June 27, 2005
When a stranger calls | Small businesses are the target of a recent wave of slamming
By Rebecca Lamet
Sandy Laffely, owner of Brunswick Home and Garden Shop, received a phone call last month from a telemarketer promising to cut her telephone bill by 40% ˆ a deal that any small business would find hard to turn down. But the conversation took a curious turn when Laffely says the caller began speeding through a series of detailed questions about her phone service. It was only after a conversation with her existing phone service provider, Rochester, N.Y.-based Choice One, that Laffely says she was told, "You were slammed."
Because Laffely promptly called Choice One she averted a classic case of slamming ˆ when a competing phone carrier changes a customer's phone service without legitimate consent. Slamming victims often realize the switch only upon receipt of an unusually large phone bill, or when their service becomes unreliable.
Laffely had never heard of this threat, but according to the Maine Public Utilities Commission ˆ which receives more than 200 complaints about the practice each year ˆ slamming is a serious problem. Based on a rash of calls the PUC has received since February, that problem has become a greater concern for small businesses in Maine. "We've noticed [slammers] are focusing on small businesses because we were getting calls from small businesses," says Derek Davidson, director of the consumer assistance division at the PUC.
The focus on small-business customers is a new approach to slamming, says Davidson. Since the practice reached its peak in Maine in 2000, when the PUC received 608 complaints, consumers have usually been the targets. Davidson speculates that small businesses offer telecommunications companies larger profit margins than do individual consumers. Small-business owners also are particularly vulnerable, because their smaller staffs and hectic schedules often make it less likely they'll pay close attention to their phone bill.
But victims and near-victims of the practice say the impact of slamming, including higher rates and even interrupted phone service, can be devastating. "I'm a small business. I can't afford unexpected changes," says Vincent Anderson, owner of G.J. Auto Body in Caribou.
Concerns about potential slamming prompted Anderson to call his provider, Verizon, three years ago and put a "freeze" on his plan, which prevents companies from changing a customer's service without permission. Despite that freeze, Anderson recently received a call from a telemarketer claiming to be from Verizon and offering him a special discounted rate. Anderson became suspicious when the telemarketer asked him to speak with a third-party verifier to make the change, then remained on the phone to prompt him through the verifier's questions. As soon as he hung up, Anderson called Verizon, which directed him to call the PUC and report the slam.
By reporting the incident quickly, Anderson avoided having his service switched, but he says he's frustrated by the company's misleading sales technique. In fact, the PUC says this spring it has received dozens of calls about two companies' telemarketing techniques (it declined to name them), which could lead to fines or even the loss of those companies' certificates to operate in Maine. Still, that approach leaves Laffely and other small-business owners wondering why the state can't take further action that would stop slamming before it starts.
Slam dance
By definition, slamming involves using deceptive means to change a customer's phone service. Often, slammers use a third-party verifier to perform the service change, which eliminates the requirement for written consent before changing a customer's service. But Davidson says, "a third party verifier doesn't legitimize an authorization if the customer is led through the process by fraudulent means."
Unfortunately, Davidson says it's almost impossible to catch potential slammers before they start. To provide service in Maine, telecommunications companies are only required to obtain a certificate to operate ˆ a fairly easy application process. Naturally, companies don't admit upfront that they are going into the business of slamming.
This lack of control is not unique to Maine, says Brad Ramsey, general counsel for the National Association of Regulatory and Utility Commissioners in Washington, D.C. The number of phone providers has greatly increased since Congress passed the Telecommunications Act of 1996, which encouraged competition by enabling new carriers to rent space on existing phone networks. With that increase has come an increase in dubious business practices, he says. "Slamming was less of a problem when AT&T had 90% of the customers," says Ramsey. "With choice comes problems."
Operating as a reseller requires very little overhead, which Ramsey says makes it easier for less-than-legitimate companies enter the market. The PUC has considered implementing a bond requirement for telephone service providers ˆ much like one that requires competitive electricity providers in Maine to post a $100,000 bond to receive PUC approval ˆ but Davidson says the idea was nixed for fear of blocking legitimate resellers from the market.
With limited ability to stop slammers before they start, the PUC's strategy is to investigate cases of slamming and levy steep fines on fraudulent companies. Fines start at $5,000 a day for each contract obtained through fraudulent means, but the penalties are capped at $40,000. Fines increase to $110,000 for the second offense, and can add up to millions of dollars depending on the number of slamming incidents.
Since the mid-90s, Davidson estimates the PUC has investigated 10 companies on slamming charges and imposed penalties on three. For example, the PUC two years ago investigated McLean, Va.-based WebNET Communications and found that the company had slammed dozens of individuals in Maine. In response, the state revoked the company's certificate to operate and imposed a fine of $4.5 million. By the time the case made it through the courts, however, WebNET had gone bankrupt.
Unfortunately, it's common for slammers go bankrupt before they can pay any fines, says Ramsey. To counter that trend, the PUC is looking at ways to speed up its reaction time, including the ability to suspend a company's right to sign up new customers as soon as it receives a slamming complaint. "We are trying to nip [slamming] at the bud as soon as we notice a problem," says Davidson.
Such additional enforcement powers require legislative approval, but Davidson says some actions ˆ like holding company revenues until a complaint is resolved ˆ can be implemented within the PUC's existing rules. Davidson says he hopes to see some of those changes within weeks. Meanwhile, the PUC encourages small businesses to be alert for potential slamming, and to take steps such as putting a freeze on their phone or simply questioning an offer that sounds too good to be true.
For their part, recent slamming targets Laffely and Anderson say they are now more aware of their own vulnerability. "The bottom line is we are all just trying to run a business and make a living," says Anderson. "These [slammers] are being dishonest, and that's unfair."
Because Laffely promptly called Choice One she averted a classic case of slamming ˆ when a competing phone carrier changes a customer's phone service without legitimate consent. Slamming victims often realize the switch only upon receipt of an unusually large phone bill, or when their service becomes unreliable.
Laffely had never heard of this threat, but according to the Maine Public Utilities Commission ˆ which receives more than 200 complaints about the practice each year ˆ slamming is a serious problem. Based on a rash of calls the PUC has received since February, that problem has become a greater concern for small businesses in Maine. "We've noticed [slammers] are focusing on small businesses because we were getting calls from small businesses," says Derek Davidson, director of the consumer assistance division at the PUC.
The focus on small-business customers is a new approach to slamming, says Davidson. Since the practice reached its peak in Maine in 2000, when the PUC received 608 complaints, consumers have usually been the targets. Davidson speculates that small businesses offer telecommunications companies larger profit margins than do individual consumers. Small-business owners also are particularly vulnerable, because their smaller staffs and hectic schedules often make it less likely they'll pay close attention to their phone bill.
But victims and near-victims of the practice say the impact of slamming, including higher rates and even interrupted phone service, can be devastating. "I'm a small business. I can't afford unexpected changes," says Vincent Anderson, owner of G.J. Auto Body in Caribou.
Concerns about potential slamming prompted Anderson to call his provider, Verizon, three years ago and put a "freeze" on his plan, which prevents companies from changing a customer's service without permission. Despite that freeze, Anderson recently received a call from a telemarketer claiming to be from Verizon and offering him a special discounted rate. Anderson became suspicious when the telemarketer asked him to speak with a third-party verifier to make the change, then remained on the phone to prompt him through the verifier's questions. As soon as he hung up, Anderson called Verizon, which directed him to call the PUC and report the slam.
By reporting the incident quickly, Anderson avoided having his service switched, but he says he's frustrated by the company's misleading sales technique. In fact, the PUC says this spring it has received dozens of calls about two companies' telemarketing techniques (it declined to name them), which could lead to fines or even the loss of those companies' certificates to operate in Maine. Still, that approach leaves Laffely and other small-business owners wondering why the state can't take further action that would stop slamming before it starts.
Slam dance
By definition, slamming involves using deceptive means to change a customer's phone service. Often, slammers use a third-party verifier to perform the service change, which eliminates the requirement for written consent before changing a customer's service. But Davidson says, "a third party verifier doesn't legitimize an authorization if the customer is led through the process by fraudulent means."
Unfortunately, Davidson says it's almost impossible to catch potential slammers before they start. To provide service in Maine, telecommunications companies are only required to obtain a certificate to operate ˆ a fairly easy application process. Naturally, companies don't admit upfront that they are going into the business of slamming.
This lack of control is not unique to Maine, says Brad Ramsey, general counsel for the National Association of Regulatory and Utility Commissioners in Washington, D.C. The number of phone providers has greatly increased since Congress passed the Telecommunications Act of 1996, which encouraged competition by enabling new carriers to rent space on existing phone networks. With that increase has come an increase in dubious business practices, he says. "Slamming was less of a problem when AT&T had 90% of the customers," says Ramsey. "With choice comes problems."
Operating as a reseller requires very little overhead, which Ramsey says makes it easier for less-than-legitimate companies enter the market. The PUC has considered implementing a bond requirement for telephone service providers ˆ much like one that requires competitive electricity providers in Maine to post a $100,000 bond to receive PUC approval ˆ but Davidson says the idea was nixed for fear of blocking legitimate resellers from the market.
With limited ability to stop slammers before they start, the PUC's strategy is to investigate cases of slamming and levy steep fines on fraudulent companies. Fines start at $5,000 a day for each contract obtained through fraudulent means, but the penalties are capped at $40,000. Fines increase to $110,000 for the second offense, and can add up to millions of dollars depending on the number of slamming incidents.
Since the mid-90s, Davidson estimates the PUC has investigated 10 companies on slamming charges and imposed penalties on three. For example, the PUC two years ago investigated McLean, Va.-based WebNET Communications and found that the company had slammed dozens of individuals in Maine. In response, the state revoked the company's certificate to operate and imposed a fine of $4.5 million. By the time the case made it through the courts, however, WebNET had gone bankrupt.
Unfortunately, it's common for slammers go bankrupt before they can pay any fines, says Ramsey. To counter that trend, the PUC is looking at ways to speed up its reaction time, including the ability to suspend a company's right to sign up new customers as soon as it receives a slamming complaint. "We are trying to nip [slamming] at the bud as soon as we notice a problem," says Davidson.
Such additional enforcement powers require legislative approval, but Davidson says some actions ˆ like holding company revenues until a complaint is resolved ˆ can be implemented within the PUC's existing rules. Davidson says he hopes to see some of those changes within weeks. Meanwhile, the PUC encourages small businesses to be alert for potential slamming, and to take steps such as putting a freeze on their phone or simply questioning an offer that sounds too good to be true.
For their part, recent slamming targets Laffely and Anderson say they are now more aware of their own vulnerability. "The bottom line is we are all just trying to run a business and make a living," says Anderson. "These [slammers] are being dishonest, and that's unfair."
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