September 29, 1999

Mitchell F. Brecher, Esq.
Stephen E. Holsten, Esq.
Greenberg, Traurig, L.L.P.
1300 Connecticut Avenue, NW
Washington, DC 20036

RE: International audiotext services

Dear Messrs. Brecher and Holsten:

This is in response to your letter, dated June 7, 1999, requesting an FTC staff opinion regarding the "Proposed Use of 500 Numbers for the Provision of International Telecommunications and Audiotext Services." You have requested a staff opinion on the issue of whether the audiotext service (the "proposed service") you describe in detail in your letter would comply with the laws and regulations enforced by the FTC, including whether it would comply with the Final Order in FTC v. Interactive Audiotext Services, Inc., et al., Case No. CV 98-3049 CBM (U.S. Dist. Ct., C.D. Cal.., Dec. 15, 1998). Your letter also notes that the Commission is engaged in a rulemaking proceeding that "may significantly alter the requirements for lawful provision of audiotext services," and have therefore limited your request for staff opinion "strictly" to "the rules as they currently exist," on June 7, 1999.⁽¹⁾ At the request of Eileen Harrington, I have prepared this staff advisory opinion.

We consider your request for a staff advisory opinion within the analytical framework of Section 5 of the FTC Act, which prohibits "unfair or deceptive acts or practices in or affecting commerce."⁽²⁾ Section 5 applies to a wide range of business practices, including advertising, marketing, and billing and collection. Deception occurs under Section 5 if, "first, there is a representation, omission, or practice that, second, is likely to mislead consumers acting reasonably under the circumstances, and third, the representation, omission, or practice is material."⁽³⁾ Section 5 also prohibits "unfair" acts or practices. A practice is "unfair" if it causes substantial injury to consumers, if the harm is not outweighed by any countervailing benefits, and if the harm is not reasonably avoidable.⁽⁴⁾ The Commission pursues both deceptive and unfair practices under Section 5 either through administrative law enforcement actions or through federal district court actions seeking temporary and permanent injunctive relief and, ultimately, restitution to injured consumers.

Based on the description in your letter, and based on our experience with international audiotext services, we believe that the practice of offering the proposed service in the manner you have outlined in your letter would likely violate the FTC Act. These views, discussed in more detail below, are solely those of staff, and do not necessarily represent the opinions of the Commission or any individual Commissioner.

The Proposed Service

According to your letter, the proposed service would offer international audiotext services such as the ones discussed in the Commission's recent Notice of Proposed Rulemaking regarding the Pay-Per-Call Rule.⁽⁵⁾ Callers who wish to access the service would dial a 500 number, which would connect them to an information or entertainment service. Subsequently, the consumer whose telephone was used to access the service (the "line subscriber") would receive a toll charge on his or her telephone bill for what appeared to be an ordinary international long distance telephone call.

Although similar in most respects to traditional "international audiotext," the service would be slightly different from such services. Unlike ordinary international audiotext, the consumer would not dial the international number directly, but would instead dial a number with a 500 prefix. The call would then be directed to an international audiotext destination. Callers would be able to access the service from "any location in the United States." The service would also differ from most international audiotext programs in that information providers using the service would provide a free "preamble message" which would enable a caller to disconnect before any charges were incurred.

As discussed above, a caller who dialed a 500 number to access the proposed service would be connected to an international destination to hear an audiotext information or entertainment program, and this call would result in a "standard tariffed" charge to line subscriber's telephone bill. Your client would carry the call, and would "route the call through Canada and connect the call to an [information provider] located in a foreign destination." Charges for the service would be placed on the telephone bill prepared and sent by the local exchange carrier ("LEC") serving the person whose telephone was used to place the call. As with other international calls, the billing statement would "identify the carrier, the date and time of the call, the duration, the terminating telephone number and location" of the call.

Discussion

The billing method for the proposed audio entertainment service is very similar to the billing method described in another recent FTC staff opinion relating to video entertainment services (the "ITA opinion").⁽⁶⁾ For your convenience, we have attached a copy of that staff opinion.

We believe that much of the analysis described in the ITA opinion applies with equal force to the service you propose. Indeed, the proposed service described in your letter is billed in virtually the same manner as the toll-billed entertainment services described in the ITA opinion, and, we believe, violates the same principles of law. Here, as with the toll-billed entertainment services discussed in the ITA opinion, the services you describe are likely to be considered a form of unauthorized billing, and a violation of Section 5 of the FTC Act.

Although your letter states that your client would make "every effort to ensure that audiotext services are provided, that bills for such services are sent, and that collection efforts are directed, only to customers who desire to purchase audiotext services, are of legal age, are otherwise authorized to purchase such services, and are aware of the price of such services," you have not explained what steps your client would actually take to implement such essential safeguards. Assuming that a line subscriber would receive a billing statement for the proposed service based merely on the fact that his or her telephone may have been used to access the proposed service, it is difficult to see how your client could prevent the injury caused by the billing practices you mention. Furthermore, while your clients would ensure that free "preamble messages" were played to callers who accessed the service, this would do little to prevent the likely harm to line subscribers who receive billing statements for these services, particularly in instances where the line subscriber was not the same individual who accessed the service. Thus, it is difficult to see how the proposed service would avoid the practice of unauthorized billing.

Your letter also requests staff's opinion on the issue of whether the proposed service would comply with the Final Order in the Interactive Audiotext Services case. Again, I draw your attention to the analysis set forth in the attached ITA opinion letter, which touches on the Interactive Audiotext Services case, but also factors in the Commission's more recent cramming cases. Those cases focus on the unfair practice of billing a consumer for a product or service based solely on the fact that his or her telephone may have been used to make that purchase.⁽⁷⁾

1995 FCC Staff Ruling

While we cannot opine on the proper interpretation of the FCC's rules and governing statutes, your attention is drawn to the 1995 FCC staff ruling on information services that appear to be identical to the service you propose here.⁽⁸⁾ In that ruling, the FCC staff concluded that the arrangement violated the Communications Act of 1934, noting that "[c]ommon carriers engaged in such practices are not providing common carrier communications services in just and reasonable manner as required by Section 201(b) of the Act, and are violating both the letter and spirit of Section 228 of the Act." The FCC staff ruling also specifically noted that the practice of "assigning a 500 number to an information provider for termination in a country where the terminating carrier pays the provider to route calls to that location would be, in staff's view, inconsistent with the public interest mandate in Section 214 of the Communications Act of 1934." You may wish to advise your client of this unfavorable FCC staff ruling before investing any additional time or money in the proposed service.

I hope the discussion above is helpful to you and your client. If you have any further questions, please do not hesitate to contact me.

Sincerely,

Adam G. Cohn

CONCUR:

__________________________________
Eileen Harrington, Associate Director
Division of Marketing Practices
Federal Trade Commission

Endnotes:

1. While the Rule amendments proposed by the Commission last October would indeed affect the proposed service, this has not influenced our analysis. Regardless of the outcome of the ongoing Rule amendment proceeding, providers of audiotext services must comply with Section 5 of the FTC Act.

2. 15 U.S.C. § 45(a).

3. Cliffdale Associates, Inc., 103 F.T.C. 110, 165, appeal dismissed sub nom., Koven v. FTC, No. 84-5337 (11th Cir. 1984) (hereinafter Cliffdale). It is deceptive to omit "material information, the disclosure of which is necessary to prevent [a] claim, practice, or sale from being misleading." Id. at 177. Express claims, or deliberately-made implied claims used to induce the purchase of or payment for a particular product or service, are presumed to be material. Thompson Medical Co., Inc., 104 F.T.C. 648, 816 (1984), aff'd, 791 F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987). Information concerning the cost of a product or service also has been found to be material. Cliffdale at 174.

4. 15 U.S.C. § 45(n). See also Orkin Exterminating Company, Inc. v. FTC, 849 F.2d 1354, 1363-68, reh'g denied, 859 F.2d 928 (11th Cir. 1988), cert. denied, 488 U.S. 1041 (1989); and American Financial Services v. FTC, 767 F.2d 957, 972-78 (D.C. Cir. 1985), cert. denied, 475 U.S. 1011 (1986).

5. 63 Fed. Reg. 58524 (Oct. 30, 1998).

6. Letter dated September 29, 1999, to Roy Ellyatt, Chairman International Telemedia Association, from Adam G. Cohn, Staff Attorney, Federal Trade Commission.

7. See, e.g., International Telemedia Associates, Inc., No. 1-98-CV-1925 (N.D. Ga, filed July 10, 1998) (unfair practice to bill line subscriber for services that line subscriber did not purchase or receive, based on the use, or purported use, of a line subscriber's telephone to call a toll-free number); FTC v. Interactive Audiotext Services, Inc., No. 98-3049 CBM (C.D. Calif., filed April 22, 1998) (unfair practice to bill consumers whose telephones were used by someone else to access and purchase defendants' entertainment services by dialing non-blockable toll-free numbers). See also FTC v. Hold Billing Services, Ltd., No. SA98CA0629 FB (W.D. Texas, filed July 19, 1998) (unfair practice to bill line subscribers for sweepstakes entry forms filled out by someone other than line subscriber where line subscriber did not consent to the charges).

8. Letter dated September 1, 1995, to Ronald J. Marlowe of Cohen, Berke, Bernstein, Brodie, Kondell & Laszlo, from John B. Muleta, Chief, Enforcement Division, Common Carrier Bureau, Federal Communications Commission.