Pennsylvania Office of Consumer Advocate

 

 

Pennsylvania Office of Consumer Advocate
555 Walnut Street
5th Floor Forum Place
Harrisburg, PA 17101-1923

Phone: 717-783-5048 or toll free 800-684-6560
Fax: 717-783-7152

Email: consumer@paoca.org

TESTIMONY OF IRWIN A. POPOWSKY, CONSUMER ADVOCATE OF PENNSYLVANIA

 

REGARDING H.B. 200 and 229: SLAMMING

BEFORE

MEMBERS OF THE HOUSE CONSUMER AFFAIRS COMMITTEE

My name is Sonny Popowsky. I am the Consumer Advocate of Pennsylvania. Thank you for the opportunity to testify before your Committee on the issue of "slamming" in general and on House Bills 200 and 229 in particular.

Slamming, or the unauthorized switching of a customer's utility service provider, has been a persistent and pernicious problem that continues to infuriate consumers and threaten efforts to bring competition into various segments of the utility industry. I am here today to support the efforts of the sponsors of these bills to address this issue in the strongest possible terms as a matter of Pennsylvania law. I am also here to respectfully urge this Committee and all the members of the General Assembly to give this legislation your highest priority and to make it clear that the practice of slamming will no longer be tolerated in Pennsylvania.

I am speaking with some sense of urgency because the problem of slamming is not going away - even though it was first recognized in the long distance telephone industry as early as 1985. I also want to let you know that this is not an issue that can simply be left to federal authorities, such as Congress and the Federal Communications Commission (FCC). The majority of states have passed their own anti-slamming legislation in the last several years. In order to assist this Committee in its deliberations and in order to demonstrate the seriousness with which this issue has been addressed in other states, my staff has compiled copies of the anti-slamming legislation that has been enacted by other state legislatures across the Nation. I am providing copies of those materials to your Majority and Minority Committee staff members today.

Why is this issue so important and why should Pennsylvania pass its own anti-slamming legislation? Why does slamming persist, even though its existence has been known to federal and state regulators for more than a decade?

It is because slamming is profitable and it is hard to detect. Despite the thousands of complaints received by the Federal Communications Commission and state public utility commissions each year, we have to assume that these complaints are only the tip of the iceberg and that the great majority of illegal slams are either unnoticed or unreported by consumers. In its recent rulemaking order on slamming, the FCC noted that it had processed 20,500 slamming complaints in 1997, which was an increase of 61% over 1996 and 135% over 1995. The FCC then concluded, however, that the "number of slamming complaints filed with the Commission is a mere fraction of the actual number of slamming incidents that occur." Indeed, the FCC cited an estimate by one large long distance carrier, AT&T, that some 500,000 of its customers had been slammed in 1997 alone.

It's easy to see that if a slammer can get away with hundreds or even thousands of illegal switches for every time that it gets caught, then slamming will only be stopped if the negative consequences to the slammer of getting caught outweigh the profit from continuing the practice. It's also easy to see why slamming has found a home on the long distance portion of consumers' phone bills -- more so than in any other form of commerce. The phone bill has become long, complicated, and difficult to understand. It is therefore a good place to hide illegal charges. Because the phone bill also includes the charge for basic local telephone service, which is a virtual necessity of life for most American consumers, the great majority of consumers will pay their phone bill every month even if it contains charges that they do not fully understand, from companies that they may have never heard of. Now in fact, under Pennsylvania regulation, customers cannot lose their basic local service because of a failure to pay their long distance or any other optional non-basic phone charge. But many consumers are not aware of this protection and, in any case, do not want to get involved in protracted disputes that they believe might in some way jeopardize their phone service.

It seems to me that the last thing we want is for Pennsylvania to be one of the few remaining states in which slammers can operate without specific, substantial state enforced remedies that clearly enable our Public Utility Commission and other state authorities to deal with slammers in the most effective manner.

I am not suggesting that our state is totally powerless to deal with slamming violations today. My Office has argued in a case now pending before the PUC that long distance slamming is a violation of the general service requirements of the Public Utility Code and is subject to fine. In addition, it is my understanding that the Office of Attorney General has brought actions in the state courts against certain persistent slamming violators pursuant to the state's Unfair Trade Practices and Consumer Protection Law. I am suggesting though that Pennsylvania should take the action that has been taken now by a majority of other states to address slamming specifically and directly through the type of legislation that is before you today.

With respect to the specific legislation that is before you today, my primary recommendation would be to focus on the jurisdiction of the Pennsylvania Public Utility Commission to address these issues -- that is, to make it clear that slamming is a violation of state as well as federal law -- and to make it clear that such violations will be punished severely and that Pennsylvania consumers who are slammed will be fairly compensated by the slammer.

I would caution against, however, being overly prescriptive with respect to the specific verification rules that service providers must follow when they sign up customers. I would leave some of that detail to the Public Utility Commission through its rulemaking process. Further, with respect to long distance telephone service, I would urge both the General Assembly and the Commission to utilize authorization and verification standards for service providers that are not inconsistent with the applicable federal standards. In this latter regard, I would note that the problem with current federal law and regulations with respect to authorization and verification procedures is not that we don't have reasonable substantive standards. The problem is that those standards are widely and pervasively flaunted by some segments of the long distance industry and that those standards are virtually unenforceable at the federal level. We don't want to impose inconsistent federal and state standards on companies who want to serve Pennsylvania consumers. We do want those companies to know, however, that if they violate those standards in Pennsylvania, they will be subject to strict penalties and will be required to compensate Pennsylvania consumers.

A good example of this potential problem can be found in Section 4(a)(4) of House Bill 229. This section would allow the use of "informational packages" containing postage prepaid postcards as a means of verifying that a customer has switched suppliers. In other words, if a customer receives such a mailing and doesn't return the postcard within 14 days, that customer will be deemed to have agreed to service from the new provider. This provision of House Bill 229 is consistent with the prior federal regulations on this subject. Yet, in its most recent regulations on slamming that were published in the Federal Register on February 16, 1999, and are scheduled to become effective on April 27, 1999, the Federal Communications Commission concluded that this particular verification method had been widely abused by certain providers and that many consumers simply thought these so-called "welcome packages" were merely misleading junk mail. Because of this verification method's "fraudulent potential", the FCC has now decided to eliminate this method from its list of lawful verification methods under federal regulation. The reason I mention this example is not to be critical of House Bill 229, but to demonstrate that a particular business procedure that may seem reasonable at one point in time, may prove to be unreasonable soon thereafter. I would urge you to be flexible enough in your legislative language to allow regulators to respond to such changes without having to seek legislative amendments.

My staff and I would welcome the opportunity to work with the members and staff of the Committee and the sponsors of House Bill 200 and 229 to help ensure that the language is as strong as possible to prevent slamming, but also to give the PUC the flexibility to adapt its regulations to changing conditions and also to make it possible for law-abiding service providers to compete successfully to serve Pennsylvania consumers in a manner that is consistent with both state and federal law. Crafting appropriate anti-slamming legislation requires some difficult policy calls and careful drafting. The easier it is for consumers to change their long distance telephone company, the easier it is for carriers to find ways to switch consumers' service without their knowledge or consent. On the other hand, the harder it is to change service providers, the more difficult it becomes for consumers to shop for new services and for new entrants in the market to compete.

Finally, I should note that it is important to ensure that protections against slamming not be permitted to be used by incumbent monopoly utility companies as self-protection against the loss of customers to bona fide competitors. The FCC, for example, recently determined that the burden of meeting its verification obligations falls on the "submitting" carrier who is seeking to change the customer's service, not the "executing" carrier that must implement the switch. The FCC stated: "We have concerns that executing carriers would have both the incentive and ability to delay or deny carrier changes, using verification as an excuse, in order to benefit themselves or their affiliates." Again, I would urge the General Assembly to provide the Public Utility Commission with the authority to develop regulations that would prevent unwanted service changes, but would also prevent the incumbent utilities from using anti-slamming verification requirements as a means of competing unfairly to retain or "win back" customers who are trying to switch to competitors.

With the above caveats, I would reiterate my support for strong Pennsylvania slamming legislation, such as that which is before this Committee today, and I would again offer the assistance of my Office in helping to develop final legislative language that will fully and fairly address this pernicious consumer problem.

I would be happy to answer any questions that you may have at this time.

  

 

 

 

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