Telephony, Oct 14, 2002
Shortly after the attacks on New York City just over a year ago, attorney Andrew Tolchin needed a distraction. The Twin Towers that once stood down the street from his lower Manhattan office building were suddenly erased, and Tolchin welcomed any project that would avert his attention from the destruction 41 floors below.
So when his older brother and fellow attorney Robert approached him with a mutual friend's phone bill that included a $16.42 charge for a four-minute collect call, the younger Tolchin jumped at the opportunity to investigate. After reviewing the bill, on a hunch he began purposefully misdialing slight variations of popular 800 collect call numbers such as MCI's 1-800 COLLECT, CALL ATT, BELLSOUTH and Qwest's 4USWEST.
Tolchin was familiar with misdial schemes already. During law school he'd studied a trademark infringement case involving Holiday Inn and its 1-800-HOLIDAY mnemonic toll-free number, so the concept was nothing new. Following his instincts, he dialed voraciously: 1-800-CULLECT, COLLEET and COOLLE, 1-800-CALL-ALT and CALL-ATL, 1-800-ONE-DIMM, FON-CALT, BBELLSOUTH, 4USVEST — every combination he could think of. He dialed so much, in fact, that he can now audibly identify number combinations on a touchtone phone, translating pretty much any beep sequence he hears into its numeric equivalent.
Tolchin's investigation resulted in a lawsuit filed with the New York State Supreme Court in January, alleging consumer fraud against Sprint and its wholly owned subsidiary ASC Telecom. The suit alleges that customers who misdialed in trying to reach carriers such as AT&T, MCI WorldCom, Verizon Communications and BellSouth were unsuspectingly delivered to ASC's exorbitantly priced doorstep. The suit further alleges that Sprint and ASC employed hundreds of nearly identical 800 number combinations and charged nearly three times more than customers expected, bilking them out of millions.
Last month, the FCC proposed levying fines totalling $6.56 million against ASC ($1.44 million) and service provider of Opticom ($5.12 million). The fines are based on $80,000 per violation and, if carried out, would be the highest fines the FCC has ever imposed for operator service violations. In its investigation initiated in the spring, the commission's enforcement bureau said the two companies violated FCC rules because they did not identify themselves to customers or quote long-distance rates. Sprint has said it's investigating the matter, and in a statement, Opticom said the allegations are without merit. Both companies were given 30 days to either pay up or demonstrate why the fines should be reduced or tossed out altogether.
Misdial schemes have been a part of telecom's competitive landscape for years, of course, and while such schemes might elicit customer complaints, current FCC rules do not prohibit the practice. And although it could be argued that such schemes take advantage of callers, as long as operators identify themselves — and comply with rules against hoarding inactive 800 numbers or selling them — they do not violate federal law.
For his part, Tolchin nevertheless remains surprised that carriers would engage in misdial practices. “I didn't think that Sprint would hold out their reputation for whatever money they might make doing this,” he said. “They wouldn't risk their reputation if it wasn't making them boatloads of money.”
The misdial business model works like this: People who license and control 800 numbers are referred to as Responsible Organizations, or Resp Orgs. Although many Resp Orgs are telecommunications companies, any person or organization can apply for Resp Org status. To qualify, applicants must simply complete the appropriate paperwork, train at least one employee and demonstrate that he or she is competent to handle SMS/800-related matters, and pay a $4000 fee.
The numbers are considered a public resource and, when available, are free for Resp Orgs to snatch up, provided they can access the SMS/800 database. A Resp Org can register any available number for any use. Once the number is reserved for its customer, Resp Orgs provide routing information for the number or numbers. In some instances, potential 800 number misdials are stockpiled and farmed out to operator services providers, which must offer Resp Orgs competitive commissions or risk losing the business to another operator.
In April, NBC television's “Today” show ran an exposé that followed up on Tolchin's investigation and found that a Knoxville, Tenn.-based man named Blake Bookstaff controlled many of the 800 numbers that Sprint and ASC carried. Bookstaff declined “Today” interview requests, and his unwillingness to talk made him appear a mysterious figure that operates in and around the telecom industry's dark underbelly.
In an e-mail to Telephony, Bookstaff declined to comment because of the pending lawsuit. He did, however, say that his companies were Sprint customers and that he has been inaccurately portrayed in media reports as the one who controlled all of Sprint's business. “Out of the 84 numbers mentioned in the lawsuit against Sprint, only 13 are controlled by any of my companies,” Bookstaff wrote.
Sprint has done its part to distance itself from furtive third parties that control 800 numbers, but it has done little to bring any guilty parties out from the shadows. In a vague statement, the company said it has “taken steps to end its relationship with certain customers.”
Although pending litigation prohibits Sprint from saying much else, a company source, who spoke on condition of anonymity, said that the carrier provides forwarding, operator and billing services to outside third parties that register and maintain the 800 numbers. He said that only five out of the hundreds of contracts Sprint handles through various parties contained questionable misdial numbers, and that the carrier knew only the numbers' numeric value — not their alpha equivalents.
Sprint pleads ignorance, but some industry insiders contend that the company absolutely knew it was carrying misdial numbers. There's also evidence to suggest that companies carrying misdials understand the business they're engaged in.
Bill Pope, president of Longview, Texas-based operator service provider Network Communications International Corp., said he's carried misdial numbers for Bookstaff and that other operators that do the same all are fully aware of the business model. “[Bookstaff] controls all of the numbers I carry for misdial,” Pope said. “He uses Sprint, he uses Opticom and he uses us.”
Carmel, Ind.-based Opticom, which also does business as One Call Communications, pursues the misdial business today more aggressively than any service provider, and offers Resp Orgs better commissions than other providers, said a source familiar with the misdial business model.
Pope added that Resp Orgs that once provided NCIC with 800 number misdials have departed for Opticom's higher commissions. In addition, sources said several of the 800 numbers, which prior to Tolchin's investigation were routed to Sprint and ASC, have since migrated to Opticom.
Pope's claim that Bookstaff also supplies numbers to Opticom is supported with evidence gathered by Telephony in July. At least one 800 number in which a letter is inadvertently dialed twice was controlled by Bookstaff, and at the time of Telephony's investigation, the trouble-reporting phone number for 1-800-CCAL-LAT (a variation of 1-800-CALL-ATT) led to Bookstaff's offices. The trouble-reporting number now leads to ATL Telecom Services. Opticom is still the service provider responsible for the number.
Opticom has been a member of the Better Business Bureau since 1982, and of the 104 BBB complaints against the company in the past three years, 97 were related to high rates on long-distance calls. The company has responded to all complaints and, in most cases, issued a partial refund as a gesture of goodwill.
In its defense, Opticom has accurately stated that all calls are billed at rates permitted by the FCC and that its charges, carrier identification and call processing are in compliance with state and federal regulations. (Opticom did not respond to repeated requests for an interview with Telephony.)
When callers reach Opticom now, intentionally or not, the company identifies its brand clearly. But Tolchin said that wasn't always the case, and that Opticom's current transparency is a result of the publicity surrounding the Sprint lawsuit. “All of these companies are banking on the fact that because they dot their I's and cross their T's much better now, people will get a false impression of history.”
Little-known operators that seem to fly beneath the radar aren't the only companies to have engaged in misdial schemes. According to an anonymous source who was once affiliated with MCI's sales team, when AT&T implemented its 1-800-OPERATOR service several years ago, an internal memo at MCI described how it had acquired the 1-800-OPERATER misdial that generated thousands of misdialed calls. As a result, MCI drained business from AT&T and raked in $300,000 per month, the source said. “It was absolutely an intentional move,” he said. “Somebody clever saw that the number was available and grabbed it.” (AT&T declined to be interviewed for this story, and MCI WorldCom did not return phone calls.)
When BellSouth launched its 1-800-BELLSOUTH toll-free collect call number, the company made the common move of acquiring a handful of similar number variations, called protective misdials, to prevent competitors from siphoning its business, said Dirk Henson, senior director of long-distance marketing at BellSouth. The numbers are not put into service but provide BellSouth customers with a recorded message informing them of their mistake, asking callers to check the number they dialed and try again. Henson said that BellSouth does not carry variations of its competitors' numbers. “We're trying to establish a brand based on credibility and trust, and I just don't see the financial benefits of betraying that.”
In the Sprint case, the plaintiffs argue that ASC did not properly identify itself and therefore deceived callers who reached them. But in its defense is the fact that Sprint did not use advertising to lead callers to their numbers, nor did it infringe on any trademarks by processing calls.
In 1996, the question of whether misdials violate trademark rights was decided in a case involving 1-800-HOLIDAY. Holiday Inn established a toll-free customer information line and a competitor deliberately acquired a misdial of HOLIDAY spelled with a zero in place of the letter “O” in “HOLIDAY” to snare misdial business and provide its travel reservation service. The defendants in the case admitted their misdial intent and their misdial number went as far as telling callers that although they'd reached an unintended number, their travel reservation needs could still be met via 1-800-H0LIDAY.
An appeals court reversed a district court's decision in the case and held that Holiday Inn had no rights to the predictable misdial number. The court ruled that Holiday Inn's rights were not violated because the defendant had not deliberately created confusion in marketplace — the confusion already existed. In other words, those who control predictable misdials are not liable because they do not purposely create confusion through advertising and promotion.
Despite the accusations of wrongdoing against Sprint, Judith Oppenheimer, president of ICB Consultancy, said that because there has been no trademark infringement, the company should treat the lawsuit as a non-issue. She said that although it is “impossible” that Sprint didn't know it was carrying its competitor's misdials, if this was truly illegal or even a problem, carriers would go after each other for stealing business. The fact that they haven't is evidence to the contrary.
Oppenheimer added that the case is neither illegal nor unethical. Rather, it is simply about businesses taking advantage of competitive opportunities in the marketplace, and that just because a lawsuit has been filed doesn't necessarily mean it's a legitimate complaint. “I understand why Sprint is trying to distance itself,” she said. “It's not because there's anything terribly wrong with it, but because someone is publicly saying that there is.”
Bill Quimby, president and founder of marketing company TollFreeNumbers.com, agreed that as long as operator service providers maintain reasonable rates and do not advertise or commit any trademark violations that confuse consumers, the misdial tactic is effective. “It doesn't have to be a seedy thing,” Quimby said. “As long they're not being overcharged, it's really a valid strategy.”
NCIC's Pope said that several years ago there was more volume and potential in the misdial business, but that the model has declined in recent years. With higher cell phone usage rates, prepaid calling calls and other cheaper ways to communicate, collect calling is a less attractive option.
In a recent analysis of one of NCIC's 800 number collect misdials, Pope said that from June 2001 to June 2002 the company found that usage of that number had dropped 47%. “Six years ago it was really huge,” he said. “But the target market for those misdial numbers — college kids, high school kids — those kids are getting cell phones now.”
Pope also said that the misdial business is sometimes an economic burden on providers. For instance, when callers receive their bills and discover that they didn't reach the carrier they intended, those customers will often call their local exchange carrier and have the charge credited. When this occurs, there's little an operator services provider can do.
“The guy isn't required to pay those bills, and the LEC is not going to hold it against that guy's credit if he doesn't pay for long-distance charges,” Pope said. “Maybe some see this as a good business model, but I see this as bad debt.”
Misdials still represent a sizable opportunity if they are misdials of a number that has tremendous call volume, said telecom attorney Mark Olson. But the business model is losing momentum. “It's a declining business,” he said. “Unless you're right on target with a very powerful number, there's not a lot of money to be made.”
While some may be guilty of overcharging customers in misdial schemes, Pope said his intention for carrying misdials was not to defraud customers, but to compete. Now, however, media exposure and lawsuits have heightened consumer awareness, and people are becoming more educated on dialing and listening carefully for the carrier's brand identification. The jig is up, and for these reasons and others, Pope said he planned to dump most misdial numbers from NCIC's network.
“It was a good business model a few years ago, but too many people got into it to charge too high a rate. That's what exposed us in the first place, and people are catching on to it,” he said. Pope went on to say that if operators charged conservative rates to begin with, there would be no misdial issue.
“Besides,” he said. “Most of the good numbers are taken up anyway.”
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