the same unfair, deceptive, and abusive practices that the
FTC’s Pay-Per-Call Rule is designed to prevent. If a non-interconnection approach to CPP is
adopted, we have every expectation that these same sorts of unscrupulous information providers
will set up bogus “CMRS carriers” to offer their services in a manner that evades the FTC’s Rule.
To prevent this practice, the FCC may wish to consider prohibiting CMRS carriers from
exercising any control, influence, or interest over the content of calls carried over CPP subscribed
lines. In other words, requiring that CMRS carriers maintain a strictly “content neutral” status
with regard to the calls they transport. This type of restriction would help prevent information
providers from evading the Pay-Per-Call Rule by disguising themselves as CMRS carriers.
We believe that consideration of these provisions would help prevent CPP from becoming
a means to evade the FTC’s Pay-Per-Call Rule. In other words, they would be an important step
towards ensuring that the proposed rule regarding CPP services does not “duplicate, overlap, or
conflict” with any other Federal Rules.46 Moreover, we believe that these suggested provisions

47NPRM at 25.
- 22 -
would be supportive of recent amendments that the FTC has proposed to the Pay-Per-Call Rule,
which are designed to stop evasions of the Rule by vendors of audio information and
entertainment services.
Finally, we note that an interconnection approach may be less susceptible to becoming a
haven for evasion of TDDRA than would an non-interconnection approach to CPP. This is
because, in a competitive environment, LECs would be responsible for paying these charges and
would bargain with CMRS carriers to bring the costs down to the point where there would be less
room for “kickbacks” to information providers or to CPP subscribers. Conversely, since CMRS
providers using non-interconnection CPP plans would be largely free to set the rates for incoming
calls as they see fit – this could lead to some CMRS carriers deliberately setting rates at a level
sufficient to provide a commission or kickback to a CPP subscriber or to an “information
provider.” Regardless of the method chosen for CPP, the FCC may wish to consider
implementing policies to prevent CPP from becoming a means to evade the protections provided
to consumers by TDDRA.
D. The FCC May Wish To Consider Measures to Protect the Interests of the
“Billed Party” in Addition to the “Calling Party” (“Privity of Contract”) in a
CPP Transaction.
The challenge faced in attempting to structure a non-interconnection type of CPP is that
there is no tariff, contract or other legal basis for holding any person other than the CMRS
subscriber liable for charges resulting from that agreement. As a result, these charges could be
interpreted as a case of unauthorized billing. In non-interconnection CPP, there would be no
“privity of contract”47 between the CMRS carrier providing the service and the person who is

48Id. (emphasis added).
49Id. (emphasis added).
50Moreover, even if the calling party is the subscriber who will incur the charge for the
non-interconnection CPP service, the calling party may not speak the language in which the cost
disclosure is given. In the pay-per-call context, the Pay-Per-Call Rule requires that the cost
disclosures in the preamble message be “in the same language as that principally used in the pay-
per-call message.” 16 C.F.R. 303.5(a). This solution would unworkable in the context of CPP,
where the CMRS carrier would have insufficient means to determine the primary language that
would be used by the callers.
- 23 -
billed for that service. The NPRM discusses this problem by noting that there is a need to “create
a contractual obligation for calling parties, who are not subscribers of the CMRS carriers, to pay
for CPP calls.”48
In recognizing this problem, however, the NPRM may take an overly restrictive view of
the problem. The FCC’s preliminary assessment is that “providing the caller the rates, terms, and
conditions prior to the completion of a call would establish an enforceable contract between the
caller and the carrier.”49 However, the contract problem may be more problematic in that the
calling party is not necessarily the person who will receive the bill for the call, and will frequently
not be the person from whom carriers will attempt to collect the CPP-related charges.50
For some consumers, the potential injury resulting from unauthorized calls to non-
interconnection CPP services could be large. This is because, in non-interconnection CPP, there
is no limit to the amount that might be charged for a single CPP call. In non-interconnection
CPP, the cost of the call, as well as other terms and conditions of the service, are determined as a
matter of contract between the recipient of the call and the CMRS carrier. The CPP subscriber
would be free to choose a plan that had high rates for incoming calls (perhaps as a way of
subsidizing the cost of outgoing calls or as a way of discouraging people from making incoming

51NPRM at 26.
5215 U.S.C. § 45(a)(2).
53The issue of unauthorized use does not present a legal problem in the wireline
telecommunications context, because where a service is provided by a presubscribed wireline
carrier, there is a firm legal basis to hold telephone subscribers liable for unauthorized use of their
telephones to place calls – the tariff. Similarly, the written contract between a CMRS carrier and
a CMRS subscriber provides a contractual basis to charge the CMRS subscriber for all uses of the
- 24 -
calls), while the person who would be charged these high rates may not even be the same person
who placed the call and heard the cost disclosures. The CMRS carrier would then transmit a bill
for this service to someone who was not a party to the agreement which established those rates.
Moreover, as the FCC noted in the NPRM, under non-interconnection CPP, “[d]irect competitive
pressure on the rate does not exist in the case of a call to the CPP subscriber . . . because the
caller does not select the carrier and does not have the ability to switch to a different carrier to
obtain a better rate for completing the call.”51
Under the legal principles that apply to other types of goods and services (i.e., those
goods and services covered by Section 5 of the FTC Act), a notification system that creates a
contractual obligation with a calling party would be insufficient to obligate a telephone subscriber
whose telephone was used to make the purchase -- this would be a case of unauthorized billing.
While the legal requirements of the FTC Act do not apply to a common carrier in the context of
providing telecommunications common carriage,52 the FCC may wish to look for guidance to the
consumer protection principles that apply to cases of unauthorized billing in the context of
Section 5. Ordinarily, telecommunications common carriage is provided (and billed) on the basis
of a tariff or contract that may contain terms that specify a subscriber’s liability in the case of
unauthorized use of the service by a third party.53 Here, however, there appears to be little or no

subscriber’s wireless telephone.
54 See, e.g., FTC v. J.K. Publications, Inc., et al., Docket No. CV-990004 ABC (AJWx)
(C.D. Cal., filed Jan 5. 1999) (unauthorized billing of charges to consumers’credit card accounts
alleged as unfair); U.S. v. Bally's Health & Tennis Corp., No. 94-0821 (D.D.C. 1994) (consent
order) (unauthorized billing of charges to consumers’credit card accounts alleged as unfair); FTC
v. Windward Marketing, No. 1:96-CV-615-FMH (N.D. Ga. May 22, 1996) (unfair debiting of
consumers’checking accounts without authorization); Choice Diet Products, Inc. et al., C-3587
(F.T.C. 1995) (consent order) (unauthorized debiting of consumers’bank accounts and
unauthorized billing of charges to consumers’credit card accounts alleged as unfair).
55See, FTC v. Hold Billing Services, Ltd., No. SA98CA0629 FB (W.D. Texas, filed July
19, 1998) (unfair practice to bill line subscribers for sweepstakes entry forms filled out by
someone other than line subscriber where line subscriber did not consent to the charges);
International Telemedia Associates, Inc., No. 1-98-CV-1925 (N.D. Ga., filed July 10, 1998)
(unfair practice to bill line subscriber for services that line subscriber did not purchase or receive,
based on the use, or purported use, of a line subscriber’s telephone to call to a toll-free number);
FTC v. Interactive Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998)
(unfair practice to bill consumers whose telephones were used by someone else to access and
purchase defendants’entertainment services by dialing non-blockable toll-free numbers); Audio
Communications, Inc., 114 F.T.C. 414 (July 24, 1991) (unfair practice to induce children to dial a
900 number without providing adequate means to ensure parental authorization); Phone
Programs, Inc., 115 F.T.C. 977 (Dec. 10, 1992) (unfair practice to induce children to dial 900
- 25 -
legal basis for charging telephone subscribers for calls to non-interconnection CPP services where
those subscribers did not authorize the call.
It is well-established that unauthorized billing is an unfair practice, in violation of Section
5, and in recent years the FTC has brought numerous law enforcement actions alleging this
violation.54 Importantly, the FTC has made it clear that this principle of law is not diminished
simply because the service involved is billed via a telephone bill. In a number of recent cases
involving non-common carrier goods and services purchased over the telephone, the FTC has
taken the position that, even where notice is given to a calling party, a vendor cannot hold the
telephone subscriber liable for purchases made from his or her telephone without that subscriber’s
authorization.55

number without providing any reasonable means for persons responsible for payment to exercise
control over the transaction).
5647 C.F.R. 64.1508.
57RESTATEMENT (SECOND) OF CONTRACTS ("RESTATEMENT") § 23 (1979).
- 26 -
A powerful tool to protect billed parties against injury from unauthorized CPP calls is to
make a form of blocking available to residential customers. TDDRA requires that such a system
be made available for blocking pay-per-call services, and the FCC regulations require such a
blocking system.56 In the context of telephone-billed purchases, the FTC believes that blocking is
an important tool in protecting consumers’ability to avoid unauthorized charges on their
telephone bill. In this context, the FTC has spoken at length on the topic:
Generally, purchases of goods or services require some form of
authorization from the purchaser -- that is, the purchaser must
indicate some intent or desire to make the purchase.57 Telephone-
billed purchases are no exception to this broad legal principle. For
telephone-billed purchases that can be blocked by TDDRA
blocking, the Commission believes it is reasonable for a vendor to
presume that a call that comes from a telephone subscriber’s
telephone was authorized by that subscriber. After all, if the
subscriber wanted to prevent these types of charges from being
made through his or her telephone, there is a cost-free and simple
method to do so: TDDRA blocking. Election of TDDRA blocking
will not require the line subscriber to sacrifice other valuable uses of
his or her telephone -- he or she will still be able to use the
telephone for any purpose other than making TDDRA-blockable
telephone-billed purchases.
However, where a telephone-billed purchase is not TDDRA
blockable, the Commission does not believe that it is reasonable for
vendors to presume that telephone-billed purchases made from a
subscriber’s telephone were, in fact, authorized by that subscriber.
A line subscriber has no effective means of preventing these
purchases from being made, short of monitoring the placement and
content of every telephone call made from his or her telephone. A
merchant is not entitled to presume that the line subscriber has

58 This was illustrated in two of the Commission’s recent cases. FTC v. Interactive
Audiotext Services, Inc. and FTC v. International Telemedia Associates, Inc.
- 27 -
agreed to pay for a good or service merely because that
subscriber’s telephone was used to order a product or service. A
consumer is no more obligated to pay for a non-blockable
telephone-billed purchase made from his or her telephone than the
consumer is obligated to pay for any other purchase (for example, a
purchase of a sweater from a clothing catalog) that just happened to
be made from that consumer’s telephone.58
Proposed Pay-Per-Call Rule at 58548-49 (footnotes in original).
Under the interconnection approach, contractual privity (unauthorized billing) will not be
an issue because the charges will always originate from the presubscribed carrier of the person
who will be billed for the call. This would provide a greater level of control to telephone
subscribers than in a non-interconnection CPP environment, where the billed party is charged for
services provided by a third-party CMRS carrier with whom the billed party may have no
preexisting relationship. However, regardless of the approach taken, the FCC may wish to
consider implementing a blocking mechanism similar to the one implemented in the context of
pay-per-call services. One disadvantage to such a blocking mechanism is that it would limit
consumer’s ability to call CPP numbers in emergency situations. To address this problem, the
FCC may wish to devise a method that would allow callers to “reverse the charges” to the called
party in limited, emergency situations. CPP blocking, patterned after the FCC’s regulations on
TDDRA blocking, would give consumers a greater degree of control over their telephone bill, and
would enable them to more easily avoid unauthorized charges from CMRS providers with whom
they have no preexisting contractual (or other) relationship.

- 28 -
IV. Conclusion
The FCC may wish to look to TDDRA and the Pay-Per-Call Rule in fashioning
protections for consumers in the context of CPP, because some forms of CPP may be similar to
the pay-per-call billing platform. TDDRA provides consumers with methods of dispute
resolution, blocking of pay-per-call services, and free “preamble” disclosures before most pay-
per-call programs. Similar protections could provide important benefits to consumers in a CPP
marketplace, and may help ensure that CPP becomes a viable, healthy system for billing for
wireless calls. Moreover, while CPP will present consumers with a wider variety of choices in the
telecommunications marketplace, it may also become a vehicle for unscrupulous subscribers and
CMRS carriers to engage in deceptive, unfair, or abusive practices of the kind prohibited by
TDDRA. The FCC may want to consider actions to prevent CPP from succumbing to these
harmful practices, and to prevent CPP from becoming a haven for evasion of TDDRA. Finally, if
the FCC implements a non-interconnection approach, the FCC may wish to protect interests of
the “billed party,” whether or not the person billed happens to also be the “calling party.”