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Feds: Beware 10-10 Phone Deals

Both the Federal Trade Commission and Federal Communications Commission are going to start watching the way discount 10-10 long distance call-around plans advertise their rates, reports CBS News Correspondent John Hartge.

"We're concerned that too many consumers are getting the runaround on dial-around," Federal Communications Commission chairman William Kennard told CBS Radio News. He said consumers can't tell what their calls will cost if the basic fee structure is hidden.

"Five cents a minute is fine, but hiding $5 a month in the fine print just isn't," he added.

At the same time, a lawmaker introduced legislation to stop false advertising by the companies.

"For far too long, these companies have enticed consumers with misleading advertisements," said Rep. Nita M. Lowey, D-N.Y. "This is unacceptable."

Saying some dial-around telephone companies, notably "10-10" services, "have misled consumers with unfulfilled promises of cheaper rates," Lowey unveiled legislation that would require companies to disclose rates and charges in all forms of advertising and allow consumers a way to "opt out" of the dial-around services when initially making a call.

According to Kennard, as dial-around services have gotten more popular, complaints have gotten more prevalent.

"It's a growing part of the long-distance market, and too many consumers are just too confused out there," he said. "There are often minimum charges, there are rates at different times of the day, there are monthly fees."

His advice? Make sure you know the whole story before using those highly publicized 10-10 dial-around long distance deals.

One company, MCI WorldCom, already has agreed to settle charges over ads for its so-called dial-around services, which require callers to dial a string of numbers before placing a call.

The company has reached a consent agreement with the FCC to review its ads for dial-around service and pay $100,000, sources familiar with the case said Tuesday.

Under the agreement, the company will review a year's worth of past ads for dial-around service and submit a report to the FCC, the sources said. Other components of the agreement deal with disclosure of prices for national directory assistance, also a dial-around service, and customer service to answer questions about dial-around.

The FCC and FTC planned to issue a joint policy statement Wednesday outlining principles that long-distance companies should follow to avoid enforcement action for deceptive advertising.

"It's too confusing to buy telephone services in America; that's what the public is telling us," Kennard said. "The good news is that we have more competition than ever before. Now we have to make sure consumers get the information they need to make an informed choice."

"As the phone business becomes more and more competitive, we get more and more complaints from consuers," Kennard said.

The new policy contains these elements:

  • All claims for long-distance service, including cost, must be truthful, non-misleading and substantiated.
  • All costs that may be incurred by consumers should be disclosed, including minimum charges per call, monthly fees, and universal service charges.
  • The basis of comparative price claims should be disclosed and only current information should be used in making such claims.
  • Information should be disclosed "in a clear and conspicuous manner, and without distracting elements so that consumers can understand it."
The FCC said that it received nearly 3,000 complaints from consumers about allegedly deceptive or misleading advertising by marketers of dial-around service in the first six months of 1999 alone.

Officials said examples include claims of 10-cents-a-minute service "all day and all night" when the rate is actually applicable only for state-to-state calls after seven p.m. on weekends.

In another example, a marketer conveyed the message that long-distance calls cost a dime a minute and did not disclose the fact that each call is subject to a 50-cent minimum charge.

In a third case, the FCC said, long-distance calls costing a dime a minute are available only to customers who pay a $5.95 monthly fee.

The FCC said that 20 percent of U.S. households have used dial-around services in the last year and that it now represents 7.5 percent of the long-distance market, with revenues reaching $3 billion in 1999.

©2000 CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report