TO: EDITORS, NEWS DIRECTORS

DATE: May 29, 2001

FOR: IMMEDIATE RELEASE

Proposed Slamming & Cramming Rules Offered To Telecom Industry
Commission Submits Draft Rules for Industry Comment

PHOENIX - Slamming and cramming, a form of consumer fraud and abuse, is about to get harder to perpetrate in Arizona. Consumers are poised to gain important new rights governing how telephone companies make changes to their accounts. The Arizona State Legislature passed a law in 1999 granting the Arizona Corporation Commission authority to take action against telecommunications companies that engage in this form of consumer fraud. Slamming is the unauthorized switching of telecommunications carriers. Cramming is the addition of services that are not requested or authorized by the customer. The Commission's Utilities and Legal Divisions have drafted proposed rules to guard against slamming and cramming. These proposed rules were submitted to consumer groups and the over 370 telecommunications carriers that do business in or from Arizona.

Because this problem is so pervasive, the Federal Communications Commission (FCC) has encouraged the states to develop rules against this fraud and prosecute violators. Not only is slamming or cramming a fraud against consumers, it is also a fraud against the phone service provider that loses a valuable customer. There are costs associated with acquiring a customer and the companies make decisions based on their expected revenue from their total customer base. Therefore, the company is defrauded when a customer is, in effect, stolen.

The proposed rules incorporate the following key provisions:

• Explicit consumer authorization is required before a company can make any changes to a customer's service;

• Consumers are not responsible for unauthorized charges and cannot be disconnected for failure to pay disputed charges;

• Companies have 45 days in which to refund to customers any unauthorized charges;

• Telecommunications companies will be required to publish an annual notice of consumers' rights, similar to what is provided to credit card holders. The notice will also advise customers to report slamming and cramming to the Arizona Corporation Commission;

• The Commission will assist in investigating and resolving slamming and cramming complaints in three ways: 1) Informal complaint process; 2) Arbitration if the informal process fails to produce a satisfactory resolution; 3) Formal complaint with the potential for a hearing;

• Changes in provider would require one or more of the following: 1) Written authorization from the customer; 2) Voice recording; 3) Electronic authorization with third party verification. Third party verification requires the companies to connect the customer with a completely unrelated or unaffiliated company to verify the customer's request;

• Companies will be required to keep electronic voice recordings, written authorizations or third party verification records for a minimum of 24 months;

• The Commission could, under the proposed rules, assess penalties of up to $7,500 for the first violation and not more than $15,000 for each subsequent violation of the slamming or cramming regulations;

• For any telecommunications company that continues to abuse customers, the Commission could revoke their certificate and bar them from doing business in the state.

The proposed rules would apply to any local phone service provider operating in Arizona and those companies that provide in-state long distance. The FCC regulates interstate long distance providers.

The rulemaking process began in 2001 with a thorough review of FCC rules as well as rules promulgated by several other states. Approximately half of the states have rules against these fraudulent practices.

The Commission will hold a workshop with all interested parties on Wednesday, June 13 from 1:00 to 4:00 p.m. at the Commission's 1200 West Washington Street offices. The Commission staff may incorporate changes to the proposal and expects to present the final rules package to the Commissioners for review and approval by the end of the summer. The proposed rules will be filed with the Secretary of State at which time the formal rulemaking process will begin.

The proposed rules are posted on our website www.cc.state.az.us under the Utilities Division or can be accessed directly with this hot link, http://www.cc.state.az.us/utility/index.htm.