FCC To Make Phone Companies' Outsourcing Difficult

WASHINGTON -(Dow Jones)- U.S. telephone companies will find it much more difficult to outsource marketing or customer service functions to other firms under a crackdown on privacy regulations released Monday by the Federal Communications Commission.

In a series of sweeping changes as to how phone companies use and release customer records and account information, the FCC said phone companies will have to receive customers' permission before they can release their information to third parties.

The move is a blow to the commonplace industry practice of cutting costs by hiring other companies to run targeted marketing campaigns or perform other customer service functions.

Under the FCC rules, customers will have to agree to their information being shared by their phone provider, something few are likely to do.

Phone companies have argued that the rule change will do nothing to prevent peoples' phone records from being accessed by impersonators or other scam artists, an act known as pretexting. Pretexters sell the information to others who may use it to get credit, steal assets, or investigate the targeted party.

Companies say all the change will do is add costs to their operations.

"While we work to create an environment in which market forces can thrive, the commission must also act to protect consumers," said FCC Chairman Kevin Martin in a statement Monday. "With its strong approach to safeguarding consumer privacy, this item does just that."

Walter B. McCormick, president of USTelecom, the lobby group for phone providers, condemned the measure as an "extremely anti-consumer outcome."

Other rule changes aimed at stopping pretexting include prohibiting phone companies from sharing customers' records over the phone unless they are provided with a password. Phone carriers will have to provide customers notice whenever a password, password back-up, online accounts or the address of record is created or changed.

And they will have to submit an annual certification to the FCC to prove they are abiding by the new rules.

The pretexting rules are to be extended to include such companies as cable operators offering Internet-based phone service, known as Voice over Internet Protocol, or VoIP.

The new rules could make it more difficult for cable giants Comcast and Time Warner - who have partnered with Sprint Nextel to provide their customers with VoIP service - to share information with Sprint.

The only sign of relief for the telephone companies is that, for certain business contracts, they would be able to share customer details under certain circumstances.

In a statement, AT&T, the largest telephone carrier, said that it had voluntarily begun a comprehensive program aimed at cracking down on "data burglars."

"There's no doubt this will increase costs to phone companies but it is an attempt to relieve the concerns of Democrats in Congress, for whom this is a big issue," said Jessica Zufolo, a media analyst with Medley Advisers.

Lawmakers have been active in this area with several attempts at legislation criminalizing pretexting. A watered-down bill was signed into law by President George W. Bush late last year.

The issue of pretexting garnered national headlines last year when it emerged that the management of Hewlett-Packard had accessed the phone records of one of its board members and several journalists in an attempt to track down who was leaking confidential information.

That scandal cost Chief Executive Patricia Dunn her job, although a subsequent criminal investigation against her was eventually dropped.

Democratic FCC Commissioner Michael Copps welcomed the overall thrust of the changes, but said he had concerns over a provision that allows law enforcement officers to delay informing consumers of unauthorized access to their phone records for two weeks.

"It is akin to not telling victims of a burglary that their home has been broken into because law enforcement needs to continue dusting for fingerprints," said Copps in a statement.

-By Corey Boles, Dow Jones Newswires; 202-862-6637; corey.boles@dowjones.com

(END) Dow Jones Newswires"

Posted to the site on 3rd April 2007