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FCC Finds Verizon in Violation of Communications Act for Using Local Number Porting Information for Customer Retention Purposes.

June 24, 2008
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In a decision that is a major victory for the cable industry, the Federal Communications Commission yesterday granted a complaint filed by several cable operators challenging Verizon’s practice of aggressively marketing to voice customers who have requested that their telephone numbers be ported to a competing carrier. By a vote of 4-1 (with Chairman Martin dissenting), the Commission found Verizon had violated Section 222(b) of the Communications Act by using proprietary information that it received in the local number porting process to identify customers who were switching to another provider and to then offer those customers discounts and incentives designed to persuade them stay with Verizon. The Commission ordered that Verizon immediately stop this retention marketing program.

Background. The Communications Act requires that local exchange carriers (“LECs”) provide “number portability” – the ability to retain one’s phone number when switching from one telecommunications carrier to another. When customers switch carriers but wish to keep their phone numbers, the number is “ported” to the new carrier. In order for this port to take place, the new carrier submits a “Local Service Request” (“LSR”) to the old carrier, which serves as both a request to cancel service and a request to port the number. The LSR includes, inter alia, the identity of the submitting carrier, the date and time for the disconnection of the old carrier’s service, and the name and location of the customer.

Beginning around the summer of 2007, Verizon began a program of “retention marketing” directed toward retail customers attempting to port their numbers to a new carrier. To generate the retention marketing lead list, Verizon starts with a list of its customers that have disconnect orders pending, and then eliminates from the list all those customers who are not porting to a competitor. The result is a list of only those customers who are porting their number to a facilities-based service provider. While the porting request is pending, Verizon contacts the departing customers with discounts and offers to encourage them to remain with Verizon.

Complainants Bright House Networks, Comcast, and Time Warner Cable provide facilities-based voice services to retail customers using Voice over Internet Protocol, in competition with Verizon’s local voice services. Complainants provide these services by relying on wholesale competitive LECs to interconnect with incumbent LECs and provide transmission services.

In February 2008, Complainants filed a complaint with the FCC alleging that Verizon’s customer retention marketing practices violated section 222(b) of the Communications Act, which states that “[a] telecommunications carrier that receives or obtains proprietary information

from another carrier for purposes of providing any telecommunications service shall use such information only for such purpose, and shall not use such information for its own marketing efforts.” The Enforcement Bureau recommended that the Commission deny Complainants’ claims on the ground that Verizon’s role in the number porting process did not involve the provision of a “telecommunications service.” Responding to Verizon’s argument that barring it from engaging in retention marketing aimed at voice customers would create an “unlevel playing field” because cable operators are not restricted from engaging in similar marketing techniques aimed at video service customers, the Bureau also recommended that the Commission initiate a broad rulemaking proceeding concerning customer retention marketing practices.

The Complainants challenged this ruling, triggering an obligation on the part of the full Commission to review the matter within 30 days. The resulting order rejected the Enforcement Bureau’s recommendation, instead ruling that Verizon had violated the Act. The majority decision also indicated that it would take the recommendation to initiate a rulemaking under “further advisement.”

The Commission’s Holding. The Commission found that Verizon is a telecommunications carrier; receives proprietary information from the competitive carriers; uses that information for the purposes of providing telecommunications service to the competitive carriers and to the complainants; and also uses that proprietary information for its own marketing efforts. In reaching this conclusion, the Commission rejected Verizon’s argument that information about its own customers is not proprietary because it is actually Verizon’s information, not another carrier’s.

The Commission also held that the statute applies both when a telecommunications carrier receives proprietary information so that the carrier can provide service, and also when a telecommunications carrier receives proprietary information from another carrier who is seeking to provide service. In so doing, the Commission ruled that provisioning of local number porting itself constitutes a telecommunications service.

Most significantly, the Commission concluded that the competitive carriers affiliated with the Complainants that make the porting request to Verizon are themselves “telecommunications carriers,” but only for the purpose of applying Section 222(b). The Commission stated that the characterization of these entities as “telecommunications carriers” for this purpose did not mean that they had to be characterized as telecommunications carriers for other purposes. Moreover, the Commission stressed that its holding was limited to the particular facts and particular statutory provision at issue in this case.

Finally, the Commission rejected Verizon’s argument that restricting its retention marketing practices violated its First Amendment rights by inhibiting lawful, non-misleading speech. The Commission pointed out that it previously had found that regulating marketing practices based on the use of carrier change information was narrowly tailored to serve a substantial government interest.

Chairman Martin’s Dissent. Yesterday’s decision marked the first time in his tenure that Chairman Martin has been outvoted on a decision and he issued a strong dissent, arguing that the decision arbitrarily prohibited some companies from marketing to retain their customers, even though the prohibited marketing practices were similar to the aggressive marketing techniques engaged in by the Complainants when they provide cable video service.

Chairman Martin also expressed concern that in addition to denying consumers the benefits of Verizon’s marketing offers, it was “indefensible” for the Commission to categorize an entity as a telecommunications carrier under one part of the Act but not others.

We would be pleased to respond to any questions regarding these matters.