April 2000
Cable, Internet Access and the Commonwealth: Evaluating The Ballot Initiative's Impact on Government and Consumers
By Stuart N. Brotman

B. "Slamming" and "Cramming"

Two words that have not been discussed by proponents of the ballot initiative are "slamming" and "cramming." This is not surprising since they represent substantial consumer risks that might arise once a number of independent ISPs begin to lease cable network facilitates at government-required rates.

The experience of telephone consumers represents a real-world view of what cable online subscribers are likely to encounter if the ballot initiative is approved. One of the leading organizations offering advice and reporting on fraud in telephone and online services is the National Consumers League (NCL), which has been representing consumers in the marketplace and the workplace since its founding in 1899.

According to testimony by Susan Grant, Vice President for Public Policy of the National Consumers League, before the U.S. House Subcommittee on Telecommunications, Trade and Consumer Protection, the League's National Fraud Information Center has seen an alarming increase in consumer complaints about telephone "slamming," the unauthorized switching of consumer's telephone carriers.³² Slamming represents one of the top sources of consumer fraud complaints received. [W]hat we are hearing is just the 'tip of the iceberg.'"³³ She cited the NCL's own survey that indicated in select markets, nearly one out of every three subscribers had been slammed themselves or knew someone who had been.³⁴

According to the NCL, consumers reported being slammed multiple times; some also reported being billed by the unauthorized carrier for other unwanted services. Most consumers were unaware that their service had been switched until they received their bills and some did not realize it until several billing periods had transpired. And for those who complained and thought that they had resolved the problem and gone back to their original carriers, they were slammed again.³⁵

Additionally, consumers reported having difficulty reaching the companies to which their telephone service had been switched. "Either there is no answer at the company's number, or the consumer simply gets a recording, or the company hangs up on the caller."³⁶ Often, as the NCL noted, the company name and number on the bill is that of a billing agent who may be acting on behalf of several companies.³⁷

The root of the evil of slamming is deeply felt in Massachusetts. Victims of slamming are outraged and frustrated. According to the NCL, those experiencing such fraud and deception "do not believe that they should have to spend their time and energy going around in what often seems like endless circles to resolve problems that are not of their own making."³⁸

In the telephone slamming area, considerable federal efforts are in place regarding the enforcement of anti-slamming regulations. In late 1998, the Federal Communications Commission adopted new anti-slamming rules to take the profit out of slamming by excusing customers who have been slammed from having to pay for some slamming charges.³⁹ The FCC's rules also strengthened its existing verification procedures, which require third-party confirmation that a consumer has made a voluntary decision to switch carriers, and created a Web site for slammed consumers to file a complaint with the FCC.⁴⁰ The FCC's tougher measures reflected the conclusion reached by other federal agencies, as well. For example, the U.S. Government Accounting Office reported that "slamming continues to be a continuing problem," and reported nearly 60,000 federal and state slamming complaints from 1996-1998.⁴¹

The practice of slamming is not limited to unauthorized switching of residential long-distance service. It has spread to local exchange carriers where competitive local exchange carriers are in a market and to wireless services, where dozens of companies lease cellular network capacity and resell it to customers. The numbers can be staggering. For cellular slamming, the most recently available data estimated this type of fraud costs consumers over $237 million dollars annually.⁴² Hopefully, in time, the new federal efforts to control slamming will result in a decrease in complaints and consumer expenditures.

The next wave of slamming -- perhaps even the largest wave of fraud to occur -- is destined to be among Internet Service Providers who switch customers to their service through deceptive telemarketing and online marketing practices. Internet slamming is not covered by any of the federal anti-slamming rules discussed above and would need to be handled through the traditional complaint process of the Commonwealth's Office of Attorney General. At a minimum, this would require a yet-to-be determined increased budget allocation to deal with these problems, and additional pressures within that office to prioritize Internet slamming in relation to the thousands of other consumer fraud complaints it receives annually.

Given the absence of federal resources and a potential shortfall in state resources, the practice of Internet service slamming among cable customers represents a fertile territory for fraud. The current structure of the market minimizes the possibility of Internet slamming because the cable operator is allowed to enter into network leasing arrangements only with those companies it deems reputable. In contrast, one clear effect of approving the ballot initiative would be to take away such commercial freedom that protects consumers. In its place, the ballot initiative would compel Massachusetts cable operators to allow any and all ISPs onto its network, regardless of whether that company is involved in fraudulent practices.

This means that if a cable subscriber experiences Internet service slamming, the consumer will have to travel a long and winding road to seek redress from the offending company and if necessary, from government. The cable operator, acting as a lessor, will have little or no leverage to force the offender to stop. And even when slamming is halted, there will be no system in place to ensure that it will not happen a second, third or fourth time.

A similar situation may occur with respect to "cramming," which is another fraudulent practice that is widespread in the telephone industry. Cramming is a term used to describe the practice of placing unauthorized, misleading or deceptive charges on consumers' telephone bills. Entities that engage in cramming appear to rely heavily on consumer confusion over telephone bills to mislead consumers into paying for services that were not authorized or received.⁴³ In many cases, this problem is aggravated by telephone bills that do not clearly state what services were provided or do not clearly identify the entities providing these services. According to the NCL's Congressional testimony, cramming ranks as the leading source of complaints regarding telephone service-related fraud.⁴⁴

Unlike slamming, there are not a comparable set of federal rules in place, nor are there any specific rules covering the practice in the Commonwealth. This means that additional budget allocations for the Office of the Attorney General might be necessary to police Internet cramming by cable ISPs.

Again, the problem is bound to arise in a significant way because of the combinations of nonexistent or underfunded federal and state law enforcement efforts targeted to deal with this practice, and the inability of cable operators to handle billing for dozens of ISPs who might choose to lease cable network capacity at government-required rates.

Each of the leasing ISPs would generate its own bill and would have the ability to cram a number of services (e.g., fax, voicemail, e-mail forwarding) onto a single bill, with only the sharp eye of the consumer serving as a filter for potential fraud. And as with slamming itself, even if such fraud is detected, it only marks the start of a potentially long and frustrating process to force the offender to cease and desist. Multiple efforts may be necessary since cramming, like slamming, can occur a number of times.

The current market structure does not provide such a fertile environment for cable Internet slamming. This is because the cable operator is a party to a legal agreement with each local community where it offers service. Local franchise agreements typically contain representations of billing practices and remedies for consumers who find discrepancies. But these agreements only cover services that cable systems offer to customers on a retail basis. Since approving the ballot initiative would compel the cable operator to enter into a new line of business outside of its control -- namely, wholesale leasing of cable network capacity at government-mandated rates -- consumer billing protections for these services would not be covered under the franchise agreement. In other words, consumers would be on their own to detect ISP cramming and seek appropriate relief under general consumer protection laws.

Thus, for both "slamming" and "cramming," the ballot initiative raises real-world consumer protection risks and provides no effective way to control them. Proponents who don't address this issue will need to explain why the new scheme will be better than our current system to deter those who would victimize the poor, the elderly and others who are victims of consumer fraud in the Information Age.

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