AT&T; Faces Marketing Probe by FCC

WASHINGTON —  Federal authorities are investigating the nation’s largest long-distance company, AT&T; Corp., for allegedly acquiring thousands of new customers from rivals by switching their phone service without their consent--a tactic known as “slamming.”

The probe was confirmed to The Times by a government source and a telephone industry executive. It marks the third examination by the Federal Communications Commission of a major phone carrier this year for unauthorized switching of phone users’ long-distance plans. It highlights the FCC’s aggressive, but so far uphill, battle to curb an illegal industry practice that triggers more than 20,000 consumer complaints annually.

While the victims of the alleged slamming practice are not known, previous cases investigated by the FCC have involved customers in the residential market.

AT&T; is cooperating with the FCC, which would not comment on its investigation.

But AT&T; officials are privately threatening to fight the FCC rather than pay multimillion-dollar fines to the agency, as rivals Qwest Communications International Inc. and the owner of long-distance carrier MCI did earlier this year. AT&T; maintains that federal regulators do not have any evidence of wrongdoing.

“We’ve spoken to the FCC in the course of our regular contact with them, and we are responding to their inquiries,” said AT&T; spokeswoman Claudia Jones. “We haven’t seen any announcement from the FCC” of any wrongdoing.

The probe comes as long-distance companies are grappling with intense competition.

AT&T;, Sprint Corp. and WorldCom Inc., owner of MCI, face competition from more than 300 resellers of long-distance service as well as new upstarts, such as Level 3 Communications Inc., that peddle ultra-low cost or free long-distance dialing over the Internet and other nontraditional telecommunication networks. The trend has produced slimmer profit margins and intensified the financial pressure to resort to slamming and other fraudulent means to get new customers, experts and phone users say.

“My company got slammed twice this year--once by AT&T; and once by WorldCom,” said George Reed Dellinger, a Washington financial analyst. Usually, carriers are careful to confine slamming to the less-sophisticated residential market, where many consumers seldom bother to file complaints with regulators, Dellinger noted. But he said he believes that investor pressure on phone companies has grown so great that the long-distance carriers are taking greater risks.

“These salespeople are just under tremendous pressure to perform,” he said.

An industry source close to AT&T; said the FCC is combing through the company’s internal documents and audiotapes of conversations between consumers and AT&T; sales representatives. No decision has yet been made on whether to charge AT&T.; But the FCC is said to be examining the evidence closely with an eye toward issuing a finding of “apparent liability” if the agency cannot reach an accord with AT&T; to address the slamming complaints.

FCC Could Bar Access to Certain Markets

If AT&T; is found liable, it could face fines of up to $80,000 for each incident, FCC officials say. The company could also be barred from offering long-distance phone service in regions where it has been found to have switched customers illegally--a punishment the FCC has never used on any carrier but could levy “in appropriate cases,” said David H. Solomon, chief of the FCC’s enforcement bureau.

Solomon declined to comment specifically on whether his agency is investigating AT&T.; But when asked to comment generally about enforcement actions, Solomon said the FCC has found that, while companies sometimes initially claim they have done nothing wrong, they do an about-face when confronted with incriminating evidence.

For instance, during an FCC investigation of Qwest that ended earlier this year, the company was adamant it had legitimately acquired a long-distance customer--producing a consent form that was apparently signed by the subscriber. But the FCC determined that the consent form had been forged. And it later turned out that the name on the form was not that of the customer but of his deceased dog. The customer had given the name to a Qwest telemarketer in jest.

“When we present the facts in the course of an investigation, [the phone companies] often say, ‘Oh, we didn’t know we had a problem,’ ” Solomon said. “In a lot of instances, things get resolved” at that point.

The FCC has not yet compiled statistics on the number of slamming complaints this year. But the number rose slightly to 20,461 in 1999 from 20,124 in 1998, according to the agency.

Nevertheless, Solomon said he believes the agency’s crackdown on slamming, which has included a record $3.5-million fine against WorldCom and a $1.5-million fine against Qwest, is having an effect.

“These fines will take the profit out of slamming. I think the enforcement actions have a significant deterrent effect,” Solomon said.

Penalties Are Seen as Not Stiff Enough

Other experts, pointing to the billions of dollars in revenue that phone companies generate each year, are more skeptical.

“Consumers are incredibly enraged about slamming, but the current penalties don’t seem to be large enough to grab a major phone company’s attention,” said Marc-David Seidel, an assistant professor of management at the University of Texas at Austin who has done research on telephone rates and marketing practices.

Slamming, he added, seems to have become a perennial problem for federal regulators. “There doesn’t seem to be any end to it, . . . and I think it will get a lot worse in the future” as competitive pressures increase.