Survive Slamming Fines and penalties levied by the Federal Communications Commission (“FCC”) and state public utilities commissions (“PUCs”) against carriers for slamming activity, particularly carriers relying upon telemarketing,  can be crippling.  Since 2000, the FCC has assessed (either in forfeiture orders or through settlement agreements) carrier fines totaling approximately $14,070,000 while state PUCs have assessed aggregate penalties well in excess of this amount.  As a result, it is absolutely crucial that long distance and local carriers as well as resellers have fail-safe anti-slamming programs in place.  The following outlines the minimum components necessary to steer clear of the potentially hefty slamming liability faced by carriers that use outbound telemarketing to reach new customers.  While many of the comments below also apply to carriers relying upon letters of agency (LOAs), the focus of this guide is the relatively higher risk use of telemarketing to sell telecommunications services.  The Enforcement Climate While slamming was under-penalized in the late 1990s, today federal and state law provides for severe economic penalties against slammers.  With FCC slamming penalties assessed at $40,000 per slam ($80,000 in extreme cases) and FCC regulations requiring the unauthorized carrier to pay 150 percent of charges improperly collected to the slammed customer’s preferred provider, carriers which permit an undue level of slamming, even if accidental, face almost certain financial disaster.  The average fine assessed by the FCC for slamming is over $1 million. The highest slamming penalty assessed by the FCC is a consent decree entered into for $3.5 million, and the lowest is a consent decree entered into for $55,000.  In more egregious cases, corporate principals are individually banned from participating in the long distance marketplace. Fines and penalties on the state level can be even more crippling.  For example, in 2002, the Florida Public Service Commission accepted a settlement offer from a major provider in the amount of $3.1 million.  In 2001, the California Public Utilities Commission issued an order assessing a $7 million fine against a reseller for slamming and misrepresenting its relationship with local exchange carriers.  In recent years, the New York Public Service Commission entered into a settlement agreement with an incumbent local exchange carrier for $1.75 million as a result of slamming.  In at least one state, Michigan, the law has been shaped to give consumers a cause of action against providers which can be extremely profitable for the consumer.  Under Michigan law, the Public Service Commission can order a slamming carrier to remit between 10 and 50% of any fine directly to the slammed consumer.  With fines running up to $70,000 per slam, Michigan consumers have a strong incentive to pursue legal actions against slamming carriers. Perhaps most troubling is the reality that enforcement action often does not occur in isolation.  Typically, a bad telemarketing campaign that leads to slamming will occur across multiple states, leading to simultaneous enforcement actions in a number of jurisdictions, compounding the potential liability of a carrier.  A “domino effect” is not uncommon as yet additional regulators, partially responding to political pressure, feel the need to investigate the company’s practices.  The added prospect of defending multiple slamming enforcement actions, subject to differing state laws, along with multiplying legal fees can be daunting.  It is not difficult to comprehend that slamming liability is the single greatest legal concern in today’s regulatory environment for resellers and facilities-based carriers.  It is not uncommon for carriers, particularly those with aggressive telemarketing practices or which have not established a comprehensive slamming compliance program, to be severely challenged by slamming enforcement actions.  Some do not survive the challenge.  More than ever before, long distance and local providers must have fail-safe anti-slamming programs in place.  Avoiding Investigations and Liability              Given the high level of penalties issued by regulators against slamming, slamming has truly become a “zero tolerance” activity.  Carriers operating in today’s regulatory environment must implement systems that will absolutely eliminate slamming lest they face potentially devastating liability that could jeopardize their financial viability.  Our law firm counsels its carriers in slamming avoidance practices.  Typically, we recommend the following minimum steps to help eliminate slamming: Rules Compliance:  In order to comply and avoid liability, you must know the applicable law and rules.  FCC and state slamming regulations are constantly in a state of change.  For example, the FCC’s regulations were significantly modified last year and are likely to be changed again this year.  Similarly, the slamming regulations of the various states are continually being modified.  Moreover, many states have unique requirements that cannot be complied with by following the FCC’s rules alone.  For example, Iowa law requires carriers to send a written notice to customers within 30 days of any carrier change.  Massachusetts’ rules state that only those verification companies which register with the Massachusetts Department of Telecommunications and Energy can be used to confirm carrier changes.  Ensure that you have a copy of and understand the current slamming regulations both at the federal and state levels.  TPV and Sales Script Compliance Review:  The content of Third Party Verification Scripts and Telemarketing Sales Scripts is almost entirely regulated.  That is, specific FCC and state PUC regulations dictate a substantial portion of the content and actual wording with respect to these scripts.  In the case of the FCC and some states, failure to follow literal TPV language is considered to be a slam even if the customer apparently intended to switch to a new carrier.  Scripts should comply not only with FCC and state slamming requirements, but also with applicable federal and state marketing law.  All TPV and Telemarketing Sales Scripts, including future updates, should always be reviewed by counsel. TPV Provider:  A legally-conscious TPV company is an important line of defense against slamming.  Select a TPV company that demonstrates a high awareness of applicable FCC and state legal requirements.  Remember, even in the case of a defective TPV, the carrier or reseller is responsible for the slam, not the TPV company.  At a minimum, a TPV company should be able to offer legally-reliable verification scripts and procedures (including the ability to expeditiously supply the verification on CD-ROM or as an electronic file), as well as limited guidance when needed.  Negotiate a strong agreement with your TPV partner which includes responsibility for compliant TPV scripts, updates and procedures.  Finally, the TPV provider’s operations must comply with Section 64.1100 of the FCC’s regulations (i.e., not be managed, owned, controlled or directed by the carrier; not have a financial incentive to confirm orders; and operate in a location physically separate from the carrier or the carrier’s telemarketing agent). Telemarketer Training:  For many providers, regulatory enforcement actions and investigations flow directly from overly-aggressive marketing practices which fail to make clear that the customer’s carrier is being changed.  The inevitable result is a slamming complaint.  Telemarketers should be thoroughly trained in the legal restrictions surrounding slamming.  Both written material and live sessions are strongly encouraged to communicate this.  Our attorneys conduct live compliance training sessions for corporate executives and telemarketers. Create a “Zero Tolerance” Policy for Telemarketers:  Carriers which do their own telemarketing should create specific rules for telemarketers designed to avoid misleading statements and slamming as well as establish a “zero tolerance” policy towards slamming.  The written policy should provide that the first instance of deceptive marketing or improper slamming will result in the employee’s termination.  Have telemarketers sign employment contracts agreeing to be bound to the policy.  Signs should be posted in telemarketing rooms reminding telemarketers of the carrier’s policies, including the “zero tolerance” policy.  Complaint Reponses:  The difference between a carefully prepared complaint response and a careless form response can mean the difference between whether a slam is found to exist or not.  Pay close attention to a slamming complaint from a regulator and respond specifically to what the complaint is seeking by the applicable deadline.  For example, some regulators request a copy of the TPV while some do not.  Similarly, ensure that the complaint response is submitted in the proper format and directed to the correct individual.  Finally, beware of form complaint responses.  Form responses, if carefully prepared, can work in some cases, but in many others can give rise to problems.  For example, in complaints where the customer alleges fraud, misrepresentation, or that the person authorizing the sale did not have the authority to do so, a standard form response will likely be deficient and will need to be supplemented with additional responsive information.  In short, avoid falling into the trap of routine form responses.  Seek a Drop-Off Exemption if Necessary:  In many slamming cases, technical limitations prevent telemarketing agents from properly dropping-off a sales call after transferring it to the TPV agent.  When this occurs, the FCC’s rules have been violated and the transaction automatically will be deemed a slam.  To avoid this, it may be possible in certain cases for carriers to file certifications with the FCC stating that their telemarketing agents are unable to effectively drop-off the sales call after initiating a TPV, thereby securing a legal exemption from the drop-off requirement.  Submitting such a certification, a relatively simple step, can give a carrier added insurance against slamming risk. Conduct Periodic Audits with Regulators:  Periodically (annually or semi-annually) contact FCC and state PUC staff to check the status of slamming complaints and foster a positive rapport with staff.  Not only does this help ensure that the carrier is aware of existing complaints and gauge the “attitude” of regulators with respect to the carrier’s complaint levels, but it also demonstrates a degree of good faith to FCC and PUC  staff.  Make Periodic Goodwill Visits to Meet with Regulators:  If you are aware of a particular slamming problem that is potentially a concern in a given state or before the FCC, proactive intervention often is the best course.  A meeting with staff, typically set up through counsel, should be held to address the problem before it results in a show cause order or issuance of a fine.  Such an approach may go a long way in avoiding or mitigating enforcement activity (and the associated “domino effect”) for more serious slamming problems.  Avoid Hearings Where Possible:  Formal hearings may result in additional fines and most certainly result in expanded legal expense.  FCC and PUC staff often seek to avoid hearings as much as carriers do.  If a complaint has resulted in a PUC hearing, it is most likely because the carrier has either ignored or not adequately responded to the requests of staff.  Extra effort should be taken to avoid show cause hearings and to address matters before they progress to this potentially serious stage. Compliance Audit:  A detailed legal review of all component factors is advisable for resellers and carriers which have encountered a recent spike in regulatory slamming investigations or whose anti-slamming practices have not been thoroughly reviewed by telecommunications counsel.  This would generally cover, among other things, assessment of telemarketing practices (often the trigger for slamming complaints), telemarketing and TPV script review and assessment, TPV provider assessment and recommendations, complaint form and process review, and possibly a multi-state compliance audit to identify trouble areas before they progress to the “point of no return.”  A comprehensive compliance audit is a proactive, preventative step designed to avoid slamming problems before they might arise.            While slamming proves to be an insurmountable problem for some resellers and carriers, in certain cases forcing them out of business, it is surely an avoidable problem.  By establishing an anti-slamming plan, composed minimally of the steps outlined above, providers can steer clear of these dangerous risks.            Our law firm is available to assist established and start-up providers in establishing an anti-slamming program. 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