Bad Debt Rising in Personals Business

Phone Company Billing Practices Going From Bad to Worse; Group Formed to Press for Changes.

First, the bad news: Bad debt has reached alarming levels in the audiotext/900-number personals business.

Now, the good news: The audiotext industry is marshaling its forces to address the issue.

The recent surge in bad debt in the audiotext business is largely the result of sluggish efforts to collect unpaid bills. And to make matters worse, new rules are being implemented by the local exchange carriers–“the Baby Bells” like Bell Atlantic, US West and Pactel–who have broad latitude to decide which services will be charged on the phone bills they issue.

For AAN papers and their information providers (TPI, Microvoice, NVS, etc.), these problems have created a dangerous and costly situation, says TPI Director of Development Peter Brennan.

“The issue is the integrity of telephone company billing and collection, upon which the pay-per-call industry is built,” he says. “If customers don’t pay their [audiotext] bills and if [for example] Bell South doesn’t make a reasonable effort to collect, it’s the information providers, often AAN papers and their advertisers, that get hurt. And what will happen in the 10 to 20 states when the phone companies no longer allow AAN papers to bill for their personals? What’s going to happen to them?

“My message to AAN people is: This is an urgent fight. They need to understand this issue and get involved.”

When audiotext proceeds are doled out, newsweeklies and their service bureaus rank at the bottom of the food chain.

Here’s the arrangement:

An alternative newspaper reader rings up charges on his phone by calling a 900-number. A few weeks later, the local exchange carriers [LECs]–e.g., Bell Atlantic, GTE, Bell South, etc.–sends him the bill. After the bill is paid, the proceeds trickle down: first, the local phone company takes its cut; then the long distance provider gets theirs. What remains is shared by the service bureau–TPI, Microvoice, etc.–and the newsweekly.

The system works fine when customers pay their bills. When they don’t, it grinds to a halt, and there’s often little recourse for the information providers and their clients. That’s because the Telephone Disclosure and Dispute Resolution Act [TDDRA] of 1992 deems audiotext charges “non-deniable,” which means that telephone service can not be denied for non-payment of 900-number charges.

This distinction, which was designed to protect consumers from unauthorized phone bill charges, has resulted in financial pain for information providers and their alternative newsweekly clients. Many audiotext customers take advantage of the rule to avoid legitimate charges. They simply contact their phone company and contest the charges and, more often than not, that’s the end of the story.

The results are staggering. It’s estimated that information providers and their clients now lose more than $200 million annually.

“By law, you can refuse to pay your [audiotext charges] as long as you pay your phone bill and the phone company can’t turn off the service,” says New Times, Inc. Executive Vice President Scott Spear. “What we’ve seen is that the pockets of bad debt [in different parts of the country] have accelerated–and it’s still growing.”

Bad debt in the neighborhood of two to four percent is incidental in the 900-number personals business, says Spear. People move, others die, some just won’t honor their debts. But at New Times’ paper in Miami, for instance, bad debt now runs ten percent.

“[In Miami], this has been a spur in our butt for a long time,” says Spear, who also thinks that some LECs may be guilty of being less than forthcoming about their collection and payment policies.

“The question I have is: Are higher rates of bad debt endemic to certain Bell operating companies?” he says. “Because I can’t explain why bad debt runs four percent in some parts of the country and ten percent in others.”

Spear also thinks that the bad debt issue is magnified by the industry’s downward trend in total volume.

Bell Atlantic and Bell South did not return phone calls seeking comment.

TPI’s Brennan believes the biggest problem facing AAN papers and their information providers is that the LECs are gravitating away from the audiotext billing business.

“They have begun to introduce ways of getting out of the business,” he says. “US West announced it will no longer bill and collect for charges on psychic lines. Pactel and Southwestern Bell are introducing a program that says if 15 percent [of audiotext] charges are uncollectables, that they’re going to stop billing customers for those charges.

“The phone companies have too much power. They control–to a large extent–what percent of the charges become bad debt. They also control what goes on the phone bill. And it’s only going to get worse.”

To illustrate his point, Brennan points to the Federal Communications Commission’s [FCC] October deliberations, which sought input about telephone billing practices.

“The local phone companies were offered broad immunity from any antitrust claims arising out of their participation in the proceeding, and then boldly proposed that they alone should establish the billing policies and practices–for themselves, their competitors and everyone else,” he says. “The FCC, with scant resources or appetite to actually regulate the local carriers in this area, seem very willing to accept the LECs recommendations.”

The Billing Reform Task Force [BRTF] was formed in September to provide the audiotext industry with a voice in the audiotext billing debate. Comprised of a wide range of businesses involved in the 900-number market, the BRTF plans to work with the FCC and the Federal Trade Commission (which, like the FCC, plans to amend its audiotext billing and collection rules in the near future), as well as the LECs. Its aim is three-pronged:

1. To ensure consumers are informed of the rights and responsibilities associated with telephone-billed purchases, including audiotext services;

2. To reduce the high percentage of bad debt that plagues the industry; and

3. To preserve the telephone bill as the mechanism to bill for a broad range of communication services.

Brennan, who serves as BRTF co-chair, implores AAN members to get involved. “At this juncture,” he says, “AAN papers need to look at how much money they can afford to lose if they are forced out of the pay-per-call personals business.”

He also urges to people to contact their elected officials, state utility commissions, their state’s attorney’s general office and the FCC and FTC.

It’s difficult to quantify the loss the alternative newspaper business would suffer if the LECs ultimately get their way. However, there’s no question it would have a major impact, especially on those papers that are already struggling to remain solvent.