Phone-marketing curbs not revived

Court's refusal is a victory for established companies

June 06, 2000|By BLOOMBERG NEWS

WASHINGTON - The U.S. Supreme Court refused yesterday to revive federal consumer-privacy rules requiring phone companies to get permission before using customer information to market new services.

The justices, without comment, said they would not consider an appeal by a trade group for new entrants in the $100 billion local phone business. The decision is a victory for established phone companies, including U S West Inc., BellSouth Corp. and SBC Communications Inc., which urged the court to reject the appeal.

The Federal Communication Commission now must revamp its rule, potentially enhancing telecommunications phone company rights to use individual customer information.

Under the original "opt-in" rules, phone companies could not sell customer data to third parties or use it to market separate products, such as long-distance service, unless consumers agreed.

Local phone companies balked, saying the restrictions went further than necessary and violated constitutional free-speech protections. The 10th U.S. Circuit Court of Appeals said last year that those constitutional concerns were legitimate. In a 2-1 ruling, the Denver-based court said the FCC at least must explore the possibility of an "opt-out" system that would let companies use the information unless customers request otherwise.

The Justice Department and FCC urged the justices not to get involved. Although government lawyers criticized the lower court ruling, they said the decision gives the FCC adequate flexibility to craft a new approach.

In court papers, government lawyers said the agency has a variety of options. The FCC may again propose an opt-in system "if it were based on evidence in the administrative record sufficient to satisfy a court's First Amendment scrutiny," the government said.

The FCC says it also can adopt an opt-out system or a "hybrid" approach that would allow limited disclosure without affirmative customer consent.

Established phone companies fear that, under an opt-in system, only a handful of customers would give the necessary permission. In a U S West study, only 28 percent of customers granted approval when asked for it.

Long-distance companies WorldCom Inc., AT&T Corp. and Sprint Corp. argued against the FCC rules at the appeals court level, although they did not participate in the Supreme Court proceedings.

The information at issue covers the specific numbers dialed by individual customers and the frequency and timing of their calls. The dispute does not involve aggregate data, which phone companies are free to use and sell as they wish.

Under the FCC rules, phone companies can use individual data only within the bounds of their existing service relationship with the customer.

In other words, a company that provides local and wireless service to a customer may use information from that person's account to pitch such add-on features as voice mail and call-waiting. The company, however, could not use the data to market long-distance service.

The FCC's rules were aimed both at protecting customers' privacy and promoting competition for new services. The 10th Circuit concluded that "the government presents no evidence showing the harm to either privacy or competition is real."

The Competition Policy Institute appealed the ruling to the Supreme Court. It drew support from state utility commissioners, privacy and consumer-rights advocates and 19 law professors.

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