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Washington Agog: FCC Rules Against Verizon

Chairman Martin isolated in 4-1 vote to enforce existing rules

By Martin H. Bosworth
ConsumerAffairs.com

June 23, 2008 
The Federal Communications Commission (FCC) has handed a surprising setback to Verizon by ruling that the telecom company could not use "retention marketing" to cajole departing customers into staying with their service.

Under the ruling, Verizon is not allowed to call customers during the four-day period of transferring one's phone number to a competitor and offer incentives for them to remain with Verizon.

The Commission voted 4-1 that Verizon had previously violated "retention marketing" rules by using the grace period when a customer's phone number is being transferred -- or "ported" -- from one service to another to specifically target departing customers.

Once Verizon compiles a list of these customers, the Commission said, "Verizon immediately...contacts customers on the lead list, by express mail, e-mail, and/or automated telephone message. Those contacts encourage customers to remain with Verizon, offering price incentives such as discounts and American Express reward cards."

"Verizon conducts this marketing while the number-porting request is still pending, i.e., before the new provider...has established service to the customer," the Commission said. The agency ruled that Verizon used "proprietary" information from competitors regarding number portability to market special services to customers.

The sole dissenter in the ruling was FCC chairman Kevin Martin, who said the order "promotes regulatory arbitrage and is outcome driven; it could thwart competition, harm rural America, and frustrate regulatory parity."

Martin criticized the ruling as favoring one class of competitors -- cable companies -- over another, saying that "Customer retention marketing is a form of aggressive competition that has the potential to benefit consumers through lower prices and expanded service offerings."

Several cable companies, including Comcast and Time Warner Cable, filed the complaint against Verizon in February, and though the FCC's enforcement bureau had recommended the complaint be dismissed, the Commission chose to take up the complaint nonetheless.

The 4-1 ruling was an unusual break from typical FCC business, where Martin, a Republican, and his fellow Republican commissioners Deborah Tate and Robert McDowell tend to vote in unison, with Democratic commissioners Jonathan Adelstein and Michael Copps usually in the minority.

McDowell, the only other commissioner to issue a statement on the ruling at press time, said that, "Under the law, carriers are also permitted to launch 'win-back' campaigns after consumers have switched. Today's action underscores long-held Commission policy that using proprietary customer information for marketing efforts cannot take place during the window of time when a customer's phone number is being switched to a new provider."

Playing favorites

Although the ruling itself was not issued until June 23, rumors were already flying fast in Washington's technology circles. The leaked news of the FCC ruling led Verizon executive and lobbyist Tom Tauke to publicly criticize the ruling on the company's "Policy Blog" on June 20, three days before the ruling itself was made public.

"[I]t seems as if the majority of the FCC is about to decide against transparency and in favor of denying consumers the information they deserve before making a buying decision," Tauke said. "And the majority is deciding against a level playing field and imposing more restrictions on telecoms' communications with their own customers."

That led to a response from Kyle McSlarrow, chief lobbyist for the National Cable & Telecommunications Association (NCTA), the cable companies' lobbying arm. "[T]he law is very clear: Verizon can market to its heart's content 362 days of the year to its customers," McSlarrow said. "However, when customers make a decision to leave you, you are obligated to honor their decision to request that their phone number be transferred to their new provider, and respect their privacy by porting their current number within 4 days without harassing them with marketing retention calls."

McSlarrow also noted that "someone in the FCC apparently leaked a decision that apparently goes against Verizon. And it is intriguing that the leak was apparently choreographed in a way that gives Verizon a shot at debating this in the press and the blogs."

Industry observers speculated that the leak may have been none other than Martin himself, who has become infamous during his time as FCC chairman for pursuing a regulatory agenda that favors telecom corporations and restricts cable companies.

Martin championed reworked video franchising rights that enabled telecom companies to enter new markets without having to comply with the same regulations as existing cable companies. Martin also pushed hard for the mega-merger of AT&T and BellSouth in the closing days of 2006, creating the world's largest telecommunications company and enabling new markets for AT&T's high-speed "triple-play" service U-Verse.

Martin has meanwhile lobbied for aggressive new restrictions on cable competition in given regions of the country. And where Martin has generally opposed regulation that preserves "net neutrality," the principle that Internet users should be able to access all content equally, he has promised to investigate Comcast for its practices of blocking access to the BitTorrent file-sharing service.

The chairman's lopsided approach to regulatory policy has led to multiple hearings for all the FCC commissioners on Capitol Hill, and an ongoing investigation by the House Commerce Committee of the FCC's rulemaking procedures under Martin's tenure.

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