Markets Wired

In response to a request by the Federal Communications Commission (FCC) for comment, the Federal Trade Commission has urged adoption of policies to protect and empower consumers as they buy and use communications services, including telephone, cable, and Internet access services.

The FTC’s comment suggests that the FCC: adopt a policy requiring advertised prices of competing communications services to reflect the price the consumer actually pays, including all taxes, fees, and associated charges; consider whether certain standardized information disclosures would help consumers understand competing offers; and adopt measures to prevent the cramming of unauthorized charges onto consumers’ telephone bills.

The comment explains that the FTC received more than 37,000 consumer complaints regarding communications services during the past year. A significant number of complaints related to consumer confusion about the purchase and billing of communications services. Complaint data also indicate that consumers may fall prey to cramming. Based on complaints, the FTC’s law enforcement experience, and the agency’s economic and consumer disclosure research, the comment suggests policies that the FCC can adopt in three areas: advertised prices, information disclosures, and anti-cramming measures.

Advertising

FTC complaint data shows that consumers complained that providers had advertised an introductory or teaser price but did not indicate the price the consumer would pay once the introductory period ended. In other instances, associated charges or preconditions to obtain an advertised price were not specified. These types of complaints suggest that consumers believe that the advertised price is the actual price they will pay when the bill arrives.

In addition, the FTC’s comment explains that when price advertising fails to reveal what the consumer will actually pay, the likely effect is not only consumer confusion, but also a distortion of competition. This is especially true in situations where consumers are attempting to compare similar functional services, such as Internet service, based on whether they use wire or mobile technologies that are subject to varying levels of fees, taxes, and other charges.

The comment suggests that advertised prices should reflect how much consumers actually pay, including taxes, fees, and associated charges. If the advertised price does not include these costs the advertisement should allow consumers to obtain this information easily.

Information Disclosures

Consumers have found it increasingly hard to understand key features and costs of communications services options, often expressing surprise at charges on their bills and services they did not realize they were ordering. The FTC’s comment urges the FCC to seriously consider whether standardized information disclosures would facilitate consumer understanding of competing communications services offers. The comment also suggests that if uniform disclosures are considered, it may make sense to require them at the time an offer for services is made. Making disclosures at the time the consumer accepts the contract is too late to allow meaningful price comparisons.

Anti-Cramming Measures

The FTC has protected consumers against the cramming of unauthorized charges on their telephone bills by taking aggressive law enforcement actions. Based on these actions, the FTC’s comment suggests five policy changes that could eliminate cramming.

• Adopt stronger measures to block scammers’ access to the billing platform. The FTC encourages the FCC to explore ways to ensure that all providers and others that can place charges on consumers’ bills (i.e., billing aggregators) undertake due diligence of vendors before permitting them to place charges on consumers’ bills.
• Provide for greater coordination among law enforcement entities. The FTC’s consumer complaint system, Consumer Sentinel Network, provides a secure vehicle for sharing complaints among law enforcement officials.
• Provide consumers with information they need to detect cramming. Consumers should have easy-to-understand monthly bills and a reliable way to get more information about specific charges.
• Require providers and billing aggregators to investigate and detect cramming. The FCC should consider requiring providers, billing aggregators or vendors to take more steps to address the validity of charges challenged by consumers.
• Increase consumer control over billing through new technologies. The FTC encourages the development of, and spread of information about, technology that can give consumers more control of the charges on their bills.

The Commission vote to file the comment with the Federal Communications Commission was 4-0. The comment was filed on October 28, 2009, in response to the FCC’s Notice of Inquiry on how consumer-friendly information policies can protect and empower consumers as they purchase and use communications services.

(FCC Comment)