CPP: A Prickly Issue

According to its proponents, calling party pays (CPP) will increase competition in the local telephone exchange market because it will encourage existing subscribers to use their wireless phones more often and will stimulate new subscribers as it lowers the cost of cellular service.

Although the FCC has announced its intention to remove the regulatory obstacles standing in the way of the provision of CPP, its proposals may have the unintended effect of regulating CMRS rates and imposing a substantial and expensive burden on CMRS carriers. The wireless industry can play an essential role in helping the FCC steer a moderate course, which will permit the marketplace to determine whether CPP will become as popular here as in other countries.

After ruminating for nearly two years, the FCC recently issued an order and notice of proposed rulemaking (NPRM) that pronounced that CPP is a CMRS service and thus state regulation of rates and entry generally would be preempted. Nevertheless, the Commission tentatively concluded that it must work in cooperation with the states and spent considerable effort soliciting comment about the line of demarcation between FCC and state jurisdiction.

The FCC identified and requested comment on several key regulatory issues raised by CPP:

* Is an FCC-endorsed uniform CPP notification necessary?

* Should the FCC mandate the terms under which CPP billing and collection is provided?

* What is the appropriate role for the states to play in CPP?

CMRS carriers should have mixed feelings about the FCC's involvement in CPP implementation. On one hand, FCC intervention may be required to ensure that LECs provide CPP-related billing and collection services, without which CPP may not be economically viable. At a minimum, the FCC may need to ensure LECs provide calling parties' billing information to CMRS carriers or billing companies. On the other hand, CMRS carriers should be concerned about the FCC's proposals for a uniform notification and its concerns about CPP pricing, both of which raise the specter of increased federal and state regulatory involvement in CMRS.

CALLING PARTY NOTIFICATIONCPP assumes that the calling party knowingly accepts the charge. Without some sort of notification, the calling party is unlikely to understand that he is about to incur additional charges by placing the call. Many CPP advocates propose designing a single uniform method and message to notify calling parties. The idea behind such a system would be to eliminate caller confusion and minimize the cost to wireless carriers of providing such notifications. Michael Altschul, CTIA vice president-general counsel, believes that the notification must be kept user-friendly and relatively short.

In its NPRM, the FCC, recognizing that most carriers and industry groups agree that a nationwide notification system must be developed, entertained the idea of several possible systems. The FCC is considering use of a numbering plan area (NPA) code, specific service area code (SAC) or 1+ dialing to alert the calling party that a call is being made to a wireless phone. However, the form of notification that the commission appears to favor is a detailed verbal message provided by the CMRS carrier.

At least initially, the FCC wants the notification to include notice that the calling party is making a call to a wireless-phone subscriber who has chosen the CPP option, and, therefore, the calling party will be responsible for the charges; identification of the CMRS provider; the per-minute rate and other charges for the call; and notice that the calling party will have an opportunity to terminate the call prior to incurring charges.

These regulatory fixes are thorns in disguise. First, any of these types of notifications would require significant changes to CMRS carriers' networks. In addition, the FCC, despite its stated desire to maintain a hands-off approach when it comes to CMRS, will be heavily involved with state governments in fashioning a uniform notification message and possibly distinct numbering codes. The prospect of increased state involvement in cellular can be viewed only as a step back from the freedoms first afforded wireless carriers when Congress preempted state regulation of entry and rates in 1993.

The FCC is concerned that carriers might charge excessive CPP rates because callers to CPP subscribers do not have the ability to switch to a different carrier to obtain a better rate for completing the call. This already has occurred in Europe, where regulators have ordered reductions in charges by both wireline and wireless carriers for CPP calls. Although the FCC appears reluctant to intervene at this point, it could later impose rate regulation to stem rate abuses. This would be a momentous shift away from the FCC's deregulatory approach to CMRS rate regulation. Equally troubling is that now that the FCC has given credence to this issue, states may become emboldened to attempt to regulate these rates under the banner of consumer protection.

THE INDUSTRY'S CHALLENGEThe promise of CPP can be recognized only if it is introduced into the marketplace unburdened by unnecessary regulation. CPP has not become prevalent in the United States in large part due to carriers' uncertainty as to whether they needed the go-ahead from the commission. The FCC has given the industry a green light unequivocally but seems unsure how to proceed.

The wireless industry, by commenting extensively in the proceeding, can play a pivotal role in the manner in which CPP arrives to the market. By suggesting solutions and addressing concerns, the industry can help minimize the regulation of CPP. The FCC should be reminded that in recent years, its deregulatory efforts in wireless have increased competition and decreased rates. Thus, concerns about CPP rates are misplaced. Commissioner Harold Furchtgott-Roth noted in his dissent in the order that it was ironic that the FCC has "opened the door to possible CMRS rate regulation" while at the same time espousing the increasingly competitive market for CMRS services.

The wireless industry, as well as the public, would be best served by minimal CPP regulation designed to produce a uniform notification. Deregulation should not be confused with no regulation. A uniform notification message with a definite sunset provision, as proposed by CTIA, would educate the public quickly while obviating the need for perpetual notifications. To fashion the best possible CPP solution -- one that will meet both federal and state regulatory concerns -- state regulators should be active participants in the proceeding. However, once a federal CPP regulatory framework has been established, the FCC, and not the states, should be charged with monitoring CPP.

An innovation can wither on the vine if overburdened with unnecessary regulations. The challenge before the industry is to help the FCC prune potential CPP regulatory thorns while leaving the vine intact.