MTA Commentary—Retention Marketing is OK for Cable, but Not Telcos

Attached is the monthly commentary of the Montana Telecommunications Association http://www.telecomassn.org . This month’s commentary discusses a recent FCC decision to prohibit Verizon from engaging in the same sort of marketing practices that its competitors practice. The ramifications of this decision ultimately could affect the manner in which rural networks receive compensation for the services they provide to cable and other telecom companies.

As FCC Chairman Martin said in his dissenting option, the FCC’s retention marketing “decision promotes regulatory arbitrage,… thwart[s] competition, harm[s] rural America, and frustrate[s] regulatory parity.”

Please feel free to call/reply if you have any questions or comments.

Best regards,

Geoff Feiss

Montana Telecommunications Association

406.442.4316 (office)

406.594.0424 (mobile)

MTA Commentary—Retention Marketing is OK for Cable, but Not Telcos

It’s a business axiom that it is more efficient to keep customers than to find new ones. Thus, companies often go to considerable lengths to retain their current customer base. And customers benefit from this business practice, called retention marketing.

In the telecommunications marketplace, a variety of telecommunications providers is competing to provide you with a bundle of voice, video, data and wireless services. We consumers benefit from the choices and competitively-priced packages of services that we can buy. And when we consider switching providers, sometimes we benefit from incentives offered by our current provider to stay with them instead of going with another provider.

For example, if you get video service from a cable company and you happen to decide to switch to, say, a satellite provider or a telephone company, your cable company just might turn your call into a retention marketing opportunity and offer you a variety of incentives to stay.

But in the arcane world of telecommunications, it’s OK for cable companies to engage in retention marketing, but according to a recent decision by the Federal Communications Commission, it’s not OK to engage in the same sort of marketing for the same customers if you’re a phone company.

In the words of Kevin Martin, the Chairman of the FCC, who dissented from the majority’s opinion, “it is important to create a regulatory environment that promotes competition and investment, setting rules of the road so that all players can compete on a level playing field. [However], a majority of the Commission voted to allow [one group of] players … [cable companies]—to gain an advantage over their competitors—players providing those same … services over a different platform (traditional telephone service). Specifically, the majority decided to prohibit some companies from marketing to retain their customers, even though the marketing practices prohibited…are similar to the aggressive marketing techniques engaged in by the [cable companies] themselves…”

The FCC’s decision is the result of a complaint filed by cable companies who asserted that Verizon, a phone company, engaged in retention marketing in violation of FCC rules. While the cable companies could fight to keep customers, Verizon could not, according to the complainants. I should note that customers don’t even call the phone company when they want to switch providers as they do when they call the cable company to switch cable providers, thereby creating a competitive advantage for the cable providers from the get-go.

The FCC’s Enforcement Bureau, where the complaint was filed, ruled against the cable companies. The Bureau said correctly that the law and FCC rules apply to the use of proprietary information among telecommunications carriers. “Telecommunications carrier” is a legal term with specific meaning in law. Telecommunications carriers need to “hold themselves out as offering telecommunications indiscriminately to any and all potential customers,” in the words of FCC Chairman Kevin Martin. But the cable company complainants did not satisfy this statutory definition, according the Enforcement Bureau. Instead, the cable companies set up pseudo telecom affiliates whose only customer was the cable company’s voice service. The pseudo telecom affiliate had no intention of providing telecommunications service to the general public. In fact, the affiliates didn’t even file the complaint with the FCC. Their cable company parents filed the complaint.

And yet, a majority of FCC commissioners overruled the Enforcement Bureau and ordered Verizon to stop retention marketing of customers who were planning to switch providers. This decision is wrong on several levels. Obviously, the FCC’s decision is unfair and discriminatory, handing a huge advantage to one group of players at the expense of another. A level playing field this order most definitely does not accomplish.

Moreover, the decision sets a questionable, and dangerous legal precedent. The FCC effectively has ruled that cable companies’ pseudo telecom affiliates may be considered telecommunications carriers when it comes to retention marketing, but maybe not for other parts of the law. But you can’t be a telecommunications carrier sometimes under the law, and sometimes not under the same law.

The effect of this decision may be to allow cable companies to shield themselves from having to comply with similar regulations that apply to telecommunications carriers. For rural Montana consumers, the pseudo affiliates are a blatant regulatory arbitrage scheme designed to avoid paying for network services that cable companies receive from other real telecommunications carriers. And when one group of companies doesn’t pay another for services rendered, we consumers end up footing the bill in the form of higher prices, reduced investment, and limited competition.

As FCC Chairman Martin said in his dissenting option, the FCC’s retention marketing “decision promotes regulatory arbitrage,… thwart[s] competition, harm[s] rural America, and frustrate[s] regulatory parity.”

That just about sums it up.