Man Your Battle Stations

Information about the destination of a customer's calls, the telecommunications services to which a customer subscribes, and the frequency with which customers use these services prove invaluable tools for marketing new products and services. Customer proprietary network information (CPNI) data allows companies to measure their competitiveness as well as to build their business plans and design new service offerings. For the last three years, carriers have found themselves in the middle of a regulatory battlefield as the FCC designs and redesigns CPNI regulations, and as the judiciary joins the fray.

Section 222 of the 1996 Telecommunications Act attempts to balance consumer privacy interests with a pro-competitive deregulatory policy approach. This provision limits the carriers' use of CPNI and directs the FCC to develop regulations to protect CPNI. Shortly after its passage, the FCC set forth a series of complex rules and procedures that severely restricted the instances in which a carrier may use CPNI.

OPTING IN Under the FCC's CPNI rules, a carrier must obtain express customer approval before it can use or disclose CPNI for marketing purposes. This is known as the customer "opting in." Without customer approval, carriers may use CPNI only to market those offerings that are related to the services to which the customer already subscribes. Thus, without a subscriber's prior approval, a carrier that provides long-distance service to its customer may not use CPNI to develop and market local service to its customer.

In addition to the customer "opt in" requirement, the CPNI rules detailed how carriers must notify their customers of intended CPNI use. They delineated acceptable forms of customer approval and mandated specific record-keeping procedures to safeguard customers from improper CPNI use. Among the most hotly debated requirements was that carriers develop complicated electronic flagging and tracking software by January 1999.

Although information-privacy advocates lauded the FCC's CPNI rules, the communications industry criticized them for their intrusion upon industry practices. Telephone companies were particularly concerned that CPNI restrictions would impose new costs on the industry, preventing the effective marketing of new services and impeding competition.

A LEGAL OFFENSIVE In response to the FCC's CPNI rules, telecommunications carriers immediately mounted a legal offensive. Wireless providers -- including AirTouch, AT&T Wireless Services, Bell Atlantic Mobile, GTE Wireless, Sprint PCS and those represented by CTIA -- appealed to the FCC, asking for clarification on the treatment of CPNI derived from non-telecommunications services. Companies such as Alltel, Ameritech, Bell Atlantic, BellSouth, Frontier, LCI, MCI, Omnipoint, Sprint and TDS requested that the commission reconsider a variety of other issues. Moreover, associations representing virtually all sectors of the telecommunications industry expressed their concern over meeting the January 1999 deadline.

Many carriers also sought judicial relief, challenging the constitutionality of the FCC's CPNI regulations. In a suit filed in the 10th Circuit Court, US West led the charge with AirTouch, AT&T, BellSouth, Frontier, MCI, Nevada Bell, Pacific Bell, SBC and Sprint joining in the offensive. Carriers argued that the FCC regulations infringed upon their First Amendment free-speech rights.

As the 10th Circuit Court deliberated the constitutionality of the CPNI rules, the FCC retreated from its original position on CPNI and, in an Aug. 16, 1999, public notice, announced a much more liberal version of the rules. Among the revisions, the FCC broadened carriers' discretion for using CPNI without approval to market information services. The commission also increased flexibility in its software requirement for tracking the use of CPNI. Most important from a business perspective may be the FCC's about-face on the use of CPNI to win back customers lost to competitors. In the original rules, CPNI could not be used for "win back," but according to the notice, carriers are free to do so.

CONSTITUTIONAL DOUBT BOMB Whether the FCC's retrenchment was, in part, an olive branch offered to the appellants and the court is unclear. Nevertheless, just two days later, the 10th Circuit Court dropped the judicial equivalent of a neutron bomb on the CPNI rules. In its Aug. 18 decision, the court set its sights on whether the FCC's "opt in" requirement was overly restrictive of carriers' right to commercial speech. Ultimately, the court found this requirement did not pass constitutional muster. It found the requirement more extensive than necessary to advance a substantial state interest. Based on this reasoning, the court vacated all of the CPNI rules.

Immediately following the court decision, US West proffered a response, hailing the decision as a consumer-friendly one that enables carriers to offer new services to their customers more efficiently and helps customers "by allowing them to more easily determine what new services are available." The damage done to the CPNI rules, however, may not be as lasting as many hoped. Although the 10th Circuit Court decision will void the FCC's CPNI rules, the court was careful not to attack Section 222, which mandates that the FCC implement CPNI rules. CPNI is not dead, only wounded.

THE FCC'S COUNTERATTACK In the wake of this decision, the FCC had three possible counterattacks. First, the commission could sound the retreat, accept the court ruling and begin a rulemaking to restart the process of developing new CPNI regulation. Second, the FCC could outflank the 10th Circuit Court and appeal the decision to the Supreme Court. Finally, the FCC could request that the 10th Circuit Court hold a rehearing to reconsider its decision. According to press reports, the commission has decided to seek a rehearing. Tom Powers, senior legal advisor to FCC Chairman William Kennard, indicated that the FCC will ask for both a review by the 3-member panel and the entire panel of the 10th Circuit Court.

Shell-shocked carriers are unsure what to do as the battle rages on. Members of the wireless industry cannot afford to be bystanders, because the outcome of the war will affect their operations directly. Instead, carriers should heed the words of Winston Churchill: "It is better to be making news than taking it; to be an actor rather than a critic." Carriers should take pro-active steps to keep the momentum of the judicial victory rolling. First, carriers should continue to participate in judicial proceedings. Second, the industry should participate actively in the FCC's future CPNI rulemaking proceedings as it struggles to develop new CPNI rules without significant direction from the courts. Carriers should seize upon these unparalleled opportunities to participate in forging a new set of CPNI rules that will respect privacy while maximizing their ability to develop and market new services.