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Court Upholds FCC Customer Retention Order Vs. Verizon

The U.S. Court of Appeals for the D.C. Circuit has upheld the FCC's order to Verizon to stop using information gained as a result of the switch of a phone provider to cable to try to retain that customer with added incentives.

Cable operators and phone companies must notify each other about the migration of a phone customer from one to the other for purposes of "porting" the old number. That notice could also represent a last-ditch opportunity to try to retain that customer.

Comcast, Time Warner and Bright House Networks had complained to the FCC that Verizon's attempts in that vein violated Telecommunications Act restrictions on a carrier's use of proprietary information for marketing purposes. The FCC agreed, eventually, and told Verizon to stop the practice.

Verizon made it a legal matter, but the court Tuesday said the FCC's interpretation was reasonable and denied Verizon's challenge.

"We are pleased that the court reaffirmed the FCC decision that Verizon's practices were illegal and harmful to consumers and competition," Sena Fitzmaurice, senior director corporate communications and government affairs at Comcast, said in a statement. "Today's ruling is a win for consumers who are saving billions of dollars a year because of the entry of cable companies into the local phone business. The decision will allow competition to continue to develop and ensure that consumers who choose to leave their incumbent phone provider will have their wishes respected."

Verizon spokesman David Fish responded thusly: "We are reviewing the order. This looks like a loss for consumers, who now will have less information available when choosing between different competitors. By denying consumers information, the FCC's order denies them choice."

The "eventually" part of the FCC decision was what the Enforcement Bureau. under former FCC chairman Kevin Martin, had initially found for Verizon. However, that call was reversed by the full commission in a 4-1 vote , with only Martin sticking with the original decision.

The court, in denying Verizon's petition for review, agreed with the commissioners that "advance notice of a carrier change that one carrier is required to submit to another is carrier ‘proprietary information," and can't be used to try to retain customers.

The FCC's Enforcement Bureau in April 2008 said that it would not step in to prevent Verizon from using proprietary information to try to keep customers from switching to cable-phone service -- so-called retention-marketing efforts. The bureau concluded that the rules were unclear, but it favored Verizon's reading of them, which would allow methods it used to try to retain those customers. That included using a cable company's notification to Verizon that a customer was switching to try to retain that customer via various incentives.

A majority of commissioners disagreed. "Carriers are free to initiate customer retention-marketing campaigns before a consumer gives the order to switch from his or her current phone service provider to a new provider," said FCC commissioner Robert McDowell. "Under the law, carriers are also permitted to launch 'win-back' campaigns after consumers have switched. Today's action underscores long-held Commission policy that using proprietary customer information for marketing efforts cannot take place during the window of time when a customer's phone number is being switched to a new provider."

Saying the FCC would hurt, not help, consumers, Verizon countered that the decision prevents customers from getting important information on potentially better service and price.

"FCC commissioners regularly champion consumer choice, transparency of information, and competition on a level playing field. But this decision creates less of each," Verizon said in a statement. "This disappointing outcome takes a step back from the march toward full competition. It enables cable companies to lock in TV customers by forbidding Verizon from providing information about better voice services or prices. It is bad policy that will harm consumers."

NCTA president Kyle McSlarrow said in a statement: "Today's ruling promotes competition by protecting the rights of consumers when they make the switch to a new local telephone provider. We are pleased that the court upheld the FCC's decision which permits even greater numbers of consumers to seamlessly join the millions of other Americans who now enjoy the significant savings and benefits provided by our industry's competitive digital voice services."