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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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