FCC’s Verizon Porting Order Unusual, But Low Industry Impact Seen

Martin’s Saturday dissenting statement and an April 11 Enforcement Bureau recommendation that commissioners find Verizon didn’t violate section 222(b) of the 1996 Telecom Act may bolster Verizon’s case should it appeal, as the company has said it’s considering doing, said telecom lawyers. Verizon was ordered to immediately stop trying to lure back customers departing to Bright House Networks, Comcast and Time Warner Cable, but was not fined, in the FCC order. Although the Bell must stop retention marketing during the porting process, the FCC’s action likely won’t affect marketing at other telecom companies because none other than Verizon engaged in the practice, said telecom lawyers.

AT&T, Qwest and other telcos may try to lure back phone customers who turned off service after changing their numbers to new carriers, but not during the switching process as Verizon did, said industry attorneys. “Other companies generally have considered using porting information for retention marketing to be inappropriate under the rules, and therefore it is unlikely that today’s decision would require a major change in the practices of most companies other than Verizon,” said cable and telecom attorney To-Quyen Truong. “The rules allow carriers to use the information they have about their customers to win back the customer after he or she has moved to a new carrier.” RCN Senior Vice President Richard Ramlall said “there was virtual consensus in the industry that carrier proprietary information could not be used for retention marketing purposes.” Verizon flouted FCC rules “in an effort to drive its video subscriber numbers [up] and to meet Wall Street’s expectations,” he said in a written statement.

The FCC’s decision that Verizon can’t use information from the cable operators, defined as telecom carriers in the order, will dissuade rivals from aping the company’s strategy and also doing retention marketing, said telecom lawyers. Although no other telco had started such a program, they were closely watching Verizon’s success to gauge whether to do the same, they said. Customers switching carriers might be confused if they get phone calls, letters or other promotional material from the company they're leaving before they get phone service from another provider, said a communications lawyer. CompTel Assistant General Counsel Mary Albert said the “decision once again confirms the impropriety of incumbent carriers using for their own marketing purposes the confidential carrier change information they receive from a competitor.” The order gives Verizon more cause to make sure all customers are satisfied, Commissioner Michael Copps said late Monday: “There is nothing pro-consumer about allowing Verizon to wait until a customer decides to terminate service before making the company’s best and final offer.”

Verizon said it did nothing wrong. “FCC Commissioners regularly champion consumer choice, transparency of information, and competition on a level playing field,” said Executive Vice President Tom Tauke in a written statement. “But this decision creates less of each” and “enables cable companies to lock in TV customers by forbidding Verizon from providing information about better voice services or prices.” Bright House and Time Warner Cable spokeswomen said their companies were “pleased” by the decision. Comcast believes “enforcement of these rules is essential to ensure that competition develops and that consumers who choose to leave their incumbent phone provider to take advantage of new competitive and innovative services from cable companies will have their wishes respected,” said Senior Vice President Catherine Avgiris.

If it appeals the FCC’s decision, Verizon likely will point to the bureau’s earlier determination that section 222(b) doesn’t pertain to the case, said telecom lawyers. They said the telco may also cite Martin’s dissenting statement, which said the order created a disparity between cable operators and telecom carriers, in arguing the order was arbitrary. But telecom lawyers said they think the FCC will be upheld in court. “Today’s order stands on solid ground based on the existing rules and precedents, particularly given the deference that the court is supposed to give to the FCC’s decisions,” said Truong. But AT&T said it was “disappointed” with the FCC’s “one-sided” decision.

Enforcement Bureau staff initially wanted to ask commissioners to find Verizon broke rules, but were reversed by the chairman, leading to the April 11 recommendation, said agency officials. Bureau Chief Kris Monteith was told by Martin to have her staff redo the initial draft to find Verizon broke no rules, which she did, said an agency official. The junked draft came in handy when, late Wednesday, Martin asked the bureau to reverse its draft order he circulated May 30 to find that Verizon violated FCC rules, they said. The new version was circulated to commissioners about 24 hours later. Deborah Tate was the last commissioner to signal she'd approve the redone order, voting late Friday, said agency officials. Earlier, Commissioner Robert McDowell and the FCC’s Democrats had said they would vote to find Verizon broke agency rules, necessitating the bureau’s redraft, they said. An FCC spokesman declined to comment on agency deliberations.

But before commissioners voted on the revised order, an FCC official told reporters, apparently acting at Martin’s behest, of the impending vote, and criticized Commissioner Robert McDowell for voting with the majority to approve more rules, said agency and industry officials. That upset them, because such restricted proceedings are meant to be kept confidential and are rarely discussed with outside parties. Veteran communications lawyers couldn’t recall a time where that had happened before. Restricted proceedings, usually involving investigations of complaints, mean those involved can’t meet with FCC officials unless all parties are present, said Media Access Project President Andrew Schwartzman. “I don’t think that communication by someone at the FCC to anybody else is impermissible on its face -- unwise perhaps.” An FCC spokesman declined to comment. Schwartzman and other veteran communications lawyers couldn’t recall a time when a chairman’s vote was in the minority of one. This is the first 4-1 vote under Martin, said an FCC official.

Martin criticized colleagues, saying their decision will reduce competition because telcos won’t be able to pitch discounts to departing customers. “The majority has created new law, holding that these complainants are ’telecommunications carriers’ for purposes of obtaining this competitive advantage, but that they are not” for other purposes, he said. “Part of the job of being a Commissioner is that you are required to make hard or difficult decisions and those decisions have implications for the entire industry.” But McDowell said in an interview that section 222 is clear on saying customer proprietary network information shouldn’t be “used for marketing purposes. We can address perhaps some of the regulatory disparity issues through a review designed to try to shorten the porting window.”