Slammed!

Telemarketing scammers are the price we pay for lower long-distance bills. Can we afford this kind of bargain?


Damien Cave
May 8, 2002 11:34PM (UTC)

"I'm calling from MCI," said the telemarketer on the other end of the line. "We already provide you with long distance service and I'm just calling to let you know that as of next week, we'll also be providing you with local service. This means you'll get a single bill and be able to ... "

I tried to stop him. I'm not one of those people who regard telemarketers as scum, but as a reporter who covers technology and business, this was just too obvious. Alarm bells began to sound. I raised my voice, he raised his, and suddenly I discovered I was shouting: insisting that MCI had no right to switch my service; that his call was just a sales pitch, a cheap attempt to trick me into giving permission for a change of service.

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"Isn't this slamming?" I asked. "Aren't you doing exactly what your company and the other phone companies got busted for a few years ago -- trying to switch people's service without permission?"

He dodged, asserting that "90 percent of the people I call know that I'm asking for their permission, not really changing their service." He told me the FCC had approved the script he was using, and claimed that every other phone company did the same thing.

I hung up on him. But I wasn't finished. I didn't believe his claim about the FCC but I wanted to be sure. I called a few telecom experts and consumer advocates and sure enough, the FCC does not approve sales scripts, and the practice of preemptively announcing a change of service is illegal. I also learned that that WorldCom, which bought MCI in 1998, is far and away the world champion of slamming. A March 2002 FCC study, which traced slamming complaints since 1997, found that consumers filed more gripes about WorldCom than about any other telephone company -- far more than AT&T, for example, which handles twice as many residential customers.

My telemarketing nemesis was correct, however, on one point: MCI is not alone in playing fast and loose on the phone. Telephone companies regularly make offers "without disclosing every cost," says Christopher Day, an attorney with Georgetown's Institute for Public Representation. When they're not misrepresenting their prices or unilaterally changing your provider, they're operating the bait-and-switch, offering low rates only to jack up prices after you sign up.

The FCC has fought back, suing several companies for dubious sales practices. Some studies even suggest that slamming is on the decline. But thousands of complaints about telephone company sales practices continue to flow in. For WorldCom, which is in a widely reported world of trouble -- suffering under the weight of a severely depressed stock price, the forced departure of its CEO and an SEC investigation -- the pressure to sign up new customers is more intense than ever. Which means more attempts to slam you and me.

But WorldCom/MCI's bad behavior is merely a symptom of the overall disease, not the agent of plague itself. Deregulation has encouraged hundreds of competitors to enter the long distance market. The new entrants, combined with the surging growth of cellphone usage and the popularity of e-mail as an alternative to picking up the phone, have made it increasingly tough for any long distance company to make a buck and thus encouraged them all to become more aggressive.

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The result is a paradox. For consumers, deregulation and competition have delivered obvious benefits, namely lower prices. But in return, we are doomed to endure the hard sell and fast-talking scam, to having our dinners interrupted and our phones turned into implements of boorish distraction. Those telemarketers from MCI or Sprint or AT&T who just won't go away -- no matter how much you stamp your feet or ask to speak to supervisors or demand to be put on "do not call" lists -- are the quid pro quo for having a few dollars sliced from each monthly bill.

So most people pay less for phone service today than they did in the '70s -- but is it worth it? When people are forced to spend extra time on consumer self-protection rather than, say, on their children's homework, is it safe to declare that progress has been made? Or do we just have to accept the sad truth: a free market encourages -- indeed, it requires -- telemarketing rudeness and flim-flam?

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The experience of listening to a less-than-honest MCI salesman takes on a particularly galling tone when seen in the context of telecom history. MCI, founded by William McGowan as Microwave Communications of America Inc. in 1968, started selling residential service in 1980 and was one of the first challengers to the Bell monopoly. If AT&T acted like the stodgy giant, taking weeks to fix a phone line or refusing to remove charges from a bill, consumers could simply switch to MCI. For the first time in decades, they had an alternative.

The Bell system fought back with collusion and below-market pricing, but regulators soon stepped in. In a 1982 agreement, the Justice Department broke up the monopoly and gave companies like MCI the chance to grow. Consumers reaped the rewards of the newly competitive environment. Prices dropped as hundreds of companies began to offer service. Meanwhile veterans like MCI expanded and became locomotives of growth. By 1997, MCI was worth more than $19 billion.

But with increased competition came the first cases of slamming. "It started developing rapidly after 1984, when the consent decree went into effect, breaking up AT&T," says Day at Georgetown. The boldest companies switched service providers without any shred of notice, but most used more subtle scams. One common trick was the sweepstakes gambit. Consumers think they're only signing up for the chance to win a cash payout or a car, but they're also agreeing -- whether they read the fine print or not -- to let themselves be slammed.

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Even saying no doesn't always work. "Frequently, consumers who have received phone calls from telemarketers find themselves slammed even though they said 'no' to a change of carrier or the call had nothing to do with long-distance service," wrote Day in a Northwestern Law Review article. "In one extreme case, consumers who made calls to the Psychic Friends Network (a 900 number) found that their long-distance service was switched simply because they dialed the number."

Minorities and non-English speakers have always been especially popular targets. A study conducted for the National Consumers League in 1997 showed that African-Americans and Latinos in Chicago, Detroit and Milwaukee were slammed at considerably higher rates than whites. States with large minority populations -- California, for example -- also tend to have the highest slamming rates.

Since the mid-'90s, regulators have taken on a more active role in combating telemarketing excesses. The most recent FCC rules, from 2000, permit consumers to earn damages. Companies caught slamming must pay 150 percent of the customer's service fees. So, for example, if MCI switched my local service without my permission, they wouldn't just have to pay my phone bill -- they'd also have to pay me.

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State attorneys general have aggressively taken advantage of such laws; in California, Qwest, Pacific Bell and WorldCom have all been slapped with multimillion-dollar fines within the past year.

"We get a lot of complaints and we investigate them, says Hallye Jordan, a spokesperson for California Attorney General Bill Lockyer. "We work very hard on this issue."

MCI also says it is working hard. When I called their media relations office to tell them what happened, Lauren Kallens, a company spokesperson, told me, "We don't encourage that kind of misrepresentation." She also told me (after checking with the folks in billing) that my service hadn't been illegally switched and that MCI wouldn't have let it happen without first hearing from a third party who verified my decision.

Perhaps as a result of tougher regulatory action and wiser consumers, slamming complaints in California were down last year. But at the same time, the telecom market is more competitive than ever, meaning that market pressure will continue to push companies to scramble for every extra dollar.

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There are good reasons why slamming occurred first in the long-distance market and is unlikely to go away.

Because telephone service is an electronic purchase, initiated and authorized outside a customer's purview, it's easy to take customers for a ride. "Not only is it an electronic transaction but it's also an electronic service," says Mark Cooper, director of research at the Consumer Federation of America. "So if someone wants to sell you a book, they have to go through the effort of sending you the book. You can stop the transaction physically by sending it back. But with long distance, they only have to flip a switch and it can go months without being noticed. There's nothing physical to send back and a lot of people don't notice what's happened until much, much later."

The fact that the conversations between a salesperson and customer typically take place on the phone, in private, makes it especially easy for companies to claim that service switches are authorized. Third-party verification may help, but companies have found ways to work around this seemingly foolproof policy, says Day. Sometimes, they send edited versions of sales calls to the third parties. "They'll say something like, 'Would you be interested in switching if we give you 5 cents a minute,'" Day says. "The customer says yes, and all the company forwards is the person saying, yes, I'm interested, not the details about other fees. So what they could do is give you 5 cents a minute with a cheap monthly fee and a few months later, they could raise the fee to say $4 a month."

Some companies even try to blame the government for extra charges. "The FCC levies a 7 percent fee for use, but phone companies often jack it up to 14 or 15 percent," Day says. "They notify people with an insert in the bill that says the increase is a federally mandated universal service charge. But it's really just an attempt to raise rates."

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Such trickery exists not just because it's possible, though, Day adds. The phone companies resort to hawkish schemes because of market pressure: A relatively stable level of demand is being spread among an increasingly large pool of suppliers. Not only are there now more than 400 long-distance providers in an industry once dominated by a single major company; there are also cellphone companies to contend with and Internet telephony startups aiming for new customers. Unless the U.S. has a population explosion or we all start talking on the phone as much as we did at age 16, consumers will have no choice but to continually do battle with the telephone industry.

"When you have a stagnant base of customers and you have companies with facilities that are underutilized, they're going to go after everyone," Day explains. "And most companies go right up to the limit to do it."

In other words, the phone call I received from MCI will not be the last. Just as advertising companies online have continually found new creative ways to gather people's information; just as credit card companies have found new ways to profit from their customers' bankruptcies, telephone companies will find new ways to sell phone service.

So has telecom deregulation made our lives better?

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"Yes" is the only answer consumer advocates tend to give. As Chris Murray, telecom counsel for the Consumers Union, puts it, "Head-to-head competition is the only thing that lowers consumer's rates and gives them better service. It can only be good for consumers."

Economically speaking, sure. But what about the quality of our lives? What about the time lost fielding unwanted phone calls? What about the requirement that, as good consumers, we must examine every bill under the assumption that we are probably being cheated? Is that any way to live?

I'm still not sure of the answers to all these questions. But I do know this: the next time a telemarketer calls, I'll be far less courteous. I'll say "hello," followed by a simple goodbye -- the cold click of a phone slammed down. It's a new, deregulation-inspired etiquette: Call it "free market" manners.


Damien Cave

Damien Cave is an associate editor at Rolling Stone and a contributing writer at Salon.

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