Industry resists proposals to regulate lucrative 900 calls FCC, attorneys general alarmed, but industry downplays 900 abuses.

June 28, 1991|By Georgia C. Marudas | Georgia C. Marudas,Evening Sun Staff

*TC Shady companies have found a gold mine in the burgeoning 900 pay-per-call market, and they rake in an estimated $150 million a year by exploiting the weak spots of this new and loosely regulated industry.

The 900 business, which provides information and other services over the long-distance networks, is so lucrative and free-wheeling that it attracts rip-off artists who promise much, deliver little and charge a lot, say state and federal regulators.

?3 "There are many beneficial and useful 900 appli

cations [but] the abuses have become so prevalent that . . . something must be done," says a recent report by attorneys general from nine states.

To that end, the Federal Communications Commission is studying comments and replies to a set of proposed regulations it unveiled in March. Mary Beth Richards, an enforcement official for the FCC, says the agency hopes the new rules will take effect late this year.

Industry representatives insist that shady companies are a "small, shrinking minority," in the words of Susan Goewey, spokeswoman for the Information Industry Association.

"There are hundreds of thousands, millions of calls that are successful," says Albert Angel, a communications lawyer involved in the 900 industry and a spokesman for the National Association of Information Services. "People are getting value."

Angel estimates that "problem" programs account for 10 to 15 percent of the 900 market, a slice he characterized as small. That, nevertheless, would amount to $100 million to $150 million a year in a billion-dollar market.

But, counters Sara Cooper, executive director of the National Association of Consumer Agency Administrators, "Those 900 numbers make so much money in such a short period of time, it's almost beside the point to talk about how many bad guys there are."

The rise of the 900 industry has been nothing less than meteoric. Although the first 900 pay-per-call service dates from 1980 -- viewers paid 50 cents to register their responses to the Reagan-Carter debates -- it wasn't until 1989 that the industry took off.

Revenue rocketed from $550 million that year to $1 billion last year and could reach $1.67 billion in 1994, according to the latest available estimates. The number of 900 services passed 13,500 last year and is growing daily.

Why the explosion? A 900 business is cheap to run, the national market is huge and the product line -- information of all kinds -- is endless. Even big, long-established corporations are finding they can market their products this way and shift some of the costs to consumers.

The act of making a 900 call is the purchase; in most cases, the sale is complete when the caller dials the number. The vendor doesn't need to bill a credit card or even to get the consumer's name and address. Charges are billed in the name of the nation's long-distance carriers, and local phone companies act as collectors.

"900 service has grown at a double-digit percentage for the past five years and we expect it to continue, especially as the shift continues . . . to business services," says Rick Reser, a spokesman for AT&T.

As the industry expands, all the players -- information providers, middleman companies called service bureaus, long-distance carriers and local phone companies -- are getting a piece of the billion-dollar pie.

Typically, says Steve Reynolds of LINK Resources, a New York )) research firm, the telephone companies get 35 percent of the revenue; service bureaus, if they're involved, 10 percent; and the information providers, 55 percent.

All the players are anxious to protect future growth.

"We need to root out the bad apples before they ruin the 900 industry, like they did 976 [local pay-per-call services that quickly became sex lines]," says Robin Pence, a spokeswoman for US Sprint.

But lawmakers and regulators say the very structure of the 900 industry allows shady operations to exploit consumers:

* Unlike other telephone services, charges for 900 calls are not regulated. The information provider decides how much to charge. It could be $2 a minute or a flat $39.95.

* Frequently, the identity of the 900 service provider is masked. Advertisements often list only the 900 number, with no name, address or other phone number. The charge shows up in the long-distance section of the consumer's phone bill, and typically lists only the 900 number and the name of the program.

* Middleman companies -- service bureaus -- further complicate the problem of accountability. Information providers generally work through service bureaus, which supply computer services, marketing support and the link to the long-distance carrier. The carrier lists the service bureau, not the provider, as its customer.

* It's cheap for a shady outfit to get into business. It can go to what'scalled a "turnkey" service bureau that will set up the entire operation. For an extra cut, these bureaus will even front the cost.

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