FTC Federal Register notice, Aug. 9, 1993, 58 FR 42360

Page 184

BILLING CODE 7890-01-4

SECURITIES AND EXCHANGE COMMISSION

Notice is hereby given, pursuant to

e provisions of the Government in the Sunshine Act, Pub. L. 94-409, that the Securities and Exchange Commission will hold the following meetings during the week of August 9, 1993.

An open meeting will be held on Wednesday, August 11, 1993, at 10:00

a.m. A closed meeting will be held on Thursday, August 12, 1993, at 10:00 a.m.

Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the closed meeting. Certain staff members who have an interest in the matters may also be present.

The Genera! Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(4), (8), (9)({A) and{10) and 17 CFR 200.402(a)(4), (8), (9)(i) and (10), permit consideration of the scheduled matters at a closed meeting.

Commissioner Roberts, as duty officer, voted to consider the items listed for the closed meeting in a closed session.

The subject matter of the open meeting scheduled for Wednesday, August 11, 1993, at 10:00 a.m., will be:

Consideration of whether to issue a release ~ that will approve amendments to the net capital rule, Rule 15c-3—1 under the ; Securities Exchange Act of 1934, to make the rule applicable to.certain specialists that are currently exempt from the rule and generally exempt such specialists from the rule's haircut and undue concentration deductions. For further information, please contact Michael A. Macchiaroli at (202) 272-2904.

The subject matter of the closed

‘meeting scheduled for Thursday, - August 11, 993, at.10:00 a.m., will be: -

Institution of administrative proceedings of an enforcement nature.

Institution of injunctive actions.

Settlement of injunctive actions.

Settlement of administrative proceedings of an enforcement nature.

Opinions.

At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: Brian Lane at (202) 272-2400.

Dated: August 3, 1993.

Jonathan G. Katz,

Secretary.

{FR Doc. 93-19169 Filed 8-5—93: 2:29 pm] BILLING CODE 8010-01

Page 185

Corrections

Federal Register Vol. 58, No. 151

Monday, August 9, 1993

This section of the FEDERAL REGISTER contains editorial corrections of previously published Presidential, Rule, Proposed Rule, and Notice documents. These corrections are prepared by the Office of the Federal

Register. Agency prepared corrections are Issued as signed documents and appear in the appropriate document categories elsewhere In the issue.

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 1

Final Rule and Rule Amendments Concerning Composition of Various Self-Regulatory Organization Governing Boards and Major Disciplinary Committees

Correction

In rule document 93-16525 beginning on page 37644 in the issue of Tuesday, ~ July 13, 1993, on page 37644 in the third column, under the DATES caption, in the second paragraph, the last sentence should read: “Each SRO must comply

with § 1.64 (b)(2) and (3) as of the date of its next governing board election.”

BILLING CODE 1508-01-D

DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39

[Docket No. 93-NM-28-AD]

Airworthiness Directives; Fokker Model F28 Mark 0100 Series Airplanes

Correction

In proposed rule document 93-18419 beginning on page 41210 in the issue of Tuesday, August 3, 1993, make the following corrections:

1, On page 41210, in the first column, the Docket Number appearing in the heading of the document should read as set forth above.

2. On the same page, in the second column, under the ADDRESSES caption, in the first paragraph, in the fifth and sixth lines ‘‘Docket No, 93-NM-28-D” should read ‘‘Docket No. 93-NM-28- AD”,

3. On the same page, in the same column, under the FOR FURTHER INFORMATION CONTACT caption, in the third line ““ANM-13” should read “ANM-113”,

4. On the same page, in the third column, in the first full paragraph, in the seventh line, ‘‘Docket Number 93- NM-28-D” should read ‘‘Docket Number 93-NM-28-AD”,

5. On the same page, in the same column, under the heading Availability of NPRMs, in the fourth line, “ANM-03”’ should read ““ANM-103” and in the fifth line ‘‘93-NM-28-D” should read “‘93- NM-28-AD”.

§39.13 [Corrected]

6. On page 41211, in the second column, in § 39.13, the airworthiness directive heading should read ‘Fokker: Docket 93-NM-28-AD”’.

7. On the same page, in the same column, in paragraph (b), in the 5th and 11th lines ‘‘ANM-13” should read “ANM-113”.

8. On the same page, in the same column, in the ‘‘Note”’ following paragraph (b), in the last line, ““ANM- 13” should read ‘““ANM-113”,

BILLING CODE 1505-01-D

Page 187

Monday August 9, 1993

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Page 188

42364

Federal Register / Vol. 58, No. 151 / Monday, August 9, 1993 / Rules and Regulations

FEDERAL TRADE COMMISSION 16 CFR Part 308

Trade Regulation Rule Pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992

AGENCY: Federal Trade Commission. ACTION: Final trade regulation rule.

SUMMARY: The Federal Trade Commission issues its final Rule pursuant to the Telephone Disclosure and Dispute Resolution Act of 1992 (“TDDRA” or “‘the Act’’). Titles H and Ill of the TDDRA directed the Federal Trade Commission (‘‘FTC” or ‘“Commission’”’) to prescribe regulations, within 270 days of enactment on October 28, 1992, governing the advertising and operation of pay-percall services, as well as billing and collection procedures for such services. EFFECTIVE DATE: The Rule will become effective on November 1, 1993.

ADDRESS: Requests for copies of the Rule and the Statement of Basis and Purpose should be sent to Public Reference Branch, Room 130, Federal Trade Commission, 6th Street and Pennsylvania Avenue, NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Division of Marketing Practices: David Torok (202) 326-3140, Carol Jennings (202) 326-3010, or Heather McDowell (202) 326-3356; Division of Advertising Practices: Mary Koelbel Engle (202) 326-3161, or Marianne Kastriner (202) 326-3165; Division of Credit Practices: Ronald Isaac (202) 326-3231, Federal Trade Commission, Washington, DC 20580.

SUPPLEMENTARY IMFORMATION: The Rule: (1) Sets forth disclosures that must be included in advertisements for pay-percall services (including the cost of the call, the odds of winning a sweepstakes, non-affiliation with the Federal government, and parental permission for those under 18), as well as certain standards for ensuring that these disclosures are “clear and conspicuous’; (2) requires, for all payper-call services costing more than — $2.00, a preamble containing certain specified information; (3) prohibits payper-call programs, and advertisements for such programs, that are directed to children under 12; (4) prohibits charging callers to pay-per-call services if they hang up prior to three seconds after a signal or tone indicating the end of the required preamble; (5) prohibits the use of 800 or other toll-free numbers for providing pay-per-call services; (6) prohibits the use of electronic tones that

can automatically dial a pay-per-call number; (7) requires certain disclosures for billing statements for pay-per-call services; and (8) sets forth procedures for the correction of billing errors for telephone-billed purchases.

Statement of Basis and Purpose

I. Introduction

Congress enacted the TDDRA, Pub. L. 102-556, to curtail certain unfair and deceptive practices engaged in by some pay-per-call businesses, and to encourage the continued growth of the legitimate pay-per-call industry.1 Title I of the Act2 directs the Federal Communications Commission (‘“FCC’’) to enact regulations defining the obligations of common carriers with respect to the provision of pay-per-call services.3 Title II of the Act4 directs the FTC to enact regulations governing the advertising and operation of pay-percall services. It requires that certain disclosures appear in all advertising for such services and in preambles to payper-call programs. Moreover, it prohibits pay-per-call providers from engaging in certain practices, such as directing their services to children under the age of 12. In addition, the Act authorizes the Commission to prescribe other regulations it deems necessary to prevent abusive practices in this industry or to prevent evasion of these requirements. Title Ill of the TDDRA 5 directs the FTC to prescribe regulations establishing procedures for the correction of billing errors with respect to telephone-billed purchases. The Act grants the Commission limited jurisdiction over common carriers for purposes of this Rule.® Finally, the Act provides that for enforcement purposes, the Rule promulgated by the FTC will be treated as a rule issued under § 18(a)(1)(B), and enforced pursuant to section 5, of the FTC Act.7

The Commission published a Notice of Proposed Rulemaking (“NPR”) in the Federal Register on March 10, 1993,8

115 U.S.C. 5701(b).

247 U.S.C. 228.

* The FCC published its Notice of Proposed Rulemaking and Notice of Inquiry at 58 FR 14371 (March 17, 1993).

415 U.S.C. 5711-14.

515 U.S.C. 5721-24.

®In general, common carriers are not subject to the jurisdiction of the FTC Act. 15 U.S.C. 45(a)(2).

715 U.S.C. 57a{a)(1)(B); 15 U.S.C. 45.

®58 FR 13370. The record of this proceeding has been designated by the number R311001. The record contains the following three categories of documents: Category A includes Federal Register notices and notifications concerning the public workshop conference; Category D includes

- comments filed in response to the NPR; and

Category L includes the transcripts of the public workshop conference.

and a 30-day comment period closed on April 9, 1993. Comments were received from 99 companies, organizations,

governmental entities, and individuals,

Seven commenters represent state and local government agencies. These . include: The Telecommunications Subcommittee of the Consumer Protection Committee of the National Association of Attorneys General (“NAAG’’) (members of the Subcommittee include the Attorneys General of Arizona, California, Connecticut, Florida, Hlinois, Iowa, Kansas, Maine, Minnesota, Néw Jersey, New Mexico, New York, Pennsylvania, Tennessee, Vermont, Washington, West Virginia, and Wisconsin); the National Association of Consumer Agency Administrators (“NACAA”’); the National Association of Regulatory Utility Commissioners (“NARUC”); the California Public Utilities Commission (“CAPUC”’); the New York State Department of Public Service (‘“‘NYDPS’’); the National Association of State Utility Consumer Advocates (“NASUCA”); and the Attorney General for the State of North Carolina (the latter two both joining the comments of NAAG). One Federal agency, the U.S. Postal Service (“USPS”), submitted comments. s

Three public interest organizations filed comments: Consumer Action (“CA”); the National Consumers League (“NCL”); and (jointly) the Center for Media Education and the National PTA (“CME”). Thirteen common carriers, of associations representing common carriers, filed comments: American Telephone and Telegraph Company (“AT&T”); the Ameritech Operating Companies (‘‘Ameritech’’); the Bell Atlantic Telephone Companies (‘Bell Atlantic’): BellSouth Telecommunications, Inc. (“BellSouth”); GTE Service Corporation (“GTE”); MCI Telecommunications’ Corporation (“MCI”); the National Telephone Cooperative Association (“NTCA”’); NYNEX Telephone Companies (“‘NYNEX”’); Pilgrim Telephone, Inc. (‘‘Pilgrim’’); Southwestern Bell Telephone Company (“Southwestern”); Sprint Corporation (“Sprint”); US West, Inc. (“US West”) and the United States Telephone Association (““USTA”’).

Fifty-five information providers, and associations representing information providers, service bureaus and other related businesses, filed 15 discrete comments. Forty-one information providers (collectively referred to as “Fun Lines”) filed identical copies of

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the same comment.9 The other 14 comments from this sector of the industry came from the following parties: The Association of Information Providers of New York and Info Access, Inc. (filing jointly) (““AIP’’); Call Interactive; Cox Enterprises, Inc. (‘Cox’); ICN Corporation (“INC”); the Information Industry Association (IIA”); the Interactive Information Servicas Council (“TISC”}; Meganews; Money Minds, the National Association for Information Services (“NAIS”};10 New Insights, Inc. {“‘NII’’}; Phone Programs, Inc. (“PPI’’); The Suarez Corporation (“Suarez”); Tele- Publishing, Inc. {‘“FPY’}; and USA Today Information Center (“USA Today”).

Three organizations representing advertising interests filed comments: the American Advertising Federation (‘AAF”); the American Association of Advertising Agencies, Inc. (“AAAA”); and the Association of National Advertisers, Inc. (“ANA”).11 Two companies that provide third-party (non-common carrier) billing services for pay-per-call services, International Telemedia Associates, Inc. (“ITA”) and VRS Billing Systems, Inc. (“VRS”), filed comments.

Others filing comments inchided three individual consumers (Alberta

Buschmann, Marie Stevens, and Brad S. -

Parker) and the following 12 organizations or companies: Amalgamated MegaCorp (“Amalgamated”); the American Society

®Fun Lines, Inc., A Personal Encounter, Inc., Advanced Gateways, Advanced Telecom Services, Inc., AImarc Communications, American International Communications, Chase Companies, CommNet, Inc., ConnecTec Corporation, Debbs Enterprises, Ltd., Durango Associates, Fones, Inc., Gigaphone, Inc., Halo Communications, Independent Entertainment Group, Jamestown Entertainment, Inc., Jartel, Inc., Kaos Communications, Kury! Communications, LO/AD Communications, National Automobile Data Service, National Communications Team, National Network, Inc., New Media Telecommunications, Inc, Northwest Nevada Telco, Pacific Teleconnect, Inc.; Real People, Ltd., Ryder Communications, Inc., Seascape Productions, SimTel Communications, Source Communications, Talk Show, Inc., Telecharge Audio Network, Telecharge Support Systems, The Advantage Group, Inc., The Scoreboard, Inc., TVTV, Twelve Signs, Inc., Uniepee Worthington Voice Services, Inc.,

Communications.

1®NAIS also filed with the FFC a copy of its Comments filed in the FCC rulemaking pursuant to the TDDRA. (FCC, In the Matter of Policies and Rules Ing ing the Telephone Disclosure and Dispute Resolution Act, CC Docket No. 93-22, RM 7990.) These comments were appended to the NAIS

comments (mumber 63).

"In addition to their comments filed during the 30-day comment peried, AAAA and ANA addressed letters to each of the Commissioners Prior to publication of the NPR. Representative Copies of these letters have been placed on the Public record as part of the comments filed in Tesponse to the NPR.

of Travel Agents, Inc. (“ASTA”); Capital Cities/ABC, Inc. (“ABC”); the Children’s Advertising Review Unit of the Council of Better Business Bureaus, Inc. (“CARU”); the Direct Marketing Asscciation (“DMA”); Grocery manufacturers of America, Inc. (“GMA”); Kellogg Company (“Kellogg”); the National Infomercial Marketing Association (“NIMA”) ; the Newspaper Association of America (“NAA”); the Promotion Marketing Association of America, Inc. (“PMA”); Summit Telecommunications Corporation (“Summit”); and the Yellow Pages Publishers Associations (“YPPA”).

On April 22 and 23, 1993, Commission staff conducted a public workshop conference at the FTC headquarters. Those interested parties wishing to participate in the Conference were required to notify Commission staff by March 25, 1993. Commission staff were able to include all parties that gave timely notice of interest in participating. Participants included: AAAA, AAF, AIP, ANA, AT&T, CARU, CME, GMA, ICN, IIA, IISC, ITA, MCE, NAAG, NACAA, NAIS, NARUC, NCL, Pilgrim, PPI, TPI, and USTA. Howard Bellman served as a conference facilitator.12 Participants discussed various aspects of the proposed regulations, including pay-per-call service standards, advertising requirements, and procedures for the resolution of billing disputes. They addressed each other’s comments and questions and responded to questions from FTC staff members. The conference was open to the public, and comments from members of the public were invited each day. Mr. Blake Barker, of USA Today—Gannett Company, addressed the conference on both days during the public participation segment. The entire ding was transcribed and the transcript was placed on the public record.13

Il. The Rule A. Section 308.2: Definitions

The d rule defined the following terms: Bona fide educational service, Commission, pay-per-call services, person, presubscription or comparable arrangement, programlength commercial, provider of pay-percall services, reasonably understandable volume, slow and deliberate manner,

12Mr. Bellman is a mediator from Madison, Wisconsin. His cases have inchided mediations of state and federal public policy issues.

13 References to the conference transcript are cited as “Tr.” followed by the appropriate page designation. References fo comments are cited as “Comment (public record comment number} {name of commenter) at {page number).

and sweepstakes.14 The Commission sought comment as to whether these definitions were clear, meaningful, and

we pe se

e final Rule, the Commission has modified the definitions of thres of these terms: Bona fide educational service (§ 308.2(a}}; presubscription or comparable arrangement (§ 308.2(e)); and provider of pay-per-call services (§ 308.2{(g)}. m addition,the __ Commission has added a definition of the term “service bureau” (§ 308.2(i)), since it has determined that service bureaus should bear some liability for violations of the Rule by pay-per-call services using their call processing facilities. All other definitions have been adopted in the final Rule without change.

1. Section 308.2(a): Definition of “Bona Fide Educational Service”

The proposed rule in § 308.2{a) defined the term “bona fide educational service” to be any pay-per-call service that provides information or instruction relating to education, subjects of academic study, or other related areas of school study. The term describes the one statutorily-permitted exception to the prohibition against pay-per-call services directed to children under the age of 12 and advertisements for such services. The proposed rule defined such services solely in terms of the content of the pay-per-call service itself without reference to the party offering the service.

In the NPR, the Commission asked specifically whether the proposed definition was sufficiently narrow so as: not to allow the exception to swallow the rule. The Commission also asked whether the definition should include an additional requirement concerning the nature of the party offering the payper-call service and, if so, what requirement should be used to include only those providers with a legitimate connection to education. Finally, the Commission asked whether another approach to defining the term “bona “ fide educational service’ would be more useful.16 Responsive comments were sharply divided. Some contended that the definition contained in the proposed Tule was so broad as to virtually swallow the prohibition against services directed to children. Those commenters urged the Commission to include a requirement that bona fide educational services be provided only by individuals or organizations with a

1456 FR at 13364—65.

1858 FR at 13360 (questions 1 and 2).

1658 FR at 13380 (question 2). The Commission did not receive any feasible alternative suggestions.

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genuine connection to the field of education.17 Others argued that the proposed definition already was sufficiently narrow, and that such an additional restriction would unfairly prohibit many companies, such as those offering computer support services, from providing valuable information to children under 12.18 Several commenters also urged the Commission to interpret the term broadly to permit pay-per-call providers to offer young children services pertaining to topics other than traditional academic subjects, and presented in formats such as contests and games.19 Others contended that such services should not qualify for the exemption.20

The Commission is not persuaded that the definition of the term “bona fide educational service” should be expanded or interpreted broadly in any manner. Congress clearly was concerned about pay-per-call services directed to children, and intended to permit only a narrow exemption to the ban. The explicit language in the TDDRA—the use of “bona fide” to modify “educational service”—is itself an indication that Congress intended that the exemption apply only to services of a genuinely educational nature. Moreover, in discussing the scope of the ban, the Senate Report stated:

This ban does not extend to educational services to ensure that children have access to such programs, The Committee recognizes that some of these (pay-per call) programs are provided through schools, and therefore the children’s use of these programs is supervised,21

Based on the written comments, the discussion at the public workshop conference, and review of the legislative history, the final Rule has been modified slightly to clarify the intended scope of the definition to insure that it is consistent with the congressional mandate for a narrow exception. The final Rule clarifies what was intended by the proposed rule as to the type of service that would qualify as a bona fide educational service. While the proposed

17Comments 31 (CA) at 2, 4; 40 (NACAA) at 3; 53 (CME) at 2, 5-9.

18Comments 30 (CARU) at 3; 34 (TPI) at 6; 37 (PPI) at 27-28; 41 (Kellogg) at 2; 63 (NAIS) at 27—

28; Tr. at 395-98, 405-06.

19Comments 30 (CARU) at 3; 35 (AIP) at 2-3; (PPI) at 27-28; 63 (NAIS) at 27-28; Tr. at 403-04.

20Comments 40 (NACCAA) at 3; 53 (CME) at 5- 9; Tr. at 403, 406.

21Senate Committee Report on S. 1579, S. Doc. No. 190, 102d Cong., ist Sess. (1991) (“Senate Report”) at 6. The TDDRA (Pub. L.. No. 102-556, formerly H.R. 6191) is a combination of prior bills passed in each house of Congress during 1991 and early 1992. The Senate bill, S. 1579, and the House bill, H.R. 3490, were joined in conference in the

1992 session. There is no report on the bill as passed,

Tule defined the term to mean any service ‘‘that provides information” (emphasis added), the final Rule modifies the underlined phrase to require that the service be “dedicated to providing information” (emphasis added). After reviewing the comments and the transcript of the public workshop conference, the Commission determined that the proposed definition inadvertently may have permitted payper-call services containing only an incidental educational component to be directed to children under 12.22 For example, a pay-per-call service featuring a popular cartoon character who offered to talk to children and, incidentally, to send them a series of math cards, charged to their parent’s telephone bill, may have qualified under the proposed definition. The Commission believes that a service containing such an incidental educational component should not qualify for the “bona fide educational service” exemption under the Rule. On the other hand, if an encyclopedia publisher offered a geography lesson through a pay-per-call service, use of a cartoon character or well-known child star would not necessarily remove the service from the exemption. By using the phrase “dedicated to providing,” the Commission intends to convey that this exemption is limited to those pay-percall services of a genuinely educational nature. Accordingly, the Commission has modified § 308.2(a) of the final Rule.

2. Section 308.2(c): Definition of “Pay- Per-Call Service”

The definition of “pay-per-call service” (§ 308.2(c)) remains the same as it was in the proposed rule.23 The term is defined in the TDDRA by reference to section 228 of the Communications Act of 1934,24 The service provided may be audio information, audio entertainment, access to simultaneous voice conversation services, or any service, including provision of a product, for which the charges are assessed on the basis of the completion of the call. The caller pay a per-call or per-time-interval charge that is greater than, or in addition to, the charge for transmission of the call. The call is accessed through use of a 900 telephone number of other prefix or area code designated by the FCC for such services. However, the term does not include directory services provided by a common carrier or local exchange carrier; any service for which the charge is tariffed; or any service for which users are assessed charges only

; 22Comment 53 (CME) at 6-7; Tr. at 407. 2358 FR at 13384-85.

2415 U.S.C. 5714(1); 47 U.S.C. 228{i).

after entering into a presubscription or comparable arrangement with the provider of the service.

One commenter suggested that the Commission’s Rule should extend to pay-per-call programs available through | seven-digit local numbers (with a 976, 960 or other prefix) or through abbreviated N11 dialing arrangements, Such calls would not fall within the statutory definition of “‘pay-per-call services” because they are not reached through a service access code designated by the FCC in accordance with the Communications Act.26 US West, on the other hand, requested clarification that the FTC Rule will not apply to local pay-per-call numbers.27

The Commission is incorporating into the Rule the definition of ‘‘pay-per-call service” in the TDDRA. The Rule covers those pay-per-call services accessed through use of a 900 telephone number, as designated pursuant to FCC regulations.2® There is no evidence of congressional intent that the Commission extend its Rule to cover pay-per-call programs accessed through local prefixes not designated by the FCC. Moreover, the record does not show evidence of deceptive or unfair practices, associated with use of such numbers, that have not or cannot be addressed by state regulatory or law enforcement authorities. In fact; title I of the TDDRA specifically recognizes state authority to regulate such services.29

25 Comment 46 (Cox) at 7-8.

2647 U.S.C. 228(b)(5).

27Comment 47 (US West) at 2 and 6. US West explained that although most such calls would bé intrastate in nature, its local exchange carrier doos have certain local pay-per-call services that cross state lines even though accessed by dialing a local number.

28 Pursuant to 47 CFR 64.1506, any service described in 47 CFR 64.1501(a)(1}-(2) (which is the same as § 308.2(c)(1)(A)-{B) of this rule) shall be 3 offered “‘only through telephone numbers beginning with a 900 service access code.” The FCC rule, at 47 CFR 64.1505(a), also prohibits carriers from providing interstate transmission services to an entity offering any service within the scope of 47 CFR 64.1501(a)(1) (which is the same as § 308.2(c)(1)(A) of this Rule) that is billed to a telephone subscriber on a collect basis at a rate above the tariffed rate for transmission of the call. Some commenters suggested that the Commission consider prohibiting collect pay-per-call services entirely or expanding the definition of a “‘pay-percall service” to include those services charged to the customer on a collect basis. Comments 10 (NARUC) at 9-10; 15 (Nynex) at 2. However, it appears that it is now unnecessary for the Commission to address this issue.

2947 U.S.C. 228(g)(4) states: “Nothing in this section shall preclude any State from enacting and enforcing additional and complementary oversight and regulatory systems or procedures, or both, s0 long as such ‘systems and procedures govern intrastate services and do not significantly impedé the enforcement of this section or other Federal statutes.”

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Accordingly, the final rule does not cover intrastate pay-per-call numbers.

3, Section 308.2(e): Definition of “Presubscription or Comparable Arrangement’’

The definition of ‘‘presubscription or comparable arrangement” is important to the effectiveness of the Rule because any call placed pursuant to such an agreement is not afforded the protection of these regulations. The proposed definition required that a contractual agreement be established prior to the placement of a call to'a pay-per-call service.30

Some parties noted the importance of having consistent definitions of this term by the FCC and the FTC.31 Both agencies are using the same definition. In addition, several commenters suggested that the definition should be more specific, setting forth the required elements of the contractual agreement.32 The definition in the final Rule has done this. In order to have a presubscription agreement, the service provider must clearly and conspicuously disclose to the consumer all material terms and conditions associated with the use of the service, including the service provider’s name and address, a business telephone number which the consumer may use to obtain additional information or to register a complaint, and the rates for the service. In addition, the service provider must agree to notify the consumer of any future rate changes. The consumer must affirmatively agree to utilize the service on the terms and conditions disclosed by the service provider. Finally, the service provider must require the use of an identification number or other means to prevent unauthorized access ta the service by nonsubscribers. These added tequirements should ensure that any consumer entering a presubscription arrangement does so knowingly and with full disclosure of the terms of the agreement. Moreover, there seemed to be general agreement at the public workshop conference that the terms listed above should be part of any presubscription arrangement.33

In addition, NACAA urged that the definition require a written agreement, signed by the consumer.34 NAAG Suggested that the terms of the agreement be set forth in a written

ocument 35 Some industry groups, on

ee 5058 FR at 13385.

*1Comments 32 (MCI) at 1-2; (NAIS) at 6-7. ee Comments 23 (VRS) at 5; 33 (ITA) at 4-5; 63 |AIS-FCC comments) at 3-5; 81 (Sprint) at 3-6. STr. at 50-67.

“Comment 40 (NACAA) at 3. **Comment 42 (NAAG), Attachment 1 at 1.

the other hand, proposed that the Rule allow establishing such an agreement by telephone.36 They noted that this is an industry accustomed to conducting business by telephone.

The Commission does not believe it necessary to require that a presubscription arrangement be contained in a signed, written agreement. If all of the required elements of presubscription can be achieved, to the satisfaction of both parties to the contract, without a written agreement, the parties should be free to exercise this option.37 ;

IIA and Pilgrim requested that the definition include use of a charge or credit card.38 IIA noted that Congress did not intend to include credit card transactions within the TDDRA. The Commission agrees with IIA that it appears Congress did not intend that

services paid for by credit or charge card

be included within this Rule.32 In such transactions, the charge is not assessed on the basis of the completion of the call; rather the charge is assessed when the consumer provides the seller a credit or charge card number and authorizes a charge to the account. Moreoever, such transactions already have the protection of the Truth in Lending Act and the Fair Credit Billing Act.40 Accordingly, the definition of “presubscription or comparable arrangement” has been modified to include those transactions where the consumer pays by authorizing a charge to a credit or charge card that is subject to the requirements of those statutes.41 No other action taken by the consumer during the course of a call to a pay-percall service can be construed as creating a presubscription agreement. However, such an agreement, provided it meets the criteria set forth in § 308.2(e)(1), could be established during the course

36 Comments 23 (VRS) at 3—5; 35 (AIP) at 3; 54 (Amalgamated) at 3; 63 (NAIS) at 30.

37 Of course, any business claiming exemption from the requirements of this Rule by virtue of a

presubscription arrangement will bear the burden of

proof that a valid agreement, meeting the requirements of § 308.2(e), has been established.

38Comments 52 (IA) at 15-20; 60 (Pilgrim) at 7.

38 Senate Report at 12.

4015 U.S.C. 1601 et seq.

41 The Rule makes clear that to qualify as a “presubscription arrangement,” the calling party not only must disclose a credit or charge card number during the course of the call, but also must authorize a charge to that account for the service being called. CA pointed out that in some instances a credit or charge card number is requested as a screening device, with the actual charge then being billed on the telephone bill or through a third-party billing entity. Comment 31 (CA) at 1-2. The Commission is also aware of instances where telemarketers have requested a credit or charge card number, ostensibly “for identification purposes,” then billed a charge to that account even though the customer never authorized such a charge.

of a call to an 800 telephone number or any other local or long distance telephone number.

4. Section 308.2(g): Definition of “Provider of Pay-Per-Call Services"

The proposed rule defined ‘‘provider of pay-per-call services” as ‘‘any person who sells a pay-per-call service."'42 Several parties commented that this définition was ambiguous and perhaps overly broad.43 MCI requested clarification that the Commission did not intend the definition to encompass a carrier merely providing transmission or billing and collection services for a pay-per-call service.44 In the final rule, the Commission has modified the definition accordingly.

In addition, the Commission has added language to make clear that the term includes any person who offers to sell a pay-per-call service. This ensures that the Rule covers anyone advertising such a service even before any completed calls have taken place.

5. Section 308.2(i): Definition of “Service Bureau”

As discussed in part II.D.12, infra, § 308.5(1) of the Rule imposes liability on a service bureau where it knew or should have known of violations of the Rule by pay-per-call providers using its call processing facilities. Therefore, the Commission has defined the term “service bureau” in § 308.2(i). The definition is consistent with industry usage of the term.45 Service bureaus may perform a variety of services for pay-per-call providers. However, the key services are providing access to telephone service and voice storage. The definition also makes clear that common carriers are not considered service bureaus for purposes of the Rule.

B. Section 308.3: Advertising of Pay-Per- Call Services

Section 308.3 of the Rule sets forth the requirements for advertising pay-

" per-call services, including both what

must be disclosed and how the disclosures must be made, To implement the TDDRA’s requirements that disclosures be made “‘clearly and conspicuously,” the proposed rule set forth detailed requirements as to what constituted ‘clear and conspicuous” disclosures. In the NPR, the Commission specifically sought comment on the advantages and disadvantages of providing detailed

4258 FR at 13385.

43Comments 33 (ITA) at 5—6; 37 (PPI) at 27; 59 (USPS) at 1-2.

44Comment 32 (MCI) at 3-4.

45 See, e.g., Infotext Publishing, Inc., The 1992 Telemedia Almanac, pp. 39-56 (1992).

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requirements for “‘clear and conspicuous” disclosures versus other approaches, such as performance standards and safe harbors.*® Many commenters, particularly those representing the advertising industry, urged the Commission not to impose specific standards for disclosures, other than the statutorily required “clear and conspicuous” standard.47 In contrast, many other commenters expressed agreement with the need for further guidance as to what “clear and conspicuous” means in the context of pay-per-call service advertisements, while disagreeing about the particulars of what that guidance should be.4@

The Commission believes that merely requiring disclosures to be “clear and conspicuous” would not provide a useful guide of conduct for those affected by the regulations, nor would it adequately safeguard the interests of consumers in being informed of the required disclosures. The TDDRA itself mandates that the Commission “prescribe rules * *. * (that) shall require” that various disclosures be made “clearly and conspicuously.’’49 Moreover, the legislative history makes clear that Congress was concerned about the inadequacy of pay-per-call service advertisement disclosures,5° and continued monitoring by Commission staff indicates that this remains a problem,

A number of commenters asserted that the “clear and conspicuous” standard is adequate.51 In its comment, PMA stated that it endorses the Commission’s previous enforcement policy statement that set standards for “clear and conspicuous” television disclosures,52 and, referring to the sweepstakes industry, stated that these standards “are widely accepted and

4°58 FR at 13380-81 (question 15). To the extent that the Commission has not prescribed language to be used in making the required disclosures, the Commission has adopted a performance standard, i.e., advertisers must ensure that the language they choose conveys the required information to consumers,

47Comments 14 (AAAA) at 6; 19 {AAF) at 4; 39 (IISC) at 16; 43 (GMA) at 20; 45 (ANA) at 4; 51 {USA Today) at 11; 58 (PMA) at 2.

«*Comments 5 (Fun Lines) at 1; 35 (AIP) at 4; 37 (PPI) at 28-29, 34, 37; 46 (Cox) at 4~5; 61 (ICN} at 3; 80 (Suarez) at 2.

4915 U.S.C. 5711{a){1).

5° House Committee Report on H.R. 3490, H.R. Doc. No. 430, 102d Cong., 2d Sess. (1992) (“House Report”’) at 4-6; Senate Report at 3, 8.

®1 Tr. at 342; Comments 14 (AAAA) at 6; 19 (AAF) at 4; 39 (IISC) at 16; 43 (GMA) at 20: 45 (ANA) at 4; 51 (USA Today) at 11; 58 (PMA) at 2.

s2“*Clear and Conspicuous” Disclosure, 3 Trade Reg. Rep. (CCH) 47569.09 (1970). In some respects, these standards would require more stringent requirements for television advertisements than the

requirements in either the proposed ruse or the final.

Rule.

have become industry practice.” 53 Nevertheless, the Commission’s own observation of disclosures in sweepstakes promotions indicates that in some instances disclosures are being made in a fashion that may not be clear and conspicuous.*¢ In this context, the Commission is concerned that merely requiring disclosures to be “clear and conspicuous” does not provide adequate guidance to the advertising community about what the Commission believes would satisfy such a standard. The legislative history indicates that Congress anticipated that the Commission would use its discretion to adopt more specific standards than a bare “clear and conspicuous ” standard.®8 Accordingly, § 308.3 of the final Rule provides specific requirements for “clear and conspicuous” disclosures,

A number of commenters recommended that, if the rules contained guidance as to the particulars of “‘clear and conspicuous” disclosures, the particulars should be given in safe harbors, rather than in requirements.56 The Commission rarely employs safe harbors in rulemakings and has decided against a safe harbor approach in this rulemaking. The advertising disclosure abit ea of this Rule will be enforced

y the attorneys general of the 50 states, as well as by the Commission.57 The Commission believes that specificity in the standards for advertising disclosures is important to ensure uniform enforcement standards. If a safe harbor approach were adopted and advertisers chose not to comply with the safe harbor, the Commission and the state attorneys general would still be required to decide and prove de novo, on a caseby-case basis, that the disclosures were not clear and conspicuous. Moreover, the Commission and the state attorneys general would have to decide what level of communication of the disclosure to consumers would satisfy the “clear and conspicuous” requirement. The legislative history, as well as the experience of the Commission,58 the

53Comment 58 (PMA) at 2. ~ _54For example, IISC submitted with its comment video tape samples of recent, non-pay-per-call service, sweepstakes promotions. During the public workshop conference, IISC stated its position that the disclosures in the advertisements submitted were clear and conspicuous. Tr. at 343, 347-48.

55 138 Cong. Rec. H538 (daily ed. Feb. 25, 1992) (H.R. 3490 was intended to give the FTC the authority to address type-size requirements for disclosures, as it has done in the past).

5¢Comments 14 (AAAA) at 4, 8; 37 (PPI) at 37~ 38; 39 (IISC) at 32; 43 (GMA) at 24; 45 (ANA) at vs 52 (IA) at 23; 60 (Pilgrim) at 10; 63 (NAIS) at

5715 U.S.C. 5712(a).

**E.g., Phone Programs, Inc., D. 9247 (Dec. 10, 1992); FTC v.Me& H Assocs., No. HAR-92-2198 {D.

state attorneys general,5® consumer protection agencies,®9 and the U.S. Postal Service,®1 indicates widespread failure to make full and clear disclosure in advertisements for pay-per-call services.

Given this background, the Commission believes that specifying clear requirements as to what constitutes a ‘‘clear and conspicuous” disclosure is the appropriate approach in this rulemaking. For certain critical disclosures, including the cost and the parental permission advisory, the Commission has adopted very specific requirements. For other disclosures, it has adopted a more flexible approach

-while at the same time providing

guidance beyond a minimal “‘clear and conspicuous” standard.

1. Section 308.3(a): General Requirements

Each section of the proposed rule mandating a disclosure required that the disclosure be presented clearly and conspicuously and explained how the disclosures were to be made “‘clearly and conspicuously.”” While the proposed rule containéd certain minimum standards applicable to all disclosures in advertisements, these minimum standards were not set out separately, but rather were contained within each section, along with any further requirements for disclosures under those specific sections.

This format was not raised as an issue for comment and was not specifically addressed in the comments, However, 4 number of commenters suggested modifications to or exceptions from various sections of the proposed rule, and the fina] Rule has been revised to address some of those suggestions. After revision, some of the descriptions of what constituted “‘clear and conspicuous” disclosures became rathe lengthy and, therefore, difficult to follow. Accordingly, the Commission thought it appropriate to reorganize the advertising section so that the requirements common to each of the sections so that the requirements ~ common to each of the sections are

Md, filed Aug. 7, 1992) (complaint and consent agreement); FTC v. Starlink, Inc., No. 91-10-85 (E.D. Pa. filed Feb. 7, 1992) (complaint and stipulated final judgment and order for permanent injunction); FTC v. Timmerman, No. HAR-90- 2007) (D. Md. filed Sept. 5, 1991) (complaint and consent order); Audio Communications, Inc., No. C-3338 (July 24, 1991); Teleline, Inc,, No. C-3337 (July 24, 1991); FTC v. Interactive Communication Technology, Inc., No. CV-F-91018 REC (E.D. Cal. filed Jan. 15, 1991) (complaint and consent order). 39 Comment 42 (NAAG) at 6-10; Tr. at 303-4. s0Comments 21 (NCL) at 3-4; 40 (NACAA) at! ye 61 Comment 59 (USPS) at 1.

SBZ72239 8 BSB EBBSBSZzOO..2._

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grouped together in one section, numbered § 308.3(a). These requirements apply to each of the four sections requiring disclosures (now numbered § 308.3(b), cost of the call;

§ 308.3(c), sweepstakes; § 308.3(d), Federal programs; and § 308.3(f), parental permission for individuals under 18).

Section 308.3(a) of the final rule contains the “minimum standards” applicable §§ 308.3(b), (c), (a) and (f). Section 308.3(a)(1) requires disclosures to be in the same language as that principally used in the advertisement. No comment was received on this requirement, which was in the proposed tule and is consistent with the Commission’s longstanding policy concerning clear disclosures in foreign language advertising.62

As originally proposed, print and video disclosures were required to be of a color or shade that readily contrasts with the background of the advertisement. Few commenters specifically addressed this provision. Several supported it,63 while one commenter objected to it, without citing any specific reasons for the opposition.6¢ The Commission believes that ready contrast between the disclosure and the background on which it appears is fundamental to readability.65 The USPS commented that it has experience with enforcing similar requirements for certain disclosures.66 The USPS noted that promoters acting in bad faith technically comply by using a contrasting color, but nevertheless the disclosure is still not noticeable, because it is a color such as bright yellow. The USPS suggested that the provision be modified to require that the contrasting background also maximize the visibility of the disclosure. The Commission believes that the USPS has raised a valid concern, but believes that the concern can be addressed by the provision,

6216 CFR 14.9.

63Comments 5 (Fun Lines) at 1; 59 (USPS) at 2; 61 (ICN) at 34. = Jit

6«Comment 37 (PPI) at 11.

°5 Similar requirements are found in other Commission rules and guides. E.g., Guide Concerning Fuel Economy Advertising for New Automobiles, 16 CFR 259.2(b)(1)(i), n.3 (each visual “estimated mpg" disclosure must be broadcast against a solid color background that contrasts sasily with the color used for the numbers); Smokeless Tobacco Regulations, 16 CFR 307.6, 307.7 (required warning must be in type contrasting with all other printed material on package or advertisement).

®*Comment 59 (USPS) at 2, n.1 (regarding enforcement of 39 U.S.C. 3001(d)(2), which provides that a direct mail piece that takes the form ofa bill, but is in fact a solicitation, must bear a disclosure, “on its face, in conspicuous and legible type in contrast by typography, layout or color with other printing on its face”).

applicable to all disclosures, which prohibits the use of techniques likely to detract significantly from the communication of the disclosure (see discussion of § 308.3(a)(5) below). Thus, no change is made in the proposed regulations. The contrasting background requirement is now contained in

§ 308.3(a)(2) of the final Rule.

The proposed rule required disclosures in print advertisements to be parallel with the base of the advertisement. This provision was specifically supported,67 while no specific opposition was stated. Again, this requirement is retained in the final Rule at § 308.3(a)(3).

The proposed rule required all audio disclosures in broadcast advertising to be delivered in a ‘‘slow and deliberate manner” and a ‘reasonably understandable volume,” as those terms are defined in § 308.2(h) and (j). No commenters objected to the “reasonably understandable volume” requirement, but a few commenters objected to the “slow and deliberate manner” requirement.68 The AAF opposed this requirement on the grounds that it might interrupt the style or flow of the broadcast. This term, however, is defined in the Rule as “a rate that renders the message intelligible to the receiving audience, and, in any event, at a cadence or rate no faster than that principally used in the advertisement or the pay-per-call service.” Accordingly, the Commission believes that the stated concern does not weigh in favor of changing the regulations; these requirements are now found in § 308.3(a)(4).

In addition, the proposed rule provided that with respect to each’ disclosure, nothing contrary to, inconsistent with, or in mitigation of the disclosure shall be made in any advertisement, nor shall any audio or video technique be used that is likely to detract significantly from the communication of the disclosure. Although one commenter objected.to this provision as being inappropriate,59 the Commission believes that it is needed to prevent circumvention of the “clear and conspicuous” requirements, either through the conveyance of other information or through the manner in which the disclosures are made. Furthermore, based on the concern noted above by USPS about circumvention of the contrasting background requirement, the

67 Comment 5 (Fun Lines) at 1.

es Comments 19 (AAF) at 2; 45 (ANA) at 4-5.

6?Comment 35 (AIP) at 6-7. AIP stated that it preferred reasonably specific, objective regulations, and opposed this section because of its subjective nature.

Commission is modifying the regulations to include print techniques among those that may not be used to detract significantly from the communication of the disclosure. This requirement is found in § 308.3(a)(5) of the final Rule.

As originally proposed, the rule did not specifically address program-length commercials (infomercials), as distinguished from traditional television or radio advertisements, in the sections concerning sweepstakes and games of chance or information concerning a Federal program. The Commission is concerned that if required information is presented only once in particularly long commercials, consumers who do not see the entire advertisement will miss the disclosures. Therefore, the final Rule, § 308.3(a)(6), requires that, unless otherwise specified, required disclosures will be made at least three times, near the beginning, middle and end of any program-length commercial. This requirement will apply to disclosures required by §§ 308.3(c), (d), and (f). The section pertaining to cost disclosures, § 308.3(b), however, requires‘a more stringent standard, consistent with the TDDRA. A video presentation of the cost disclosure must appear adjacent to each presentation of the pay-per-call number (in any length commercial), and in radio programlength commercials the cost must be given following each delivery of the number.

2. Section 308.3(b): Cost of the Call

Section 308.3(b)(1) of the final Rule describes the requirements for disclosing the costs of a call to pay-percall service. They are the same requirements as those for disclosure of costs in the preamble of the pay-per-call service itself, and will be discussed in part II.D.1.b, infra, covering this preamble requirement. This section will only discuss the manner in which the disclosures must be made, i.e., the “clear and conspicuous” standards for cost disclosures in advertisements.

The proposed rule 79 required video and print disclosures to be placed adjacent to each presentation of the payper-call telephone number. Few comments focused specifically on this requirement, though a number in general objected to any particular placement requirements.71 Two commenters specifically supported this

70In the proposed rule, this section was numbered 308.3(a)(1). 58 FR at 13385.

71Comments 19 (AAF) at 2-5; 37 (PPI) at 11; 39 (IISC) at 17-18; 52 (IIA) at 23-24; 63 (NAIS) at 15- 16.

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requirement.72 Because a pay-per-call service provider is likely to ensure that the pay-per-call number is in a prominent position in the advertisement, requiring the cost to be adjacent to the number also ensures a prominent place for the cost, thus fulfilling Congress’s objective of ensuring that consumers are informed of this important information when they see the advertisement.73 One commenter objected to the provision on the grounds that it would prevent the use of column-style advertising.74 The Commission, however, interprets “adjacent to” as meaning above, below, or next to (on either side). Accordingly, in a column-style advertisement, the cost could be above or below the telephone number, and comply with the Rule.

Some commenters raised an additional concern regarding the adjacency requirement; namely, the application of the proposed rule to advertisements in which more than one pay-per-cal} number is advertised, generally in list form, with only one price applicable to all of the telephone numbers, These commenters suggested that in such cases, the cost need only be displayed once, rather than adjacent to each of the telephone numbers.75 The Commission agrees that in such circumstances, it would be unduly restrictive to require display of the cost of the call next to each pay-per-call number. Accordingly, the Rule is revised to state that where an advertisement displays more than one pay-per-call number with the same cost, the cost need only be placed adjacent to the largest presentation of the pay-percall number. Otherwise, the final Rule retains the requirement that the cost be placed adjacent to each presentation of the pay-per-call number.

As originally proposed, in television and print advertisements, each letter and numeral of the video portion of the cost disclosure were to be at least as large as each letter and numeral of the pay-per-call number to which they were adjacent. The Commission sought ~ comment on the appropriateness of this requirement, and whether a more appropriate measure existed for ensuring that the cost is disclosed “clearly and conspicuously.” 76 Numerous commenters specifically opposed the “same size” requirement.77

72Comments 59 (USPS) at 2; 61 (ICN) at 3-4,

73 House Report at 4-5.

74Comment 19 (AAF) at 3.

75Comments 35 (AIP) at 6; 52 (TIA) at 22.

7658 FR at 13380 (question 3).

77Comments 5 (Fun Lines) at 1;19 ; 22 (Meganews) at 3; 35 (Ar at 4-5; pene

As noted previously, many commenters believed it is sufficient to require that all disclosures, including cost, be “clear and conspicuous,” and therefore they opposed any specific requirement, whatever it might be. Others suggested alternatives, such as one-quarter the size of the pay-per-call number, but in at least 12-point type.78 One commenter suggested that the cost could be one-half the size of the pay-per-call number and still be conspicuous.79 Another suggested that the disclosures be in type no smaller than that used for the majority of text in the ad, or in the average type size used in the ad.s0 A number of commenters suggested that any minimum type size requirements be in the form of safe harbors.81 Some commenters supported the same size requirement.82

After reviewing the comments, the Commission is persuaded that the cost need not necessarily be in the same type size as the pay-per-call number. A copy test of print advertisements for a 900number sweepstakes submitted by IISC indicated that cost disclosures one-half the size of the pay-per-call number produced recall not significantly different than a cost disclosure the same size as the pay-per-call number.83 This copy test provides some evidence that the cost could be smaller than the payper-call number and still produce significant recall.84 In addition, some commenters suggested that having the

cost the same size as the pay-per-call number would be visually distracting, would make the cost difficult to distinguish from the pay-per-call

9; 39 (IISC) at 16; 45 {ANA) at 4-5; 46 (Cox) at 3— 4; 48 (DMA) at 3-5; 51 (USA Today) at 10-11; 52 (IIA) at 23-24; 61 (ICN) at 3; 63 (NAIS) at 12-15.

78Comment § (Fun Lines) at 1.

7°Comment 35 (AIP) at 4.

80Comment 52 {ITA) at 24-25.

81 Comments 33 (ITA) at 6; 37 {PPH) at 38; 39 (IISC) at 32; 43 (GMA) at 24; 45 (ANA) at 6; 52 {ITA) at 23; 60 (Pilgrim) at 10; 63 (NAIS) at 16.

82 Comments 21 (NCL) at 1; 27 (NYDPS) at 1 (both generally supporting the proposed regulations); 40 (NACAA) at 4; 42 (NAAG) at 12 (generally supporting the proposed regulations); 59 (USPS) at

83 Comment 39 (SC) at 31, Appendix A at 14.

®4 The study contained some methodological flaws, however. For example the study did not control additional factors—such as the format or organization of the 900-number information, and the type size of the rules of the game—that are likely to affect perceptions of the communications elements for which the study was designed (e.g., the type size of the cost of the call). The advertisements were quite cluttered and were likely to have presented information overload problems with Tespect to the targeted information, i.e., the 900 number, as evidenced by the fact that when asked what the main points of the advertisement were,

- Only 28.5% of the respondents in the industry

version of the advertisement mentioned the 900 number.

number, or would otherwise render the advertisement ineffective.95

Under the final Rule, the cost of the call must be at least one-half the type size 86 of the pay-per-call number.87 The Commission recognizes, however, that there may be certain kinds of advertisements (such as classified advertisements or matchbook cover advertisements) in which a type size one-half the size of the pay-per-call number would result in‘an illegible disclosure. In such cases, it may be necessary for the cost to be larger than one-half the size of the number in order not to violate § 308.3{a)(5) of the general disclosure requirements. That section prohibits anything inconsistent with or in mitigation of the required disclosures, and any technique that is likely to detract significantly from the communication of the disclosures. The Commission would consider a very small cost disclosure to fal! within those prohibitions and, thus, not comply with the requirement that all disclosures be “clear and conspicuous.”

The proposed rule required that in television advertising, the cost must appear on the screen for the same duration as the video display of the pay: per-call number. A few commenters opposed this requirement,®@ but because it reflects a statutory mandate,®® the final Rule retains the requirement.

The proposed rule required that disclosures in television advertisements always appear at least once simultaneously in both the audio and video portions of the advertisement, with one exception: Advertisements fifteen seconds or shorter would not — require an audio disclosure if the payper-call number was not stated in the audio portion of the advertisement. The Commission sought comment on this proposed requirement and the proposed exception.2° Several commenters

85 Comments 18 (AAF) at 3; 22 (Meganews) at 2; 35 (AIP) at 5; 46 (Cox) at 3; 51 (USA Today) at 11.

86 The Commission recognizes that the type set used for pay-per-call numbers and the cost disclosures will have both upper and lower case. When determining what type size to use for the cost disclosure, the upper case of the cost should be one half the size of the upper case of the pay-per-call number. A similar measurement should be made fot the lower case characters. ;

87 In several $00-number cases, the Commission required parental permission video disclosures to be one-haif the size of the pay-per-call number. Fone Telecommunications, Inc., C-3432 (June 21, 1993); Audio Communications, Inc., No. C-3338 (July 24, 1991); Teleline, Inc., No. C3337 (July 24 1991). In addition, at least one state (Louisiana) requires that the cost be one-half the size of the

largest pay-per-call number. La. Admin. Code tit 4g

51, Ch. 19-B, Sec. 1731 (1992). 88 Comments 37 (PPT) at 11; 45 (ANA) at 4-5. 8915 U.S.C. 5711(a){1}(G). 9058 FR at 13380-81 (questions 6 and 10).

ere

suppe others audio requir given video Comn adver or vid provi more adver Comn audio appro given tothe § 308.

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supported this requirement. Several ‘others believed that simultangous dio-video disclosures should not be required; they unged that advertisers be given the choice of using either audio or video for disclosures.22 The ‘Commission appreciates thet allowing advertisers the choice of using the audio or video format for disclosures would provide more flexibility and allow for ‘more creativity in the design of advertisements. However, the Commission believes that simultaneous audio-video disclosures are particularly appropriate for the cost disclosures, given the importance of this information tothe consumer.83 Accordingly, §308.3(b)(2){} of the final Rule retains the audio-video disclosure requirement ‘for the cost disclosure. However, second exception to the simultaneous audie-video disclosure : requirement has been added for ‘advertisements that do not provide any audio information, including the payper-call number, about the pay-per-call service. No audio disclosures would be required for such advertisements. One commenter noted that mandatory audio disclosures would disallow the use of “scroll” ads commonly used on cable tslevision.*# These ads frequently scroll independently of the she which may be a rebroadcast radio transmission. In

"Comments 29 (NCL) at 1; 27 (NYDPS) at 1; 40 (NACAA) at 2; 42 (NAAG) at 12 (all supporting the proposed regulations); 53 (CME) at 18 (generally supporting the proposed regulations, ont opposing the: 15-second exception).

Comments 19 (AAF) at 2; 34 (TPI) at 5; 37 (PPI) at 11; 39 (SC) at 34-35; 45 (ANA) at 4; 48 (DMA) at 3; 49 (NIMA) at 3—4; 58 (PMA) at 2; 63. (NAIS) at 15 (if the pay-per-call number is not in the audio portion, the disclosures should not have to be presented in the audio portion either),

% Consumer communications research indicates that video-only presentation of information produces weaker recall than audio-only or audio- Video presentation. E.g., S. Ducoffe, The impact of Product Usage Warnings in Alcoholic Beverage Advertising, 9 J. Pub. Pol'y & Mktg. 16, 26-27 (1990), D.D. Lovil, A.B. Padderud, Video:

Disclosures. in’ Television Advertising: Are They Efective?, 31 J. of Communications 72-77 (1981); CG. Penney, Modality Effects in Short-Term Verbal Memory, 82. Psychological Bull. 68-84 (1975). In the Ducoffe study, recall of alcohel warnings in. beer cammercials was tested, using different combinations of warnings and subjects. Among subjects for whom: the product was relevant who Were exposed to. a high-severity warning, 63.3% iz the audio condition, 74.1%. in the audio-video condition, and.only 14.3% in the video condition ‘called the presence of a warning without aid. Id. . A. In general, however, among all of the different combinations of warnings and subjects, audio-video Wamings failed. to. produce greater recall than. tudio-only disclosures, suggesting the lack of pact of video disclosured. Id.at 27. Nevertheless, 09 Studies have shown audio-video warnings to a tecall more than audio-only warnings. E.g., Pai Mazis & Brinberg, Prescription Drug formation for Consumers: An Experiment of urce and: Format, in Current Issues and Research am Advertising (J. Leigh & C. Martin, Jr., eds. 1984): “Comment 34 (TPI) at 5.

addition, some pay-per-call service advertisoments occur in one portion of the television screen, while most of the screen is devoted to an unrelated program; the pey-per-call service advertisement has no audio component. For instance, @ sports game could be ongoing on the screen, with the accompanying play-by-play in the eudio portion, while the bottom of the screen might contain an advertisement for a pay-per-cal} service providing sports scores, The Commission believes that for these types of advertisements {i.e., advertisements that either have no audio component or otherwise provide

_no information about the psy-per-call

service in the audio component) it would be unduly restrictive to require audio disclosures. Accordingly, the final Rule is modified to provide an exception for such advertisements.

The proposed rule did not specifically address pay-per-cal! service advertisements in which the paycal} number is presented only in the audio portion of the advertisement, and not in the video portion. As proposed, the rule would have required video disclosure of the cost, even though the as ei number would not have

n made in the video portion. Because the proposed rule’s requirements as to size and placement of the cost disclosure were tied to the video payper-call number, the proposed rule was ambiguous as to the size and placement requirements for the cost in such advertisements. Accordingly, the Commission hes modified the proposed rule to require that in advertisements in which the pay-per-call number is presented only in the audio portion, the cost of the call is required only in the audio portion, immediately following the first and last delivery of the pay-percall number. In program-length commercials (where the pay-per-call number is presented only in the audio portion), however, the cost must be disclosed immediately following each delivery of the pay-per-call number. In such program-length commercials, disclosure of the cost only efter the first and last presentation of the pay-per-call number would be inadequate because of the likelihood that some consumers would tune in during the middle of the advertisement and miss the disclosure.

As proposed, the rule required that the cost be disclosed at least once in radio advertisements, immediately following the first tion of the

pay-per-call number, while in any program-length radio commercial, the cost must be disclosed each time the pay-per-call number is given. The Commission sought comment on whether it would be appropriate for the

cost to be disclosed with each ; presentation of the pay-per-call number in all radio advertisements.25 Few commenters focused on this question. NACAA and CA commented that the cost should be disclosed immediate! after each time the pay-per-call number is giver.°¢ The AAF commented that repetition of the cost after the pay-percall number would lengthen the advertisement, and thus increase the advertisement’s cost.87 According to the AAF, repetition of the pay-per-call number is required im order for listeners to retain the number, or to allow them to write it down, while such repetition is not required for the cost. The

prop’ rule, however, required repetition of the cost only im programlength radio commercials. Most radio commercials are short enough that consumers whe hear the pay-per-call number are likely to hear the cost—even. if it is only presented once. However, if the cost is only given once during a fifteen- to thirty-minute commercial, consumers might easily miss it. The Commission believes the rule as proposed is appropriate, and this section of the zegulations has not been changed in the final rule.s

3. Section 308.3(c}: Sweepstakes; Games of Chance

Section 308.3(c) addresses pay-percall services that advertise sweepstakes, including games of chance. The proposed rule? incorporated the requirements of the TDDRA 19° that such advertisements clearly and conspicuously disclose the odds of winning a prize, award, service, or product at no-cost or at reduced cost, or the factors that will determine the odds, if the odds are not calculable in advance. The proposed rule limited the application of the odds disclosure requirement to those situations where the prize, etc., is offered in connection with a sweepstakes or game of chance.

The Commission requested comment on whether other types of promotions,

*" 54 FR 13386 (question 3).

%6 Comments 31 (CA} at 4; 40 (NACAA) at 4.

27Comment 19 (AAF) at 2.

# Under the final Rule, television advertisements with audie-only presentation of the pay-per-call number must deliver the cost immediately following the first and last presentations of the payper-call number, while in (non-program-length}, radio advertisements, it must be presented only once: Fhe Commission believes that different standards for the different media are apprepriate because in a radio advertisement, to receive any information, the consumer must be listening; in contrast, with television advertisements, the consumer’s attention may be af least partially focused on the screen and not entirely on the audio.

98 I the proposed rule, this section was numbered 308.3(b). 58 FR at 13385—86.

190 15 U.S.C. 571 1fa)1)(B).

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such as lotteries or games of skill, should be subject to this provision, and whether the proposed rule was sufficiently clear as to the types of promotions subject to the rule.101 Two commenters suggested that the provision apply to games of skill as well as games of chance.102 One commenter opposed extending the requirement to games of skill because a true game of skill has no element of chance.103 The Commission is persuaded that determining the odds even for games of skill having some element of chance would be problematic. The TDDRA, by requiring that the odds of winning be disclosed, was clearly directed at games where the winner is determined by chance. Accordingly, the final Rule applies only to sweepstakes and games of chance.

Several commenters noted that the proposed regulations could be read as requiring the odds disclosure in situations where it presumably was no intended, such as situations where no odds would be associated with receipt of the service or product.104 For instance, if an information provider running a sweepstakes offered, as an incentive for entering the sweepstakes, a token to all those who entered, and this token was not in the prize to be awarded to the winner of the sweepstakes, then the proposed regulations could be read as requiring the odds disclosure for receipt of the token, even though the odds of receiving the token would be 1:1. Based on these comments, the Commission has decided to clarify the language of this section. Thus, the final Rule only requires the odds disclosure with respect to prizes “to be awarded to the winner” of the sweepstakes, rather than for prizes “in connection with the offering” of a sweepstakes,

The proposed rule required that the odds be disclosed in all advertisements, including television and radio advertisements. The Commission recognizes that at times it could be quite time- and space-consuming to disclose all the odds, particularly in games with multiple prizes and complex odds structures. In the NPR, the Commission posed questions regarding ways in which this burden might be lessened.105 A number of commenters urged that no odds disclosures be required in broadcast advertisements, pointing to the Commission’s Games of Chance

101 58 FR at 13380 (question 7). 102 Comments 31 (CA) at 5; 59 (USPS) at 3-4. 103 Comment 37 (PPT) at 31.

104 Comments 37 (PP1) at 27; 52 (ILA) at 22; (nais) at 16-17. a 23:83

105 58 FR at 13381 (question 9).

Rule,106 which, since 1983, has granted a temporary exemption to the odds disclosure requirement for broadcast advertisements.107 The Commission, however, is constrained by the language of the TDDRA, which requires that the odds of winning be disclosed in advertisements, without an exception for television or radio advertisements. The Commission received no feasible suggestions in the comments on how to lessen the burden of odds disclosures in broadcasting advertising. Commission staff also specifically raised this issue in the public workshop conference, and once again the participants did not offer any feasible suggestions,108 Accordingly, this requirement is retained unchanged in the final Rule.

Some commenters expressed confusion over the proposed rule’s requirement that if the odds of winning are not determinable in advance, the factors used in determining the odds must be disclosed. Two commenters indicated concern that this information could not be disclosed if the odds of winning depended upon the number of entries received.109 It is the Commission’s position that when the odds depend upon the number of entries received, a statement to that effect satisfies the requirement to disclose the factors used in determining the odds.

As proposed, the rule required a disclosure that no purchase (i.e., no call to the pay-per-call service) is required to participate, along with a disclosure of a free alternative method of entry.and instructions on how to enter.110 The Commission requested comment on the preferability of allowing the free method of entry information to be disclosed in the preamble rather than in the advertisement.111

Several commenters opposed the proposed advertising disclosure requirements,i12 while several others supported them.113 Some commenters opposing the requirements referred to the burden of having to make lengthy disclosures, particularly in broadcast media, The commenters favoring the requirements expressed the opinion that pay-per-call number sweepstakes are

168 16 CFR part 419.

107 48 FR at 1046 (1983).

108 Tr. at 440-461,

10° Comments 37 (PPI) at 10; (IIA) at 22.

110 Offering a free method of entering a Sweepstakes or game of chance is necessary to avoid violation of the Federal law prohibiting commercial lotteries, 18 U.S.C. 1301, et seq.

11158 FR at 13380-81 (question 8).

212 Comments 39 (IISC) at 10; 45 (ANA) at 5; (IIA) at 22-23; 58 (PMA) at 1: 63 (NAIS) at 21-23.

113 Comments at 21 (NCL) at 13; 31 (CA) at 6; 37

(PPI) at 10; 40 (NACAA) at 6; 42 (NAAG), Appendix

1 at 2-3; 59 (USPS) at 5.

unlike traditional sweepstakes in which the consumer is presented with the alternative of entering the’sweepstakes either by purchasing a particular product or, for example, by sending in a postcard, because in the case of a pay. per-call number sweepstakes, there is ny separate product to be purchased. Rather, the purchase is accomplished through calling the pay-per-call number, The Commission believes this last concern is valid. Although consumers may generally be aware of the “‘no

- purchase required” disclaimer typically

found in sweepstakes advertisements, they may not appreciate that, in the case of an advertisement for a pay-per-call number, the-“‘purchase” is calling the pay-per-call number. In this regard, itis significant that a 1992 Harris consumer survey showed that 35% of adult Americans were unaware of the difference between 900 numbers and, 800 (toll-free) numbers,114 while another 1992 survey indicated that 50% of adult Americans did not expect to be charged for 900 number calls,215 In other words, between one-third and one-half of adult Americans may not realize that 900 numbers cost money. li is reasonable to expect, therefore, that at least one-third of adults would not equate calling a pay-per-call service with making a purchase and would believe that they could enter the contest without cost.

The Commission thus believes that to prevent consumer deception, sweepstakes offered through pay-per-

call numbers should disclose, either in .

advertising or in the preamble to the call, that no call to the pay-per-call service is necessary to enter the sweepstakes. The USPS stated in its comment that some promoters have used confusing phrases in print advertising to describe the free entry option, such as “manual handling.” 1% At the public workshop conference, some commenters stated that saying “00 purchase necessary” is confusing to * consumers, and the IISC indicated it did not object to alternative language, such as “‘no telephone call necessary.” 11” The Commission believes it should be made completely clear to consumers that they do not have to incur a charge in order to enter a sweepstakes. Accordingly, the final Rule is modified slightly to make clear that the disclosut should state that no call to the pay-pe™

114Comment 21 (NCL) at 10.

115 Comment 42 (NAAG), Appendix 2 at 1-2. 116 Comment 59 (USPS) at 5.

117 Tr. at 424-426.

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call number (rather than no purchass) is necessary to enter the sweepstakes.116

Disclosing that no call to the pay-percall number is necessary to enter the sweopstakes, however, is insufficient without also telling consumers how to enter the sweepstakes: without calling the pay-per-call number. As originally proposed, the rule required advertisements to disclose an alternative means of entry and instructions on how to enter. As noted above, a number of commenters argued that it was too burdensome to make these disclosures in broadcast advertisements, particularly im the size required by the proposed rule. After reviewing the comments and considering the discussion of this issue at the public workshop conference,11? the Commission believes that the proposed tule should be modified to require disclosure of the existence of an alternative method of entry and a costfree means of learning of that method: Either a local or toll-free telephone number that consumers may call to learn of the information, or an address that consumers may write to for instructions on hew to enter.12¢ The actual instructions on how to enter without cost need not be disclosed so long as consumers are adequately informed how to obtain that information.

At least one commenter disliked the alternative of allowing disclosure of the fee method of entry information in the preamble, citing the relative costliness of making disclosures in the preamble compared to making them in advertisements,121 Other commenters taised the concern that if consumers are forced to call the pay-per-call number in order to learn of the free method of entry, the tendency may be for them simply to stay on the line and enter through the pay-per-call service.122

The Commission has decided to allow

- Pay-per-call providers to place the free method of entry information either in

® advertisement or in the preamble. If _———

“®This disclosure requirement does. not Prescribe a specific phrase that must be used. The Commission, however, interprets the Rule as Toquiring a specific statement that no call to a pay- Per-call telephone number, or to a telephone call Costing money, is required, It is the Commission's opinion that stating that ‘‘no purchase is necessary ‘o enter” would not comply with the Rule.

‘19Pr. at 412-22.

“Providers of pay-per-call services that choose

to — a local or toll-free telephone number € esponsibility of ensuring that the

\elephone numbers are adequately staffed or Otherwise adequately maintained so that the free method of entry information is readily accessible to consumers who call those telephone numbers.

‘1Comment 37 (PPT) at 32.

“2 Comments 31 (CA) at 2; 40 (NACAA) at 6; 42

AAG} at 14.

provided in the preamble, the information must be presented at a reasonably understandable volume and in a slow and deliberate manner, as those terms are defined in § 308.2{h) and (j).

The proposed rule required that the advertisement disclose the scheduled termination date of the game of chance. In addition, the Commission had requested comment on the desirability of requiring disclosure of other limitations on the sweepstakes program’s availability, such as geographical restrictions, time-of-day availability, or touch-tone phone requirements; the name, city, state, and customer service telephone number of the promoter or provider of the pay-percall service; and the value of the prize.123 Several commenters nofed that sweepstakes are already subject to a plethora of Federal and State regulations,12¢ and objected to the requirement to disclose the game’s termination date or the other information not required by the TDDRA.225 The Commission is persuaded that sweepstakes promotions run through pay-per-call services are not sufficiently different from other sweepstakes promotions with respect to these types of disclosures that it is

_ necessary for this Rule to address these

issues, either to prevent unfair or deceptive practices, or to prevent evasion of the regulations. Accordingly, the final Rule does not contain the requirement to disclosure the game’s termination date, or any of the additional disclosure requirements listed above.

A number of commenters, however, noted that pay-per-call service sweepstakes are frequently used to promote prizes that are represented to be far more valuable than is actually the case.126 The legislative history indicates that Congress was also concerned about the problem.127 The Commission requestad comment on the advisability of requiring disclosure of the material terms and conditions of receiving a service cr product through a pay-percall service.128 One of the materia! terms suggested was a clear and accurate

123 58 FR at 13380 (question 7).

12 See, e.g., Comment 58 (PMA) at 1 and: Appendix {listing federal and state laws and regulations governing contests and promotions). E.g., Minn. Stat. Sec. 609.75 (labels and advertisements must clearly state the scheduled termination date of the promotion).

128 Comments 37 (PPI) at 9-11, 31; 39 (7SC}—at 10-11; 45 (ANA) at 6; 56 (PMA) at ?.

126 Comments 21 (NCL) at 13-14; 31 (CA) at 6; (NACAA) at 5; 42 (NAAG) at 13-14; 59 (USPS) at 4,7.

127 House Report at 5.

12858 FR at 13382 (question 16}.

description of the service or product. While the Commission has decided not to include this requirement for all payper-call service advertisements (relying instead on general compliance with section 5 of the FTC Act), in the case of pay-per-call service sweepstakes, the Commission. is persuaded that sufficient evidence exists, as presented in the comments, that explicitly requiring a clear and accurate description of sweepstakes prizes is required in order to prevent deceptive practices.129 Thus, the final Rule requires that in advertisements for pay-per-call service sweepstakes, any characterization of the prizes or awards must be truthful and accurate. The Rule does not impose an affirmative duty to describe the prizes; it simply requizes that to the extent that the advertisement identifies, describes, or otherwise characterizes the prizes, such characterization must be truthful and accurate.

With respect to the manner in which the required disclosures must be made, the proposed rule stated that in television advertisements, there must be a simultaneous audio-video disclosure and that each line of the video disclosure must occupy at least enetenth of the vertical field of the television screen. Several commenters objected to these specific requirements.130 After reviewing the comments, the Commission believes that the Rule’s purpose would better be served by allowing more flexibility in the size and presentation of the sweepstakes disclosures. Because the.

_ regulations require several disclosures,

there is.a concern that the advertisement would become overly cluttered with information, with the result that the important information would not appear prominently in the advertisement.131 In addition, variability in disclosure size among advertisements may be desirable because it is likely to lessen the potential for the disclosures to “wearout,” thus enhancing their noticeability.132 The proposed rule is

12eComments 21 (NCL) at 13—14; 31 (CA) at 6; 40 (NACAA) at 5; 42 (NAAG) at 13-14; 59 (USPS) at 4,7.

130 Comments 14 (AAAA) at 4—6; 22 (Meganews) at 3; 37 (PPI) at 11; 39 (HSC) at 16, 29; 45 (ANA) at 5, 7; 52 (ILA), at 22; 58 (PMA) at 2; 63 (NAIS) at (aN

13»Comments: 19 (AAF) at 4; 35 (AIP) at 5; 37 (PPI) at 10; 39. (JISC) at 37-38; 45 (ANA) at 6; 46 (Cox) at 3; 48 (DMA) at 4; 49 (NIMA) at 3-5; 61 (ICN) at 4-5.

132. See Bhalla & Lastovicka, The Impact of Changing Cigarette: Warning Message Content and Format, in Advances in Consumer Research 305, 309 (T. Kinnear ed. 1984) (varying the content and format of messages enhances noticeability and attention); R. Petty & J. Cacioppo, Communication and Persuasion: Control and Peripheral Routes of

Continued

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modified to allow the required disclosures to be presented either in audio or video form. Where video disclosures are used, they must appear on the screen in sufficient size and for sufficient time to allow consumers to read and comprehend them. If audio disclosures are used, they must, of course, be given in a slow and deliberate manner and at a reasonably understandable volume.

In print advertisements, the proposed rule required that the disclosures be in at least 12-point type. A number of objections were raised to this requirement,133 with several commenters responding to the Commission’s question whether this requirement would be feasible for different types of advertising media.134 Some commenters pointed out that classified ads generally only use 6-point type, and do not necessarily allow variation in size or typeface, so that the rule would prevent the use of that medium for some advertisements.135 As the Commission suggested in the NPR, and as several commenters noted, in the case of billboards, a 12-point disclosure would be inappropriate.136 In addition, some extrinsic evidence was submitted indicating that consumer recall of odds disclosures made in 12-point type was no better than when made in 10-point type.187 The Commission has decided that the purposes of the Rule would best be served by a more flexible standard. Therefore, the final Rule requires that the disclosures be made in a sufficient size and prominence, and in such location in the advertisement, that the information is noticeable, readable, and comprehensible. This flexibility enables variation in the size of disclosures, relative to the type and size of the advertisement, so long as the information is always readable and of sufficient prominence to be readily noticed. Moreover, this flexible standard addresses the concerns raised by the copy test evidence13s that a 12-point requirement was too rigid to allow effective presentation of both the selling message and the required disclosures.

Attitude Change 68-73 (1986) (once consumers become accustomed to an advertising message, repetition of the same message results in decreased effectiveness).

133 Comments 14 (AAAA) at 5; 22 (Meganews) at 3; 37 (PPI) at 11, 28-29, 37; 39 (IISC) at 16-24, 29- 32; 45 (ANA) at 5; 58 (PMA) at 2.

13458 FR at 13381 (question 10).

+38 Comments 22 (Meganews) at 3; 46 (Cox) at 5; 48 (DMA) at 4; 52 (IIA) at 24; 63 (NAIS) at 20-23; 73 (NII) at 5; 80 (Suarez) at 2.

136 Comments 14 (AAAA) at 15; 37 (PPI) at 34; 48 (DMA) at 4. lee,

137 Comment 39 (IISC) at 37,

138 See comment 39 (SC), Appendix B.

4. Section 308.3(d): Federal Programs

Section 308.3(d) covers advertisements for pay-per-call services that provide information on Federal programs, but that are not sponsored or endorsed by any Federal agency.139 The proposed rule?40 required that the advertisement clearly and conspicuously disclose, at the beginning, that the pay-per-call service is not authorized, endorsed, or approved by any Federal agency. While few comments focused on this provision, those that did stated that the Rule ought to provide better definition of services that “provide information on a Federal program.” The IIA, for instance, suggested that the provision be narrowed to cover only those services that contain “‘a seal, insignia, trade or brand name, or any other term or symbol that reasonably could be | interpreted or construed as implying any Federal government connection, approval, or endorsement.”141 This language is found in a U.S. Postal Service statute prohibiting sending through the mail certain materials that contain the above information, without a disclosure regarding lack of Federal government approval or endorsement.142

IIA commented that the provision should not cover programs that merely provide information originating with or obtained from the Federal government.143 Similarly, NAIS commented that the disclosure should only be required on programs exclusively or predominantly dedicated to the provision of Federal program information, or that otherwise give the appearance of Federal sponsorship or authority.144 After reviewing the comments, the Commission is persuaded that further clarification is warranted,

The Commission agrees that programs giving the appearance of Federal sponsorship or endorsement should contain the disclosure. While the legislative history of the TDDRA does not shed any light on congressional intent with respect to this provision, the Commission believes that the statute is reasonably interpreted as intending to require the disclosure in those situations in which consumers may be misled about the program’s affiliation

199 An example would be a service providing access to information in the Federal Register or the Congressional Record.

140In the proposed rule, this section was numbered 308.3(c). 58 FR at 13386.

141 Comment 52 (IIA) at 7.

14239 U.S.C. 3001(h), (i).

143 Comment 52 (IIA) at 6.

144 Comment 63 (NAIS) at 24.

with the Federal government. The Commission is not persuaded, however, that such misinterpretation would be limited to those programs that predominantly or exclusively are dedicated to providing information ona Federal program.145 The final Rule, therefore, is modified to make clear that pay-per-call services that provide information on a Federal program include services that give the appearance of Federal affiliation. The Rule states that such services include those using a seal, insignia, trade or brand name, or any other term or symbol that reasonably could be interpreted or construed as implying any Federal Government connection, approval, or endorsement.

he TDDRA requires the Federal programs disclosure to be made at the beginning of the advertisement.146 Accordingly, the proposed rule required that in both television and radio advertisements, the disclosure must begin within the first fifteen seconds of the advertisement, while in print advertisements, the disclosure must appear within the top one-third of the advertisement. Two commenters objected to this requirement, but it appears that they were unaware of the statutory requirement that the disclosure be made in the beginning of the advertisement, and thus they did not offer any alternative way of fulfilling the statutory requirement.147 Thus, no modification will be made in the final Rule.

The final issue with respect to the Federal programs disclosure concerns the size and manner of the disclosure. As proposed, the rule required a simultaneous audio-video disclosure in television advertisements, and specified that each line of the video disclosure must occupy at least one-tenth of the vertical field of the television screen. For the reasons stated above in the sweepstakes section, the Commission has decided to modify the proposed rule to allow the disclosure to be made in either the audio or video portion of the advertisement. If a video disclosure is used, it must appear on the screen in sufficient size and for sufficient time to

145 At the same time, the Commission does not contemplate that the disclosure would be required in programs that make only incidental use of, or incidental reference to, information obtained from the Federal government. For example, a winery could run a promotional campaign highlighting the wine region’s attraction as a tourist destination, a1 give the population of the region, by referring to the most recent U.S. Census. The Commission does 10! interpret the regulations as applying to such 4 psy" per-call service, merely because it referred to U.S. Census Bureau data.

14615 U.S.C. 5711(a)(1){(C).

147 Comments 37 (PPI) at 12; 63 (NAIS) at 25.

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allow consumers to read and comprehend the disclosure. An audio disclosure must be delivered in accordance with the requirements of §308.3(a)(4).

Similarly, the proposed rule required that the disclosure in print advertisements be in at least 12-point type. Again, for the reasons stated in the sweepstakes section, the Commission has decided to emp the proposed rule to require that print disclosures be made ina sufficient size and prominence, and in such location in the advertisement, that the information is noticeable, readable, and comprehensible.

5. Section 308.3(e): Prohibition on Advertising to Children

As required by the TDDRA,148 section 308.3(e) of the Rule prohibits a provider of pay-per-call services from directing advertisements for such services at children under the age of 12, unless the service is a bona fide educational service (as defined in § 308.2(a)).149 In

148 15 U.S.C. 5711(a)(1)(D).

14° A number of commenters raised First Amendment issues with respect to the congressional ban on.all pay-per-call advertising and services directed to children under 12. Comments 14 (AAAA) at 2-4, 7-9; 30 (CARU) at 2; 39 (IISC) at 6-8, 11-13; 45 (ANA) at 1-3, 8-9; 48 (DMA) at 7-8, 10; 63 (NAIS) at 7-6, 25. Several of these commenters also challenged the constitutionality of the advertising restrictions generally. Under the First Amendment, commercial speech that is misleading or fraudulent may be prohibited altogether, and even commercial speech thal is neither misleading nor fraudulent may be restricted, provided the government's interest in doing so is substantial, the restrictions directly advance the government's asserted interest, and the restrictions are no more extensive than necessary to serve that interest. See Central Hudson Gas & Elec. Corp. v: Public Serv. Comm'n of New York, 447 U.S. 557, 566 (1980) (cited in Senate Report at 4-5); see also Board of Trustees of the State Univ. of New York v. Fox, 492 U.S. 469, 475 (1989); City of Cincinnati v. Discovery Network, Inc., 113 S.Ct. 1505, 1510 (1993).

The test is not whether the regulation, as applied, tepresents the “least restrictive means” available, but merely whether it has been “narrowly tailored” '0 serve the government's asserted interest without Sisnaring protected, non-commercial speech. Fox, 492 U.S. at 480; see, e.g., FTC v. Brown &

Williamson Tobacco Corp., 778 F.2d 35, 43—44 (D.C. Cir. 1985) (injunction did not impose a Sweeping or blanket prohibition and was not ; oader than reasonably necessary to prevent

Sception). The fit between the government's goals a the means chosen to meet those goals need not Perfect,” but simply “reasonable.” Fox, 492

'S. at 480. The legislative history of the TDDRA hotes, for example, that programming aimed at

dren may be subject to reasonable restrictions, Where such restrictions serve a substantial interest ind are otherwise consistent with First Amendment “quirements. See Senate Report at 4-5 (citing FCC i Pacifica Foundation, 438 U.S. 726, 749 (1978) toes Ginsberg v. New York, 390 U.S. 629

explained throughout this statement of basis a the Commission has considered and in uated various regulatory alternatives in ‘mining the final scope and extent of its "gulations. The Commission believes that the

the proposed rule,150 advertisements directed to children under 12 were defined, both by the type of medium in which they appear as well as by the nature an in the form of a rebuttable presumption. Advertisements directed to children under 12 were presumed to include the following: Advertisements appearing in publications directed to children (e.g., children’s books, magazines and comic

books); advertisements appearing during

or immediately adjacent to television programs directed to children (e.g., children’s programming as defined by the FCC,151 animated programs, and after-school specials directed to children); advertisements broadcast © during or immediately adjacent to radio programs directed to children; advertisements appearing on a commercially prepared video directed to children; and advertisements or promotions appearing on product packaging directed to children.

In addition, in the proposed rule, any advertisement, regardless of placement, that is directed to children under 12 in light of its subject matter, visual content, age of models, language, characters, tone, message, or the like, would also be presumed directed to children under the age of 12. However, the proposed rule provided that this presumption could be rebutted with competent and reliable evidence demonstrating that the receiving audience was composed predominantly of individuals aged 12 or older. The final Rule retains the use of contentbased criteria, but only as a factor for the Commission to consider in determining whether an advertisement is directed to children under 12.

The Commission specifically sought comment on several discrete issues regarding this provision of the proposed rule: (1) Whether structuring the definition of advertising to children under 12 in the form of a rebuttable presumption is appropriate and useful; (2) whether the use of audience composition and readership data to

requirements set forth in the final Rule are reasonable, are narrowly tailored to meet the required regulatory and law enforcement objectives, and are no more extensive than necessary to serve the purposes articulated by Congress in the statute and the legislative history.

180 56 FR at 13386.

151 The FCC defines “children’s programming" as “programs originally produced and broadcast for an audience of children 12 years old and under." FCC, Report and Order, Policy and Rules Concerning

Children’s Television Programming, Docket No. 90— 570 (April 9, 1991). Thus, the FCC definition relates

to children 12 years old and under, while this rule prohibits pay-per-call services and advertisements for such services directed to.children under the age of 12. Nevertheless, the FCC's definition provides

a useful benchmark.

content of the advertisement,

demonstrate whether a particular advertisement is directed to that age group is appropriate and useful; and (3) the appropriate criteria for the Commission to rely upon in determining whether an advertisement is directed to children under 12.152 Included with these questions was a specific request by the Commission for any data that would assist the Commission in setting a specific percentage of audience composition that would reflect accurately a “children's audience.” 153 The NPR also asked, among other things, whether the definition provided sufficient guidance as to the type of advertisement that would be presumed directed to children, and whether it was appropriate for the Commission to rely, at least in part, on the content of an advertisement as a factor.154 This section discusses each of these issues.

The comments were divided regarding whether the definition of advertisements directed to children under 12 should take the form of a rebuttable presumption. Some of the commenters urged the Commission to . maintain this format because they believed that the proposed definition properly placed on the advertiser the burden of proving the composition of the receiving audience.255 In addition, several commenters stated that a standard based on audience composition data provides objective, measurable proof, using data that advertisers already use and analyze in determining where to place advertisements.156 In particular, PPI favored using audience composition data as the basis for the definition, and stated that it should be given a more prominent role than merely as evidence to rebut the presumption.157 Most of the commenters that favored the rebuttable presumption also favored reliance on audience composition data to rebut the presumption. However, nearly all of those commenters also urged the Commission to make it more difficult to rebut the presumption by requiring a higher percentage of audience members

18458 FR at 13381 (question 11).

152Jd. at 13381 (question 13.b).

184/d. at 13381-82 (question 14).

188 Comments 21 (NCL) at 4, 16-17; 31 (CA) at 7; 37 (PPI) at 35; 40 (NACAA) at 6; 42 (NAAG) at 15; 53 (CME) at 14-15. a

156 Comments 37 (PPI) at 35-36; 53 (CME) at 15-

On the same issue, CA stated that pay-per-call providers should not be permitted to rebut the presumption with evidence other than audience composition data due to the inherent subjectivity of such information. Comment 31 (CA) at 7.

187 Comment 37 (PPI) at 12-13.

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12 and older than suggested in the NPR.158

On the other hand, a significant number of commenters were opposed to a rebuttable eee Sp format. These commenters generally took the position that while the factors identified in the proposed rule might be appropriate if considered together, none of them were sufficient alone, and none were sufficient to rise to the level of presumptive evidence.15® Moreover, several of these commenters stated that any presumption contained in the Rule should run in favor of the pay-per-call providers and against the Commission— i.e., that all advertisements for pay-percall services should be presumed directed to children aged 12 and older, unless the Commission is able to prove otherwise.160 A majority of the commenters opposing the rebuttable presumption also took the position that the percentages identified by the Commission in the NPR were inappropriate because they made it too difficult to rebut the presumption.261 However, only PPI responded to the Commission’s request for relevant data, by providing & one-page list showing the audience composition for several different types of television programs, and circulation data for several Magazines, 162

With respect to the criteria detailed in the proposed rule that would raise the presumption that an advertisement is directed to children under 12, there was general agreement by the commenters that the factors identified by the Commission were appropriate, provided that the presence of one factor would not raise the presumption by itself.163 The public workshop conference was particularly enlightening regarding this issue, and it is clear that the weight of the comments indicates that the criteria developed by the Commission are thought to be comprehensive and reasonable indicia of whether a particular advertisement is directed to children under the age of 12. However, many of the participants also indicated

158 Comments 31 (CA) at 7; 40 (NACAA) at 6; 42 (NAAG) at 15; 53 (CME) at 16-17.

13° Comments 19 (AAF) at 5; 43 (GMA) at 7-8, 13, 15-16; 41 (Kellogg) at 3-5; 45 (ANA) at 9-10; 48 (DMA) at 8-10; 63 (NAIS) at 25-26.

160 Comments 14 {AAAA) at 8; 19 (AAF) at 5; 45 (ANA) at 9; 48 (DMA) at 10; 52 (IIA) at 27.

161 Comments 19 {AAF) at 5~6; 43 GMA) at 17~ 18; 45 (ANA) at 10, g

162 Comment 37 (PPI), unnumbered attachment.

+82 Comments 19 (AAF) at 5; 35 (AIP) at 8; 43 (GMA) at 8, 15; 45 (ANA) at 9; 52 (IIA) at 25; 53 (CME) at 10-14; 63 (NAIS) at 26. CA supported a

di

that it would be necessary for the Commission to review an advertisement in light of all of the factors in making

its determination.164 Many of the commenters that favored the use of the delineated criteria, when taken as a whole, also opposed the use of any one factor to raise the presumption that an advertisement is directed at young children.165 :

Severa! of the commenters noted that the use of media-based criteria, i.e., placement of the advertisements in particular types of media, was appropriate because that is the manner in which most advertisers place their advertisements.166 CME also urged the Commission to retain the content-based portion of the criteria in the final Rule, emphasizing that there was legislative history to support this aspect of the definition,167

In contrast, a few of the commenters were completely opposed to the presumption criteria as set forth in the proposed rule. Several commenters expressed concern over the ambiguity of these criteria or the fact that they were not narrowly tailored, while others indicated a preference for no criteria at all, or simply disagreed with the criteria listed in the proposed rule.168 Some of those commenters who opposed any criteria felt that the Rule should merely restate the TDDRA’s ban on all advertisements directed to children under 12. For the reasons stated in part II.B., supra, regarding clear and conspicuous disclosures, the Commission believes this suggestion would violate the congressional mandate that the Commission enact

164 Tr. at 360-85. Additionally, several participants at the public workshop conference stated that audience composition data should be considered as one of the criteria to.examine in determining whether an advertisement is directed to a particular age group. Tr. at 373-75, 384,

165 Comments 19 {AAF) at 5; 43 (GMA) at 15-16; 52 (ILA) at 27; 63 (NAIS) at 26-27; Tr. at 371.

166 Comments 52 (IIA) at 26; $3 (CME) at 12; Tr. at 381-82.

167 Comment 53 (CME) at 13 (citing House Report at 14). Clearly the House Committee contemplated that the Commission could use both a media-based and a content-based definition. See also Comments 31 (CA) at 7; 52 (TIA) at 26-27,

168 Comments 20 {ABC) at 1-2; 30 (CARU) at 2- 3; 35 (AIP) at 8 (favored all media-based criteria, but opposed content-based criteria as unnecessarily vague); 37 (PPI) at 12, 35; 45 (ANA) at 10 (believed criteria to be relevant factors but opposed the rebuttable presumption and would not support using criteria as part of that presumption); 48 (DMA) at 8. Some commenters identified, in their written comments, particular criteria they believed to be vague, ambiguous, or overly broad. Comments 14 (AAAA) at 10; 43 (GMA) at 12-15; 45 (ANA) at 8; 63 (NAIS) at 27. At the public workshop conference, » Some of these same parties

' indicated agreement with the criteria if they are

examined together, and no single factor is determinative.

implementing regulations, and that it would produce an unenforceable Rule,

Two commenters objected to considering advertisements placed immediately adjacent to children’s television programs as advertisements directed to children under 12 because doing so would prohibit pay-per-call providers from placing advertising as “run-of-station” spots—i.e., allowing the particular television station to place the advertisements at any available time, rather then specifying a particula placement.1°9 According to one commenter, it is more expensive for advertisers to specify during which television program they want their advertising placed, rather than placinga “run-of-station” advertisement.170

After reviewing the comments and the transcript of the public workshop conference, the Commission has decided to modify the form of the prohibition on advertisements directed to children under 12. The Commission is persuaded that a one-factor rebuttable presumption is unworkable. As drafted, the proposed rule would permit only audience composition data to rebut the presumption. While audience composition data is available for a wide variety of broadcast programming through established services such as Nielsen Television Viewing Profiles, and for magazines through reader profiles, there are currently few data sources for cable channels, nor is their readily available data for other types of advertising formats, such as product packaging. Since no factor alone could have raised the presumption, such a rule could subject many pay-per-call advertisements to a one-factor test without a real opportunity for the advertiser to rebut the presumption. Absent a meaningful source of audience composition data, this approach would be inconsistent with the Commission's , approach to reviewing advertising claims; i.e., the Commission generally __ examines the totality of the circumstances, including the advertisement is placed and the nature of the advertisement itself. Thus, after reviewing the comments, the Commission believes that audience _ composition data may not be a realistic rebuttal factor, but that it is of use, when available, as an indicator of when an advertisement is directed to children under 12.

The final Rule has two distinct tests for determining whether an advertisement is directed to children under 12. The first test is found in

16 Comments 34 (TPI) at 6; 63 (NAIS) at 27; Tr. at 387.

170Comments 34 (TPI) at 6; Tr. at 387-88.

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§308.3(e)(2), which addresses the cese where audience composition data o1 readership data is available and demonstrates that a majority (more than 50%) of the viewing audience of the program or readership 171 of the periodical is composed of children under 12. This first test defines any payfor-call advertisement in those media placements as an advertisement directed to children under 12 and, therefore, completely prohibits such advertisements. Such a finding will be based solely on preexisting competent and reliable audience composition or readership data. This section does not create a new evidentiary burden on a pay-per-call provider to create a database where one does not already exist.

The Commission set the threshold for a “children’s audience,” ij.e., when children under 12 comprise over 50% of the viewers, based on its review of the comments and on its experience and expertise in regulating advertising.172 An audience composed of over 50% young children can reasonably be characterized as a “‘children’s audience.” 173 The Nielsen data provided by PPI demonstrate that very few television programs or periodicals would fall into this category. According to that data, Saturday and Sunday morning cartoons, such as “Beetlejuice,” would have an audience composed of more than 50% children under 12. Prime time programs with a juvenile appeal, like “Growing Pains,” have approximately 40% of their audience in that age group. With respect ‘0 periodicals, the data provided indicate that publications such as “Game Players Guide to Nintendo” have

|| The proposed rule did not include the phrase

teadership data” in connection with evidence to rebut the presumption that an advertisement was directed to children. However, in the final Rule the Commission added that phrase to clarify that the Rule is intended to cover evidence regarding teadership of print media as well as viewership of broadcast media.

'72Several commenters suggested that 50% was a appropriate threshold for determining whether % advertisement was directed to children under 12: Comments 19 (AAF) at 5; 43 (GMA) at 17—18; Tr.

4378 (GMA: “at least 50% would be a more realistic figure”), 380, 383 (PPI: “50% is a fair Percentage’).

179PP] and CME both urged the Commission to avoid a one-time look at audience composition data,

tinstead, to ensure that the data reflect audience Ce tition over a reasonable period of time.

k a 37 (PPI) at 37; 53 (CME) at 15. While the

ule does not explicitly state that audience

fomposition data be examined over time, the lMmission contemplates that such data generally

Would be viewed over time, and not on a one-time

There may be instances, however, where a

“ — look at audience composition or

*adership data will be sufficient to demonstrate

t the teceiving audience is composed of a

hajority of those under 12.

an under-12 readership of 30%.174 Thus, based on the record, the 50% cutoff would not sweep too broadly, as there are very few television programs or periodicals that would fall into the prohibited category.175 ’

The second test for determining whether an advertisement is directed to children under 12 is contained in §§ 308.3(e)(3)(i)-(vii). Under this test, if competent and reliable audience composition data or readership data do not demonstrate that more than 50 percent of the audience or readership is composed of children under 12, the Commission will consider where the advertisement is placed and its nature and content in determining whether an advertisement is directed to children under 12.176 Sections 308.3(e)(3)(i)-(vi) set forth the media placements the Commission will consider. As discussed below, these sections have been modified slightly compared to the corresponding sections of the proposed rule.177 On the other hand,

§ 308.3(e)(3)(vii) of the final Rule, which remains essentially the same as proposed, states that the Commission will consider the content of the advertisement itself, regardless of where it is placed, in determining whether a particular advertisement is directed to children under the age of 12.

While the criteria contained in the second test are virtually the same as those set forth in the proposed rule, the use of the criteria is entirely different. Under the proposed rule, the existence of any one of the criteria could raise the presumption that a particular advertisement was directed to children under 12. In contrast, under the final Rule, if competent and reliable audience composition or readership data demonstrates that 50 percent or less of

174 Comment 37 (PPI), unnumbered attachment.

178 As indicated above, the NPR specifically requested data regarding audience composition for different television shows. PPI did provide evidence and it amply supports the Commission's 50% threshold. In addition, during the public

. workshop conference, Commission staff asked again

whether any participant had data regarding audience composition, and no additional data was supplied. One participant, AAAA, stated at the public workshop conference that nearly all Saturday morning cartoons and some of the afternoon specials specifically designed for children’s viewing have an audience over 50% under 12. Tr. at 381-82.

176 NAIS expressed concern that audience composition data does not exist for certain forms of advertising, such as product packaging. Comment 63 (NAIS) at 26. While not explicit, this provision is intended to cover situations where data does not exist. Thus, this provision does not require pay-percall providers to conduct research to determine who may be viewing or receiving an advertisement, in the event that such data does not already exist.

177 This section of the proposed rule was numbered 308.3(d)(2). 58 FR at 13386.

the audience is composed of children under 12, or if such data does not exist, the Commission will consider the placement of the advertisement as well as the nature and content of the advertisement itself in making its determination.

The Commission is persuaded by the comments that it would be unreasonable to find that an advertisement violated the statutory prohibition on advertising to children based on the existence of only one factor where it is not evident that a majority of the audience is under 12. Consistent with the Commission's approach to advertising cases generally, in these cases the Commission will examine the totality of circumstances in making its determination. However, the Commission will not assign any particular weight to any of the delineated criteria, nor will it state, in the abstract, the number of factors that it will require to be present in order to find a violation.178 Under this section, audience composition data will not play a role in the Commission's analysis except to place an advertisement in a category of review where the Commission will consider both the placement and content of the advertisement. After reviewing the comments, the Commission is persuaded that this is a fair and reasoned approach. :

The criteria identified in the final Rule are identical, for the most part, to the criteria set forth in the proposed rule which raised the presumption that an advertisement was directed to children under 12,179 Based on overwhelming approval by the commenters and the conference participants of the criteria outlined in the proposed rule, the Commission decided to incorporate them into the final Rule. However, the Commission has added several new factors, including advertisements that appear: (1) On television stations or channels directed to children under 12; (2) on radio stations directed to children under 12; and (3) preceding a movie, shown in a movie theater, directed to children under 12. The Commission has expanded these categories of advertising placement because under the final Rule, the criteria merely provide guidance as

178 See Bolger v. Youngs Drug Products Corp., 463 U.S. 66 (1983) (even when Constitutional rights are implicated, weighing several criteria is permitted).

178 ABC expressed concern that the phrase “afterschool specials,” as used in this section, referred specifically to the “ABC After-School Specials" which ABC asserts are geared toward a teen audience. Comment 20 (ABC) at 2. The final Rule modifies the phrase to the more generic “after school programs,” to clarify that the Commission will consider the placement of an advertisement in any program that is directed to young children and shown in the.afternoon.

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to the type of media-placement that the Commission will consider. Thus, thé addition of these factors will not create an additional burden on pay-per-call providers, but will merely provide notice to the industry that the Commission will consider such placement in its determination of what constitutes advertising of pay-per-call services to children under 12.

6. Section 308.3(f): Advertising to Individuals Under 18

As required by the TDDRA,?®° all payper-call advertisements directed primarily to individuals under the age of 18 are required to provide a clear and conspicuous parental permission disclosure. In the proposed rule,161 advertisements directed to individuals under 18 were defined in terms of a rebuttable presumption based on the medium in which the advertisement was placed, as well as by the nature and content of the advertisement itself. The criteria used to determine if a program was directed to those under 18 were virtually identical to the criteria used to determine if a program was directed to children under 12.

In the proposed rule, advertisements directed primarily to individuals under 18 were presumed to include the following: advertisements appearing in publications directed primarily to individuals under 18 (e.g., certain books, magazines and comic books); advertisements appearing during or immediately adjacent to television programs directed primarily to individuals under 18 {e.g., midafternoon weekday television shows); advertisements broadcast on radio stations directed primarily to individuals under 18; and advertisements appearing on a commercially-prepared video directed primarily to individuals under 18. Finally, any advertisement, regardless of placement, that was directed primarily to individuals under 18 in light of its subject matter, visual content, age of models, language, characters, tone, message, or the like was presumed to be directed primarily to individuals under the age of 18. However, the proposed rule provided that this presumption could be rebutted with competent and reliable evidence demonstrating that the receiving audience was composed primarily of individuals aged 18 or older.

In the final Rule, the Commission has adopted the same approach for requiring the parental permission disclosure as it

29015 U.S.C. 5711(a)(1)E).

11 In the proposed rule, this section was numbered 308.3(e). 58 FR at 13386-87,

has in implementing the prohibition on advertising directed to children. Accordingly, § 308.3(f) of the final Rule sets forth the same two-part test and the same criteria—both in terms of the media-placement and nature and content of the advertisement—that the Commission will consider in determining whether an advertisement is directed primarily to individuals under the age of 18. This section of the final Rule also retains many of the criteria listed in the proposed rule.262 In addition, the Commission has added two new criteria, including advertisements that: (1) Appear on cable or broadcast television stations directed primarily to individuals under 18; and (2) precede a movie, shown in a movie theater, directed primarily to individuals under 18. Like the additions to the criteria contained in § 308.3(e), these new factors do not create an additional burden on pay-per-call providers; they merely provide additional guidance as to the type of media placement that the Commission will consider,

Under the proposed rule, the standard required to demonstrate that the receiving audience was composed primarily of individuals aged 18 or older was different from the standard required to demonstrate that the receiving audience was composed predominantly of children aged 12 or older, These different standards (“predominantly” versus “primarily’’) were based on the specific language differences in the TDDRA. Thus, the Commission contemplated that in order to rebut the presumption that an advertisement was directed primarily to individuals under 18, the advertiser would need only to show that more than half of the receiving audience was 18 or older. In contrast, the Commission contemplated that in order to rebut the presumption that an advertisement was directed to children under the age of 12, the advertiser would have to show that more than two-thirds to three-quarters of the audience was 12 years of age or older,183

The Commission recognized, however, in the NPR, the potential difficulties raised by these provisions, and accordingly asked whether the use of the words “predominantly” and “primarily” was Meaningful and whether the corresponding perceritages contemplated by the Commission were appropriate. As discussed above in part I1.B.5, supra, the Commission also requested audience composition data

182 As noted above, the weight of the comments Supported the criteria outlined in the proposed rule. 7°358 FR at 13381 (question 13).

that would assist it in setting standards for audience size.

Few commenters focused specifically on the definition of advertisements to individuals under 18.184 Those that did were divided as to whether the standard for rebutting the presumption should by the same as that for children under 12, or whether it should be different, based on dissimilar language used in the TDDRA.185 The commenters that favored different standards generally based their assertions on the language of the statute.186 These commenters also urged the Commission to set an even higher standard for rebutting the presumption that an advertisement was directed to individuals under 18. In contrast, several commenters objected to the proposed rule’s reliance on two different standards; however, few provided reasons for their beliefs.187 CA asserted that there was no justification for two standards and that in order to protect consumers, both standards should be set at 25% (i.e., any audience composed of 25% or more of a certain age group would constitute an audience of that group).188 On the other hand, GMA proposed a threshold of 50% for both groups.189 ;

Based on its review of the comments, the Commission has decided to use the same standard of audience composition data for both groups.190 As noted in the NPR,191 the Commission contemplated in the original proposal that to rebut the presumption that an advertisement was directed primarily to individuals under 18, over 50% of the audience would have to be individuals 18 and over. Consistent with that policy, the Commission has determined that any advertisement, appearing where

184 The reason for this may be that if an advertisement falls into this category, the only requirement is that the pay-per-call provider include a parental permission disclosure in tho advertisement. In contrast, if an advertisement is deemed to be directed to children under 12, then it is completely prohibited under the Rule. Moreover, the industry already appears to include parental permission disclosures in many of its pay" per-call advertisements. ;

185 The TDDRA prohibits advertisements directed to children under 12, but requires parental permission disclosure in advertisements direcied primarily to individuals under 18, 15 U.S.C. 5711(a}(1) (D) and {E).

188 Comments 40 (NACAA) at 6; 42 (NAAG) at 15;

53 (CME) at 16. :

167 Comments 21 (NCL) at 17; 31 (CA) at 7; 43 (GMA) at 17-18.

188 Comment 31 (CA) at 7.

189 Comment 43 (GMA) at 17-18.

190 The reasons for deleting the rebuttable presumption from this section of the final Rule a? the same as the reasons for deleting the similar presumption in the prohibition against ; advertisements to children under 12, discussed in part II.B.5, supra.

19158 FR at 13374,

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available audience composition or readership data demonstrates that a majority (more than 50%) of the viewing audience of the programming or the readership of the periodical is composed of individuals under 18, will be required to include the parental permission disclosure.192 While the Commission initially contemplated the use of two different standards, upon examination of the record, the Commission has decided to adopt the same standard for both age categories. The legislative history does not provide any explanation for the discrepancy in statutory language, and it is not apparent that Congress had differing intents. The over-50% audience cutoff figure can just as reasonably be applied to the under-18 age group as it can to the under-12 group. As in the case with advertisements directed to children, if advertisements do not fall into this delineated category, the Commission will consider a number of other criteria in its determination to apply the Rule.

In the proposed rule, the parental permission disclosure was required to be clear and conspicuous, as that term was set forth in the rule. The proposed tule included requirements that in television or videotape advertisements, the video disclosure concerning parental permission be adjacent to the largest presentation of the pay-per-call number, and that each line of the video portion of the disclosure occupy at least one-tenth of the vertical field of the television screen. In any program-length commereial (i.e., 15 minutes or longer), the video disclosure had to appear simultaneously with and for the same duration as each presentation of the pay-per-call number. In print advertisements, the disclosure was required to be adjacent to the largest presentation of the pay-per-call number, and each letter 6r numeral was required to be at least 12-point type. In any program-length radio commercial, the disclosure was required to be delivered immediately preceding each delivery of the pay-per-call number.

While the Commission received many comments pertaining to the clear and conspicuous standards set out in the proposed rule, including the specific size and placement specifications, the Commission did not receive many

192 One commenter spscifically suggested that 50% was an appropriate threshold in the context of advertisements directed primarily to individuals under 18. Comment 43 (GMA) at 18. Many Commenters simply did not address the issue. This Over-50% figure, however, includes all those under the age of 18, including those below the age of 12 who happen to be in the audience. To the extent that advertising continues to reach the under-12 age

Soup, it should include the parental permission warning. :

comments specific to the particular requirements set forth in this-section of the proposed rule. Several comments favored the proposed size requirement for the parental permission disclosure,193 while others opposed the specifications as too restrictive and rigid.19¢ Another comment expressed concern that requiring both the cost and parental permission disclosures to be adjacent to the pay-per-call number would result in cluttered disclosures.195 CME generally supported the rule as proposed, but saw no basis for exempting 15-second advertisements that contain no audio presentation of the pay-per-call number from the simultaneous audio-video disclosure requirements.198

egarding the language of the parental .

permission disclosure, one commenter requested that the Commission adopt the language prescribed in its consent orders relating to children’s 900 numbers.?97 Another commenter questioned whether an advertisement in a magazine with e readership composed of individuals 16-35 years old 198 could merely disclose that one must be 18 years old to call the service.199 The Commission has decided not to require any specific language in advertisements directed to individuals under 18, nor

will it provide “safe harbor” language in

this instance. The Commission’s existing orders in this area dealt with advertisements clearly directed at a very young age group (i.e., Santa Claus and Easter Bunny lines), and therefore it was reasonable to construct a disclosure that could be easily understood by young children. In contrast, the Rule requires

a parental permission disclosure in advertisements directed to an audience that may contain young children and teenagers.

Given the inherent difficulty of creating specific language that would be appropriate to a broad range of services and age groups, the Commissien has declined to do so. Those who produce pay-per-call services can exercise their discretion in developing disclosures

193 Comments.31 (CA) at 7-8; 53 (CME) at 17.

194 Comments 37 (PPI) at 13-14; 43 (GMA) at 19; 63 (NAIS) AT 29.

295 Comment 63 {NAIS) at 29.

196 Comment 53 (CME) at 17-19.

197 Comment 53 (CME) at 22.

198 In placing an advertisement in a magazine with a readership of individuals between the ages of 16 and 35, the advertiser would have to consider the particular spread of that readership. if more than 50% of the readers were under 18, the advertisement would be considered directed primarily to those under 18. If less than 50% of the readers were under 18, the advertiser would have to look to the criteria set forth in § 308.3(f)(4) to determine whether the disclosure is required.

198Comment 35 (AIP) at 9.

both appropriate to the particular é service and appropriate to the age group in need of the required warning. Furthermore, there is evidence to suggest that when consumers view the same warning in advertisements over long periods of time, they ignore it because the disclosure has ‘‘worn out.” 200 Thus, requiring specific language for this disclosure could have the unintended effect of desensitizing the target audience to the required warning. Accordingly, no specific language is mandated.201

As discussed in part II.B.1, supra, the final Rule requires that all disclosures comply with the standards set forth in § 308.3(a). In addition, each letter of the parental permission disclosure in any advertisement must be, at a minimum, one-half the size of each letter or numeral of the largest presentation of Lg? oat a ata number.

e Commission has modified the size requirements for the parental permission disclosure for the same reasons as those discussed above concerning the size requirements for the disclosure regarding the cost of the call.202 The legislative history indicates that Congress was particularly concerned that the cost of the call and the parental permission disclosures be adequately conveyed to consumers. Therefore, the parental permission disclosure, like the cost disclosure, must be presented at least once simultaneously in both the audio and video portions of a television advertisement.203 However, based on the comments, the Commission believes that it would be impractical to require that both disclosures appear adjacent to the pay-per-call number. The Commission recognizes the need of payper-call providers to have some flexibility in designing advertisements for their services. Thus, the parental permission disclosure need not appear adjacent to and simultaneously with the pay-per-call number. In television advertisements, however, the video disclosure must remain on the screen for sufficient time to allow consumers to read and comprehend it. The Commission believes that by maintaining the requirement that the

200 See footnote 132, citing marketing studies indicating that repetition of the same advertising message results in decreased effectiveness.

201 The TDDRA requires a statement that conveys that individuals under 18 must have parental permission to call the number. Given this statutory mandate, the Commission believes that it is not sufficient for an advertisement merely to advise the viewer that one must be 18 years old to call.

202 See part I1.B.2, supra.

203 The same limited exceptions that apply to this requirement in the cost disclosure section will also apply here.

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parental permission disclosure be the same size as the cost disclosure, by tying these sizes to the size of the payper-call number,2 and by requirin that the statement be in both the audio and video portions of television advertisements, the Rule ensures that the disclosure will be clear and conspicuous. Moreover, as discussed in part 1I.D.1.d, infra, cll preambles for pay-per-call services must also state that individuals under 18 years of age must have their parent’s permission before calling. :

In any program-length advertisement (radio or television), the disclosure must be delivered at least three times, near the beginning, middle and end of the commercial. This should ensure that those who may tune in to only a portion of the commercial will nonetheless receive the information.

7. Section 308.3(g): Electronic Tones in Advertisements

The TDDRA mandates that the Commission prescribe a rule prohibiting a provider of pey-per-call services from using advertisements that emit electronic tones that can automatically dial a pay-per-call telephone number.205 The proposed rule included this prohibition, and the Commission received no comments.on this provision. Accordingly, it is included in the final Rule as proposed.

8. Section 308.3(h): Telephone Solicitations

The proposed rule required the provider of pay-per-call services to ensure that any telephone message soliciting calls to a pay-per-call service disclose the cost of the call in a slow and deliberate manner and in a reasonably understandable volume, in accordance with the cost disclosure requirements set out in the proposed rule at §§ 308.3(a)(1)(i}-{v). As explained in the NPR, such messages might be accessed through a toll-free telephone number, for example,206 or through any regular long distance or local telephone exchange.207 The

204 As noted in the cost disclosure section, above, there may be certain kinds of advertisements in which a type size one-half the size of the pay-percall number would not be adequate to provide a clear and conspicuous disclosure.

205 15 U.S.C. 5711(a)(1){F).

206 As required by the TDDRA, 15 U.S.C. 5711(a)(2){F), the final Rule, at § 308.5{i), prohibits the providing of pay-per-call services through tollfree telephone numbers. Thus the caller cannot be connected or transferred to a Pay-per-call service after calling a toll-free number. However, there is no prohibition against using a toll-free number to advertise a pay-per-call service so long as no direct connection or transfer to the service can be made.

207 The Telephone Consumer Protection Act of 1981, 47 U.S C. 227 (“TCPA"), would ban all

Commission did not receive any comment on this provision, and it has been retained unchanged, except to reflect that the sections setting forth the cost disclosure requirements are now contained in §§ 308.3(b)(1)(i)-(v) of the final Rule.

9. Section 308.3{i): Referral to Toll-Free Telephone Numbers

The proposed rule closely tracked the language of the TDDRA,208 and prohibited providers of pay-per-call services from referring in advertisements to an 800 telephone number, or any other telephone number advertised as or widely understood to be toll-free, if callers to that number may be connected te an access number for, or may otherwise be transferred to, a pay-per-cail service. One commenter suggested that this section be expanded to prohibit advertisements referring to “toll-free numbers” for which any charge is levied due to the completion of the cai].z09

As will be discussed in part II.D.9, infra, the Commission has expanded the prohibition against providing pay-percall services through an 800 or toll-free telephone number to parallel the statutory provision on common carrier requirements, as well as the relevant FCC regulations, restricting the use of 800 numbers. The prohibited uses of toll-free numbers now include: (1) The calling party being assessed a charge for the call simply by virtue of completing the call; (2) the calling party being connected to an access number for, or otherwise transferred to, a pay-per-call service; (3) the calling party being charged for information conveyed during the call, unless there is a presubscription or comparable arrangement; and (4) the calling party being called back collect for the provision of audio information services, simultaneous voice conversation services, or products.

The Commission believes that if payper-call services are prohibited on tollfree telephone lines, providers should not be permitted to advertise such services, Accordingly, this section of the

computer-generated calls to homes, including those soliciting calls to pay-per-call services, unless such calls are made for emergency purposes or the subscriber consents in advance to them. The TCPA became effective December 20, 1992. However, the United States District Court for the District of Oregon found that this provision of the TCPA placed an unconstitutional restriction on protected commercial speech, and therefore prohibited its enforcement. Moser v. FCC, No. $2-1408-RE (D. Or. May 21, 1993). On July 19, 1993, the government filed, in the U.S. Court of Appeals for the 9th Circuit, a notice of appeal of this decision.

298 15 U.S.C. 5711(a)(1){1).

zoe Comment 21 (NCL) at 17-18.

final Rule states that providers of payper-call services are prohibited from referring in advertisements to an 800 telephone number, or any other telephone number advertised or widely understood to be toll-free, if that number violates the prohibition concerning toll-free numbers set forth in § 308.5(i) of the Rule.

C. Section 308.4: Special Rule for Infrequent Publications

In the TDDRA, Congress left to the discretion of the Commission whether to grant certain exemptions to “infrequent publications,” based on the fact that many such publications have a policy against publishing specific prices.21° The proposed rule allowed an exemption from the cost disclosure

requirements for advertisements for pay-

per-cali services that appear in publications that meet certain requirements. This section is intended to cover publications such as a yellow pages telephone directory, or other publications published on an infrequent basis. Instead of the usual cost disclosures required by the proposed rule, advertisements for pay-per-call services in this type of publication are permitted simply to include a clear and conspicuous disclosure that a call to the pay-per-call service may result in a substantial charge above the longdistance charge. In order to qualify for this exemption, the proposed rule _ required that the publication be: (1) Widely distributed; (2) printed annually or less frequently; and (3) one that has an established and written policy of not publishing specific prices in advertisements.

The final Rule retains the exemption for infrequent publications, with several modifications, as noted below.211 First, the Rule does not require that an infrequent publication’s policy against publishing specific prices be in writing, only that it be an established policy. In the NPR, the Commission specifically asked whether it would be sufficient if a publication had an established, but unwritten, policy of not publishing prices.212 While few commenters

21015 U.S.C. 5711(a)(7).

211 One commenter, CA, opposed the exemption for infrequent publications because it feared that such an exemption would create a loophole that would allow providers to avoid disclosure requirements set forth in other sections of the Rule. CA stated, however, that if such an exemption were created, it should be tightly regulated to protect — consumers. Comment 31 (CA) at 8. The Commission is persuaded by the weight of the comments that the Rule should include an exemption for infrequent publications. The requirement that the publication be published annually, or less frequently, lessens the likelihood that such a publication will bea popular forum for advertising pay-per-call services.

21258 FR at 13382 (question 17.b).

Ofna Se so: <

wo Ss Bs BO bp’

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focused specifically on this issue, those that did were unanimous in their opposition to the requirement in the proposed rule that such policy be in writing.223 One commenter, YPPA, suggested that such a requirement would create a disproportionate burden on smaller directory publishers because many of these publishers do not maintain the staff necessary to draft and analyze written policies.214 The commenter further explained that, while most directory publishers do, indeed, have an established policy against publishing specific prices, many do not have a written policy to that effect.215 Thus, it could be costly for many infrequent publishers to develop a written policy regarding the publication of prices for pay-per-call services. Moreover, the language of the TDDRA describes a publication with an “established policy” against publishing specific prices, and does not mention the need for a written policy.21¢ Thus, the Commission is persuaded that the requirement in the proposed rule that infrequent publications must have a written policy against publishing specific prices in advertisements in order to qualify for this exemption is unnecessarily restrictive; accordingly, the final Rule dogs not contain such a Tequirement,217 econd, in the actual disclosure requirement for infrequent publications, the final Rule deletes the phrase “‘above the long-distance charge,” and will only require a disclosure that the call may result in a “substantial charge.” One commenter, US West, indicated some confusion as to whether the language as originally proposed was prescriptive (i.e, whether the language in the proposed rule was always required in the advertisement) and also whether the disclosure requirement applied only to pay-per-call services in which a longdistance charge was also going to be assessed,218 US West correctly noted that in some cases, a call to a pay-percall service may not, in fact, result in a charge greater than one might expect to ——————— TT 213 Comments 56 (YPPA) at 3-7; 57 (US West) at 20; 63 (NAIS) at 31. Another commenter, AIP, opposed the requirement that the publication be Published annually or less frequently. Comment 35 (AIP) at 8-10. However, the TDDRA specifically States that any exemption for cost disclosures be Permitted only in publications that are published annually or less tly. 15 U.S.C. 5711{a){7). Therefore, the Commission will retain that Condition, 214Comment 56 (YPPA) at 4, 6-7. 218 Id. at 3-7, 615 U.S.C. 5711{a)(7). : 217 However, such a publication will have the -burden of proving that it had an established, but Unwritten, policy against publishing specific prices in advertisements, *16Comment 57 (US West) at 21-22.

pay for a long-distance call.219 US West also noted that the TDDRA did not

- require this additional language. The

TDDRA merely stated that in lieu of requiring infrequent publications to publish specific prices, such publications could be required to disclose that e “substantial charge” may be incurred.220 The Commission believes that US West has raised a legitimate concern, and that the phrase “above the long-distance charge” in the proposed rule may be confusing. Thus, § 308.4{a) of the final Rule requires that an advertisement in an infrequent publication clearly and conspicuously disclose only that a call to the advertised service may result in a substantial charge. While the Commission dogs not intend for the actual language of this provision to be required to be used in the advertisements, any disclosure would have to convey the message that the charge for the call might be significant— i.e., more than a consumer might expect to pay for a local or even a long-distance telephone cal!. For example, it is the Commission’s opinion that the use of the phrase “pay-per-call” adjacent to the pay-per-call number in such an advertisement, as suggested by one commenter,221 would not suffice, as it does not necessarily convey this message.

The proposed Rule did not address requirements for alphabetical listings contained in infrequent publications, such as the white or yellow pages alphabetical listings. Although the Commission did not specifically solicit comments on this issue, sever: commenters proposed that the final Rule exempt from all disclosure requirements any alphabetical listings contained in such publications.222 Although such listings are paid for, they are, as YPPA noted, usually limited to the name, address, and telephone number of the Soh peten provider. Moreover, the listings themselves occupy 4 very small amount of space, leaving virtually no room in or adjacent to the listing for any disclosures.223 The Commission is persuaded that if the final Rule requires that all disclosures set forth in the proposed rule be included in alphabetical listings of the type commonly found in telephone directories, then such listings would not be feasible for listing pay-per-call

219Comment 57 {US West) at 22.

22015 U.S.C. 5711{a){7).

221 Comment $7 (US West) at 22.

222 Comments 56 (YPPA) at 11; 57 {US West) at

that this exclusion is explicit in some state laws. See lowa Admin. Code 714A.1(1) (1992).

223 Comment 56 (YPPA) at 11. YPPA also noted .-

providers’ names and telephone numbers. Based on the comments, the Commission has decided to add a section to the final Rule, stating that the provider of a pay-per-call service that places an alphabetical listing in an infrequent publication is not required to make any of the disclosures required by § 308.3, provided that such listing does not contain any information except the name, address, and telephone number of the pay-per-call provider. The inclusion of any additional information, such as a slogan, would trigger all relevant disclesure requirements.

D. Section 308.5: Operation of Pay-Per- Call Services

Section 308.5 of the Rule sets forth the various requirements and prohibitions that apply to the operation of pay-per-call services.

1. Section 308.5(a): Preamble Message

As required by the TDDRA, each payper-call message must be preceded by an introductory message, or preamble, that discloses various facts relevant to the consumer’s decision to complete the call and incur the charge for the service.224 These disclosures are set forth in § 308.5{a) of the Rule, Both NACAA and NAAG suggested that the Rule require the preamble to precede any other information in the pay-percal] message.225 This is the intent of the Commission, and the Commission believes the Rule imposes this requirement by describing the preamble as “an introductory disclosure message.”

(a) Section 308,5(a)(4): Name of Provider and Description of Service

The preamble must identify the name of the provider of the pay-per-call service and describe the service that is offered. The TDDRA requires description of the service, but not identification of the name of the provider.226 However, FCC regulations that have governed the interstate transmission of pay-per-call services by common carriers since 1991 have required identification of the name of the provider in the preamble.227 The

224 15 U.S.C. 5711(a)(2)(A).

225 Comments 40 (NACAA) at 8; 42 (NAAG) at 16.

220 15 U.S.C. 5711(a)(2){A}fi). :

227 47 CFR 64.711(b) (to be deleted as of November 1, 1993}. With the promulgation of both FTC and FCC regulations pursuant to the TDDRA, the FCC will rescind its preamble requirements. The new FCC rule obligates any common carrier assigning a telephone number to a pay-per-call service provider to require, by contract or tariff, that such provider comply with regulations promulgated by the FTC pursuant to titles I] and III of the TDDRA. 47 CFR 64.1502.

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FCC noted that this requirement would “provide important additional information to the consumer with little or no additional burden on the (interexchange carriers) or information providers." 228

The Commission sought comment as to the usefulness of this requirement, and asked whether the address or location of the pay-per-call service provider should also be disclosed in the preamble.229 Identification of the provider in the preamble was supported by USTA, VRS, CA, NACAA, USPS, and Sprint.230 USTA suggested that this requirement helps to “eliminate the possibility of an erroneous perception of an affiliation between the local telephone company and a 900 service provider in the eyes of the customer.” USPS pointed out that the information may help a consumer to avoid dealing with an entity with whom he or she has had problems in the past. Sprint, CA, and USPS supported preamble disclosure of the address of the provider; Sprint and CA also advocated inclusion of the provider's business telephone number in the preamble. PPI opposed the requirement, stating that the identity of the provider was irrelevant in most cases and should be left to the discretion of the pay-per-call provider.231 NII asserted that the information could be confusing to the caller, who may be familiar with the name of the program but not the corporate identity of the pay-per-call provider.232

The Commission has determined that it is appropriate to require identification of the name of the provider in the preamble. The industry has been required to incorporate this information into the preamble since the FCC regulations went into effect in 1991. No member of the industry has argued that it is burdensome to do so. Moreover, as pointed out by USTA, the information may be important in some cases to dispel erroneous consumer perceptions about the identity of the pay-per-call provider. Because of the unique nature of this transaction, the consumer generally will have little or no idea of the identity of the business entity before placing the call and incurring the charge. Since the information may be of

228 FCC, Report and Order, Policies and Rules Concerning Interstate 900 Telecommunications pair : on bo Se 91-65, ¥ 26 at 13 (October

‘ elecommunicati i aalvehieér nications Services

22958 FR at 13382 (question 18).

230Comments 16 (USTA) at 14; 23 (VRS) at 5-6; 31 (CA) at 8-9; 40 (NACAA) at 8; 59 (USPS) at 7_. 8; 81 (Sprint) at 7.

231 Comment 37 (PPI) at 39.

232 Comment 73 (NI) at 5.

benefit to some consumers, and the obligation to provide it does not appear to be burdensome to the industry, the requirement will be retained.

However, the Rule will not require that additional information, such as the address and business telephone number of the provider, be given in the preamble. There is little basis to conclude that this additional . information would be particularly beneficial to consumers in a preamble. Moreover, the information with regard to the address is otherwise available to

consumers. Pursuant to FCC regulations,

common carriers assigning telephone numbers to pay-per-call providers, and offering billing and collection services to such providers, must establish a local or toll-free telephone number to answer consumers’ questions regarding pay-percall services and to give callers the name and mailing address of the provider of any pay-per-call service offered by that carrier.233 This toll-free number must appear in any telephone bill containing charges for such services,234

(b) Section 308.5(a)(2): Cost of the Call

The preamble must disclose the cost of the call. The TDDRA requires that this disclosure include “‘the total cost or the cost per minute and any other fees for that service and for any other payper-call service to which the caller may be transferred.” 235 The preamble requirement in the final Rule,

§ 308.5(a)(2), parallels the cost disclosure requirement for advertisin set forth in § 308.3(b)(1). If a flat fee is charged for the call, the preamble must disclose the total cost. If the call is billed on a time-sensitive basis, the preamble must state the cost per minute and any minimum charges. In addition, if the length of the program can be determined in advance, the preamble must disclose the maximum charge that could be incurred if the caller listens to the complete program.

Some industry associations opposed this latter requirement, which is phased slightly differently in the final Rule than it was in the NPR.236 Both IISC and

#

233 47 CFR 64.1509,

23447 CFR 64.1510. Under the FTC Rule, § 308.5(j), pay-per-call providers must ensure that any billing statement for their services includes this local or toll-free telephone number. See section 1.D.10, infra. This Tequirement ensures that billing entities that are not common carriers will also be obligated to display this information on the bill. The failure to display this number on the bill would constitute a billing error, pursuant to § 308.7(a)(2)(viii) of the Rule. _ 48815 U.S.C. 5711(a)(2)(A)(ii).

236 The proposed rule stated: “If the duration of the program can be determined in advance, the preamble shall also state the total cost for the

NAIS asserted that the FTC has exceeded its statutory authority by requiring a disclosure of total cost in some instances where the pay-per-call provider assesses charges on a timesensitive basis. They argued that the TDDRA’s use of the word “or” in the phase “the total cost or the cost per minute’’237 precludes the Commission from adopting this provision.23s

The Commission does not believe its statutory mandate to be so restricted, particularly in light of other language in the TDDRA which authorizes the Commission to adopt additional measures to prevent practices that might evade the Rule or otherwise undermine its protections.239 The provision applies only in those limited situations where the program is a fixed duration, but the pay-per-call provider has elected to impose a per minute charge rather than a flat fee.240 If the complete program is 10 minutes in length, but the advertising and preamble disclose only that the cost is $2.95 per minute, the consumer cannot make an informed choice to place the call, without knowing that the full price of the information will be $29.50. In the absence of any requirement that the total cost be disclosed in this instance, there would be an incentive for some pay-per-cal! providers to lengthen the program and place key information near the end of the program to discourage the caller from hanging up.

Moreover, this disclosure has been required under FCC regulations since 1991.241 In adopting its preamble requirement, the FCC stated: ‘“‘The benefits to consumers in the form of full knowledge of the total cost for pay-percall programs which have a predictable duration will outweigh the minimal

complete program." 58 FR at 13387. The wording has been changed in order to clarify the intent of this provision.

287 15 U.S.C. 5711(A)(1)(A) and (a)(2)(A)tii).

236 Comments 39 (IISC) at 12-13, 25-26, 42; 63 (NAIS) at 11-12, 34.

23815 U.S.C. 5711{a)(4) states: “The rules issued by the Commission under this section shall include provisions to prohibit unfair or deceptive acts or practices that evade such rules or undermine the rights provided to customers under this title, including through the use of alternative billing or other procedures.”*

240 The obligation to disclose total cost wil! not apply to programs of undetermined length, such as programs that are interactive or asynchronous because they depend upon input from or options selected by the caller (other than the ultimate option of hanging up prior to completion of the - Program or the option of repeating the program, if available). Some industry representatives indicated at the public workshop conference that they had n0 objection to a required total cost disclosure for time based calls so long as such a provision applied only to those programs that would not vary in length. Tt. at 110, 127-28.

24147 CFR 64.711(a) (to be deleted as of November 1, 1993).

co

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difficulties that some information providers may have in implementing this disclosure requirement.”

The proposed rule additionally required, for time-sensitive calls where the duration of the program could not be determined in advance, that the preamble state that the length of the call is subject to caller discretion. The proposed disclosure was qualified by the phrase “‘unless it is otherwise clear from the context that such is the case.” 242 The Commission asked whether this additional disclosure was necessary and appropriate.243 Various providers of pay-per-call services and industry associations asserted that this language is unnecessary.244 Some believed it to be self-evident that when charges are stated on a per-minute basis, the length of the call is determined by the caller. Other comments suggested that the qualifying language (“unless it is otherwise clear from the context * * *”) was ambiguous and confusing.245

The Commission has dropped this proposal requiring disclosure that the length of the call be subject to caller discretion. The Commission is persuaded that in most instances, that fact will be self-evident to the consumer. Moreover, the Commission is concerned about unduly lengthening both the parable and the required advertising disclosures by an added statement that may have only marginal consumer benefit.248

24258 FR at 13387. 4

24358 FR at 13380 (questions 4 and 5) and 13382 (question 19).

244Comments 22 (Meganews) at 4; 37 (PPI) at 29- 31, 40; 39 (IISC) at 29; 52 {iia) at 22; 61 (ICN) at 4-6 Tr. at 112-114,

245 Comments 35 (AIP) at 3-4; 40 (NACAA) at 4. _ *61iSC noted that many states, as well as some industry guidelines, require that advertising for pay-per-call services billed on a time-sensitive basis disclose the length of the average call. Comment 39 (USC) at 28-29. NAAG proposed that the FTC tequire disclosure in advertising of the average cost of the call as well as a statement that ‘‘the total amount of the charges increases each minute that the customer stays on the line.” Comment 42 (NAAG) at 12 and Attachment 1 at 2. USPS tecommended that both advertising and preambles © for certain calls, involving recorded programs that tequire some caller interaction, disclose either the average length and cost of the call or the minimum and maximum length and cost. Comment 59 (USPS) at3 and 8, The FCC, in 1991, declined to include an average cost disclosure in its preamble Tequirement. It did so because of the difficulties in Cal culating a meaningful average, and because it mee concerned that an average cost requirement could, itself, be used to deceive consumers.” FCC 900 Tslecommunications Services Rule of 1991, ig at 12. The FTC likewise shares these concerns.

or example, the average call might be short if a Number of consumers hang up prematurely because ye Service did not meet their expectations. : seerdingly the commission declines to include an tee cost or length disclosure requirement in her advertising or the preamble.

The proposed requirement for disclosure of the cost of variable rate calls, § 308.5(a)(2)(iii), evoked very little comment. This provision remains unchanged in the final Rule. For these calls, the preamble must state the cost of the initial portion of the call, any minimum charges, and the range of rates that may be charged depending on options chosen by the caller. This seems to be the minimum necessary information that should be disclosed for complex programs which involve varying rate structures. The capability for variable-rate billing within the same call leaves open the possibility of deception and abuse if the multi-rate structure is not carefully disclosed to the consumer. The Commission has tried to construct a disclosure requirement to preclude this possibility of misuse.

Finally, the Rule at § 308.5(a)(2)(iv), as mandated by the TDDRA,?47 requires disclosure of any other fees that will be charged for the service, as well as fees for any other pay-per-call service to which the caller may be transferred. The required disclosure of ‘“‘any other fees * * * for the service’ prevents a payper-call provider from imposing undisclosed, additional charges for the service by designating them as something other than the cost of the call. For example, such additional fees might include charges for computer time, or charges for the mailing of print information that the consumer is supposed to receive by calling the 900 number. AIP noted that “(t)}he proposed rules do not specify whether usual toll charges must be disclosed where such tolls are charged in addition to the charge for pay-per-call services.”’248 The Commission believes that the clear intent of the TDDRA is to require full disclosure of all fees the consumer will be charged in order to receive the advertised service. If the pay-per-call provider imposes a “‘toll’”’ charge upon the caller, in addition to the charge for the pay-per-call service itself, that charge should be disclosed in advertising and the preamble. Likewise, if multiple calls to the same ora different number are required to receive the advertised service, those charges must also be disclosed.

Both NACAA and NAAG propose that the Commission prohibit a pay-per-call provider from transferring a caller from one pay-per-call service to another.249 However, the TDDRA does not prohibit

247 15 U.S.C. 5711(a)(2)(AM{ii). 248 Comment 35 (AIP) at 3. 249 Comments 40 (NACAA) at 4; 42 (NAAG) at 12.

this practice.250 It requires only that full disclosure be made, in both advertising for and the preamble to the first pay-percall, of the cost of any service to which the caller may be transferred. Given the apparent congressional intent to permit this practice, so long as full disclosure is made, the Commission declines to prohibit all such transfers, It is hoped that by requiring the disclosure of the costs of multiple services within one advertisement and one preamble, the use of such transfers will be limited to those services where such a transfer may perform a legitimate, non-deceptive purpose. The disclosure obligation applies to any program where the caller may be transferred to another pay-percall service without hanging up and dialing the second number.

(c) Section 308({a)(3}: Changes Begin After the Preamble

The preamble must state that charges for the call will begin, and that to avoid charges the call must be terminated, three seconds after a clearly discernible signal or tone indicating the end of the preamble. The TODRA makes no reference to a signal or tone. However, it requires that callers be informed that charges begin at the end of the introductory message and that the payper-call provider enable the caller to hang up at or before the end of that message without incurring any charge whatsoever.251 The Commission included the tone requirement in the proposed rule,252 and various parties commented on this provision. AT&T supported the proposal, noting that “(his signal or tone would clarify any possible misunderstanding of when the charges will begin.” 253 However, AT&T noted that such a tone is not currently available from the carrier and must emanate from the provider’s equipment. Some industry associations and pay-percall providers opposed the requirement, asserting that a tone is intrusive, unnecessary, and inappropriate for calls involving live conversation.254 Their views were repeated at the public workshop conference. On the other

28¢It appears that the TDDRA did intend to prohibit transfer from an 800 or other toll-free number to a pay-per-call service (15 U.S.C. 5711{a}{1)(1) and (a)(2)(F}), and the Commission has done this in § § 308.3{i) and 308.5{i)(2) of the Rule. See parts II.B.9, supra, and I1.D.9, infra.

25115 U.S.C. 5711(a)(2)(A}iii) and (a)(2)(B).

252 58 FR at 13387. :

253 Comment 62 (AT&T), Attachment A ati.

254 Comments 22 (Meganews) at 4; 35 (AIP) at 11; 37 (PPI) at 16, 41; 61 (ICN) at 6; 63 (NAIS) at 39. Some of the opposition to the proposal seemed to be based on the assumpiion that the FTC would require the tone to be generated by the carrier. This was not the intent of the proposed requirement, and apparently such a system is not technologically feasible at the present time.

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hand, NCL and NACAA both emphasized that a tone is a clear, easilyunderstood signa! and one that is familiar to many telephone-users because of its prevalent use on telephone answering machines.255

It is the judgment of the Commission that such a signal or tone is e useful and important benchmark to indicate to the cee that the introductory message has concluded and charges are about to begin.25¢ In fact, a similar requirement has bean in place since the FCC adopted its regulations in 1991. Those regulations mandate that billing begin only “after a specific identified event following the disclosure message, such as a signal tone.” 257 The required signal or tone need not be intrusive and annoying as feared by some industry commenters. It could be a chime or other musical note that is pleasing to the ear, so long as it is clearly discernible by the caller.

In addition to the signal or tone, the proposed rule also stated that the preamble shall inform the caller that he or she “may avoid any charge for the call by hanging up at or before the sound of the tone.” 258 A few commenters opposed this provision, describing the message as an unnecessarily negative “kill message.” 25° The language of the final Rule makes clear that callers must be informed both when charges begin and how to avoid being charged for the call. However, the Commission does not intend to mandate any specific language for this portion of the preamble. The choice of words is left to the discretion of the pay-per-call provider, so long as the caller is left with no doubt as to when he or she must hang up to avoid being charged for the call.

(d) Section 308.5(a)(4): Parental cana Required for Those Under

The preamble must state that anyone under the age of 18 must have parental permission to make the call. Some commenters suggested that the disclosure not be required for all payper-call programs, but only those programs directed to, or likely to be of interest to, individuals under 18,260 However, the TDDRA clearly requires

255 Tr. at 168-81,

28° The Rule then requires an additional threesecond _ -! allow the caller sufficient time to hang up after @ signal or tone. See di i $208.8) ye iscussion of

387 47 CFR 64.711(c) (to be deleted November 1, 1993). =i

25858 FR at 13387.

25¢ Comments 39 at 42;

(NAIS) at 34. USC) 8t 42; 61 (ICN) at 6; 63

2°°Comments 34 t 6-7;

61 (ICN) at 6. bors 37 (PPI) at 16, 40;

the disclosure to be included on all payper-call programs.261

A few commenters suggested that the Commission provide model, safe harbor language for the parental permission advisory.262 CME proposed, for example: ‘This telephone call costs money. If you are under 18 and you do not have your mom or dad’s permission, hang up now and there wil! be no charge for this call.” This language was derived from FTC consent orders with certain pay-per-call providers.263 While there is merit to the CME proposal, the Commission has decided not to try to write a specific disclosure that might be appropriate to all pay-per-call programs. The language mandated by the FTC consent orders, and now proposed by CME, was created for pay-per-call programs specifically directed to young children. Such programs are now prohibited by the TDDRA and § 308.5(h) of this Rule. However, the parental permission advisory must be included in the preambles to all pay-per-call programs. Some of these programs will be directed, or clearly of interest, to those under 18. Other programs may hold little interest for that age group. — Given the inherent difficulty of creating specific language that would be appropriate to such a broad range of programs, the Commission has declined to do so. Those who produce pay-percall programs can exercise their discretion in developing disclosures that are appropriate both to the particular program and to the age group to which the words are directed.

NACAA proposed a requirement that the parental consent advisory be stated in language that is “no higher than a fifth-grade level.”264 It is essential to the effectiveness of this disclosure requirement that it be clear and readily understandable to the population under the age of 18, including some children under the age of 12.265 However, the Commission is not convinced that it is necessary to mandate a specific educational standard for the disclosure.

76115 U.S.C. 5711{a)(2)(A)fiv). = ee Comments 53 (CME) at 22-23; 60 (Pilgrim) at

2e3 Audio Communications, Inc., No. C-3338 Guly 24, 1991); Teleline, Inc., No. C-3337 (july 24, 1991); Phone Programs, Inc., D. 9247 (Dec. 10, 1992); Fone Telecommunications, File No. 912— 3086 (March 17, 1993).

264 Comment 40 (NACAA) at 8,

288 This population necessarily includes some children under the age of 12. Even though pay-percall programs, and advertisements for such

. Programs, cannot be directed to those under 12

(§§ 308.3(e) and 308.5(h)), children in that age Broup can and do call pay-per-call services.

(e) Section 308.5(a)(5): Information About a Federal Program

Finally, if the pay-per-call service provides information about a Federa!

. program, but is not operated or

authorized by any Federal agency, the preamble must state that the service is not authorized, endorsed, or approved by any Federal agency. In the proposed rule, this provision simply tracked the requirement set forth in the TDDRA.zs6 However, for the reasons discussed above with regard to § 308.3(d) of the Rule (which requires a similar disclosure in advertising for such services), the Commission has determined that the requirement should be further clarified. Therefore, language has been added to this provision,

§ 308.5(a)(5), to make clear that the disclosure is required if the pay-per-call service uses a trade or brand name, or any other term that reasonably could be interpreted to imply a Federal government connection, approval, or endorsement. Thus, a program which purports to provide information about a federal benefit program, while actually trying to sell a product or service, would be obligated to make the disclosure. Likewise, a program that does provide information on a Federal program, in more than an incidental manner, would also be required to give the disclosure.267

2. Section 308.5(b}: No Charge to Caller for Preamble Message

The TDDRA requires providers of pay-per-call services to enable callers to hang up at or before the end of the preamble message without incurring any charge whatsoever.268 In the proposed rule, the Commission expanded on this requirement by allowing consumers to hang up without charge at any time prior to five seconds after the conclusion of the preamble. The Commission proposed this additional brief period in order to give consumers sufficient time, after hearing the complete preamble message, to make the decision to disconnect and to do so without incurring any charge for the call.

In the NPR, the Commission sought comment on the following aspects of this provisions: (1) Its usefulness, as well as its costs and benefits; (2) whether five seconds was a sufficient length of time to assure that consumers who hang up at the end of the preamble

208 58 FR at 13387; 15 U.S.C. 5711(a)(2)(A}(v)- 267 However, data services, providing the non-

verbal transmission of information, are exempt from.

the preamble requirement under § 308.5(d) of the Rule.

26815 U.S.C. 5711(a){2)(B).

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will not be billed for the call; and (3) whether the Rule should require some period of silence between the end of the preamble and the start of the program to indicate to consumers that this was the appropriate time to hang up if they so choose.26° A number of law enforcement agencies and public interest organizations supported some period of time between the end of the preamble and the commencement of charges.27° For example, a NARUC resolution recommended that any Federal regulation of pay-per-call services require sufficient time after the preamble to allow the caller to hang up without incurring a charge. In addition, New York currently requires ten seconds between the end of the preamble and the commencement of charges, for intrastate pay-per-call services, to give the consumer adequate time to respond to the information in the preamble,271 On the other hand, a number of providers and associations representing their interests opposed any such delay in the commencement of charges as unnecessarily burdensome and restrictive.272 PPI noted that each additional second in the introductory period costs the information provider one cent. Other providers stated their belief that consumers have sufficient notice to hang up if they do not wish to be charged, given the preamble and the tone requirement.273 3 The Commission believes that consumers must be given some period of time, after listening to the entire preamble, to physically hang up the telephone and still not be charged for the call. In an effort to balance the needs of consumers with the cost of this tequirement to providers of pay-per-call services, the Commission has decided to reduce the required period of time to three seconds, AT&T noted at the public workshop conference that a threesecond period of silence currently is tequired by that carrier, for pay-per-call services on its network, between the end of the preamble message and the commencement of charges. According to AT&T, it has no evidence to indicate that such a time period is inadequate. *”4 The Commission believes this brief Vv 26958 FR at 13382 (question 21). 270Comments 10 (NARUC) at 4, 18; 31 (CA) at 9 be least five seconds of silence; if no silence, at ®ast a ten-second delay); 40 (NACAA) at 8 (five Seconds of silence); 59 (USPS) at 8 (at least two or tee seconds of silence). ?7\Comment 27 (NYDPS) at 2.

; *72Comments 22 (MegaNews) at 4; 37 (PPI) at 41; re (USC) at 42; 61 (ICN) at 6-7; 63 (NAIS) at 34—

*”9 See, e.g., comment 22 (MegaNews) at 4.

Tr. at 136.

interval will be sufficient to address consumers’ needs, while minimizing the costs to providers.

As for the question of silence after the preamble, PPI noted that any silence on a pay-per-call service is “‘deadly” to.the provider, since consumers hang up when they hear silence.275 At least two other providers raised a similar concern at the public workshop conference.276 Given this potential for harm to the providers of pay-per-call services, the Commission has determined that no period of silence is necessary between the preamble and the start of the message; The Commission does not believe that consumers will be confused if the message begins immediately after the preamble, especially since consumers will hear a signal or tone indicating that the preamble has ended.277

At least two commenters suggested, as an alternative to a period of delay between the preamble and billing, that the Rule permit providers to allow consumers an affirmative means of positively accepting charges for a payper-call service.278 For example, a payper-call service may state in the preamble that consumers must press a certain key on their telephone keypad to indicate that they accept the charges for the service. The program would not begin until consumers take the required positive action. Although the major carriers do not offer positive acceptance at this time,279 the Commission believes this option should not be precluded by the regulations. Positive acceptance gives consumers adequate time to decide if they wish to be billed for the call. Any further delay after the consumer indicates acceptance of charges and before billing commences would be superfluous. Accordingly, the

275 Comment 37 (PPI) at 41.

276 See statement of TPI, Tr. at 158. In addition, Blake Barker of USA Today noted that in 1988, when he was a provider of an interactive weather service, the local public utility commission mandated six seconds of silence between the end of the preamble and the start of the message. Within 90 days, Mr. Barker stated that the completed calls to this service dropped by 63 percent because consumers incorrectiy thought there was a problem with the service. Tr. at 264-65. See also Tr. at 119.

277 At least one commenter suggested that the proposed regulations were unclear as to the sequence of events required at the beginning of a pay-per-call service. See comment 52 (IIA) at 32. The Commission believes the final Rule clearly requires the following sequence of events: (1) A preamble message, containing all of the information required by § 308.5(a); (2) a signal or tone, indicating the end of the preamble; and (3) an additiona! three seconds after the sound of the signal or tone, which do not have to be silent, before charges may begin.

278 Comments 23 (VRS) at 6-7; 60 (Pilgrim) at 13- 14.

279 Tr. at 149-50.

final Rule adopts this provision as an exception to the required three-second period after the end of the preamble.

As a final matter, a number of commenters suggested that providers should be permitted to bill consumers for the cost of the preamble, if the consumer in fact decides to remain on the line after the preamble is complete.280 On the other hand, at the public workshop conference, both NAAG and NACAA objected to any such provision, stating that the preamble is like a price tag for which the consumer should not be required to pay. 281 While the Commission understands the providers’ contention that charging consumers for the preamble on completed calls may be equitable, we believe an argument can be made that the TDDRA prohibits such charges.282 At a minimum, the statutory language signals congressional disfavor for charging consumers for the preamble time. Moreover, the FCC recently considered this issue, and concluded that providers should not be permitted to charge consumers for the preamble.283 Accordingly, the Commission declines to adopt such a provision,

3. Section 308.5(c): Nominal Cost Calls

The TDDRA gives the Commission the discretion to exempt from the preamble requirements pay-per-call services provided at ‘‘nominal charges, as defined by the Commission.” 284 As stated in the NPR, “‘(t)}his exemption provision recognizes that below a certain minimal level, it may not be cost effective for the provider to offer the service if all of the disclosures required by § 308.5(a) must be included in a preamble for which the consumer cannot be charged.‘ 285 Therefore, the proposed rule exempted from the preamble requirements any pay-per-call service for which the total cost, whether billed on a flat rate or a time sensitive basis, is $2.00 or less. The Commission also asked a series of detailed, factual

280 Comments 35 (AIP) at 10-11; 51 (USA Today) at 3, 9-10; 61 (ICN) at 6-7; 63 (NAIS) at 37.

281 Tr, at 102-03, 167.

282 For example, the TDDRA states that preambles should inform the caller that charges for the call begin at the end of the introductory message, 15 U.S.C. 5711(a){2)(A)liv), and that providers should enable the caller to hang up at or before the end of the introductory message without incurring any charge whatsoever 15 U.S.C. 5711(a)(2)(8).

283 FCC, Order on Reconsideration, Policies and Rules Concerning Interstate $00 Tselecommunications Services, CC Docket No. 91— 65, 4412-17 at 7-9 (March 10, *993) (“FCC Reconsideration Order’).

284 15 U.S.C. 5711(a)(5)(B).

285 58 FR at 13375.

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questions to determine whether the $2.00 fee level was appropriate. 286

A large number of commenters suggested various rates at which the nominal cost exemption should be set, but most commenters provided little if any factual information to support their contentions, In a second attempt to gain useful data, Commission staff at the public workshop conference asked those in attendance for specific factual information to support an appropriate nominal cost level. Once again, very little evidence was forthcoming. 287

The commenters presented the following factual information to us. First, MCI indicated that in 1992, more than 50 percent of all consumer requests for credit for pay-per-call services that it received were for services costing more than $10.00, while less than 30 percent of consumer credit requests were for calls of $5.00 or less.288 PPI submitted an ATT&T graph showing that during February of an unidentified year, the refund rate for calls below $10.00 was less than two percent.28° USA Today cited comments in the FCC rulemaking proceeding by a “major interstate carrier,” which stated that 12 percent of the total amount of pay-per-call services on that carrier’s network fell below $2.00 in charges, while 30 percent were under $5.00 in total charges. The chargeback rate for these programs was less than 2 percent.290

While an argument can be made that refund rates are a measure of the level of consumer dissatisfaction, it is also possible that consumers simply fail to complain about low-cost calls they find unsatisfactory. NAAG noted at the public workshop conference that its law enforcement experience tends to show that the latter scenario is more typical.2°1 Moreover, both NAAG and NACAA stated that the nominal cost exemption should not be set at the level where consumer refund requests rise, but rather at the level where providers can make a profit even though they include the preamble in their programs.2®2 The Commission agrees. No evidence presented by any commenter showed that providers cannot make a profit, while stil] delivering the preamble, on calls that cost more than $2.00. In addition, it appears that Congress wanted to limit any exemption for nominal cost calls to

286 58 FR at 13383 (question 22). 287 Tr. at 80-97.

288 Comment 32 (MCI) at 12.

28° Comment 37 (P. t 43 and = _ PT) at 43 and unnumbered

290 Comment 51 (USA Today) at 6-7. 291 Tr. at 86-87.

282 Tr. at 86-87, 92-93,

services costing either $2.00 or $3.00.293 Finally, the Commission agrees with the commenters who stated that consumers can be equally harmed by making a number of calls to a lower priced payper-call service as by one call to a higher priced service.294 Accordingly, the Commission has decided to maintain the $2.00 threshold for nominal cost calls that will be exempt from the preamble requirements of § 308.5(a).

4. Section 308.5(d)}: Data Service Calls

In the NPR, the Commission asked whether the final Rule should exempt from the preamble requirements data services, i.e., pay-per-call services that transmit data from one computer to another. The exemption would address situations where no individual is present to receive the information in the preamble.265 A number of commenters in general supported such an exemption.2% Bell Atlantic noted that such calis have not caused the same consumer problems as have voice messages. IIA states that facsimile machines may disconnect in the time it takes to complete a preamble. Moreover, the FCC recently determined that legitimate pay-per-call data services may not be able to place a verbal preamble on their programs, because no reasonable method exists.297 _

Based on this information, the Commission believes an exemption from the preamble requirements is appropriate for data services. Section 308.5(d) of the Rule sets forth this exemption, and states that it applies only when the entire call consists of the non-verbal transmission of information. In other words, this exemption applies to any call in which two machines (i.e., computers, facsimile machines or the like) communicate, without the transmission of the spoken word. However, the exemption will not apply to an entertainment program providing music instead of the spoken word.

5. Section 308.5(e): Bypass Mechanism

The TDDRA gives the Commission discretion to exempt from the preamble requirements calls from frequent callers or regular subscribers using a bypass eM LS ES ENS _ 293 See Senate Report at 13, 18. The FCC also limited the nominal cost exemption to the preamble requirements at $2.00 in both its original regulations of the pay-per-call industry, 47 CFR 64.711 (a), and in its reconsideration of those regulations released in March 1993. FCC Reconsideration Order, 44 5-8 at 4—6.

2% Comments 18 (Bell Atlanti , (CME) at 20-29 ic) at addendum; 53

295 58 FR at 13383 (question 24).

296 Comments 18 (Bell Atlantic) at addendum; 31 {CA) at 10; 37 (PPI) at 45; 52 (TIA) at 10-12, 33— 34; 62 (AT&T), Attachment A at i-ii,

207 FCC Reconsideration Order, 4 11-at 7.

mechanism to avoid listening to the preamble.293 However, the Act further requires that any such bypass mechanism be disabled after the institution of any price increase for “'g period of time sufficient to give such frequent callers adequate and sufficient notice of the price change,” 299 Accordingly, the proposed rule stated that providers of pay-per-call services that offer frequent callers the option of activating e bypass mechanism to avoid the preamble will not be in violation of § 308.5(a), provided that any such bypass mechanism is disabled for no less than 30 days after the institution of a price increase or a change in the nature of the service offered. In the NPR the Commission asked, among other things, if this exemption was useful and appropriate.300

The limited number of commenters who responded to this proposal generally supported the exemption.301 CA believed that the bypass mechanism should be disabled for 60 days after any “significant” change in the preamble, while PPI stated that the bypass should be disabled for only 15 days aftera change in the program. The Commission continues to believe that 30 days is an appropriate period of time to give frequent callers adequate and sufficient _ notice of any increase in price or change in the nature of the service offered. Accordingly, the Commission is adopting the proposed language of this section in the final Rule.302

296 15 U.S.C. 5721(a)(5}(A).

299 15 U.S.C. 5711(a)(2){E).

409 58 FR at 13383 (question 23).

301 Comments 27 (NYDPS) at 2; 31 (CA) at 10; 37 (PPI) at 43-45, CA suggested that any bypass code should be vendor specific, so that casual callers cannot activate the bypass on programs for which they have not heard the preamble. The Commissio . does not believe such a specific requirement is necessary, since callers who use a bypass mechanism do so at their own risk, knowing they are skipping important disclosure information in the preamble.

402 Some providers suggested that the bypass 4 mechanism may be a vehicle for consumers to avo! pay-per-cai! service charges, if information is provided during the preamble period, since providers cannot bill for the time it takes to complete a preamble message. For example, if consumers call a pay-per-call service, immediately bypass the preamble, and obtain the information they seek within the normal preamble time, those consumers will not be billed for their calls, even though they obtained information from the programs. See comment 37 (PPI) at 18-19; Tr. al 101-02. While the Commission recognizes this a exists, a provider is not required to used

ypass mechanism. Furthermore, while carriers currently may not be able to detect when a ‘ea consumer has activated a bypass sochanism : may develop such an ability in the future. per in the Commission's Rule should be interpret prohibiting a provider from initiating billing 4 soon as a caller has bypassed the preamble.

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6. Section 308.5(f): Billing Limitations

Congress required the Commission to prohibit providers of pay-per-call services from billing consumers in excess of the amounts described in the preamble, and from billing for services provided in violation of the rules prescribed by the Commission pursuant

to the TDDRA.2°3 The proposed rule incorporated this prohibition.

The Commission received only one comment concerning this provision. NAAG suggested that providers of payper-call services also be prohibited from billing consumers for any services provided in violation of any other law, regulation or rule, not simply the final Rule adopted by the Commission in this proceeding.20¢ The Commission believes such a provision could be quite burdensome, because it would require billing entities, through their collection contracts with providers, to make evaluations of other Federal or state laws and regulations about which they may have no knowledge. Moreover, states have their own enforcement programs for these purposes.

Accordingly, the Commission is adopting the language as proposed in the NPR.

7. Section 3085.(g): Stopping the Assessment of Time Based Charges

The TDDRA mandates regulations requiring providers of pay-per-call services to stop the assessment of timebased charges immediately upon disconnection by the caller.308 The proposed rule adopted this provision verbatim. The Commission received no comments on this requirement, as proposed, and therefore is incorporating this provision into the final Rule. As stated in the NPR, the Commission Tecognizes that time-sensitive billing is accomplished in one-minute increments, and that any portion of a minute will be billed as a full time.

Such a billing method will not be considered a violation of this provision.

8, Section 3085.(h): Prohibition on Services to Children

Pursuant to the TDDRA,306 the Proposed rule imposed a ban on pay-

Per-call services, except for bona fide educational services, directed to -

oo

im, 25 USC. 5711(a}(24G). Title I of the Act

nce 8 similar requirement on common carriers

= ill for pay-per-call services. The carrier must *

2 ue that a telephone subscriber is not billed for Y Services that the carrier knows, or reasonably

should know, were provided in violation of

"ogulations issued by the FTC pursuant to ti title Il of @ Act. 47 U.S.C. 228(d)(1). :

. a Comment 42 (NAAG) at 16-17. * 15 U.S.C. 5711(a)(2)(D). 15 U.S.C. 5711fa}{2)(C).

children under the age 21. In a manner similar to the ban on advertisements for pay-per-call services that are directed to children under 12, the proposed rule framed this ban in terms of a rebuttable presumption.

For the reasons set forth in part I1.B.5, supra, concerning the prohibition on directing advertising of pay-per-call services to children under 12, the Commission is eliminating the use of a rebuttable presumption in this section of the final Rule as well. Instead, the Rule sets forth the criteria the Commission will use to determine whether a pay-per-call service is directed to children under the age of 12. These criteria include the following: (1) Whether the pay-per-call service is advertised in the manner set forth in §§ 308(e)(2) and (3) of the Rule; and (2) whether the pay-per-call service, regardless of when or where it is advertised, is directed to children under 12 in light of its subject matter, content, language, featured personality, characters, tone, message or the like.

9. Section 308.5(i): Prohibition Concerning Toll-Free Numbers

The TDDRA, in title II, prohibits the | providing of pay-per-call services “through an 800 number or other telephone number advertised or widely understood to be toll free.’’ 307 The proposed rule tracked this statutory language.308 However, some commenters suggested the need to make it clear that the Rule prohibits any charge for a call to an 800 number, even if there is no actual connection or transfer to a 900 number.309 Others suggested that the Rule explicitly prohibit collect call backs that result from a call to an 800 number.310 It is clear from title I of the TDDRA that Congress intended to prohibit both of these uses of 800 telephone numbers.311 Accordingly, in the final Rule, the provision concerning toll-free numbers, § 308.5(i), has been expanded to parallel the statutory provision on common carrier requirements, as well as the relevant FCC regulations restricting the use of 800 numbers.312

The prohibited uses of 800 and other toll-free numbers313 include: (1) The

307 15 U.S.C. 5711i{a)(2){F).

308 58 FR at 13388.

309 Comments 21 (NCL) at 17-18, 40 (NACAA) at

; Tr. at 74, 76-78.

310Comments 55 (GTE) at 2-4, 81 (Sprint) at 13.

311 47 U.S.C. 288{c)(6).

31247 CFR 64.1504.

313 This provision also has been modified to prohibit any person, not just pay-per-call providers, from engaging in these practices. This is necessary to address a problem inherent in the definition of “pay-per-call services.” That definition, as set forth

calling party being assessed a charge for the ca!l simply by virtue of completing ~ the call; (2) calling party being connected to an access number for, or otherwise transferred to, pay-per-call service; (3) the calling party being charged for information conveyed during the call, unless there is a presubscription or comparable arrangement; and (4) the calling party being called back collect for the provision of audio or data information services, simultaneous voice conversation services, or products.314

NAAG suggested that this provision also include a reference to local numbers.315 However, the provision covers eny telephone number that is “widely understood to be toll free.” This would include total numbers where the consumer expects the call to be a tool-free one.

AIP suggested that this section should apply only to calls billed through the telephone company and not to service that are “‘billed privately.’’318 The Commission does not believe that Congress intended to limit the prohibited conduct to services billed through the telephone bill.317 Toll-free numbers can be used to provide payper-call services in only two situations. First, calls to toll-free telephone numbers can be billed pursuant to a presubscription arrangement that meets the criteria set forth in § 308.2{e). Second, calls to toll-free telephone numbers also can be billed to credit or charge card accounts, if authorized by the caller, since the definition of presubscription arrangement also includes calls billed in that manner. Apart from these two situations, charges

in title I of the statute, 47 U.S.C. 228{i), and incorporated into this Rule, § 308.2(c), includes a provision that such services are accessed through use of a 900 telephone number (or other prefix or area code designated by the FCC). Therefore, an information provider that is charging customers for information conveyed pursuant to a call to an 800 telephone number is not, by definition, a ‘‘provider of pay-per-call services.” The problem is resolved by prohibiting any person from engaging in such conduct.

214 Summit's comment describes a system for providing audio information via calls to an 800 number and collect call backs. As described, the system affords the consumer two opportunities to indicate positive acceptance of a collect return call. Summit requests that the FTC include in its Rule provisions governing this type of service. However, it is clear that the TDDRA prohibits this type of service. See 47 U.S.C. 228(c}(6)(D). After the effective date of this Rule, and the parallel FCC regulations, the use of 800 numbers to generate collect call backs will no longer be permitted.

315 Comment 42 (NAAG), Attachment 1 at 6.

316 Comment 15 (AIP) at 11-12.

317 Under 15 U.S.C. 5711(a)(4), Congress authorized the Commission to include provisions necessary to prevent evasion of its regulations through the use of alternative billing procedures.

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for calls to 800, and other toll-free numbers, are prohibited.

10. Section 308.5(j): Disclosure Requirements for Billing Statements

The TDDRA requires providers of pay-per-call services to ensure that any billing statements for their pay-per-call service charges: (1) Display those charges in a part of the consumer's bill that is identified as not being related to local and long distance telephone charges; and (2) for each charge so displayed, specify, at a minimum, the type of service, the amount of the charge, and the date, time and duration of the call.318 The proposed rule incorporated these provisions. In addition, the NPR asked whether the provider's name, address or on and state should be required in the billing statements discussed in this section of the proposed rule.31¢

One commenter stated that the requirement in the proposed rule that pay-per-call service charges be displayed in a separate part of the consumer’s feet ans bill was unnecessary.320 However, this requirement is mandated by the TDDRA and cannot be deleted.321

Another commenter stated that the separate identification of charges for pay-per-call services is appropriate, but that the Commission should not require these charges to be segregated on a separate page of the consumer’s bill, since any additional pages in a telephone bill increases costs to the billing entities and ultimately to the providers.322 The Commission did not intend that charges for pay-per-call services must be printed on a separate page of the consumer's telephone bill. Rather, pay-per-call charges simply must be displayed in a portion of the consumer’s bill that is identified as not being related to local and long distance telephone charges. The method and manner used to segregate these charges, and to identify them as not being related to other telephone charges, is left to the discretion of the billing entity. The Commission believes this section of the proposed rule provides the proper degree of flexibility to the industry, while creating the necessary separation

ae

94815 U.S.C. 5711(a)(2)(H). Title I of the Act imposes the same requirements on common carriers that offer billing and collection services to pay-percall service providers. 47 U.S.C. 228(d)(4).

31958 FR at 13382 (question 18.b).

320Comment 22 (MegaNews) at 5.

321 See 15. U.S.C. 5711(a)(2)(H)fi).

522 Comment 50 (BellSouth) at 6, See also comment 55 (GTE) at 4-5 (the section should only require that the billing statement “display the payper-call service charges in such a way as to clearly distinguish them from the consumer's local and long distance telephone charges").

in consumers’ telephone bills between pay-per-call charges and local and long distance telephone charges. Accordingly, the Commission is

ad OReeE this provision as proposed,

The proposed rule also required all pay-per-call service charges on a consumer's bill to specify the type of service, the amount of the charge, and the date, time and duration of the call. One commenter noted a potential problem with this provision. According to US West, when a pay-per-call service is billed on a flat-rate basis, the billing entity may not receive information on the duration of the call, since that information is irrelevant to the amount of the charge for the call.323 To address this concern, the final Rule, at § 308.5(j)(2), includes a provision that the duration of the call need only be specified for calls billed on a timesensitive basis.

In response to the NPR question whether the provider’s name or address should be required on a consumer's billing statement,32¢ CA and NACAA both stated that such a provision would aid consumers and enforcement agencies in determining the identity of the provider.325 Many other commenters opposed this proposal, however. Ameritech stated that the inclusion of additional information about the provider on a consumer's bill would increase both the size and complexity of the bill, which ultimately may produce a negative consumer reaction.326 BellSouth and US West both stated that it would be difficult for the local exchange carrier to keep a current database of this information.327 At the public workshop conference, both USTA and ICN noted that each additional line of information placed on 4 consumer's telephone bill increases the costs to produce that bill.3z8 Finally, a number of commenters stated that it is not necessary to present this information on the consumer’s telephone bill, since consumers are able to call a toll-free telephone number to obtain this information.3z¢

After considering the comments on this matter, the Commission has determined that the costs to providers and billing entities.of having this information printed on a consumer's telephone bill outweighs the benefits of such a requirement to consumers and

<wenerenieintonase 323 Comment 57 (US West) at 11-12. 324 58 FR at 13382 (question 18.b). 348 Comments 31 (CA) at 9; 40 (NACAA) at 9. 32¢ Comment 29 (Ameritech) at 2-3.

337 Comments 50 (BellSouth) at 7; 57 (US West) at 14-15.

328 Ty. at 231-32, 245-47.”

’ 32@Comments 13 (NTCA) at 5-6; 29 (Ameritech) at 2-3; 50 (BellSouth) at 7:57 (US West) at 14~15.

law enforcement agencies. This is especially true.since billing entities are required to provide consumers with a toll-free telephone number to obtain additional information about any payper-call charges.

Title I of the TDDRA requires common carriers to disclose ona billing statement a local or toll-free telephone number where consumers can obtain answers to their questions and information on their rights and obligations with regard to their use of pay-per-call services, and can obtain the name and mailing address of any provider of pay-per-call services offered by that carrier.330 Given this carrier requirement, and the importance of such information to consumers, the Commission has decided to add a similar provision to the final Rule. Thus; providers of pay-per-call services shall endure that any billing statement for such provider's charges shall display the local or toll-free telephone number discussed above.331 No other requirements have been added to this section of the final Rule.

11. Section 308.5(k): Refunds to Consumers

Pursuant to the TDDRA,332 the proposed rule stated that the provider of pay-per-call services shall be liable for refunds to consumers who have been billed, and have paid charges, for payper-call services found to have violated any provision of the final Rule or any other Federal rule or law.333 The Commission received only two comments concerning this section. First, USTA stated that this provision should ~ permit credits to consumers, in addition to requiring refunds.334 According to USTA, local telephone companies, who

. deal with their customers on a recurring

monthly basis, prefer to issue credits on a monthly bill rather than refunds when a customer inquiry is resolved in the customer’s favor. USTA stated that the final Rule should not inadvertently prevent this. The Commission agrees. Actual cash refunds to consumers may not be necessary, when pay-per-call programs are found to have violated Federal law, if in fact consumer redress can be distributed more quickly and with less expense by way of credits on consumers’ telephone bills. The final

* 33047 U.S.C. 228(d)(4)(C).

331 Such a provision is also important to ensure that third party billers, not covered by the FCC mules governing carriers, also disclose on their bills for pay-per-call services this local or toll-free telephone number, :

332 15 U.S.C. 5711(a)(2}{1).

334 58 FR at 13388.

334 Comment 16 (USTA) at 13.

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Rule has been modified to permit such credits.

NAAG submitted the second comment concerning this section of the proposed rule. NAAG recommended that providers should be liable for refunds to consumers for programs found to have violated any law, regulation or, rule, whether state or Federal.335 The Commission believes that expanding this provision to cover any state law, regulation or rule would in effect require the Commission to expend considerable resources monitoring and enforcing the laws of all fifty states. Moreover, states can exercise their independent authority in this area. Accordingly, with the exception of the minor change discussed above, this section of the proposed rule remains unchanged.

12, Section 308.5(1): Service Bureau Liability

In the NPR, the Commission asked whether service bureaus should be required to monitor all pay-per-call services that operate on their equipment, and be held liable for some orall violations of the Rule by those services.336 Two commenters responded negatively. PPI stated that such a provision would be a “discriminating and unwarranted intrusion on this industry,” 337 while Pilgrim maintained that liability should be placed only on the party who has responsibility or control over the activity.328 on the other hand, a number of commenters suggested that such liability is = appropriate. CA claimed that providers have hidden behind service bureaus in the past, making if difficult for consumers to resolve complaints.339 NACAA argued that service bureau liability is appropriate, if the company knew or should have known of the Violations, since it is providing the necessary equipment for the violation to occur.340 Southwestern agreed, for the following reasons: A service bureau is often the only party with direct contact \o the provider; it profits from the payper-call service; and it can move the fastest to effect any necessary changes in a program found to be violating the Rules«1 Finally, USPS stated that since aservice bureau profits from pay-percall services, it should be liable for Violations and be required to forfeit its

_—_e_ 335Comment 42 (NAAG) at 17. *858 FR at 13383 (question 29). 7Comment 37 (PPI) at 47. 338Comment 60 (Pilgrim) at 17. _**°Comment 31 (CA) at 10-11. 40Comment 40 (NACAA) at 10. *! Comment 44 (Southwestern) at 3.

income from any promotion found to violate the Rule,342

Based on the comments, the Commission believes that some degree of service bureau liability is warranted. Service bureaus provide the equipment, and often numerous other forms of assistance, to providers of pay-per-call services. Without service bureau assistance, many providers would be unable to distribute their programs. Given service bureaus’ degree of involvement in the delivery of pay-percall services, as well as the profits they make from these services, the Commission concludes that they should be held liable for violations of the Rule by their client providers.343

At the same time, however, the Commission has determined that service bureau liability should not be absolute. The Commission understands that it may be impossible for a service bureau to monitor constantly all programs operating on its equipment, and that. providers may change programs without the knowledge or consent of the service bureau. Accordingly, the final Rule states that a service bureau shall be liable for violations of the Rule by payper-call services using its call processing facilities only where the service bureau either knew or should have known of the violation.

Where service bureaus assist pay-percall providers in the creation of pay-percall programs and advertising for such

‘programs, they likely will be in a

position to know whether there are violations. Similarly, if a service bureau receives a number of consumer complaints, or information that a program is generating a high rate of billing error notices, the service bureau would be alerted to the fact that violations may be occurring.

13. Other Questions

The NPR posed a series of additional questions concerning the operation of pay-per-call services. For example, the TDDRA states that the Commission shall

342 Comment 59 (USPS) at 8-9. 343 FCC regulations enacted pursuant to the

consider requiring providers of pay-percall services to automatically disconnect a call after one full cycle of the programs.344 In the NPR, the Commission asked whether the final Rule should require such a disconnection.345 NACAA believed thai such a requirement would be appropriate, since consumers can redial if they want to hear a program again,346 On the other hand, Bell Atlantic argued that such a provision would not be in the public interest, since many callers may want to hear a program a second time.347 The Commission agrees with the latter view. Consumers will be told the cost of the program in both the advertisement and the preamble. With this knowledge, the Commission believes consumers will stay on the line to hear a program a second time only if it contains information they want to hear again. Moreover, no commenter demonstrated any consumer harm caused by the absence of such a requirement. The Commission therefore has decided not to impose such a provision in the final Rule.

The TDDRA also states that the Commission should consider a regulation requiring providers of payper-call services to include a beep tone or other appropriate signal during a live interactive program so that callers will be alerted to the passage of time.54¢ The Commission sought comment in the NPR whether such a provision should be promulgated.349

A number of commenters stated that such a tone should be required in order to prevent consumers from losing track of time during these calls,350 On the other hand, PPI stated that such a tone is intrusive and interferes with the listener’s enjoyment of the program.351 NII stated that, as a small provider, it does not have the technology available to include a recurring beep tone during its live programs.352 In addition, at the public workshop conference, other providers discussed how any tone requirement was both awkward and difficult to produce during live conversations.353

TDDRA mandate that common carriers assigning numbers for pay-per-call services must require, by contract or tariff, that the provider of the services comply with the FTC regulations enacted pursuant to titles Il and Il of the Act. 47 U.S.C. 228(c)(1);

47 CFR 64.1502. In addition, such carriers must specify, by contract or tariff, that programs not in compliance with FTC regulations will be terminated following notice to the information provider, 47 U.S.C. 228(c\{2); 47 CFR 64.1503. In those instances where the common carrier contracts directly with a service bureau, that in-turn subcontracts with individual pay-per-call providers, it appears that the carrier will have to require the service bureau to require compliance with the FTC rule by those information providers using its call processing facilities,

34415 U.S.C. 5711{a)(6){A).

34558 FR at 13383 (question 25).

348 Comment 40 (NACCTA) at 9.

347 Comment 18 (Bell Atlantic) at addendum. See also comment 44 (Southwestern) at 1-Z.

348 15 U.S.C. 5711{a)(6)(B).

34958 FR at 13383 (question 26). :

350Comments 18 (Bell Atlantic) at addendum 2; 31 (CA) at 10; 40 (NACCA) at 9; 59 (USPS) at 9.

351 Comment 37 (PPI) at 46.

352 Comment 73 (NII) at 5.

383 Tr, at 170, 172. This discussion at the public workshop conference concerned the requirement that a tone be used to signal the end of the preamble, but it is relevant to this proposal! as well.

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The Commission does not believe the potential consumer benefit from a tone signaling the passage of time during the course of a live conversation with a payper-call service is sufficient to justify this requirement, given the difficulties involved in generating tones during a live conversation and the potential cost involved. Accordingly, the Commission has decided not to include sucha requirement in the final Rule.354

order to address-the potential

problem of billing for pay-per-call services through the use of fraudulent billing tapes, the Commission asked in the NPR whether the final Rule should include a requirement that all billing for pay-per-call services be based on the call detail records provided by the certified carrier of the call.355 A number of commenters suggested this would be a good idea.356 However, the commenters presented little or no information concerning the costs of such a requirement or actual experiences with fraudulent billing tapes. Given this lack of evidence, the Commission does not believe the record supports the imposition of such a requirement.

inally, the NPR asked if the Rule should include protection against the unauthorized use of a consumer’s telephone to call pay-per-call services. The Commission suggested, for example, requiring either an access code or a PIN number which consumers must dial before being able to access pay-percall services.357 Individual providers can require such a PIN number to access their individual programs. However, a large number of commenters stated that a system-wide access code or PIN number is currently unavailable, would be extremely costly to implement, and would stifle the growth of this industry by inhibiting the occasional caller from accessing pay-per-call services.358 Based on this uniform opposition, the Commission will not impose such a requirement in the final Rule.

E. Section 308.6: Access to Information The TDDRA authorizes the Commission to require common carriers

384 In contrast, as previously discussed in 1.D.1.c., infra, the Commission believes that the consumer benefits of a signal or tone indicating the end of the preamble are significant, justifying such 4 requirement at that time.

388 48 FR at 13383 (question 27).

386 Comments 23 (VRS) at 7-8; 31 (CA) at 10; 44 Se ig at 2; 50 (BellSouth) at 9; 59 (USPS) at 8,

387 58 FR at 13383 (question 30).

358 Comments 16 (USTA) at 14; 23 (VRS) at 8-9; 29 (Ameritech) at 4; 37 (PPI) at 48; 40 (NACAA) at 10; 44 (Southwestern) at 4; 50 (BellSouth) at 8; 52

(IIA) at 34- 35; 62 (AT& A ii; Geta aie T), Attachment A at ii; 81

providing telephone services to pay-percall providers to make the following information available to the Commission: ‘Any records and financial information maintained by such carrier relating to the arrangements (other than for the provision of local exchange service) between such carrier and any provider of pay-per-call services.” 358 Section 308.6 of the Rule incorporates this requirement as set forth in the statute.360

In the NPR, the Commission asked whether the Rule should include a list of the types of records that common carriers must maintain for this purpose, and, if so, what types of information should be included in the list and how long it should be maintained.361 Comments were mixed on the recordkeeping issue. NTCA, Bell Atlantic, Ameritech, MCI, AT&T, NAIS, and Sprint asserted that no new recordkeeping requirement should be imposed.362 As noted by some of these commenters, the FCC already requires that carriers maintain call detail records for 18 months.363 US West suggested that the FTC not list required records, but give examples of the kind of information in which it is interested.364 On the other hand, NACAA, NAAG, USPS, and Pilgrim believed the FTC Rule should include a recordkeeping requirement.365 NAAG proposed that common carriers be required to compile records regarding the number of complaints and credits issued against pay-per-call providers. NACAA suggested that carriers be required to maintain records of arrangements for pay-per-call services for as long as the applicable statute of limitations.366 NACAA further proposed that the Rule require these records be made available to state officials who will share

38815 U.S.C. 5711(a)(3).

360 In addition, title I of the Act lists certain categories of information that common carriers must make available on request to Federal and state agencies and other interested persons. These include: (A) A list of the telephone numbers for each of the pay-per-call services carried; (B) a short description of each such service; (C) a statement of the total cost or the cost per minute and any other fees for each such service; (D) a statement of the pay-per-call service's name, business address, and business telephone number; and (E) such other information as the FCC considers necessary for the enforcement of its regulations and other applicable Federal statutes and regulations.

36158 FR at 13383 (question 32). :

ez Comments 13 (NTCA) at 7-8; 18 (Bell Atlantic) at 6-7; 29 (Ameritech) at 5; 32 (MCI) at 5; 62 (AT&T), Attachment A at iii; 63 (NAIS) at 40; 81 (Sprint) at 9-10.

363 47 CFR¥2.6.

3e4 Comment 57 (US West) at 16-17.

368 Comments 40 (NACAA) at 11 ; 42 (NAAG) at

- 33; 59 (USPS) at 9; 60 (Pilgrim) at 17-18.

366 The statute of limitations in civil penalty actions is five years. 28 U.S.C. 2462.

enforcement responsibility. USPS also advocated that the Rule allow for access to records by other Federal and state agencies and proposed a three-year recordkeeping requirement.

The Commission has determined not to impose a specific recordkeeping requirement in the Rule. Common carriers are already subject to recordkeeping requirements imposed by the FCC. Discussion at the public workshop conference showed, in addition, that carriers have recordkeeping systems in place that in some cases may exceed Federal legal requirements.367 There is no clear basis, at the present time, to warrant a conclusion that existing requirements and recordkeeping systems maintained by the carriers are inadequate for purposes of enforcement of this Rule. Finally, the Commission does not believe that the TDDRA authorizes it to require the carriers to make information available to other law enforcement agencies. However, the Commission notes that its Rules of Practice make provision, under certain circumstances, for the sharing of information with other Federal and state law enforcement agencies.368

F, Section 308.7: Billing and Collection for Pay-Per-Call Services

1. Section 308.7(a): Definitions ©

The proposed rule defined the following terms to apply to the billing and collection of pay-per-call services: Billing entity; billing error; customer; preexisting agreement; providing carrier; telephone-billed purchase; and — vendor.369 The final Rule changes only the definition of “providing carrier.”

(a) Section 308.7(a)(1): Definition of “Billing Entity”

NACAA commented that the definition of “billing entity’’ should expressly include third-party billers. The NPR did in fact state explicitly that the term “billing entity” applies to third-party billers.370 The Commission believes that by expressly stating that the term applies to ‘“‘any person who transmits a billing statement to a customer for a telephone-billed purchase or any person who assumes responsibility for receiving and responding to billing error complaints or inquiries” (emphasis added), the definition is sufficiently broad to leave

367 Tr. at 462-87. USTA pointed out that a number of states have record retention requiremet!s more extensive than those imposed by the FCC. Tr. at 468. 3

369 See, e.g., 16 CFR 4.11(c).

36058 FR at 13388.

37058 FR at 13376.

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no doubt that it applies to third-party billers. Moreover, as stated in the NPR, the term would also apply to any person who assumes responsibility for

receiving or responding to billing error complaints, even if that person does not send billing statements to customers.371

(b) Section 308.7(a)(2): Definition of “Billing Error’”’

“Billing error” is defined by the TDDRA to encompass a number of situations that result in the reflection of amistake or inaccuracy on a billing statement for a telephone-billed purchase about which a customer might complain or seek clarification.372 The billing errors described in the Act closely resemble those described in the Fair Credit Billing Act’s definition of “billing error,” 373

The proposed rule expanded upon the Act’s definition of “‘billing error” in §308.7(a)(2)(i), by including in the definition of billing error ‘‘a reflection ona billing statement of a telephonebilled purchase that was not made by the customer nor made from the télephone of the customer who was billed for the purchase” (emphasis added). The Commission sought comment as to whether this definition should be changed to permit a customer toallege as a “billing error” a telephonebilled purchase made by someone other than the customer using the customer's telephone without permission, i.e., an “unauthorized charge.” 374 NACAA answered in the affirmative, commenting that parents must be able to dispute calls made by children without their consent.375 NAAG agreed, insisting that the billing and collection procedure must permit customers to present all claims they might have.37¢ CA remarked that the right to challenge unauthorized charges is accorded to consumers under the Fair Credit Billing Act (“FCBA”); hence, they should have a similar right under this Rule.377

31 Id.

9215 U.S.C. 5724(2).

7315 U.S.C. 1666(b).

°458 FR at 13383 (question 34).

*75Comment 40 (NACAA) at 12.

76 Tr. at 190.

: *7Comment 31 (GA) at 11. In fact, it is not the CBA but Regulation Z, the implementing - Tegulation of the Truth in Lending Act (“TILA”) -: the FCBA, promulgated by the Board of *vernors of the Federal Reserve System, which ~ consumers this right. 12 CFR 226.13(a)(1). The = tcard situation is clearly distinguishable from hed eigen: a pay-per-call service. The former my ves a credit card and a credit card number that : lost or stolen. Moreover, the cardholder's Wetture is generally required, which would allow i Subsequent verification of the cardholder's ean: A consumer’s telephone, however, is

ually only accessible to those who have been Wanted access to the consumer's residence, and no

Industry members generally opposed the idea, taking the position that a customer is responsible for all calls placed from the customer's telephone, regardless of whether the customer knew of or approved the call.376 Bell Atlantic commented that this has always been the rule in the telecommunications industry and that this principle has been affirmed by the courts.379 Sprint observed that most common carriers’ tariffs hold the customer responsible for the payment of all charges for telephone service.360 ICN pointed out that the concern about calls made by minors should be addressed by the TDDRA’s prohibition on pay-percall services (other than bona fide educational services) directed to children under 12 and the disclosures required for programs directed primarily

to persons under 18,361

Several commenters supported continuance of the current industry practice, which, generally, is to allow the customer a one-time credit for a payper-call charge that the customer claims he or she did not make or authorize, and then to hold the customer responsible for any subsequent unauthorized charges or to impose mandatory blocking.282

None of the comments shed any ligh on how a billing entity might determine whether a customer had in fact made or authorized a telephone-billed purchase for which the customer denied any responsibility. MCI remarked that there is no way for the billing entity to prove that a call was or was not authorized; thus, it is pointless to permit the customer to assert such a claim as a “billing error” when the billing entity has no way of investigating the truth of that assertion.383 ICN commented that the inability to evaluate such claims might cause local exchange carriers to give the customer a credit anytime such a claim was raised, forcing the information provider to bear the loss.384 This could lead to consumer abuse of the privilege.

identification code peculiar to the consumer is needed to initiate a call from that telephone. Thus, the Board had a logical reason for permitting consumers to allege unauthorized credit card charges as “billing errors,” which does not appear to apply to pay-per-call services. :

378 See, e.g., comments 13 (NTCA) at 4—5; 16 (USTA) at 15; 18 (Bell Atlantic), addendum at 2- 3; 81 (Sprint) at 11.

379Comment 18 (Bell Atlantic), addendum at 2—

380 Comment 81 (Sprint) at 11.

361 Tr. at 206.

382 Comments 31 (CA) at 11; 37 (PPI) at 50; 38 (CAPUC) at 85-86; Tr. at 193-94, 196-98, 200, 203. 383 Tr. at 203.

384 Tr. at 206.

The Commission finds these arguments persuasive. Furthermore, Congress has directed the Commission to consider the extent to which these regulations should diverge from the requirements of the TILA and FCBA to be cost effective to billing entities, as well as to protect consumers.365 Therefore, the Commission has decided against changing the definition of “billing error” to include claims of unauthorized charges. This will not preclude billing entities from continuing to grant customers a onetime forgiveness of such charges, nor will it preclude them from investigating these claims. They will not, however, have to follow the billing review procedures prescribed by the Rule in doing so.

AT&T commented that the definition of “billing error’ is overbroad to the extent it includes ‘‘a telephone-billed purchase for which the customer requests additional clarification, including documentary evidence thereof,” § 308.7(a)(2){ii). It expressed concern that to include such requests in the definition might trigger unnecessary notification requirements when the customer is merely seeking clarification and not actually disputing the charge.386

This provision is mandated by the Act, 387 which directs the Commission to promulgate rules under this section substantially similar to the requirements imposed under the TILA and the FCBA.368 The Official Staff Commentary on Regulation Z 389 clarifies that a request for documentation, such as for receipts or sales slips, unaccompanied by an allegation of error or a request for additional clarification, does not trigger the error-resolution procedures of the FCBA.390 Furthermore, a request for additional clarification need not trigger the notification requirements under this Rule if the customer, after initially inquiring about a telephone-billed purchase, agrees that the billing statement was correct or agrees to withdraw voluntarily the billing error notice.391 ‘

Several commenters recommended that the definition of “billing error’ be expanded to include specifically the following: (1) Charges for calls in which the vendor failed to comply with any of the advertising or pay-per-call standards of this Rule; and (2) charges for calls involving any unfair, misleading, or

385 15 U.S.C. 5721(d)(10).

386 Comment 62 (AT&T) at 5.

39715 U.S.C. 5724(2)(B).

3ue 15 U.S.C. 5721(a)(2).

38912 CFR part 226, Suppleméeat 1.

390 12 CFR part 226, Supplement I, Comment 226.13(a)(6)-1.

391 Section 308.7(¢) of the Rule.

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deceptive acts or practices under Federal or state law.3e2 NARUC and NAAG maintain that this expansion of the definition is necessary to ensure continuance of the general practices currently followed by most local telephone companies and interexchange carriers for handling pay-percall billing disputes.se3

Industry members objected to an allegation of a law violation being considered a “billing error,” contending that it would place an unreasonable administrative burden on billing entities if they had to follow the billing review procedures set forth in the Rule every time a customer lodged such a claim.3s4 Moreover, they argued, it would force billing entities to become policemen, essentially performing the task of the regulatory enforcement agencies, a function that they are not equipped to perform.395 IISC remarked that such a provision would suggest to consumers that they can be the initial arbiter of what is false or deceptive or misleading.396

The Commission interprets § 308.7(a}(2}(iii) of the Rule to include as a “billing error” any allegation by a customer that representations made by a vendor or an agent of the vendar, whether through advertising or otherwise, were inconsistent with the product or service delivered to the customer or what the customer expected to receive. However, the Commission declines to expand the definition to apply expressly to any violation of this Rule, or any other state or Federal law or regulation. To expand the definition in this manner could be quite burdensome, requiring billing entities to evaluate other Federal or state laws and regulations about which they may have no knowledge.

The Commission also seeks to clarify that a subjective claim of dissatisfaction with the quality or value of a product or service received is not a “billing error” under § 308.7(a)(2). However, an objective assertion by the customer that the quality or value of the product or service received was less than or substantially different from that represented by the provider might Constitute a “billing error” under § 308.7(a)(2)(iii) as a telephone-billed purchase “not provided to the customer in accordance with the stated terms of the transaction.”

382 Comments 10 (NARUC) at 7; 40 NACAA’ 13; 42 (NAAG) at 18-26. *

393 Comments 10 (NARUC) at 7; 42 (NAAG) at 18. 3% Ty. at 269, 278,

398 Ty. at 269, 275-76, 280.

398 Tr. at 277.

Finally, the proposed rule added a section to the TDDRA definition of “billing error,”’ § 308.7(a)(2)(viii). In this section, a billing error is defined to include the failure to display charges for a telephone-billed purchase on a billing statement in the manner prescribed by § 308.5(j) of the Rule, i.e., by segregating them from other telephone charges and specifying the type of service, the amount of the charge, and the date, time, and, for calls billed on a timesensitive basis, duration of the call. This section is included in the final Rule as proposed.

(c) Section 308.7(a)(3)}: Definition of “Customer”

In the proposed rule, the Commission broadened the TDDRA’s definition of “customer” 397 to cover any person who is billed for a telephone-billed purchase, whether or not that person placed the call or received the goods or services in question. This would give these persons the billing error rights accorded to other “customers” under the statute. The Commission has decided to adopt this definition as proposed.

(d) Section 308.7(a)(4): Definition of “Preexisting Agreement”

The Commission sought comment as to whether the term “preexisting agreement,” as used in section 304(1)(A) of the TDDRA398 should have the same meaning as “presubscription or comparable arrangement,” defined in § 308.2(e) of the proposed rule.39e PPI commented that a reasonable person would understand the two terms to have the same meaning.400 MCI replied that the two terms appear to be used interchangeably in the Act, and that there is nothing in the Act that would require these terms to have different meanings. To avoid the confusion that could arise if the terms were given different meanings, MCI urged the Commission to find that the term “preexisting agreement” means “presubscription or comparable arrangement,” as defined by the FCC.401

The Commission agrees that the terms “preexisting agreement” and “presubscription or comparable arrangement,” as used in the TDDRA, are synonymous and, thus, has tied the definition of the former term to the latter. As explained in part I1.A.3, supra, the definition of “presubscription or comparable arrangement,” in § 308.2(e)

RT 397 15 U.S.C. 5724(6).

39615 U.S.C. 5724(1)(A). 39958 FR at 13383 (question 33). 400 Comment 37 (PPI) at 50. 401 Comment 32 (MCI) at 2-3.

of this Rule, is identical to the FCC’s definition of that term.

(e) Section 308.7(a)(5): Definition of “Providing Carrier”

The proposed rule defineda __ “providing carrier” as “‘a local exchange or interexchange common carrier providing telephone services (other than local exchange services) to a vendor for a telephone-billed purchase that is the subject of a billing error. “402 (Emphasis added). PPI commented that by changing the term “billing error complaint” (the term used in the Act's definition) to “billing error,” the Commission made “‘a slight and subtle difference, but one which could be interpreted to assume each complaints correct.”’403 The proposed rule used the broader term “billing error” rather than “billing error complaint” to clarify that a “billing error” need not involve a “complaint,” i.e., an expression of customer dissatisfaction. An inquiry by the customer may also be a “billing error” (e.g., a customer request for additional clarification regarding a payper-call charge appearing on the customer’s billing statement).404

Nonetheless, to avoid possible confusion, the Commission has decided to change the definition of “providing carrier” to refer instead to ‘‘a telephonebilled purchase that is the subject ofa billing error complaint or inquiry.” This also is consistent with the use of the phrase “billing error complaints or inquiries” in the definition of “billing entity,” § 308.7(a}(1).

(f) Section 308.7(a)(6): Definition of “Telephone—Billed Purchase”

The term “telephone-billed purchase” is defined in the final Rule as it is in the TDDRA.*05 It applies to any purchase involving the use of a telephone that is consummated solely as a result of the completion of the call or the subsequent entry of a number or access code using a rotary or touch tone telephone, or by comparable action. The term does not apply to any purchase by a caller pursuant to a preexisting agreement (such as presubscription) with the vendor, nor to any service that the FCC determines by rule is closely related to the provision of telephone service and is subject to billing dispute resolution procedures required by Federal or stat? law. Also exempt are Sales transactions that are otherwise subject to billing dispute resolution procedures required

402 58 FR at 13388,

403 Comment 37 (PPI) at 22. ; 40 See the discussion of § 308.7(a)(2)(ii), above 496 15 U.S.C. 5724(1).

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sae

by Federal law (e.g., credit card purchases under the FCBA).

(9) Section 308.7(a)(7): Definition of “Vendor”

“Vendor” is defined as it is in the TDDRA.496 The term applies to the person who sells the goods or services that are the subject of the telephone/ billed purchase.

2, Section 308.7(b): Initiation of Billing Review

Section 308.7(b) describes how a customer shall initiate a billing review ofa telephone-billed purchase. In general, a customer must provide the billing entity with notice of a billing gor within 60 days after the billing atity sends the customer the billing statement on which the questioned charge first appears.407 Comments submitted by NACAA, NAAG and Sprint suggest that there are certain situations in which a customer might need more than 60 days to assert a billing error claim. NACAA commented that because some goods or services are not provided immediately when calls are made (such as prizes and vouchers for future travel), it sometimes is not apparent to the customer that there is a problem until after 60 days have slapsed.408 NAAG recommended that the time frame in which to initiate a billing review be expanded to 90 days, and that the Rule clarify that “‘if a ‘service’ includes the subsequent delivery of a prize, award or other product, that a consumer has 90 days to complain from the date that the goodsorservices arrive or are supposed to ative,” 409

Sprint stated that situations in which the customer might need more than 60 days are rare, However, it commented that a longer period of time might be justified where customers can prove they were told by the vendor to allow more than 60 days for delivery of the specific goods or services.410

The Commission believes the . situations cited by NACAA, NAAG and Sprint are covered by the Rule.411 Where the customer’s “billing error”

————

4815 U.S.C. 5724{5).

‘7 The 60-day limitation to initiate a billing ‘view shall have no effect on the time in which aperson may file a complaint with the FCC against tatiers for the recovery of damages or overcharges gs the Federal Communications Act, 47 U.S.C.

**Comment 40 (NACAA) at 13.

‘Comment 42 (NAAG) at 30-31.

“Comment 81 (Sprint) at 14.

‘"'This issue was addressed in footnote 2 of the Proposed rule. §8 FR at 13388. To emphasize the Point, The Commission has incorporated that

footnote into thi thefinal Rule e body of the a4 of § 308.7(b) of

involves a charge billed by a pay-percall service for goods or services that were delivered after the customers received the billing statement, the 60day notification period does not begin to run until the goods or services are delivered. This includes any gift or award that was promised to the customer for entering into the transaction. If the complete goods or services bargained for are never delivered, the 60-day period begins to run on the date the customer was told or led to believe the goods or'services were to be delivered, if that date is later than the date the billing statement was transmitted to the customer. In either case, the customer would have at least 60 days from the date the customer was on notice of the problem in which to assert the billing error.

The Rule does not require a customer to give written notice to initiate a billing review. The NPR solicited comment as to whether written notification should be required.412 The majority of commenters were not in favor of such a requirement, stating that consumers should have the option to call or write.413 NCL’s comment was representative of this group, contending that to require written notification would be unnecessarily restrictive, as most telephone subscribers are accustomed to dealing with their telephone companies over the phone.414 PPI suggested that the administrative cost attendant to requiring written notification would outweigh any possible benefits.415

The telephone companies were the most adamant in their opposition to requiring written notification.416 USTA commented that the current procedures used by most local telephone companies do not require their customers to reduce billing complaints to writing. As a

~ result, consumers are able to receive

prompt responses to their complaints or inquiries. USTA maintained that these procedures have been shown to work and, thus, should be allowed to continue.417

A number of information providers supported requiring customers to submit written notification. Fun Lines expressed concern that the proposed billing error resolution procedures would serve as an incentive to billing

412 58 FR at 13384 (question 35.a).

413 See, e.g., Comments 21 (NCL) at 19; 31 (CA) at 11; 37 (PPI) at 51; 40 (NACAA) at 13; 81 (Sprint) 12.

414 Comment 21 (NCL) at 19.

415 Comment 37 (PPI) at 51.

416 Comments 16 (USTA) at 7; 18 (Bell Atlantic) at 5; 29 (Ameritech) at 4-5; 57 (US West) at 8; 62 (AT&T), Attachment A at iii; 81 (Sprint) at 12.

417 Comment 16 (USTA) at 7.

entities to credit customers’ accounts for disputed amounts and charge the amounts back to the vendors, which would then foster consumer abuse of the dispute resolution procedures. To dissuade such abuse, Fun Lines proposed that written notice be required to initiate a billing review.41¢ Another organization of information providers, AIP, commented that written notice of a billing error should be required “for clarity of record-keeping.’’419

Two commenters offered proposals where the written notice requirement would be triggered only if the billing error dispute exceeded a defined threshold. ICN observed that requiring written notice to initiate a billing review might be warranted where the disputed charge exceeds a certain dollar amount, such as $75.420 VRS, a third-party biller, proposed a two-stage error resolution process: in the initial stage, oral notice would be sufficient to assert a billing error; if the initial call did not result in resolution of the dispute, the customer would then have to submit written notification to continue the dispute resolution process.421

Because of the breadth of the opposition to requiring written notice and the value to consumers in being able to communicate billing error complaints and inquiries quickly and easily, the Commission has decided against requiring written notice to initiate a billing review. Thus, the final Rule permits billing entities to decide for themselves whether to require written notice.

3. Section 308.7(c): Disclosure of the Method of Providing Notice

Section 308.7(c) remains unchanged. It requires the billing entity to disclose on or with each billing statement the method, or methods (e.g., by letter or by telephone), by which the customer may provide notice of a billing error. If the billing entity allows oral notice to be given, it must disclose the presumption that applies if a dispute arises concerning the sufficiency of the customer’s oral communication to initiate a billing review.

4. Section 308.7(d): Response to Customer Notice

Section 308.7(d) explains the procedure a billing entity must follow to respond to a customer’s billing error notice. The proposed rule, § 308.7(d)(1), required the billing entity to acknowledge the customer’s notice in

418 Comment 5 (Fun Lines) at 2. 419 Comment 35 (AIP) at 13. 420 Comment 61 (ICN) at 10. 421 Comment 23 (VRS) at 11.

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writing within 30 days after receiving the customer's notice unless the billing entity resolved its dispute with the customer within that 30 days by taking the action set forth in § 308.7(d)(2). The Commission asked for comments as to whether billing entities should have to provide written acknowledgment.¢32 CA responded in the affirmative, commenting that there is no way of ensuring that the customer receives acknowledgement of his or her billing error notice.423 NACAA agreed, stating that if the customer is to be permitted to give oral notice of a billing errar, the billing entity's acknowledgement must be in writing.¢24 Fun Lines commented that billing entities should be subject to writien notification requirements just as credit card issuers are under the FCBA.428

A number of commenters expressed opposition to requiring written acknowledgement.426 MCI, AT&T and USTA commented that the telecommunications industry is accustomed to responding to customers telephonically and is not equipped to handle large amounts of written communications. They voiced support for permitting the industry to maintain the status quo.427 While objecting to requiring written acknowledgement, Sprint noted that ‘the customer will receive written notification through his or her regularly rendered billing statements.” 428 Indeed, one reason the Commission views the written acknowledgement requirement as not being burdensome to billing entities is because it may be satisfied by a notation on the customer’s billing statement (e.g., “Your dispute is acknowledged.”).

One commenter, AT&T proposed that billing entities be given 45 days in which to acknowledge a customer's billing error notice. AT&T explained that in instances where its customers call the local exchange carrier (“LEC”) for a billing adjustment, the LEC must relay the customer dispute to AT&T before it can begin to investigate. According to AT&T, this is done by memorandum, which AT&T often receives as much as two weeks after the customer has notified the LEC of the billing dispute. Thus, AT&T claims it would not, in many instances, be able

422.56 FR at 13384 (question 35.b).

423 Comment 31 (CA) at 12.

+24 Comment 40 (NACAA) at 13.

428 Comment 5 (Fun Lines) at 2.

+26 Comments 18 (Bell Atlantic at 5; 9; 37 (PPT) at 51; 44 a acc wed z (BellSouth) at 11; 55 (GTE) at 8~1 1; 62 (ATaT),

Pree igm A at iii; 63 (NAIS) at 43-44; 81 (Sprint) at 12-13.

427 Tr. at 212-15, *2®Comment 81 (Sprint) at 12.

to resolve the customer's dispute within the initial 30 days, thus necessitating its sending the customer a written acknowledgement, a requirement it would like to avoid.«2@

The Commission believes that a 30day written acknowledgement requirement would not disadvantage interexchange carriers (“IXCs") in the manner AT&T described. Section 308.7(0) of the Rule, discussed below in greater detail, will require a LEC in the situation AT&T described to either: (1) Promptly provide the customer with the

name, address, and telephone number of

the billing entity responsible for receiving and responding to customer billing error notices; or (2) relay the customer’s billing error notice to the responsible billing entity within 15 days after receiving it. Moreover, the 30-day time frame for acknowledging the customer’s notice would not begin in such situations until the responsible billing entity actually received the notice. Thus, AT&T and similarlysituated IXCs would have as much time to resolve customer's billing error disputes as other billing entities.

evertheless, the Commission seeks to avoid ge 5 additional paperwork requirements on billing entities where possible. For this reason, the final Rule affords billing entities 40 days in which to provide written acknowledgement of a customer’s billing error notice. The Commission has determined that the additional 10 days will give the billing entity, in almost all instances, sufficient time to send the written acknowledgement on or with the customer's next regularly scheduled billing statement and, thus, avoid the expense of a separate mailing for the acknowledgement.

Under § 308.7(d)(2) of the Rule, the hati, Sat may resolve its dispute with the customer in one of two ways: (1) It may simply credit the customer's account in the amount disputed without conducting further investigation; or (2) it may elect to investigate the matter and, based on the results of its investigation, make any appropriate

adjustments in the customer's account. -

If the billing entity opts to credit the customer’s account without investigation, and a providing carrier or vendor are also parties to the transaction, the billing entity must tell the customer that its crediting of the Customer's account may result in efforts by the vendor, its agent, or the providing carrier (whichever applies) to collect the disputed charge. This disclosure is not required, however, if the vendor, its agent, or the providing

LT *2°Comment 62 (AT&T) at 2-3.

<n

carrier will not attempt to collect the disputed charge. The burden is on the billing entity to ensure either that this disclosure is given or no secondary collection efforts are undertaken.

Section 308.7(d)(2)(i} of the proposed rule would have required the billing entity to provide the customer with the name, mailing address, and business telephone number of the other parties the transaction.*30 Several commenters objected to this requirement. Nynex and Bell Atlantic stated that the LECs do not have this information for vendors because the LEC’s have no direct relationship with vendors.431 They have only the program name of the pay-percall service, which is supplied by the IXC.¢32 Bell Atlantic commented that it would be a significant burden to have to distribute lists to its 5,000 service representatives showing the vendors for thousands of pay-per-call telephone numbers and, mF ralren these lists would change daily as carriers assigned numbers to new providers or reassigned numbers from one provider to another.*33 AT&T recommended that the rule be modified to require that billing entities provide this information only upon customer request.434

In response to these concerns, the Commission has modified § 308.7(d){2)(i) of the final Rule to permit the billing entity the option of providing the customer with identifying information about the etgaians carrier and vendor, as applicable, or providing the customer with a local or toll-free telephone number where the customer can obtain the information directly. This information need only be disclosed if the billing entity’s crediting of the customer’s account will result in an attempt by the vendor or providing carrier to collect the disputed charge.

Under § 308.7(d)(2)(ii}, if the billing entity decides to investigate a billing error dispute, it must contact any parties whose input is needed to reasonably determine whether a billing error occurred as alleged by the customer. If the results of the investigation lead it to

‘conclude that a billing error occurred as

alleged, it must credit the customer's account for any disputed amount. If the billing entity determines as a result of the investigation that no billing error occurred, or that a different billing error occurred from that asserted by the customer, the billing entity must explain to the customer the reasons for

43058 FR at 13389.

«31 Comments 15 (Nynex) at 4—5; 18 (Bel! Atlantic) at 4-5.

+32 Comment 15 (Nynex) at 4—5.

«33 Comment 18 (Beil Atlantic) a 4-5.

+34 Comment 62 (AT&T) at 6.

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that determination and make any appropriate adjustments to the

customer’s account. The billing entity need only provide the customer with a written explanation, including copies of supporting documents, if the customer requests it.

Section 368.7(d}(3) requires a billing entity to complete the steps required by §308.7(d)}(2) within two complete billing cycles after receiving the customer's billing error notice, which in noevent may be more than 90 days. If abilling entity were to comply with §308.7(d}(2){i}—i.e., to correct the customer’s bill and credit his account— within 40 days after receiving the customer’s billing error notice, no written communication of any kind would need to be provided to the customer. This provision was received favorably by the telephone companies,#35 while the information providers expressed concern that it might encourage the telephone companies te credit customers’ accounts for disputed amounts that might very well be legitimate charges.43¢ The Commission believes that the billing review procedures of § 308.7(d) strike a reasonable balance among the consumer’s interest in having billing errors resolved quickly and efficiently, the billing entity’s interest in being able to operate free of undue ‘administrative burdens, and the information provider’s interest in receiving fair compensation for pay-per-call services provided to the public.

Section 308.7(d)(3}{i} provides that if abilling entity determines that any disputed amount is in error, it must notify the providing carrier and vendor ofits disposition of the billing error and the reasons for its action. Under §308.7(d)(3)(ii), if the billing entity determines that any portion of the disputed amount should be sustained, it must promptly notify the customer in writing of the time when payment of that amount is due.

The proposed rule would have tequired the billing entity to give the customer at least 20 days from the date ofnotice to pay this sustained mount.437 A number of commenters opposed the 20-day requirement as Unreasonable and unnecessary.438 USTA commented that the LECs should

‘permitted to include disputed “nounts determined not to be in error in their next bill cycle for payment

Ses it See, e.g., Comment 13 (NTCA) at 4-5. i apomments 5 (Fun Lines) at 2-3; 63 (NAIS) at itr. at 224, q “758 FR at 13389.

Iie mans 15 (Nynex) at 5-6; 16 (USTA) at 35 (AIP) at 13-14; 50 (BellSouth) at 11.

within the normal time set by state regulation. It stated that the “time provided by specific state regulation for telephone bill payment is likely to be reasonable, and is likely to have been subject to a preexisting determination generally to the effect that the period set would not impose harsh conditions on the customer.” 439 In response to these comments, the Commission has modified § 308.7(d)(3){ii} of the final Rule to permit the billing entity to require payment of disputed amounts determined not to be in error within the number of days the customer is ordinarily allowed by custom, contract, or state law te pay undisputed amounts, but in no case less than 10 days.

Under § 308.7(d)(3)(ii), the billing entity also must notify the customer in writing that failure to pay the disputed amount determined not to be in error may be reported to a credit reporting agency, or may subject the customer to collection action. This section of the final Rule has been changed to state that if there is no possibility that either event will occur, the notice need not, and indeed should not, be sent. For example, if a third-party biller does not report delinquent customers to credit reporting agencies and takes no action to collect unpaid pay-per-call charges and, by contract or for policy reasons, forbids its clients to undertake such actions, no such notice should be sent to the customer. If only one of the events was operational (e.g., the thirdparty biller does not report to credit reporting agencies but does undertake collection activity), the notice should mention only the possibility of that particular event occurring.

5. Section 308.7(e}: Withdrawal of Billing Error Notice

Under § 308.7(e) of the proposed rule, a billing entity would not have had to proceed with the billing review procedures if the customer agreed, before the notification requirements of § 308.7(d) were triggered, that the billing statement was correct.440 AT&T observed that customers may not always be willing to expressly admit that no billing error occurred, even when they have indicated they no longer intend to pursue a billing dispute.441 The final Rule addresses this problem by permitting the billing entity to dispense with the billing review if the customer agrees that the billing statement was correct or if the customer agrees to withdraw voluntarily the billing error notice. This may be achieved by the

439 Comment 16 (USTA) at 15-16. 44058 FR at 13389.

441 Comment 62 (AT&T) at 7.

customer’s clear affirmation that he or she does not wish the billing entity to pursue further investigation of the dispute. P

6. Section 308.7(f): Limitation on Responsibility for Billing Error

Section 308.7(f} limits the billing entity’s obligation to respond to a customer’s billing error complaint to the procedures set forth in § 308.7(d). Once the billing entity follows the prescribed procedures, it will not have to continue to respond in the same manner to subsequent assertions by the customer of the same billing error. The Commission is adopting this section as proposed.

7. Section 308.7(g): Customer's Right to Withhold Disputed Amount; Limitation on Collection Action

Section 308.7(g) sets forth the customer's right to withhold payment of any disputed amount after having provided notice of a billing error. No one may try to collect this amount from the customer until the billing entity has completed its billing review and given the customer as much time to make payment as the billing entity ordinarily affords for undisputed charges. The billing entity may continue to display the disputed charge on the customer’s billing statement during the billing review, so long as the statement discloses that payment of the disputed amount is not required. There is no restriction on the billing entity’s right to collect any undisputed charges on the customer’s bill. The Commission is adopting this section as proposed.

8. Section 308.7(h): Prohibition on Charges

Section 308.7(h) of the proposed rule provided that if a billing error is determined to have occurred, whether as alleged by the customer or in a different amount or manner, no charge may be imposed on the customer related to the billing review. The proposed rule also provided that ifit is determined that no billing error occurred, any charges imposed on the customer must be reasonable and not have the effect of discouraging customers from asserting their billing error rights. The Commission solicited comment on whether there should be an absolute prohibition on charging for billing error investigations.442

The Commission received one comment in favor of permitting billing entities to charge for billing errer investigation. AIP commented that it should be permissible for a billing entity

442 58 FR at 13384 (question 36).

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to impose a reasonable charge ‘“‘unless the error ultimately found is a ‘material’ error.” 443 One commenter suggested that the Rule should be silent on the issue.444 Several commenters were adamantly opposed to allowing billing entities to impose any charge for a billing review. NACAA and NAAG contended that allowing any charges for conducting a billing review would only discourage consumers from exercising their rights.4«5 VRS agreed and observed that vendors could recoup their investigation costs through adjustments to their overall pricing structure.446 NCL stated that unless there is an absolute prohibition on such charges, billing entities are likely to abuse the privilege and coerce customers into accepting inaccurate or excessive charges for payper-call services.*47 At the public workshop conference, Commission staff asked whether industry members felt they needed to have the right to charge customers for investigating billing errors that are determined not be valid. There was no response in support of permitting such charges.448

On balance, the Commission has concluded that the imposition of any charges for billing error investigations could deter consumers from the assertion of legitimate disputes. Therefore, the final Rule prohibits billing entities from imposing any charges in connection with a billing review.

9. Section 308.7(i): Restrictions on Credit Reporting

Section 308.7(i) of the final Rule is identical to the proposed rule except for the modification to § 308.7(i)(1), relating to the time allowed the customer to pay any disputed amount found not to be in error. The modification conforms this provision to the change in § 308.7(d)(3)(ii), discussed above.

Section 308.7(i) forbids anyone from reporting or threatening to report negative information related to the customer's withholding payment of the disputed amount until the billing review is completed and the customer has been given as much time to make Payment as the billing entity ordinarily affords for undisputed charges, If, before this time expires, the customer reasserts his dispute with respect to the same billing error, no one may report the

+42 Comment 35 (AIP) at 14.

+44 Comment 37 (PPI) at 52.

445 Comment 40 (NACAA) at 14; 42 (NAAG) at 31.

446 Comment 23 (VRS) at 13.

+47 Comment 21 (NCL) at 19-20,

“4"Tr. at 229. Although AIP, in its comments filed with the Commission, had expressed support for permitting such charges in certain Situtations, it was silent on the issue at the conference.

customer’s account as delinquent without also reporting that the customer disputes the delinquent amount. Additionally, any person reporting such a delinquency must notify the customer in writing of the name and address of each person to whom it reported the delinquency. Any subsequent resolution of the dispute would have to be reported in writing to anyone to whom the delinquency was reported initially.

One commenter objected to what it perceived to be the Rule’s allowing a customer to perpetuate a billing error dispute indefinitely. PPI stated that the Rule would permit a persistent consumer to “repeatedly seek review of a claim and thus save himself from having a bad credit report.” 449 In fact, the only protection this provision gives a customer who reasserts a billing error is to inform the credit reporting agency or other party who receives notice of the customer’s delinquency that the customer disputes a matter with respect to that delinquency. Except for the aforementioned restrictions on credit reporting, any interested party may pursue all of its other normal collection procedures (including involuntary blocking of the customer's access to future pay-per-call services) if a disputed charge remains unpaid after the billing entity has completed the billing review and determined that no billing error occurred.

10. Section 308.7(j): Forfeiture of Right to Collect Disputed Amount

Section 308.7(j) requires a billing entity, providing carrier, or vendor to forfeit the amount of any telephonebilled purchase (up to $50 per transaction) if it fails to comply with the Rule’s billing error resolution requirements. The penalty applies only to the person or persons who failed to comply. The provision does not prevent any other interested party from pursuing collection of any legitimate amount to which it is entitled. For example, a billing entity’s failure to respond properly to a customer's billing error notice would not result in forfeiture of the vendor's right to pursue independent collection of the charge.

AIP commented that the penalty should apply only if the failure to comply was “material,” 450 whereas NACAA believes the provision should compel the billing entity, providing carrier, and vendor, and their agents, to forfeit the right to collect from customers any charges involving violations of the TDDRA.451 The

**°Comment 37 (PPI) at 23.

450 Comment 35 (AIP) at 14.

51 Comment 40 (NACAA) at 15.

purpose of the forfeiture penalty is to enforce compliance with the billing and collection provisions of the Rule, including those provisions some might consider to be technical in nature. There are other provisions of the Rule that should serve to deter the types of practices the TDDRA was enacted to prevent.452 Therefore, the Commission has decided to issue this provision of the Rule as initially proposed.

11. Section 308.7(k): Notification of Returns and Crediting of Refunds

Section 308.7(k) prescribes the procedure a vendor who is not billing entity must follow after agreeing to give a Customer a refund or credit for returned goods or a forgiven debt. Within seven days after the vendor agrees to give the customer a cash refund, the vendor must send the refund directly to the customer's address, and must also notify the appropriate billing entity that the refund has been given. The proposed rule did not provide for notice of the refund to be sent to the billing entity. However, AT&T commented that the addition was advisable to prevent the customer from receiving an adjustment from both the vendor and the billing entity.453 The Commission agrees.

If the vendor agrees to credit the customer's account for the returned property or forgiven debt, the vendor has seven days in which to send a credit statement to the billing entity through the vendor’s normal channels for billing telephone-billed purchases, Within seven days after receiving the credit statement, the billing entity must credit the customer’s account for the amount of the refund. The proposed rule gave the billing entity only three days to effect the credit. Two commenters noted that the billing entity responsible for responding to and handling billing error disputes, e.g., an IXC, might not be the billing entity that originally billed the customer for the charge, e.g., a LEC. If the vendor sent the credit statement to the IXC, the [XC might not be able to. relay the credit statement to the LECin sufficient time to ensure that the : customer’s account was credited within three days.454 Therefore, the final Rule gives the billing entity seven days in which to credit the customer's account,455

452 See, e.g., § 308.5(k), making pay-per-call service providers liable for refunds to consumers who have been billed for services found to have violated any provision of this Rule or any other Federal law.

453 Comment 62 (AT&T) at 6.

454 Comments 55 (GTE) at 11; 62 (AT&T) at 7.

455 AIP commented that the Rule does not provide vendors sufficient time to perform the required

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42397

12. Section 308.7(1): Customer’s Right to Assert Claims or Defenses

Section 308.7(1) makes any billing

entity or providing carrier who attempts

to

collect charges from a customer for a

disputed telephone-billed purchase subject to any claims or defenses that

the customer may lawfully assert against

the vendor with respect to that purchase, The provision remains

uni

customer’s rights un

changed from the a ce rule. The er this provision

are not dependent on the customer’s assertion of a billing error pursuant to §308.7(b). However, the customer must first have made a good faith attempt to settle the dispute with the vendor, or the providing carrier (other than the billing entity) if the vendor is not

readily accessible. Any determination of

what claims or defenses are valid as to the vendor must be made under state or other applicable law. The billing entity

or un

providing carrier cannot be liable der this provision for any amount

greater than the amount of the’ telephone-billed purchase, plus any

Tel

ated charges for which the customer

has been billed.

13,

, Section 308.7(m): Retaliatory

Actions Prohibited

Section 308.7(m) makes it unlawful to

accelerate the customer’s debt or to restrict to terminate the customer's access to pay-per-call services to penalize the customer for exercising in good faith any billing error rights

accorded by these regulations. This does

not constitute an absolute prohibition

on

all actions that might effectively

limit e customer's access to pay-per-call services. For example, if a vendor or providing carrier regularly suspends a customer’s access to pay-per-call

services when that customer’s

ou do

istanding debt exceeds a certain llar amount, that vendor or providing

cartier would not be prohibited from applying any disputed amount towards that outstanding debt. Moreover, this Provision does not preclude a billing entity, providing carrier, or vendor from blocking or ordering the blocking of Pay-per-call services to subscribers who ave incurred, but not paid, legitimate Pay-per-call charges.456 Furthermore, a

ee

lisks, contending that vendors should have as much

lime to give credits and refunds as customers have lOassert a billing error, 60 days. Comment 35 (AIP) it 14-15. The Commission believes, however, this hails to take into consideration that § 308.7(k) only 0plics where the vendor has already made the sermination to give a refund or credit to the

0!

‘ustomer. The time requirements are similar to

8¢ prescribed under the FCBA for credit card

chases, through which many merchants also Process a large number of transactions.

tha

“*MCI proposed that § 308.7(m) state expressly

t blocking for nonpayment of legitimate pay-per-

billing entity, providing carrier, or vendor will not have violated this section if it took adverse action against the customer with respect to a telephone-billed purchase without knowing that the customer had asserted a billing error related to that purchase.457 The determining factor in each instance is whether the action was motivated, or reasonably appears to have been motivated, by a desire to retaliate against the customer for asserting his or her billing error rights.

14 Section 308.7(n): Notice of Billing Error Rights

Section 308.7({n) requires a billing entity to provide its customers with written notice of their pay-per-call billing rights at least once per calendar year. If the billing entity is not a common carrier, it must follow the procedures set forth in § 308.7(n)(1)(i), and send the notice to each customer (whether that customer is an old, current, or new customer) with the first billing statement for a telephone-billed purchase mailed or delivered to that customer after the effective date of the regulations. Thereafter, the billing entity must ensure that the customer receives the notice at least once during each subsequent calendar year in which that customer receives a bill for a telephonebilled purchase.

Billing entities that are common carriers have the option of sending the annual statement to only those customers whom they have billed for a telephone-billed purchase, or they may elect to send the annual statement to.all of their customers who receive telephone service of any kind. If they choose the former approach, they must follow the procedure set forth in § 308.7(n)(1){i). If they opt for the latter, they must comply with § 308.7(n)(1)(ii), which requires the billing entity to send the annual statement to all of its customers within 60 days after the effective date of the regulations. The billing entity must then send the notice at least once each following year to all of its customers at intervals of not less than six months nor more than 18 months.

call charges is not precluded by this section. Comment 32 (MCI) at 6-7. However, stating this in the Rule might dilute the principal message of this provision, which is that a customer should not be subjected to any adverse action solely because of that customer's good faith exercise of his or her billing error rights under this Rule. The Commission believes that the issue is addressed satisfactorily by discussion in this Statement of Basis and Purpose,

487 BellSouth expressed concern that a LEC that acts as a collection agent for an IXC that performed its won billing might not be aware of a pending dispute. Comment 50 (BellSouth) at 12.

The proposed rule would have Breese the precise language that illing entities must disclose in the notices.45° Two commenters suggested that the billing entity should have the flexibility to fashion its own notice, so the material information might be arranged and disclosed in a more costeffective manner.459 The Commission, on reconsideration, has modified the final Rule to specify the information that must be disclosed without mandating specific language.

The annual statement must inform the customer how to initiate a billing review. The presumption set forth in § 308.7(c) of the Rule need only be disclosed if the customer is permitted to provide oral notice. The annual statement must also describe the procedure the billing entity must follow to respond to a billing error notice and to investigate the alleged billing error. Additionally, the annua! statement must disclose the customer's right to withhold payment of any disputed amount and the restrictions placed on collection and adverse reporting of the disputed amount. Finally, the statement must tell the customer about the forfeiture penalty.

Instead of 9, the annual statement, the billing entity may choose to send an abridged pay-per-call billing rights summary to its customers with each billing statement. Like the annual statement, the alternative summary statement must inform the customer how to initiate a billing review, including the presumption applying to oral notice, if such notice is permitted. However, the summary notice need not explain the procedure the billing entity must follow to respond to and investigate a billing error complaint. Also, the alternative summary must contain a statement (which may be abridged) of the customer’s rights with respect to the collection of any disputed amount. It need not mention the forfeiture penalty.

Section 308.7(a)(3 }, which sets forth general requirements concerning the billing error rights notices, has been added to the final Rule. If the billing entity elects to send an annual statement, it must be provided on a separate statement that the customer may keep. A portion of the customer’s billing statement containing the disclosures is permissible under this section if that portion can be easily. detached (e.g., with perforations) and kept, and the statement advises the customer to do so.

45858 FR at 13378, 13390. 459 Comments 32 (MCI) at 7—12; 50 (BellSouth) at 13.

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If the alternative summary statement is used and is disclosed on each copy of the customer’s billing statement, it need not be in a form that the customer may keep. If the disclosures are made on the back of the statement, the front of the statement must include a clear and conspicuous reference to the disclosures on the back.

One commenter proposed that billing entities be permitted to include additional information on the billing rights notice.460 Section 308.7(n)(3)(iii) permits such information to be disclosed on the notice, but it must not confuse or mislead the customer or obscure or detract from the required disclosures, which must appear separately and above any other information.

15, Section 308.7(0): Multiple Billing Entities

Section 308.7(o) explains the responsibilities of multiple billing entities involved in a telephone-billed purchase, It remains unchanged from the proposed rule. This provision gives these billing entities the flexibility to decide among themselves the one that will be responsible for making any disclosures and for complying with the other requirements of the Rule.

The Commission received several comments seeking clarification of the role of the LEC under this provision where that company renders bills for pay-per-call services but the responsibility for handling billing complaints and inquiries resides with the IXC.461 The Rule provides that if the LEC receives notice of a billing error from a customer, the LEC must either identify for the customer the proper party to whom the notice should be sent or the LEC may accept the billing error notice on behalf of the IXC, in which case it must transmit the notice to the IXC within 15 days. The LEC would have no further responsibility with respect to the billing error dispute, even if the customer persisted in attempting to have the LEC credit his or her account. However, nothing in this section would preclude the LEC from crediting the customer’s account in that situation. If the IXC objects to the LEC doing so, it must resort to the terms of its contract with the LEC for relief.

16. Section 308.7(p): Multiple Customers

Section 308.7(p) provides that disclosures may be made to any customer primarily liable on a joint

+e0 Comment 32 (MCI) at 9-10,

«*: Comments 18 (Bell Atlantic at 4; 37 (PP. 24; 63 (NAIS) at 48, ; ath

account, It remains unchanged from the proposed rule,

17. Other Questions

The proposed rule did not contain any provision requiring billing entities, providing carriers, or vendors to maintain records with respect to the billing and collection of pay-per-call

services. The NPR solicited comment on

whether such a requirement is

needed,462 Many commenters noted that

common carriers are required by the FCC to keep call detail records for 18 months. These records identify the

name, address, and telephone number of

the caller, the telephone number called, and the date, time, and length of the call.4¢3 Sprint commented, “These records provide the back-up for the services provided by common carriers acting as billing entities and/or providing carriers in any pay-per-call service transaction.’ 464 NTCA noted that state laws already require LECs “to respond to consumer complaints within designated time frames, to resolve complaints and to provide consumers back-up records to resolve billing disputes.” 465 The common carriers maintained that these records are sufficient to demonstrate compliance with the billing and collection procedures of the Rule, and that a separate FTC record retention provision is not needed.#66 They recommended, however, that should the FTC decide to

implement a record retention provision,

it should mirror the FCC rule.467 The consumer groups and regulatory

agencies commented in support of some

form of recordkeeping provision, as did IIA, a trade association of information providers. NACAA, asserting that such records are vital to law enforcement officials, recommended that billing entities be required to keep records for at least as long as the applicable statute of limitations.468 CA and IIA believe that billing entities should be subject to the same record retention provisions as found in the TILA and FCBA,469 Regulation Z (which implements the TILA and FCBA) Tequires creditors generally to maintain evidence of compliance for two years.470 The value of implementing such a provision is questionable when common carriers 46258 FR at 13384 (question 37).

463 Comments 18 (Bell Atlantic) at 7; 81 (Sprint) at 10, citing 47 CFR 42.6.

e+ Comment 81 (Sprint) at 10. 465 Comment 13 (NTCA) at 7. 486 See, e.g., Comment 16 (USTA) at 12.

467 Comments 81 (Sprint) at 10; 60 (Pilgrim) at 18.

+68 Comment 40 (NACAA) at 14. * 4¢@Comments 31 (CA) at 12; 52 (ITA) at 35. 47012 CFR 226.25,

already are required by the FCC to keep records for 18 months,

In fact, at least some of the parties potentially affected by a recordkeeping provision currently keep records for longer than 18 months. USTA said this is true for some of its members, and that one member (BellSouth) keeps records for 3-10 years.471 ITA, a third-party biller, stated it has kept billing records for as long as it has been in operation, approximately two years.472 TPI, an information provider and service bureau, said it has kept its records for all of the four years it has been in operation.473

Finally, the record shows that the state regulatory agencies have had no difficulties obtaining relevant records in connection with their investigations of pay-per-call services, except in certain atypical situations.474 Therefore, the Commission has concluded that there is insufficient evidence at the present time to support the need for a specific recordkeeping provision with respect to the billing and collection procedures of the Rule.

The Commission also‘solicited data concerning the practices of third-party billers. Specifically, the Commission asked whether the Rule should include additional protections for consumers who deal with third-party billers.475 Only a few commenters responded. The gist of these comments was that thirdparty billers should be subject to the same requirements as other billing entities—no more, no less.476 Therefore, the Commission has determined that there is insufficient evidence to justify imposing any additional requirements on third-party billers.

18. Relation to State Laws

Section 302(a) of the TDDRA 477 provides that no person subject to the provisions of Title III (Billing and Collection) of the final Rule shall be exempt from complying with the laws of any state with respect to telephone billing practices, except, and only, to the extent that those laws are inconsistent with any provision of Title III. The Commission is given the authority to determine whether such inconsistencies exist. A billing entity, providing carrier, vendor, state, or other interested party may petition the

471 Tr. at 468.

472 Tr. at 465.

473 Tr. at 470,

474Tr. at 484-85.

475 58 FR at 13384 (question 39).

476 Comments 23 (VRS) at.14; 31 (CA) at 12; 33 (ITA) at 7. 3

47715 U.S.C. 5722(a).

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42399

Commission to determine whether a state law requirement is inconsistent.

Section 302(b) of the TDDRA 478 provides that the Commission shall by regulation exempt from Title III any class of telephone-billed purchase transactions within any state if it determines that under the law of that state, that class of transactions is subject

’ o requirements substantially similar to those imposed under the Act, or that such state law gives greater protection to consumers, and that there is adequate provision for enforcement. Any state may apply to the Commission to exempt aclass of transactions within that state from the requirements of the Federal law and the corresponding provisions of this Rule.

A petition for the Commission to determine whether a state law requirement is inconsistent , or an application for an exemption of a class of transactions, shall be in writing and addressed to the Secretary, Federal Trade Commission, Washington, DC 20580.

G. Section 308.8: Severability

This section of the final Rule states the Commission’s intent that if any Rule provision is stayed or held invalid, the other provisions will remain in effect.

H. Section 308.9: Rulemaking Review

This section of the Rule, which was not included in the proposal set forth in the NPR, states the Commission's intention to undertake a review of the Rule, no later than four years after its effective date, in order to evaluate its operation.

Ill. Regulatory Flexibility Act

In publishing the proposed regulations, the Commission certified, subject to subsequent public comment, that the proposed regulations, if Promulgated, would not have a significant economic impact on a substantial number of small entities and, therefore, that the provisions of the Regulatory Flexibility Act, 5 U.S.C. 605(b), requiring the initial regulatory analysis, did not apply.479 The Commission noted that any economic costs imposed on small entities by the Proposed regulations were, in many instances, specifically imposed by: statute, Where they were not, efforts had

n made to minimize any unforeseen urden on small entities (for example,

y making the proposed rule’s tequirements flexible). The Commission determined, on the basis of the information available to the staff at that

ASRS”

47915 U.S.C. 5722(a).

“958 FR at.13379.

time, that the proposed regulations would result in few, if any, independent additional costs. The Commission nonetheless requested comment on the effects of the proposed regulations on costs, profitability, competitiveness, and employment in small entities, in order not to overlook any substantial economic impact that would warrant a final regulatory flexibility analysis.+80 The information and comments received by the Commission did not provide sufficient reliable statistical or analytical data to quantify precisely the effect, differential or otherwise, of the proposed regulations on smal! entities versus its effect on all entities that may be subject to these regulations. While virtually all of the comments made general reference to the economic effects of the proposed regulations, only two comments addressed the Commission’s request for comments on the effect of the proposed regulations with specific regard to small entities. One commenter, not citing any particular provision of the proposed regulations, simply urged that the Commission’s rules take into account the higher costs for small IXC’s to acquire 900 numbers than to acquire such service through other exchanges.481 The second commenter, representing nearly 500 small local exchange carriers, believed that § 308.7(0) of the proposed regulations, regarding procedures for responding to billing error notices, would have a favorable impact on administrative and customer complaint costs shouldered by their small member companies that provide billing services to pay-per-call providers.482 As the commenter noted, the Commission’s rule would permit billing entities to decide between or among themselves who among them should be responsible for making required disclosures, investigating complaints, or complying with other requirements of the Rule when more than one billing entity may be involved in-a telephone-billed purchase. Accordingly, the Commission has determined that the public comments and information before the Commission

480 Id.; see also id. at 13384 (question 42).

481 Comment 60 (Pilgrim) at 22-23. This rulemaking does not reach whether such cost differentials are just or reasonable or warrant investigation, as the commenter also urged the Commission and the FCC to address.

do not alter the conclusion that the Commission’s Rule would not have a sufficiently significant economic impact on a substantial number of small entities to warrant a final regulatory flexibility analysis under the Regulatory Flexibility Act. This notice serves as certification to that effect to the Small Business Administration.

IV. Paperwork Reduction Act

The NPR solicited comments on the need for and scope of possible recordkeeping requirements in provisions governing Commission access to information (§ 308.6) and billing and collection for pay-per-call services (§ 308.7).483 Such requirements, if adopted, would constitute “collections of information” as defined under the Paperwork Reduction Act.4®% As discussed elsewhere in this Statement of Basis and Purpose, the Commission has determined, on the basis of public comments, not to include such requirements in its final Rule. Accordingly, the requirements of the Paperwork Reduction Act are not applicable.

V. Effective Date

One commenter stated that members of the pay-per-call industry will need a certain amount of time to make changes in their business practices to reflect the new requirements of the final Rule.+85 Specifically, Fun Lines claimed that it can take up to four months to remove or change existing pay-per-call advertisements, since the layout and printing of certain periodicals often is completed months in advance. Fun Lines requested adequate time to make these changes.

The Commission agrees that there should be a period of time between the date this Rule is prescribed and its effective date. The Commission believes that three months is an adequate amount of time to address the industry's needs in this regard.486 Accordingly, the effective date for this Rule is November 1, 1993. :

483 58 FR at 13384 (questions 32 and 34). 484 44 U.S.C. 3501-3520. See 44 U.S.C. 3502; 5 CFR 1320.7.

482 Comment 13 (NTCA) at 2-4; see also cc it 16 (USTA) at 4-5. While USTA did not comment on the effect of the proposed regulations specifically as to small entities, USTA notes that its membership consists of over 1,000 local exchange carriers offering about 99% of the nation’s local telephone lines, and that the overwhelming majority of these carriers are small telephone companies with fewer than 10,000 telephone lines; with some of these companies having fewer than 50 such lines.

46s Ce t 5 (Fun Lines) at 2.

486 Three months is consistent with the lead time allowed before the effective date in other Commission rulemakings. E.g:, Rules for Using Energy Costs and Consumption Information Used in Labeling and Advertising for Consumer Appliances under the Energy Policy and Conservation Act; Ranges of Comparability for Refrigerators, Refrigerator-freezers, and Freezers, 58 FR 3224 (Jan. 8, 1993); Labeling and Advertising. of Home Insulation, 44 FR 50218 (Aug. 27, 1979).

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List of Subjects in 16 CFR Part 308

Advertising, 900 telephone numbers, Pay-per-call services, Telephone, Trade practices.

For the reasons set forth in the preamble, title 16 of the Code of Federal Regulations is amended by adding part 308 to read as follows:

PART 308—TRADE REGULATION RULE PURSUANT TO THE TELEPHONE DISCLOSURE AND DISPUTE RESOLUTION ACT OF 1992

Sec.

308.1 Scope of regulations in this part.

308.2 Definitions.

308.3 Advertising of pay-per-call services.

308.4 Special rule for infrequent publications,

308.5 Pay-per-call service standards.

308.6 Access to information.

308.7 Billing and collection for pay-per-call services.

308.8 Severability.

308.9 Rulemaking review.

Authority: Pub. L. 102-556, 106 Stat. 4181 (15 U.S.C. 5701, et seq.)

$308.1 Scope of regulations in this part.

This rule implements titles II and III of the Telephone Disclosure and Dispute Resolution Act of 1992, to be codified in relevant part at 15 U.S.C. 5711-14, 5721-24.

$308.2 Definitions.

(a) Bona fide educational service means any pay-per-call service dedicated to providing information or instruction relating to education, subjects of academic study, or other related areas of school study.

(b) Commission means the Federal Trade Commission.

(c) Pay-per-call service has the meaning provided in section 228 of the

Communications Act of 1934, 47 U.S.C. 228.1

? Section 228 of the Communications Act of 1934 states:

(1) The term pay-per-call services means any service—

(A) In which any person provides or purports to provide—

(i) Audio information or audio entertainment produced or packaged by such person;

(ii) Access to simultaneous voice conversation services; or

(iii) Any service, including the provision of a product, the charges for which are assessed on the basis of the completion of the call;

(B) For which the caller Pays a per-call or pertime-interval charge that is greater than, or pans — to, the charge for transmission of the call; an

(C) Which is accessed thro: use of a 900 telephone number or other —_ or area code designated by the (Federal Communications) Commission in accordance with subsection (b)(5) (47 U.S.C. 228(b){5)).

(2) Such term does not include directory services provided by a common carrier or its affiliate or by

(d) Person means any individual, partnership, corporation, association, government or governmental subdivision or agency, or other entity.

(e) (1) Presubscription or comparable arrangement means a contractual agreement in which ;

(i) The service provider clearly and conspicuously discloses to the consumer all material terms and _ conditions associated with the use of the service, including the service

provider’s name and address, a business

telephone number which the consumer may use to obtain additional information or to register a complaint, and the rates for the service;

(ii) The service provider agrees to notify the consumer of any future rate changes;

(iii) The consumer agrees to utilize the service on the terms and conditions disclosed by the service provider; and

(iv) The service provider requires the use of an identification number or other

means to prevent unauthorized access to

the service by nonsubscribers.

(2) Disclosure of a credit card or charge card number, along with authorization to bill that number, made during the course of a call to a pay-percall service shall constitute a presubscription or comparable arrangement if the credit or charge card is subject to the dispute resolution requirements of the Fair Credit Billing Act and the Truth in Lending Act, as amended. No other action taken by the consumer during the course of a call to a pay-per-call service can be construed as Creating a presubscription or comparable arrangement.

(f) Program-length commercial means any commercial or other advertisement fifteen (15) minutes in length or longer or intended to fill a television or radio broadcasting or cablecasting time slot of fifteen (15) minutes in length or longer.

(g) Provider of pay-per-call services means any person who sells or offers to sell a pay-per-call service. A person who provides only transmission services or billing and collection services shall not be considered a provider of pay-per-call services.

(h) Reasonably understandable volume means at an audible level that renders the message intelligible to the receiving audience, and, in any event, at least the same audible level as that principally used in the advertisement or the pay-per-call service.

(i) Service bureau means any person, other than a common carrier, who

a local ex carrier or its affiliate, or any service the charge for which is tariffed, or any service for which users are assessed charges only after entering into a presubcription or comparable arrangement with the provider of such service.

provides, among other things, access to telephone service and voice storage to pay-per-call service providers.

) Slow and deliberate manner means at a rate that renders the message intelligible to the receiving audience, and, in any event, at a cadence or rate no faster than that principally used in the advertisement or the pay-per-call service.

(k) Sweepstakes, including games of chance, means a4 game or promotional mechanism that involves the elements of a prize and chance and does not require consideration.

§308.3 Advertising of pay-per-call Services.

(a) General requirements. The following requirements apply to disclosures required in advertisements under §§ 308.3(b)—(d), and (f):

(1) The disclosures shall be made in the same language as that principally used in the advertisement.

(2) Television video and print disclosures shall be of a color or shade that readily contrasts with the background of the advertisement.

(3) In print advertisements, disclosures shall be paralle] with the base of the advertisement.

(4) Audio disclosures, whether in television or radio, shall be delivered in a slow and deliberate manner and ina reasonably understandable volume.

(5) Nothing contrary to, inconsistent with, or in mitigation of, the required disclosures shal! be used in any advertisement in any medium; nor shall any audio, video or print technique be used that is likely to detract

significantly from the communication of

the disclosures.

(6) In any program-length commercial, required disclosures shall be made at least three times (unless more frequent disclosure is otherwise required) near the beginning, middie and end of the commercial.

(b) Cost of the call. (1) The provider of pay-per-call services shall clearly and conspicuously disclose the cost of the call, in Arabic numerals, in any advertisement for the pay-per-call service, as follows: es:

(i) If there is a flat fee for the call, the advertisement shall state the total cost of the call.

(ii) If the call is billed on a timesensitive basis, the advertisement shall state the cost per minute and any minimum charges, If the length of the program can be determined in advance, the advertisement shall also state the maximum charge that could be incurred if the caller listens to the complete program.

(iii) If the call is billed on a variable rate basis, the advertisement shall state,

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emer

inaccordance with §§ 308.3(b}(1)(i) and (i), the cost of the initial portion of the call, any minimum charges, and the range of rates that may be charged depending on the options chosen by the caller.

(iv) The advertisement shall disclose any other fees that will be charged for the service.

(v) if the caller may be transferred to another@ay-per-call service, the advertisement shall disclose the cost of the other call, in accordance with §§ 308.3(b)(1)(i), (ii), (iii), and (iv).

(2) For purposes of § 308.3(b), disclosures shall be made “‘clearly and conspicuously” as set forth in § 308.3(a) and as follows: x

(i) In a television or videotape advertisement, the video disclosure shall appear adjacent to each video presentation of the pay-per-call number. However, in an advertisement displaying more than one pay-per-call number with the same cost, the video disclosure need only appear adjacent to the largest presentation of the pay-percall number. Each letter or numeral of the video disclosure shall be, at a minimum, one-half the size of each letter or numeral of the pay-per-call number to which the disclosure is adjacent. In addition, the video disclosure shall appear on the screen for the duration of the presentation of the pay-per-call number. An audio disclosure shall be made at least once, simultaneously with a video presentation of the disclosure. However, no audio presentation of the disclosure

_isrequired in: (A) An advertisement fifteen (15) seconds or less in length in which the pay-per-call number is not presented in the audio portion, or (B) an advertisement in which there is no audio presentation of information Tegarding the pay-per-call service, including the pay-per-call number. In an advertisement in which the pay-per-call number is presented only in the audio Portion, the cost of the call shall be delivered immediately following the

_ first and last delivery of the pay-per-call number, except that in a program-length commercial, the disclosure shall be delivered immediately following each delivery of the pay-per-call number.

(ii) In a print advertisement, the disclosure shall be placed adjacent to each presentation of the pay-per-call number. However, in an advertisement displaying more than one pay-per-call number with the same cost, the

isclosure need only appear adjacent to

¢ largest presentation of the pay-percall number. Each letter or numeral of

® disclosure shall be, at a minimum, one-half the size of each letter or

numeral of the pay-per-call number to which the disclosure is adjacent.

(iii) In a radio advertisement, the disclosure shall be made at least once, and shall be delivered immediately following the first delivery of the payper-call number. In a program-length commercial, the disclosure shall be . delivered immediately following each delivery of the pay-per-call number.

(c) Sweepstakes; games of chance. (1) The provider of pay-per-call services that advertises a prize or award or a service or product at no cost or for a reduced cost, to be awarded to the winner of any sweepstakes, including games of chance, shall clearly and conspicuously disclose in the advertisement the odds of being able to receive the prize, award, service, or product at no cost or reduced cost. If the odds are not calculable in advance, the advertisement shall disclose the factors used in calculating the odds. Either the advertisement or the preamble required by § 308.5(a) for such service shall clearly and conspicuously disclose that no Call to the pay-per-call service is required to participate, and shall also disclose the existence of a free alternative method of entry, and either instructions on how to enter, or a local or toll-free telephone number or address to which consumers may call or write for information on how to enter the sweepstakes. Any description or characterization of the prize, award, service, or product that is being offered at no cost or reduced cost shall be truthful and accurate.

(2) For purposes of § 308.3(c), disclosures shall be made “‘clearly and conspicuously” as set forth in § 308.3(a) and as follows:

(i) In a television or videotape advertisement, the disclosures may be made in either the audio or video portion of the advertisement. If the disclosures are made in the video portion, they shall appear on the screen in sufficient size and for sufficient time to allow consumers to read and comprehend the disclosures.

(ii) In a print advertisement, the disclosures shall appear in a sufficient size and prominence and such location to be readily noticeable, readable and comprehensible.

(d) Federal programs. (1) The provider

of pay-per-call services that advertises a pay-per-call service that is not operated or expressly authorized by a Federal agency, but that provides information on a Federal program, shall clearly and conspicuously disclose in the advertisement that the pay-per-call service is not authorized, endorsed, or approved by any Federal agency. Advertisements providing information

on a Federal program shall include, but not be limited to, advertisements that contain a seal, insignia, trade or brand name, or any other term or symbol that reasonably could be interpreted or construed as implying any Federal government connection, approval, or endorsement.

(2) For purposes of § 308.3(d), disclosures shall be made “‘clearly and conspicuously” as set forth in § 308.3(a) and as follows:

(i) In a television or videotape advertisement, the disclosure may be made in either the audio or video portion of the advertisement. If the disclosure is made in the video portion, it shall appear on the screen in sufficient size and for sufficient time to allow consumers to read and comprehend the disclosure. The disclosure shall begin within the first fifteen (15) seconds of the advertisement.

(ii) In a print advertisement, the disclosure shall appear in a sufficient size and prominence and such location to be readily noticeable, readable ahd comprehensible. The disclosure shall appear in the top one-third of the advertisement.

(iii) In a radio advertisement, the disclosure shall begin within the first fifteen (15) seconds of the advertisement.

(e) Prohibition on advertising to children. (1) The provider of pay-percall services shall not direct advertisements for such pay-per-call services to children under the age of 12, unless the service is a bona fide educational service.

(2) For the purposes of this regulation, advertisements directed to children under 12 shall include: any pay-per-call advertisement appearing during or immediately adjacent to programming for which competent and reliable audience composition data demonstrate that more than, 50% of the audience is composed of children under 12, and any pay-per-call advertisement appearing in a periodical for which competent and reliable readership data demonstrate that more than 50% of the readership is composed of children under 12.

(3) For the purposes of this regulation, if competent and reliable audience composition or readership data does not demonstrate that more than 50% of the audience or readership is composed of children under 12, then the Commission shall consider the following criteria in determining whether an advertisement is directed to children under 12:

(i) Whether the advertisement appears in a publication directed to children under 12, including, but not limited to, books, magazines and comic books;

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(ii) Whether the advertisement appears during or immediately adjacent to television programs directed to children under 12, including, but not limited to, children’s programming as defined by the Federal Communications Commission, animated programs, and after-school programs;

(iii) Whether the advertisement appears on a television station or channel directed to children under 12;

(iv) Whether the advertisement is broadcast during or immediately adjacent to radio programs directed to children under 12, or broadcast on a radio station directed to children under 12;

(v) Whether the advertisement appears on the same video as a commercially-prepared video directed to children under 12, or preceding a movie directed to children under 12 shown in a movie theater;

(vi) Whether the advertisement or promotion appears on product packaging directed to children under 12; and

(vii) Whether the advertisement, regardless of when or where it appears, is directed to children under 12 in light of its subject matter, visual content, age of models, language, characters, tone, message, or the like,

(f) Advertising to individuals under the age of 18. (1) The provider of payper-call services shall ensure that any pay-per-call advertisement directed primarily to individuals under the age of 18 shall contain a clear and conspicuous disclosure that all individuals under the age of 18 must have the permission of such individual's parent or legal guardian prior to calling such pay-per-call service, 5

(2) For purposes of § 308.3(f), disclosures shall be made “clearly and conspicuously” as set forth in § 308.3(a) and as follows:

(i) In a television or videotape advertisement, each letter or numeral of the video disclosure shall be, at a minimum, one-half the size of each letter or numeral of the largest presentation of the pay-per-call number. The video disclosure shall appear on the screen for sufficient time to allow consumers to read and comprehend the disclosure. An audio disclosure shal] be made at least once, simultaneously with a video presentation of the disclosure. However, no audio presentation of the disclosure is required in: (A) An advertisement fifteen (15) seconds or less in length in which the pay-per-call number is not presented in the audio portion, or (B) an advertisement in which there is no audio presentation of information regarding the pay-per-call

service, including the pay-per-call number.

(ii) In a print advertisement, each letter or numeral of the disclosure shall be, at a minimum, one-half the size of each letter or numeral of the largest presentation of the pay-per-call number.

(3) For the purposes of this regulation, advertisements directed primarily to individuals under 18 shall include: Any pay-per-call advertisement appearing during or immediately adjacent to programming for which competent and reliable audience composition data demonstrate thet more than 50% of the audience is composed of individuals under 18, and any pay-per-call advertisement appearing in a periodical for which competent and reliable readership data demonstrate that more than 50% of the readership is composed of individuals under 18.

(4) For the purposes of this regulation, if competent and reliable audience composition or readership data does not demonstrate that more than 50% of the audience or readership is composed of individuals under 18, then the Commission shall consider the following criteria in determining whether an advertisement is directed primarily to individuals under 18:

(i) Whether the advertisement appears in publications directed primarily to individuals under 18, including, but not limited to, books, magazines and comic books;

(ii) Whether the advertisement appears during or immediately adjacent to television programs directed primarily to individuals under 18, including, but not limited to, midafternoon weekday television shows;

(iii) Whether the advertisement is broadcast on radio stations that are directed primarily to individuals under 18;

(iv) Whether the advertisement appears on a cable or broadcast television station directed primarily to individuals under 18;

(v) Whether the advertisement appears on the same video as a commercially-prepared video directed primarily to individuals under 18, or preceding a movie directed primarily to individuals under 18 shown in a movie theater; and :

(vi) Whether the advertisement, regardless of when or where it appears, is directed primarily to individuals under 18 in light of its subject matter, visual content, age of models, language, characters, tone, massage, or the like.

(g) Electronic tones in advertisements. The provider of pay-per-call services is

- prohibited from using advertisements

that emit electronic tones that can

automatically dial a pay-per-call service.

(h) Telephone solicitations. The provider of pay-per-call services shall ensure that any telephone message that solicits calls to the pay-per-call service discloses the cost of the call in a slow and deliberate manner and in a reasonably understandable volume, in accordance with §§ 308.3(b)(1)(i)-(v).

(i) Referral to toll-free telephone numbers. The provider of pay-per-cal] services is prohibited from refersing in advertisements to an 800 telephone number, or any other telephone number advertised as or widely understood to be toll-free, if that number violates the prohibition concerning toll-free numbers set forth in § 308.5(i).

§308.4 Special rule for infrequent publications.

(a) The provider of any pay-per-call service that advertises a pay-per-call service in a publication that meets the requirements set forth in § 308.4{c) may include in such advertisement, in lieu of the cost disclosures required by § 308.3(b), a clear and conspicuous disclosure that a call to the advertised pay-per-call service may result in a substantial charge. =~

(b) The provider of any pay-per-call service that places an alphabetical listing in a publication that meets the requirements set forth in § 308.4(c) is not required to make any of the disclosures required by §§ 308.3 (b), (c), (d) and (f) in the alphabetical listing, provided that such listing does not contain any information except the name, address and telephone number of the pay-per-call provider.

(c) The publication referred to in § 308.4(a) and (b) must be:

(1) Widely distributed;

(2) Printed annually or less frequently; and :

(3) One that has an established policy of not publishing specific prices in advertisements.

§308.5 Pay-per-call service standards.

(a) Preamble message. The provider of pay-per-call services shall include, in each pay-per-call message, an introductory disclosure message (“preamble”) in the same language as that principally used in the pay-per-call message, that clearly, in a slow and deliberate manner and in a reasonably understandable volume: 3

(1) Identifies the name of the provide of the pay-per-call service and describes the service being provided; ;

(2) Specifies the cost of the service 4 follows:

(i) If there is a flat fee for the call, the preamble shall state the total cost of the call;

-(ii) If the call is billed on a timesensitive basis, the preamble shall stale

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he cost per minute and any minimum charges; if the length of the program can be determined in advance, the preamble shall also state the maximum charge

hat could be incurred if the caller

listens to the complete program;

(iii) If the call is billed on a variable rate basis, the preamble shall state, in accordance with §§ 308.5(e)(2)(i) and (ii), the cost of the initial portion of the call, any minimum charges, and the range of rates that may be charged depending on the options chosen by the caller;

(iv) Any other fees that will be charged for the sarvice shall be disclosed, as well as fees for any other pey-per-call service to which the caller may be transferred;

(3) Informs the caller that charges for the call begin, and that to avoid charges the call must be terminated, three seconds after a clearly discernible signal ortone indicating the end of the preamble;

(4) Informs the caller that anyone under the age of 18 must have the permission of parent or legal guardian inorder to complete the call; and

(5) Informs the caller, in the case of

endorsed, or approved by any Federal agency.

(b) No charge to caller for preamble message. The provider of pay-per-call services is prohibited from charging a caller any amount whatsoever for such service if the caller-hangs up at any ime prior to three seconds after the

nal or tone indicating the end of the

ible described in § 308.5{a).

wever, the three-second delay, and ‘le message concerning such delay vescribed in § 308.5(a)(3), is not ‘tquired if the provider of pay-per-call srvices offers the caller an affirmative ‘téans (such as pressing a key on a ‘ephone keypad) of indicating a ‘eision to incur the charges.

‘c} Nominal cost calls. The preamble lescribed in § 308.5(a) is not required when the entire cost of the pay-per-call “tvica, whether billed as a flat rate or

a time sensitive basis, is $2.00 or 188g,

Au Data service calls. The preamble: ‘scribed in § 308.5(a) is not required vhen the entire call consists of the non- Ybal transmission of information.

(e) Bypass mechanism. The provider of pay-per-cal! services that offers to frequent callers or regular subscribers to such services the option of activating a bypass mechanism to avoid listening to the preamble during subsequent calls shall not be deemed to be in violation of § 308.5(a), provided that any such bypass mechanism shell be disabled for a period of no less than 30 days immediately efter the institution of an increase in the price for the service or a change in the nature of the service offered.

(f) Billing limitations. The provider of pay-per-call services is prohibited from billing consumers in excess of the amount described in the preamble for those services and from billing for any services provided in violation of any section of this rule.

(g) Stopping the assessment of timebased charges. The provider of pay-percall services shall stop the assessment of time-based charges immediately upon disconnection by the caller.

(h) Prohibition on services to children. The provider of pay-per-call services shall not direct such services to children under the age of 12, unless such service is a bona fide educational service. The Commission shall consider the following criteria in determining whether a pay-per-call service is directed to children under 12:

(1) Whether the pay-per-call service is advertised in the manner set forth in §§ 308.3(e)(2) and (3); and

(2) Whether the pay-per-call service, regardless of when or where it is advertised, is directed to children under 12, in light of its subject matter, content, language, featured personality, characters, tone, message, or the like.

(i) Prohibition concerning toll-free numbers. Any person is prohibited from using an 800 number or other telephone number advertised as or widely understood to be toll-free in a manner that would result in:

(1} The calling party being assessed, by virtue of completing the call, a charge for the call;

_ (2) The calling party being connected to an access number for, or otherwise transferred to, a pay-per-call service;

(3) The calling party being charged for information conveyed during the call untess the calling party has a presubscription or comparable arrangement to be charged for the information; or

(4) The calling party being called back collect for the provision of audio or data information services, simultaneous voice conversatian services, or products.

(j} Disclosure requirements for billing statements. The provider of pay-per-call services shall ensure that any billing

statement for such provider's charges shall:

(1) Display any charges for pay-percall services in a portion of the consumer’s bill that is identified as not being related to local and long distance telephone charges;

(2) For each charge so displayed, specify the type of service, the amount of the charge, and the date, time, end, for calls billed on a time-sensitive basis, the duration of the call; and

(3) Display the locsl or toll-free telephone number where consumers can obtain answers to their questions and information on their rights end obligations with regard to their use of pay-per-call services, and can obtain the name and mailing address of the provider of pey-per-call services.

(k) Refunds to consumers. The provider of pay-per-call services shall be liable for refunds or credits to consumers who have been billed for pay-per-call services, and who have paid the charges for such services, pursuant to pay-per-call programs that have been found to have violated any provision of this rule or any other Federal rule or law.

(I) Service bureau liability. A service bureau shall be liable for violations of the rule by pay-per-call services using its call processing facilities where it knew or should have known of the violation.

§308.6 Access to Information.

Any common carrier that provides telecommunication services to any provider of pay-per-call services shall make available to the Commission, upon written request, any records and financial information maintained by such carrier relating to the arrangements (other than for the provision of local exchange service) between such carrier and any provider of pay-per-call services.

§308.7 Billing and collection far pay-percal! services.

(a) Definitions. For the purposes of this section, the following defin.tions shall apply:

(1) Billing entity means any person who transmits a billing statement to a customer for a telephone-billed purchase, or any person who assumes responsibility for receiying and responding to billing error complaints or inquiries.

(2) Billing error means any of the following:

(i) A reflection on a billing statement of a telephone-billed purchase that was not made by the customer nor made from the telephone of the customer who was billed for the purchase or, if made,

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aie a)

was not in the amount reflected on such statement.

(ii) A reflection on a billing statement of a telephone-billed purchase for which the customer requests additional clarification, including documentary evidence thereof.

(iii) A reflection on a billing statement of a telephone-billed purchase that was not accepted by the customer or not provided to the customer in accordance with the stated terms of the transaction.

(iv) A reflection on a billing statement of a telephone-billed purchase for a call made to an 800 or other toll free telephone number.

(v) The failure to reflect properly on a billing statement a payment made by the customer or a credit issued to the customer with respect to a telephonebilled purchase,

(vi) A computation error or similar error of an accounting nature on a billing statement of a telephone-billed purchase,

(vii) Failure to transmit a billing statement for a telephone-billed purchase to a customer's last known address if that address was furnished by the customer at least twenty days before the end of the billing cycle for which the statement was required.

(viii) A reflection on a billing statement of a telephone-billed purchase that is not identified in accordance with the requirements of § 308.5(j).

(3) Customer means any person who acquires or attempts to acquire goods or services in a telephone-billed purchase, or who receives a billing statement for a telephone-billed purchase charged to a telephone number assigned to that person by a providing carrier.

(4) Preexisting agreement means a “presubscription or comparable arrangement,” as that term is defined in § 308.2(e).

(5) Providing carrier means a local exchange or interexchange common carrier providing telephone services (other than local exchange services) to a vendor for a telephone-billed purchase that is the subject of a billing error complaint or inquiry,

(6) Telephone-billed purchase means any purchase that is completed solely as & consequence of the completion of the call or a subsequent dialing, touch tone entry, or comparable action of the caller. Such term does not include:

(i) A purchase by a caller pursuant to a preexisting agreement with a vendor;

(ii) Local exchange telephone services or interexchange telephone services or any service that the Federal Communications Commission determines by rule—

(A) Is closely related to the provision of local exchange telephone services or interexchange telephone services; and

(B) Is subject to billing dispute resolution procedures required by Federal or state statute or regulation; or

(iii) The purchase of goods or services that is otherwise subject to billing dispute resolution procedures required by Federal statute or regulation.

(7) Vendor means any person who, through the use of the telephone, offers goods or services for a telephone-billed purchase.

(b) Initiation of billing review. A customer may initiate a billing review with respect to a telephone-billed purchase by providing the billing entity with notice of a billing error no later than 60 days after the billing entity transmitted the first billing statement that contains a charge for such telephone-billed purchase. If the billing error is the reflection on a billing statement of a telephone-billed purchase not provided to the customer in accordance with the stated terms of the transaction, the 60-day period shall begin to run from the date the goods or services are delivered or, if not delivered, should have been delivered, if such date is later than the date the billing statement was transmitted. A billing error notice shall:

(1) Set forth or otherwise enable the billing entity to identify the customer's name and the telephone number to which the charge was billed:

(2) Indicate the customer's belief that the statement contains a billing error and the type, date, and amount of such: and

(3) Set forth the reasons for the customer's belief, to the extent possible, that the statement contains a billing error.

(c) Disclosure of method of providing notice; presumption if oral notice is permitted. A billing entity shall clearly and conspicuously 2 disclose on each billing statement or on other material accompanying the billing statement the method (oral or written) by which the Customer may provide notice to initiate review of a billing error in the-manner set forth in § 308.7(b). If oral notice is permitted, any customer who orally communicates an allegation of a billing error to a billing entity shall be presumed to have properly initiated a

2 The standard for “clear and conspicuous” as used in this section shall be the standard enunciated by the Board of Governors of the Federal Reserve System in its Official Staff Commentary on Regulation Z, which Tequires simply that the disclosures be in a reasonably understandable form.

- See.12 CFR part 226, Supplement I, Comment

226.5(a)(1)-1.

billing review in accordance with the requirements of § 308.7(b).

d) Response to customer notice. A billing entity that receives notice of a billing error as described in § 308.7(b) shall:

(1) Send a written acknowledgement to the customer including a statement that any disputed amount need not be paid pending investigation of the billing error. This shall be done no later than forty (40) days after receiving the notice, unless the action required by § 308.7(d)(2) is taken within such 40day period; and

2){i) Correct the billing error and credit the customer’s account for any disputed amount and any related charges, and notify the customer of the correction. The billing entity also shall disclose to the customer that collection efforts may occur despite the credit, and shall provide the names, mailing addresses, and business telephone numbers of the vendor and providing carrier, as applicable, that are the subject of the telephone-billed purchase, or provide the customer with a local or toll-free telephone number that the customer may Call to obtain this information directly. However, the billing entity is not required to make the disclosure concerning collection efforts if the vendor, its agent, or the providing carrier, as applicable, will not collect or attempt to collect the disputed charge; or

(ii) Transmit an explanation to the customer, after conducting a reasonable investigation (including, where appropriate, contacting the vendor or providing carrier),3 setting forth the reasons why it has determined that no billing error occurred or that a different billing error occurred from that asserted, make any appropriate adjustments to the customer’s account, and, if the customer so requests, provide a written explanation and copies of documentary evidence of the customer’s indebtedness,

(3) The action required by § 308.7(d)(2) shall be taken no later than two complete billing cycles of the billing entity (in no event later than ninety (90) days) after receiving the

sIf a customer submits a billing error notice _ alleging either the nondelivery of goods or services or that information appearing on a billing statement has been reported incorrectly to the billing entity, the billing entity shall not deny the assertion unless it conducts a reasonable investigation and determines that the goods or services were actually delivered as agreed or that the information was correct. There shall be a rebuttable presumption that goods or services were actually delivered to the extent that a vendor or providing carrier produces documents prepared and maintained in the ordinary course of business showing the date 0”, and the place to, which the goods or services wer? transmitted or delivered.

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notice of the billing error and before taking any action to collect the disputed smount, or any part thereof. After complying with § 308.7 (d)(2), the billing entity shall:

(i) If it is determined that any disputed amount is in error, promptly notify the appropriate providing carrier or vendor, as applicable, of its disposition of the customer's billing aor and the reasons therefor; and.

(ii) Promptly notify the customer in writing of the time when payment is due of any portion of the disputed amount determined not to be im error, which time shall be the longer of ten (10) days or the number of days the customer is ordinarily allowed (whether by custom, contract or state law) to pay undisputed amounts, and that failure to pay such amount may be reported to a credit reporting agency or subject the customer to a collection action, if that in fact may happen.

(e) Withdrawal of billing error notice. Abilling entity need not comply with the requirements of § 308.7(d) if the customer has, after giving notice of a billing error and before the expiration of the time limits specified therein, agreed that the billing statement was correct or agreed to withdraw voluntarily the billing error notice.

({) Limitation on responsibility for billing error. After complying with the provisions of § 308.7(d), a billing entity has no further responsibility under that section if the customer continues to make substantially the same allegation with respect to a billing error.

(9) Customer’s right to withhold disputed amount; limitation on collection action. Once the customer has

; Submitted notice of a billing error to a billing entity, the customer need not pay, and the billing entity, providing carrier, or vendor may not try to collect, any portion of any required payment that the customer reasonably believes is lated to the disputed amount until the billing entity receiving the notice has complied with the requirements of §308.7(d). The billing entity, providing cartier, or vendor are not prohibited ftom taking any action to collect any undisputed portion of the bill, or from reflecting a disputed amount and related charges on a billing statement, provided that the billing statement clearly states at payment of any disputed amount or elated charges is not required pending the billing entity’s compliance with §308,7(d), __(t) Prohibition on charges for ‘tiating billing review. A billing entity, Ptoviding carrier, or vendor may not pose on the customer any charge tlated to the billing review, including

charges for documentation or investigation.

(i) Restrictions on credit reporting— (1) Adverse credit reports prohibited. Once the customer has submitted notice of a billing error to a billing entity, a billing entity, providing carrier, vendor, or other agent may not report or threaten directly or indirectly to report adverse information to any person because of the customer’s withholding payment of the disputed amount or related charges, until the billing entity has met the requirements of § 308.7(d} and allowed the customer as many days thereafter to make payment as prescribed by § 308.7(d)(3)(ii).

(2) Reports on continuing disputes. If a billing entity receives further notice from a customer within the time allowed for payment under § 308.7(i)(1) that any portion of the billing error is still in dispute, a billing entity, providing carrier, vendor, or other agent may not report to any person that the customer’s account is delinquent because of the customer's failure to pay that disputed amount unless the billing entity, providing carrier, vendor, or other agent also reports that the amount is in dispute and notifies the customer in writing of the name and address of each person to whom the vendor, billing entity, providing carrier, or other agent has reported the account as delinquent.

(3) Reporting of dispute resolutions required. A billing entity, providing carrier, vendor, or other agent shal! report in writing any subsequent resolution of any matter reported pursuant to § 308.7(i}(2} to all persons to whom such matter was initially reported.

(j) Forfeiture of right to collect disputed amount. Any billing entity, providing carrier, vendor, or other agent who fails to comply with the requirements of §§ 308.7(c), (d), (g), (h), or (i) forfeits any right to collect from the customer the amount indicated by the customer, under § 308.7(b)(2); to be in error, and any late charges or other related charges thereon, up to $50 per transaction. :

(k) Prompt notification of returns and crediting of refunds. When a vendor other than the billing entity accepts the return of property or forgives a debt for services in connection with a telephonebilled purchase, the vendor shall, within seven (7) business days from accepting the return or forgiving the debt, either:

(1) Mail or deliver a cash refund directly to the customer’s address, and notify the appropriate billing entity that the customer has been given a refund, or

(2) Transmit a credit statement to the billing entity through the vendor’s normal chennels for billing telephonebilled purchases. The billing entity shall, within seven (7) business days after receiving a credit statement, credit the customer's account with the amount of the refund.

(1) Right of customer to assert claims or defenses. Any billing entity or providing carrier who seeks to collect charges from a customer for a telephonebilled purchase that is the subject of a dispute between the customer and the vendor shall be subject to all claims (other than tort claims) and defenses arising out of the transaction and relating to the failure to resolve the dispute that the customer could assert against the vendor, if the customer has made a good faith attempt to resolve the dispute with the vendor or providing carrier (other than the billing entity). The billing entity or providing carrier shall not be liable under this paragraph for any amount greater than the amount billed to the customer for the purchase (including any related charges).

(m) Retaliatory actions prohibited. A billing entity, providing carrier, vendor, or other agent may not accelerate any part of the customer’s indebtedness or resirict or terminate the customer’s access ta pay-per-call services solely because the customer has exercised in good faith rights provided by this section.

(n) Notice of billing error rights.—{1) Annual statement. (i) A billing entity shall mail or deliver to each customer, with the first billing statement for a telephone-billed purchase mailed or delivered after the effective date of these regulations, a statement of the customer’s billing rights with respect to telephone-billed purchases. Thereafter the billing entity shall mail or deliver the billing rights statement at least once per calendar year to each customer to whom it has mailed or delivered a billing statement for a telephone-billed purchase during the previous twelve months. The billing rights statement shall disclose that the rights and obligations of the customer and the billing entity, set forth therein, are provided under the federal Telephone Disclosure and Dispute Resolution Act. The statement shall describe the procedure that the customer must follow to notify the billing entity of a billing error and the steps that the billing entity must take in response to the customer's notice. If the customer is permitted to provide oral notice of a billing error, the statement shall disclose that a customer who orally communicates an allegation of a billing error is presumed to have provided

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sufficient notice to initiate a billing review. The statement shall also disclose the customer's right to withhold payment of any disputed amount, and that any action to collect any disputed amount will be suspended, pending completion of the billing review. The statement shall further disclose the customer's rights and obligations if the billing entity determines that no billing error occurred, including what action the billing entity may take if the customer. continues to withhold payment of the disputed amount. Additionally, the statement shall inform the customer of the billing entity’s obligation to forfeit any disputed amount (up to $50 per transaction) if the billing entity fails to follow the billing and collection procedures prescribed by § 308.7 of this rule,

(ii) A billing entity that is a common carrier may comply with § 308.7(n)(1)(i) by, within 60 days after the effective date of these regulations, mailing or delivering the billing rights statement to all of its customers and, thereafter, mailing or delivering the billing rights statement at least once per calendar year, at intervals of not less than 6 months nor more than 18 months, to all of its customers.

(2) Alternative summary statement. As an alternative to § 308.7(n)(1), a billing entity may mail or deliver, on or with each billing statement, a statement that sets forth the procedure that a customer must follow to notify the billing entity of a billing error. The statement shall also disclose the Customer's right to withhold payment of any disputed amount, and that any action to collect any disputed amount

will be suspended, pending completion of the billing review.

(3) General disclosure requirements. (i) The disclosures required by §.308.7(n)(1) shall be made clearly and conspicuously on a separate statement that the customer may keep.

(ii) The disclosures required by § 308.7(n)(2) shall be made clearly and conspicuously and may be made on a separate statement or on the customer’s billing statement. If any of the disclosures are provided on the back of the billing statement, the billing entity shall include a reference to those disclosures on the front of the statement. :

(iii) At the billing entity’s option, additional information or explanations may be supplied with the disclosures required by § 308.7(n), but none shall be stated, utilized, or placed so as to mislead or confuse the customer or contradict, obscure, or detract attention from the information required to be disclosed. The disclosures required by § 308.7(n) shall appear separately and above any other disclosures.

(o) Multiple billing entities. If a telephone-billed purchase involves more than one billing entity, only one set of disclosures need by given, and the billing entities shall agree among themselves which billing entity must comply with the requirements that this regulation imposes on any or all of them. The billing entity designated to receive and respond to billing errors shall remain the only billing entity responsible for complying with the terms of § 308.7(d). If a billing entity other than the one designated to receive and respond to billing errors receives notice of a billing error as described in

§ 308.7(b), that billing entity shall either: (1) Promptly transmit to the customer the name, mailing address, and business telephone number of the billing entity designated to receive and respond to billing errors; or (2) transmit the billing error notice within fifteen (15) days to the billing entity designate to receive and respond to billing error, The time requirements in § 308.7(d) shall not begin to run until the billing entity designated to receive and respon to billing errors receives notice of the billing error, either from the customer y from the billing entity to whom the customer transmitted the notice.

(p) Multiple customers. If there is more than one customer involved ina telephone-billed purchase, the disclosures may be made to any customer who is primarily liable on the account. ;

§308.8 Severability.

The provisions of this rule are separate and severable from one another, If any provision is stayed or determined to be invalid, it is the Commission’s intention that the remaining provisions shall continue in effect.

§308.9 Rulemaking review.

No later than four years after the effective date of this Rule, the Commission shall initiate a rulemaking review proceeding to evaluate the operation of the rule.

By direction of the Commission.

Donald S. Clark,

Secretary. ;

[FR Doc, 93-18459 Filed 86-93; 8:45 am]