Telecom/1996-04-telecom-walnutcreek.iso/legal-fcc/fcc.docket.93-292

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Date: Wed, 26 Jan 94 12:56:02 CST
From: TELECOM Moderator <[e-mail]>
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Subject: Telecom Fraud - FCC Notice of Proposed Rulemaking


Passed along FYI to the Digest readership.  PAT

  Date: Wed, 19 Jan 1994 00:24:18 -0500 (EST)
  From: [e-mail]
  Subject: Telecommunications Fraud FCC NPRM

Here is the text of the Notice of Proposed Rulemaking, CC Docket
93-292.  I have made some effort to verify that my transcription is
reasonably accurate.  PEOPLE WANTING TO COMMENT FORMALLY ON THIS
PROCEEDING SHOULD GET AN ORIGINAL COPY.

The original comment period closed January 14, 1994.  [For what it's
worth, I didn't get a paper copy of this until January 11, and the
preparation of my comment took two full days -- FedEx barely got the
thing to the FCC before the comment period closed.]  The reply
comments (translation: comments to the comments) are due no later than
February 10th.

Event though the formal comment period has closed, you can make an
informal comment ("ex parte") before the February 10th deadline.

Some of the abbreviations are defined in footnotes (which have been
moved to the end of the file) and some are defined in the Appendixes
which I didn't transcribe.  [You get what you pay for.]

The numbers between double-dashes are the "paragraph numbers" for this
Notice.  You should in any letter reference the specific paragraphs to
avoid having to make long quotes.

Enjoy.

I.  INTRODUCTION

--1--  This Notice of Proposal of Rulemaking (NPRM) seeks comment on
proposals to:

  (1) achieve closer coordination between the industry, consumers,
vendors, law enforcement agencies, Congress, and the Commission to aid
in the detection and prevention of toll fraud;

  (2) improve consumer education initiatives by the Commission, consumer
groups, and the telecommunications industry;

  (3) determine that tariff liability provisions that fail to recognize
an obligation by the carrier to warn customers of toll fraud risks of
using carrier services are unreasonable;

  (4) establish a federal policy assigning liability for payphone fraud;

  (5) codify a requirement for written warnings for all
telecommunications equipment registered under Part 68; and

  (6) determine measures to prevent cellular and Line Information
Database (LIDB) fraud.

II.  BACKGROUND

--2-- Until the mid 1980s, carrier networks were the main targets of
telecommunications fraud.  Fraud perpetrators might use electronic
devices or even a child's whistle to simulate carrier switching tones
that would allow them to place calls and avoid paying for them.  As
carriers developed new methods to prevent these primitive forms of
toll fraud, however, perpetrators began to use computers to access the
carriers' networks.

--3-- Control over the use of telecommunications services has
increasingly shifted from carriers to individual consumers.
Technology is providing more flexible options for use of those
services.  With this shift in control, however, has come a shift in
the toll fraud targets.  Customers, as well as carriers, are now the
victims.  Fraud involving customer-owned private branch exchanges
(PBXs) provides an example.  Customers can now use a feature in their
on-premises PBX equipment to route incoming remote access calls to an
outgoing line.  With this capability, a company's sales
representatives in the field can, for example, have the convenience of
placing calls that would be billed to the employer's outgoing PBX
line.  Fraud perpetrators have discovered that they can call into a
PBX and then use computers or "finger hacking" to identify the
authorization code for the remote access feature connected to the
outgoing line.  Once the authorization code is found or "hacked," the
perpetrator can obtain a dial tone and make outgoing calls that are
billed to the PBX owner.  In some cases, the PBX owner may also be
billed for incoming 800 calls made by the perpetrator.

--4--  Both customers and carriers suffer the effects of fraud; industry
and Secret Service estimates of annual losses range from one to five
billion dollars, in an industry in which annual billings are
approximately $175 billion.  Several different types of fraud are
creating these losses:

  (1)  the unauthorized remote access through PBXs already described;

  (2)  cellular "cloning," in which billing codes for legitimate
cellular subscribers are installed in a perpetrator's cellular phones;

  (3)  the billing of operator-assisted calls to line with billing
restrictions, such as payphone lines; and

  (4) "clip-on" fraud, in which the perpetrator physically attaches a
calling device directly to a phone line.

  Fraud perpetrators may watch customers using calling cards at
payphones and sell the calling card numbers to others, or directly
approach consumers and ask them to accept billing to their phones as
part of a spurious "official" investigation.  Industry and law
enforcement sources expect that new types of fraud will develop even
as these existing types of fraud are being combatted.

--5-- Experience has shown that those new telecommunications
technologies offering the most convenience and flexibility for users,
are often also most likely to present new toll fraud opportunities.
The Commission's goal has been, and will continue to be, to work with
consumers and the industry to find solutions to each fraud problem
without hindering the development or use of these new technologies.
In devising these solutions, we must ensure that telecommunications
equipment and services remain accessible.

--6-- The Commission is not charged with enforcing criminal statutes
or prosecuting toll fraud perpetrators.  [1] The Department of
Justice, local law enforcement agencies, and the U. S. Secret Service
are among the agencies charged with the enforcement of criminal
statutes.  Nevertheless, the Commission has taken several steps toward
developing solutions to toll fraud.  First, the Commission issued a
series of "Consumer Alerts" describing the dangers posed by
telecommunications fraud and steps that can be taken to detect and
prevent it.  [2] Second, on October 9, 1992, we convened an _en banc_
hearing on Toll Fraud.  [3] Panelists representing telecommunications
consumers, carriers, equipment vendors, insurance providers, and law
enforcement agencies presented diverse perspectives and detailed
proposals for detection, prevention, and responsibility.  (See
Appendix B) Following the hearing, the Commission encouraged further
comment by holding the record on toll fraud open until November 16,
1992.  [5] Third, the Commission has taken action in related
proceedings to address toll fraud concerns.  In July 1992, in the
operator service rulemaking proceedings, the Commission required local
exchange carriers to offer services, to reduce payphone providers' and
other aggregators' exposure to toll fraud.  [6] Earlier, in 1990, the
Commission adopted standards for direct inward dial (DID) calls which
required answer supervision on DID calls routed back to the public
switched network by a PBX.  This amendment of Part 68 of the
Commission's rules was initiated because carriers were losing tens of
millions of dollars of revenue in cases where PBXs failed to return an
answer supervision signal to the central office, notifying it of a
billable call.  The Commission continues to resolve formal and
informal complaints that raise toll fraud issues.

--7-- The Commission also coordinates with industry, consumers,
vendors, and law enforcement agencies.  Commission staff attends
meeting with industry groups working to formulate prospective
solutions to toll fraud problems.  [7] Some fraud issues appear to
have been resolved by the industry, including, for example, dial tone
reorigination, which permits the calling party to receive a second
dial tone after the original call is terminated.  The industry also
has implemented intercompany cooperation on live call tracing.  Many
carriers have recently responded to the widespread concerns about toll
fraud by offering services designed to provide early detection and
prevention of the problems.

--8-- It does not appear, however, that private action can resolve all
toll fraud problems or that incentives to control fraud are structured
in the best possible way.  For example, the recent "Chartways" formal
complaint proceeding [8] presented the issue of liability for charges
associated with unauthorized calls.  Chartways, the complainant, was a
private branch exchange (PBX) owner.  It learned from AT&T that an
unusual volume of calls to Pakistan was originating at its PBX.  A
subsequent investigation revealed that the calls were apparently being
routed through the remote access feature of the PBX.  Although
Chartways informed AT&T that the calls were unauthorized, AT&T
maintained that Chartways was liable for the related charges under the
general payment obligation of AT&T's tariffs.  Chartways responded by
filing a formal complaint against AT&T with the Commission.  The
complaint alleged that AT&T's attempt to collect the charges was
unreasonable and discriminatory, thus violating sections 201(b) and
202(a) of the Communications Act.  [9] The Common Carrier Bureau
denied the complaint [10] based on a largely stipulated record, and
following the same analysis we denied Chartways' application for
review of the Bureau decision.  [11] First, we found that the Bureau
was correct in determining that the tariff provisions at issue were
clear and definite in requiring payment for the calls, in that the
tariff provisions recognized no exception to the general payment
obligation for unauthorized usage.  [12] Next we affirmed the fining
that Chartways had control over the disputed calls.  [13] We noted
that Chartways had stipulated that it had "the capability to restrict
access to and egress from its PBX" at all times.  Moreover, while the
record contained no evidence that AT&T was negligent in any way with
regard to the unauthorized calls, it also showed that Chartways had
taken no steps available to it to detect or prevent unauthorized
calling through its PBX.  Finally, we agreed that AT&T's practices in
this case were not discriminatory when compared to its liability
limits on unauthorized calling card using because calling card
liability is controlled explicitly by a specific federal statute and
related regulations.  [14]

--9-- In _United Artists_, we examined the question of liability for
charges associated with unauthorized calls that were either originated
or accepted at the complainant's payphones.  [15] The threshold issue
in the case was whether United Artists was AT&T's "customer," because
only a "customer" who "orders" service could be held liable for
charges under the terms of AT&T's tariff.  [16] We determined that the
customer for the operator-assisted calls at issue was the caller or
billed party, not United Artists, the owner of the payphones [17] We
also found that United Artists did not presubscribe its payphone lines
to AT&T for direct-dialed service.  [18] We then looked at whether
United Artists had otherwise ordered service from AT&T, stating that
if United Artists "had failed to take steps to control unauthorized
operator-assisted and direct-dialed calling and had, instead,
installed its phones in such a way as to allow callers to charge such
calls to [its] payphone lines, [United Artists] could reasonably be
held to have constructively 'ordered' service from AT&T, thus
establishing an inadvertent carrier- customer relationship."  [19] The
record showed that United Artists had adopted a number of measures
designed to control potentially fraudulent calling.  [20] For example,
it told the local exchange carrier, New York Telephone (NYT), that its
lines were to have no primary interexchange carrier at all.  It also
ordered originating line and billed number screening services from
NYT, which were intended to inform operator service providers such as
AT&T of any billing restrictions on those lines.  [21] In addition to
such preventative steps, United Artists also monitored calling from
its phones and regularly reported any apparently fraudulent calling to
NYT and AT&T.  Based on the record, we concluded that United Artists
did not intentionally or constructively order service from AT&T and
therefore could not be held liable as a customer for the disputed
charges.  [22]

--10-- Our decision to begin this rulemaking is based upon our
experience with complaints and the LIDB investigation; [23] the _en
banc_ hearing testimony; public comment solicited pursuant to a
petition filed by the Pacific Mutual Life Insurance Company, which,
among other things, asked the Commission to establish policies and
rules to allocate the cost of unauthorized calls associated with PBX
fraud among carriers, customers, and equipment suppliers; [24] and
public comment solicited pursuant to a petition filed by the Florida
Public Service Commission that asked the Commission to review tariffs
relating to toll fraud.  [25] The purpose of this rulemaking is to
identify additional policies we should establish or steps we should
take to avoid, or reduce the risks of, toll fraud.


III.  DISCUSSION

A.  The _En Banc_ Hearing

--11-- Comments: During the _En Banc_ Hearing on Toll Fraud, we heard
testimony from eighteen panelists representing communications
customers, common carriers, equipment manufacturers, law enforcement
agencies, and others.  A common theme by the panelists at the session
was that effective approaches now exist to battle toll fraud if
customers, carriers, equipment vendors, and law enforcement agencies
cooperate to detect and prevent fraud.  Included among these potential
solutions are equipment-based measures that end-users may take
themselves, carrier- based monitoring services, insurance products,
law enforcement efforts, and proactive educational programs.  The
hearing was divided into three panels.  [26] The first panel focused
on PBX and other customer premises equipment (CPE) -based fraud.
Participants included a PBX and CPE owner, a PBX trade association
representative, a law enforcement expert, and equipment manufacturer,
and a long distance company offering anti-fraud services.  The second
panel focused on network-based fraud and liability issues.
Participants included a hacker expert, a representative of the Toll
Fraud Prevention Committee of the Alliance for Telecommunications
Industry Solutions (nee Exchange Carriers Standards Association), a
payphone equipment manufacturer, and a panelist discussing
network-based validation services.  The third panel focused on
emerging technical law enforcement, and business solutions to domestic
and international toll fraud.  Panelists included a manufacturer of
new anti-fraud products, a law enforcement expert on detection and
prevention of fraud, a toll fraud expert from a Canadian
telecommunications corporation, a panelist discussing negotiation of
international fraud disputes, representatives of interexchange
carriers, and an insurance company discussing contractual and
insurance protection for toll fraud.

--12-- The record compiled as a result of the _en banc_ hearing
emphasized that toll fraud is a crime, that it is difficult to
prosecute, that it migrates from one area of telecommunications to
other areas as detection and prevention methods become effective, and
that additional consumer education is necessary to detect and prevent
toll fraud.  Witnesses pointed out that because there is no specific
federal legislation regarding toll fraud, prosecutors must deal with
the limited effectiveness of the existing criminal statutes.  [28] The
record also indicates that the criminal prosecution of toll fraud
perpetrators is infrequent.  Law enforcement representatives on the
panels asserted that this may be partially due to the lack of training
or familiarity with toll fraud cases on the part of law enforcement
agents or U. S.  Attorneys.  It also may be due to the high dollar
thresholds (victims must allege large monetary damages) set by the U.
S. Attorneys because toll fraud cases generally are manpower intensive
but often result in either suspended sentences or short
incarcerations.  Further, to establish access device fraud under 18
USC 1029 the prosecution must show that a person's account has been
accessed.  In many toll fraud cases, particularly cellular tumbling
[29] no account is accessed.  Rather, the fraud perpetrator changes
both the identification number and the telephone number in order to
confuse the cellular switch.  Our day- long _en banc_ hearing
demonstrated that a plan to combat toll fraud must include an
integrated program of detection, prevention, and prosecution.  The
record in the toll fraud _en banc_ hearing also brought out comments
about PBX fraud, payphone fraud, cellular fraud, and other types of
fraud which we describe below at paragraphs 14 through 40, infra.

--13-- Comment Requested: In light of the persuasive testimony
presented at the hearing, we request comment on specific ways to
achieve closer and continuing coordination among the institutions
fighting toll fraud.  We seek comment on whether the Commission can
add value to existing inter-institutional efforts, and, if so, how.
We ask whether the Commission should establish a new Federal Advisory
Committee representing all affected interests, to recommend specific
solutions.  Further, we request comment on whether to join with law
enforcement authorities in encouraging Congress to enact legislation
that clearly defines and penalizes this criminal activity and gives
law enforcement the tools it needs to track and prosecute perpetrators
of toll fraud.  We invite proposals of specific statutory language
that would achieve these objectives.  Additionally, we request comment
on ways to broaden established Commission and industry consumer
education initiatives in order to better educate consumers about toll
fraud risks and remedial steps that can be taken.


B.  PBX FRAUD

The Pacific Mutual Proceeding

--14-- Petition and Comments: Pacific Mutual Life Insurance Company
(Pacific Mutual) filed a petition requesting the Commission to declare
ambiguous and unlawful tariff provisions under which AT&T has held
petitioner liable for payment of toll fraud charges incurred because
of interstate, interexchange telephone calls made through remote
access to petitioner's on-premises PBX.  In addition, Pacific Mutual
requests the Commission to establish policies and rules to allocate
the costs of remote-access toll fraud among users, carriers, and
suppliers, and to promote effective anti-fraud measures.  [30] AT&T
filed in opposition to the petition, 19 parties filed comments and 16
parties, including AT&T, filed reply comments.  [See Appendix C for a
list of commenters and abbreviations used throughout this NPRM to
refer to these commenters.]

--15-- All commenters who support the petition state that they have
been victims of toll fraud.  Two commenters state that they relied on
AT&T to supply the CPE and establish protocols for that equipment.
[See comments of AVNET and Mitsubishi] Perkin-Elmer Corporation (PE)
states that it relied on AT&T alleged misrepresentations or failure to
warn of toll fraud risks associated with use of the equipment.
Several commenters, including Chartways, state that fraudulent usage
had originate from company-owned, on-premises CPE.  [33] Credit Card
Calling Systems, Inc. stipulated that the fraud of which it was a
victim involved unique features of overseas resale of AT&T 800
services connected to a PBX, enabling customers to call inward to the
U. S. from overseas.  In contrast, AVNET stated that it was a victim
of fraud involving the use of its software defined network (SDN).

--16-- Those commenters supporting the petition propose that the
Commission prescribe guidelines that provide incentives for the
development and proper use of safeguards to prevent non-card toll
fraud.  Most commenters who support the petition concur that the
carriers are in the best position to monitor traffic patterns and call
volume.  [34] Many commenters concur with the comments of Securities
Industries Association et al. (SIA), which proposes that the
Commission require interexchange carriers (IXCs) to offer, at
cost-based rates, services designed to help users prevent, and react
quickly to, fraud.  Most commenters agree that new technologies will
increase opportunities such as multiple node virtual networks using
many PBXs and other sophisticated network terminating equipment will
make the impact of fraud more serious.

--17-- Specifically, in its comments supporting the petition,
Aeronautical Radio, Inc. (ARINC), asserts that the airlines are
substantial users of telephone carriers' switched voice services and
many have been victimized by remote access-based toll fraud like the
fraud described by the petitioner.  ARINC requests that the Commission
prescribe network-based preventive measures and require carriers to
inform their customers about the potential for toll fraud.  ARINC
asserts that policies and guidelines should accomplish the following
four objectives: (1) toll fraud prevention (carriers' detection and
prevention plans); (2) prompt remedial action (detection and remedy in
timely manner); (3) limited customer liability (forgive charges
incurred in at least the first two billing cycles in which fraud is
detected); and (4) notification and disclosure (carriers warn
customers of vulnerabilities).  [35] PE alleges that unauthorized
calls totaling $250,000 occurred despite the steps PE took to prevent
fraud, including installation of additional access codes and reports
of anomalous billings to AT&T.  Although AT&T assured PE that PE would
be credited as a billing error, AT&T took two years to complete the
investigation.  PE contends that a carrier should not be permitted to
limit liability unless the carrier has installed the best available
techniques to detect and prevent remote access toll fraud; has advised
customers, both in its tariffs and through marketing, of the
vulnerability of its service offerings; and has responding promptly to
customer billing inquiries.

--18-- Similarly, SIA proposed that the Commission adopt specific
guidelines in order to provide incentives for the development and
proper use of safeguards by all affected parties to reduce toll fraud,
and to spread losses equitably.  SIA also proposes that the Commission
require interexchange carriers (IXCs) to offer, at cost-based rates,
services designed to help large users react quickly to toll fraud
because the carriers are in the best position to monitor traffic
patterns and call volume.  SIA asserts that these services should
include trunk-based monitoring against preset parameters and
customized call blocking.  Losses from fraud, SIA avers, could then be
allocated between IXCs and customers based on their respective
responsibility.  Carriers would be responsible if they fail to inform
customers quickly of suspicious traffic (within 30 minutes if the
parameters are exceeded) or to restrict service when asked to do so.
On the other hand, customers would be responsible if they fail to
obtain monitoring services of obtain them and fail to act upon carrier
warnings.  SIA asserts that because carriers have cracked down
aggressively on card fraud, hackers have turned to CPE and non-card
based fraud, and, under the present rules, IXCs have no incentive to
help prevent or curtail non-card fraud.

--19-- In its comments, Western contends that carriers and vendors
should be required to issue warnings and precautions to users and
revise their tariffs to reflect their responsibility for toll fraud
when customers have no direct control of detection or prevention of
fraud and act responsibly with regard to their equipment.  Further,
Western proposes that the Commission amend Part 68 to require
equipment vendors (1) to implement specific hardware and software
functions to help prevent toll fraud and (2) to provide specific
warnings and instructions to PBX purchasers regarding the toll fraud
hazards and vulnerabilities inherent in their products.  NATA argues
that Section 68.110(b) of the Commission's rules requires disclosure
when carriers take actions that affect the network.  NATA argues that
customers are entitled to adequate notice of technological changes in
carrier networks because carriers have made it more likely that
customers will experience fraud through their facilities and
equipment.  NATA submits that the carriers failed to provide adequate
notice and should not now be permitted to reap the benefits of the
violation and hold customers liable.

--20-- Many customers oppose the petition and contend that the
responsibility for unauthorized use of a PBX should be placed on the
PBX owner.  These parties argue the PBX owner is in the best position
to prevent fraud by programming, configuring, disabling the remote
access features, or installing adequate security or monitoring
procedures.  [36] Specifically, AT&T contends that the petition should
be denied because the tariffs adequately establish customer
responsibility and are enforced in a nondiscriminatory manner.  AT&T
contends that the rules petitioner proposes would eliminate the
incentive for customers to secure their telephone systems and would
encourage higher PBX fraud costs.  AT&T asserts that the existing
tariffs clearly require payment for Long Distance Service from all
customers, whether usage was authorized or unauthorized, if the
service originated from the customer's number.  AT&T further asserts
that it enforces its tariff in a uniform manner, and only in cases
where the fraud resulted because of AT&T's own fault as a carrier, or
where a compromise would maximize AT&T's recovery does AT&T forgive
any part of the disputed amount.  AT&T argues that Pacific Mutual
chose to use the remote access feature of its PBX, did not restrict
the locations to which the PBX will permit remotely placed calls to be
completed and therefore assumed the risk arising from interaction
between its chosen systems and the network.  In its reply comments,
AT&T reiterates that it screens calling card calls because the
individual database validation that is performed before each calling
card call is completed enables AT&T to engage in screen and blocking
functions which cannot readily be duplicated on non-card calls, where
no such database validation occurs.

--21--LiTel Communications, Inc. (LiTel) urges the Commission to deny
petitioner's request regarding tariff issues because long-distance
companies cannot distinguish legitimate PBX calls from fraudulent ones
and would face enormous financial exposure if the tariff language is
adjudged unlawful.  MidAmerican concurs with AT&T in opposing the
petition and contends that it is not in the public interest to make
all consumers indirectly liable for PBX fraud.  Southwestern Bell
(SWB) contends that a cap on end user liability reduces the incentive
for end users to prevent fraud.  SWB submits that proposed
restrictions on vendors through modification of Part 68 are vague.
SWB also argues the proposed rules are unsupported because petitioner
has not shown that end users lack either information or options
necessary to guard against toll fraud.

--22-- Allnet submits that the comments in the proceeding have not
adequately supported the granting of the petition because it is not
the role of carriers to insure end users against theft of services.
The theft of services, Allnet contends, was made possible by the end
user's choice of equipment, its configuration, and its operation and
only the PBX owner is able to know whether an outgoing call originated
over an incoming line.  Allnet asserts, however, that if IXCs are
required to insure end users against theft, then IXCs should be
permitted to refuse to serve high risk end users.  Allnet proposed
that minimum conditions should be set out in Part 68, including
anti-theft features on all PBXs, real time on-line printing and
monitoring of CDRs (call detail records), limiting direct inward
systems access (DISA) trunks to 7 digit outpulse, purchasing account
codes from IXCs, purchasing 800 call detail from IXCs, and a mandatory
in-house attendant at each PBX control console or an automatic alarm
algorithm that would page a PBX attendant who could shut down the PBX
from a remote location.  Further, Allnet contends that if IXCs are
required to waive toll charges, local exchange carriers (LECs) should
be required to waive corresponding access charges because it's unfair
for IXCs to carry the burden of toll fraud, while LECs collect the
underlying access charges.

--23-- In its reply comments, Bell Atlantic urges the Commission to
deny the petition because when the Commission deregulated CPE 13 years
ago [37] it severed responsibility for CPE.  Under this policy, the
customer selects the CPE and its features, and in concert with the
vendor, bears the risk if the CPE selected fails to meet expectations.
Bell Atlantic, however, proposes that the Commission should encourage
CPE manufacturers and vendors to work with carriers to develop
solutions to prevent toll fraud and would cooperate fully in any such
Commission-inspired efforts.

--24-- Comment Requested: Although we reached different results in
_Chartways_, a PBX fraud case, and _United Artists_, a payphone fraud
case, the dispositive element for each of these cases was where
responsibility for the detection and prevention of fraudulent calling
lay.  In _Chartways_ the complainant had taken no discernible action
to detect or prevent the fraudulent calling and the carrier had not
acted negligently with regard to the calls.  We therefore determined
that the carrier could hold Chartways liable for the disputed charges.
In _United Artists_ by contrast, the victim of the toll fraud had
taken several reasonable steps to detect and prevent unauthorized
calling , which nonetheless occurred.  There, we concluded that the
carrier had acted unlawfully in attempting to hold United Artists
liable.  If customers are unaware of potential liability, they are
unlikely to take steps to limit their exposure.  And, if carriers have
no economic incentive to help customers limit their exposure, they are
unlikely to invest in developing proactive solutions to PBX, or other,
kinds of fraud.  In light of the liability finding that resulted from
the record in proceedings such as _Chartways_ and _United Artists_, we
tentatively conclude that tariff liability provisions that fail to
recognize an obligation by the carrier to warn customers of risks of
using carrier services are unreasonable.  Moreover, we tentatively
conclude that carriers have an affirmative duty to ensure that these
warnings are communicated to customers through, for example, billing
inserts, annual notices, or other information distribution methods.

--25-- We request comment on what other factors could or should be
considered when liability determinations must be made.  [38]
Specifically, we seek comment on whether to apportion the cost of CPE-
based fraud based on whether carriers, CPE owners, equipment
manufacturers, or possibly others were in the best position to avoid,
detect, warn of, or control the fraud.  Further, we request comment on
whether this apportionment should be based on a comparative negligence
theory as proposed by Pacific Mutual and many commenters supporting
its petition.  We note that potential shared liability would require
definition of the specific responsibilities of the CPE-owner to secure
the equipment or communications system, of the manufacturer to warn of
toll fraud risks associated with features of the CPE, and of the
carrier to offer detection and prevention programs and educational
services.  We seek comment on what constitutes a failure to meet these
responsibilities, on the nature of damages to be awarded to aggrieved
parties, and on the appropriate forum to resolve these issues.  For
example, we request comment on whether arbitration or mediation should
precede Commission involvement, and whether Commission involvement, if
necessary, should begin with alternative dispute resolution or formal
complaint proceedings.  Further, we request comment on which party in
a billing dispute involving allegations of toll fraud should bear the
expense of arbitration.  We also seek comment on whether residential
ratepayers would bear the burden of business fraud by paying higher
rates.  Commenters should also discuss how carriers may recover
charges for calling card fraud, where cardholder liability is limited
to $50.  [See paragraph 38, infra.]

--26-- Commenters are asked to address fraud prevention measures
various parties might take.  The record shows that carriers have
increased fraud detection service offerings during the last 18 months.
In light of our tentative finding that tariff liability provisions
that fail to recognize a duty by the carrier to warn customers of
risks of using carrier service are unreasonable, we ask whether a
failure to offer services to limit customers' exposure should be
considered an unreasonable practice.  Consequently, we seek comment on
whether to require IXCs and LECs to offer customers protection through
monitoring services, on what basis those services should be offered,
and whether such services should be part of the basic interexchange
service offering.  We also seek comment on whether there is software
or equipment that customers should install in their CPE to prevent
fraud.  Further, we request comment on whether the programs offered by
carriers such as MCI Detect, AT&T NetProtect, and SprintGuard,
designed to help businesses protect their CPE from toll fraud, include
sufficient features as customer education, fraud detection equipment,
traffic analysis, third-party insurance, and real-time monitoring and
detection.  We seek comment on the availability of these programs to
both large and small CPE owners, and their efficacy.  In addition, we
invite commenters to discuss in detail any other proposals or
considerations relevant to liability determinations.  We invite
specific rule proposals for consideration.

C.  PAYPHONE FRAUD

The Florida Petition

--27-- In its petition, the Florida Public Service Commission (Florida
PSC) requests that the Commission review tariff provisions governing
liability for toll charges resulting from fraudulent third party calls
where payphone providers have purchased originating line screening
(OLS) and billed number services (BNS) services from carriers.  [39]
The Florida PSC proposes that the Commission adopt regulations
mirroring recently adopted Florida regulations.  [40] The Florida
regulations, which became effective February 3, 1993, releases a pay
telephone provider from liability for charges resulting from certain
types of fraudulent calls if the provider purchases call screening for
the line (OLS and BNS).  [41] In addition to relieving payphone
providers from liability, the Florida PSC rules require that the
losses from fraud be allocated between the LECs and IXCs based on
fault.  [42] Further, the Florida PSC proposes that where a carrier
does not accept or observe LEC OLS and BNS codes or fails to validate
its calls via the appropriate LEC database, the carrier, not the
payphone provider, should bear the costs of the resulting toll fraud
under a uniform national policy.  The Florida PSC argues that foreign
carriers, through whom inbound international calls are initiated, have
little or no incentive to validate calls because AT&T will bill the
calls to payphone providers even though BNS could have been used to
prevent the call from being completed.  [43] The Florida PSC asserts
that if AT&T were required to refuse payment to the foreign carrier
for such calls, an incentive to validate will be created.  The Florida
PSC further contends that AT&T has insulated itself from this type of
fraud at its own pay telephones.  [44]

--28-- Comments: Many commenters favor a multi-jurisdictional or
national application of the recently adopted Florida PSC rule limiting
liability and apportioning liability based on fault.  [45] Several
commenters also propose that a federal rule should provide that if a
payphone provider subscribes to international call blocking, the
payphone provider would not be liable for international direct dial
calls.  Most commenters who support the petition contend that because
LECs and IXCs are able to ensure the integrity of OLS and BNS they
should be liable for fraudulent calls complete despite the use of the
screening mechanisms.  In its comments, Minnesota Independent Payphone
Association asserts that requiring payphone providers to unblock
phones to provide the public with their choice of carriers increases
the risk of fraud.  [46] Many of the commenters supporting the
petition contend that it was implicit in the equal access decision
that payphone providers could rely on screening devices.

--29-- NARUC and the California Payphone Association contend that
liability should attach to the entities that control the blocking and
screening services and receive revenue from those services.  Many
commenters concur that the LECs and IXCs are much better able to
absorb the costs of fraud than payphone providers because their cost
is marginal cost plus mark-up, plus the cost of the ineffective
screening services, plus the cost to contest the charges.  Commenters
representing payphone providers contend that the charges are both
unfair and discriminatory because LEC and IXC payphones are not
charged for fraudulent calls.  Further, these commenters contend that
classifying payphone providers as "customers" is illogical because
payphone providers do not want or order the service that the fraud
occurs on, and they take affirmative steps to prevent its delivery.

--30-- In opposition to the petition, many commenters contend that the
emphasis of any fraud proposal should be on fraud prevention, not on
the apportioning or assignment of liability.  These commenters assert
that apportioning liability after the fraud will not prevent fraud
from occurring.  [47] They claim that adoption of the Florida PSC
proposal would precipitate higher rates, and increase litigation
before the Commission.  Some argue that LECs do have incentives to
fight fraud, as evidenced by their efforts to detect fraud and by
increased competition in the local loop.  Many commenters argue that
equal access rules never were intended to make carriers insurers and
guarantors because, if this were required, blocking and screening
service fees would increase dramatically.  These commenters further
argue that increases in service fees would cause usage of the services
to decline, with a net result that losses from fraud would increase.
Moreover, these commenters argue, the payphone providers are not
taking available fraud prevention precautions.  They state that in
some service areas, only a minority of payphone providers subscribe to
blocking and screening services, and there is little demand from other
aggregators.  [48] These commenters further argue that Commission
requirements for equal access did not project that screening services
would be fool-proof protection against fraud and that before liability
attaches, payphone providers should be required to do much more than
merely subscribe to blocking and screen services.  Many commenters
propose that payphone providers should be required to purchase adjunct
services, programmable phones, and special dial tones, and to locate
their payphones where they can be observed.  With regard to arguments
by payphone providers that IXCs do not charge LEC or IXC phones for
fraudulent calls, commenters argue that LECs and IXCs are not
"customers."

--31-- Comment requested: We agree with the Florida PSC that carriers
should, as a general matter, be held accountable for the services they
provide.  The Florida PSC rule which apportions liability based on
fault accomplishes this general goal.  We also find merit in the
proposal by the Florida PSC that we review those portions of tariffs
filed with the Commission that limit carrier liability associated with
payphone fraud.  Our decision in _United Artists_ limited the payphone
provider's liability where it took reasonable steps to limit its
exposure to toll fraud because it was not a customer of the billing
interexchange carrier.  We tentatively conclude that payphone
providers that take reasonable steps to limit their exposure to toll
fraud and are not customers should not be required to pay bills
generated as a result of toll fraud perpetrated through their
equipment.  We consider adopting the Florida approach but before
adopting it as a national model, we are anxious to learn how it has
worked in practice.  We ask commenters to tell us whether the Florida
approach has been an effective, efficient way of dealing with payphone
fraud.  We seek comment on whether carriers should be required to
modify tariff language limiting carrier liability for payphone fraud
and how this modification would affect carriers and payphone
providers.  We also see comment on the general availability of
blocking and screening services, whether they are priced reasonably,
what percentage of payphone providers are using these services where
they are available, and whether they are effective in reducing the
risk of fraud.  [49] Further, we seek comment on whether there are
other services available to payphone providers that reduce the risk of
fraud, or whether payphone providers can prevent the fraud.  We
request comment on whether a federal fraud policy based on the Florida
model is necessary to apportion the costs of payphone fraud, or
whether tariffs filed by carriers for blocking and screening services
should be required to clearly articulate the responsibilities of the
parties and apportion the costs of fraud incurred in the use of these
services.


D.  Cellular Fraud

--32-- The fraudulent use of cellular telephones has become a serious
industry problem that results in financial losses to consumers, and
increases the cost of doing business for the cellular industry.  While
there is no official reporting system, the industry estimates that
cellular carriers lose between $100 million and $300 million per year
because of cellular fraud.

--33-- The three major types of cellular fraud are: subscription
fraud; stolen phone fraud; and access fraud.  Subscription fraud
occurs when someone subscribes to cellular service with fraudulent
information or false identification and with no intention to pay for
service.  Stolen phone fraud involves the unauthorized use of a phone
stolen from a legitimate customer before that customer can report the
theft.  Access fraud involved the unauthorized use of cellular service
through the tampering, manipulation, or programming of a cellular
phone's Electronic Serial Number (ESN, a 32-bit binary number that
uniquely identifies a mobile station to any cellular system for
billing and other purposes) or Mobile Identification Number (a 24-bit
number that corresponds to the seven-digit directory telephone number
assigned to the mobile station).  Access fraud represents the most
sophisticated of the three types of fraud and the most serious in
terms of dollars lost.  There are two major types of access fraud:
tumbling, and counterfeiting or cloning.  In tumbling, an unauthorized
user either randomly or sequentially changes the ESN or MIN after
every call, thereby confusing a cellular system switch long enough to
complete a call.  Counterfeiting or cloning fraud occurs when an
unauthorized user programs a valid subscriber MIN/ESN match into a
phone.  The unauthorized user then uses the cloned phone until
detected.  While recent developments involving pre-call validation
[52] greatly reduce the amount of fraud due to tumbling, cloning fraud
continues to grow at a rapid pace.  The Secret Service estimates that
altered or cloned cellular phones are becoming as common as fake
identification cards, and are the instruments of major crimes such as
drug-trafficking.

--34-- Comment Requested: In _Revision of Part 22 of the Commission's
rule governing the Public Mobile Service (Notice of Proposed
Rulemaking)_, 7 FCC Rcd 3658, 3741 (1992), we proposed a rule to help
reduce cellular fraud caused by tampering with the ESN.  [53] The
proposed rule establishes additional technical specifications for
mobile equipment to prevent tampering with the ESN.  We now seek
comment on what further efforts on the part of the cellular industry,
manufacturers, vendors, law enforcement agencies, and the Commission
would aid in combatting cellular fraud.  We seek comment on whether
the Commission should consider stricter measures where cellular fraud
occurs, and if so, what measure the Commission should consider.  [54]
We recognize that certain types of cellular fraud could be included in
the CPE-Based Fraud category.  We, therefore, request comment on how
the issues raised above in our discussion of CPE-based fraud should be
resolved in the context of cellular fraud.  Specifically, are adequate
incentives in place for industry to develop anti-fraud solutions, or
should new initiatives be chartered by the Commission?  Is a shared
liability theory for cellular fraud appropriate?  Is unique criminal
legislation necessary?  Should labeling requirements be adopted?
Comments should also present detailed proposals or alternatives to
address cellular fraud.


E.  Line Information Database (LIDB) Fraud

--35-- A LIDB is a line information database created by an individual
local exchange carrier.  [55] LIDB service enables customers such as
interexchange carriers to query the database to determine whether a
LEC joint use calling card [56] is valid for use, or whether a
particular telephone number can accept collect or third-party billed
calls, before transmitting any call using that card or line number.
Each database can be accessed by other LECs, IXCs, and other customers
to obtain data on the account status of LEC joint use calling cards,
as well as information on line number, such as third party billing or
collect call restrictions.  This information is stored in the LIDB and
updated by the LEC on a regular basis.  [57]

--36-- Comment requested: As the owners of the database, it might be
assumed that the LECs are able to detect fraudulent use, such as
billing to restricted numbers or unauthorized credit card use.
However, LIDB customers have an obligation as well; if a LEC card is
offered for billing, the IXC or operator service provider (OSP) should
query the LIDB to determine whether the card is valid for use.  If the
customer queried the LIDB each time the card is offered for payment,
the LEC is able to detect high spikes of usage; i.e. multiple
validation queries to the LIDB in a short time period, prompting the
LEC to investigate and then to determine whether it should deactivate
the card.  However, the fraud does not always consist of multiple
calls within a short period of time and, therefore, may not be
detectable by the LEC.  For example, the fraud might consist of one
call of long duration.  In addition, the fraud perpetrator might
discover the usage spike set by the LEC and place calls in such a
manner that the LEC would not immediately detect the fraud.  The LECs
assert that detection of usage spikes is the only mechanism available
for detecting fraud associated with the LIDB.

--37-- It has been alleged that losses from calling card fraud would
be substantially reduced if the LEC had access to the calling number
and the called number from the IXCs, as those numbers provide
information on the origination and termination points of the call.
This would allow the LEC to identify a call originating from or going
to an area associated with fraud problems.  This information would
assist the LECs in developing a customer calling pattern profile that
could be accessed in a case of suspected fraud.  We seek comment on
whether the carriers querying LIDB should provide the LECs with the
originating calling party number and the called numbers.  Commenters
are also requested to explain how the presence or absence of this
information should affect any decision concerning the allocation of
liability for toll losses, and whether carriers should be permitted to
charge for the provision of this information.

--38-- Under the Truth in Lending Act and Federal Reserve Board
regulations, cardholder liability for unauthorized use of calling
credit cards is limited to $50.  [58] Therefore, when a card number is
stolen or used without the cardholder's knowledge or permission, the
LECs and their LIDB customers (IXCs and OSPs) must decide between
themselves who will bear the cost of the uncollectable toll revenues.
Of course, cardholders are under an affirmative obligation to report
lost or stolen credit cards immediately, and to protect against theft
of their card numbers.  In the _LIDB Investigation Order_ the
Commission required the LIDB providers subject to that investigation
to include in their tariffs certain minimum procedures to help reduce
the number of fraudulent calls.  However, the Commission left open the
issue of liability for toll fraud losses that results from LEC
provision of erroneous LIDB information.  [60]

--39-- Assignment of liability for toll losses among LIDB providers
and LIDB customers raises two concerns that should be addressed.
First, there may be many different fact patterns each time a loss is
generated, making the development of a general rule difficult.  In
addition, limitation of liability provisions have long been accepted
by the courts in the absence of willful misconduct or gross
negligence.  [61] Consequently, clauses limiting a carrier's financial
liability to the cost of the service are found in virtually all common
carrier tariffs.  While a carrier's customers in this case are likely
to have a sophisticated understanding of the risks of credit card
fraud, LIDB providers should have incentives to make LIDB as effective
as it can be.  We seek comment on whether these limitations of
liability should be permitted to shield the LECs from responsibility
for toll losses incurred when a joint use calling card is used to bill
fraudulent calls or whether the Commission should establish a rule for
allocating liability for toll losses.  Commenters are also requested
to comment on whether such liability should be described in the LECs'
tariffs.

F.  Other Proposals and Request for Comment

--40-- In addition to the proposals already made herein, we propose to
amend Part 68 of the Commission's rules to require equipment
manufacturers to provide warnings regarding the potential risk of toll
fraud associated with use of the equipment.  [See Appendix E] We
further propose that the warnings be prominent and conspicuous and
included in any instruction manual or other literature accompanying
the equipment, and on the exterior packaging of the equipment.
Further, we propose that the warning in the instructional manual or
literature discuss the customer's financial exposure and measures
available to limit that exposure.  We also propose in the case of PBX
and similar equipment, if default codes are set by the manufacturer,
vendor, or carrier, those codes must be fully explained in the
instructional manual or literature and must explain the risks of using
the equipment without modifying these default codes.  We seek comment
on specific language of warnings, whether warnings should be required
for only newly registered equipment or whether they should be required
for all telephone equipment already registered pursuant to Part 68.
We also seek comment on whether the Commission should adopt standards
for determining whether FCC registrations for any classes of
particularly risk-prone equipment should be revoked, or whether
warnings should be required as updates to manuals currently in use.
Further, we seek comment on how others in the manufacturing and
distribution chain of telephone equipment could warn consumers of the
risks of fraud.

--41-- Many comments filed in response to the _en banc_ hearing, the
_Pacific Mutual_ proceeding, and the petition of the Florida PSC
conclude that carriers need to incorporate more safeguards into their
network operations to protect against and detect instances of toll
fraud and abuse.  For example, in its comments, Science Dynamics
Corporation (SDC) [63] explains that it develops products for carriers
that can curb or eliminate some sources of toll fraud.  SDC
manufactures a device that controls inmate access to the
telecommunications network, and a system that monitors toll usage by
predetermined customers and places a cap on long distance usage over a
monthly billing cycle.  Many commenters contend that such solutions
that would minimize the fraud problem are available; however, they
argue that as long as the regulated carriers do not have to absorb
directly the losses attributable to fraud, carriers have little
incentive to invest in preventative systems.  The issue has been
raised regarding LEC and IXC incentives to prevent fraud in light of
their billing and collection arrangements.  We request comment on
whether incentives that the telecommunications industry has to
initiate anti-fraud solutions can be strengthened, and what other
actions the Commission should take to further fraud prevention.  We
also seek comment regarding network changes which could influence toll
fraud detection or prevention.  Specifically, we request comment on
how, when, and where a carrier should release such information when it
makes a network change.

IV.  CONCLUSION

--42-- The Commission's obligation to regulate interstate
telecommunications services so that the public has rapid and efficient
service at reasonable rates requires that our policies keep pace with
rapidly changing technology and industry structure.  In this _Notice
of Proposed Rulemaking_, we request comment on the questions and
proposals set forth above, the proposed rule set forth in Appendix E,
and encourage participation by interested parties.  The purpose of
this rulemaking is to develop effective and efficient measures to
address both existing and developing toll fraud problems, without
hindering the development of new technologies that provide benefits to
the public.

IV.  PROCEDURAL MATTERS

--43--Initial Regulatory Flexibility Act Analysis on the Notice of
Proposed Rulemaking and Ex Parte Rules

Ex Parte Rules -- Nonrestricted Proceeding

This is a nonrestricted notice and comment rulemaking proceeding.  _Ex
Parte_ presentations are permitted, except during the Sunshine Agenda
period, provided they are disclosed as provided in Commission rules.
See generally 47 CFR 1.1202, 1.1203, and 1.1206(a)

Objectives

This rulemaking proceeding is initiated to develop effective and
efficient measures to address toll fraud problems.  The Commission
requests comment on proposal to achieve closer coordination between
the industry, consumers, vendors, law enforcement agencies, Congress
and the Commission to aid in the detection and prevention of toll
fraud; improve consumer education initiatives by the Commission,
consumer groups, and the telecommunications industry; determine that
tariff liability provisions that fail to recognize an obligation by
the carrier to warn customers of risks of using carrier services are
unreasonable; establish a federal policy assigning liability for
payphone fraud; and codify a requirement for written warnings for all
telecommunications equipment registered under Part 68.

Reporting, Recordkeeping and Other Compliance Requirements

The actions proposed in this Notice of Proposed Rulemaking may affect
large and small common carriers, manufacturers of equipment registered
under Part 68, and CPE owners.  It is not estimated that the burden of
including warnings with the filing of Part 68 registration
applications will be a significant economic burden on manufacturers.
It is not estimated that the burden of including warnings in tariff
filings or in billing inserts will be a significant economic burden on
subject common carriers.

Description, Potential Impact, and Number of Small Entities Involved

The proposals discussed in this Notice of Proposed Rulemaking primary
could affect the degree to which small businesses are responsible for
charges associated with fraudulent calls made over their equipment.
The Secretary shall send a copy of this Notice of Proposed Rulemaking
including the certification to the Chief Counsel for Advocacy of the
Small Business Administration in accordance with paragraph 603(A) of
the Regulatory Flexibility Act.  Pub. L. No. 96-354, 94 Stat. 1164, 5
USC 6021 et seq.

Any Significant Alternatives Minimizing the Impact of Small Entities
Consistent with the Stated Objectives

The Notice of Proposed Rulemaking solicits comments on a variety of
alternatives to achieve Commission objectives.

Paperwork Reduction

The proposals suggested impose filing requirements on entities already
required to file Part 68 and tariff filings.

Comment Dates

Pursuant to applicable procedures set forth in Sections 1.415 and
1.419 of the Commission's rules, 47 CFR 1.415 and 47 CFR 1.419,
interested parties may file comments on or before January 14, 1994 and
reply comments on or before February 10, 1994.  To file formally in
this proceeding, interested parties must file an original and four
copies of all comments, reply comments, and supporting documents with
the reference number "CC Docket 93-292" on each document.  If
interested parties want each Commissioner to receive a personal copy
of comments, interested parties must file an original plus nine
copies.  Interested parties should send comments and reply comments to
the Office of the Secretary, Federal Communications Commission,
Washington DC 20554.  Comments and reply comments will be available
for public inspection during regular business hours in the FCC
Reference Center, Room 239, Federal Communications Commission, 1919 M
Street, N.W., Washington DC.  Copies of comments and reply comments
are available through the Commission's duplicating contractor:
International Transcription Service, Inc. (ITS, Inc), 2100 M Street,
N.W., Suite 140, Washington DC 20037, [phone].


V.  ORDERING CLAUSES

--44-- Accordingly, IT IS ORDERED, pursuant to 47 USC 154(i) of the
Communications Act of 1934, as amended, 47 USC 154(i), that NOTICE IS
HEREBY GIVEN, of the proposed regulatory action described above and in
Appendix E and that COMMENT IS SOUGHT on these proposals.

--45--  The Secretary shall serve a copy of this Notice of Proposed
Rulemaking on the Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION
William F. Caton
Acting Secretary.

[Appendix A through Appendix D are lists of commenters and panelists
for prior proceedings, and have been left out of this electronic
version.]

APPENDIX E, Proposed Rules

Part 68 of the Commission's Rules and Regulations (chapter 1 of Title
47 of the Code of Federal Regulations, part 68) is proposed to be
amended as follows:

PART 68 -- CONNECTION OF TERMINAL EQUIPMENT TO THE TELEPHONE NETWORK

1.  The authority citation for Part 68 continues to read as follows:

Authority:  Section 4, 5, 303, 48 Stat. 1066, 1068, 1082 as amended; 47
USC 154,155,303.

2.  Section 68.200 "Application for equipment registration" is proposed
to be amended by adding a new subsection (l)  [lower-case L]:

(l) A prominent and conspicuous warning accompanying the equipment and
included in any instruction manual or other literature accompanying
the equipment and on the exterior packaging of the equipment which
warns equipment users of the risk of toll fraud associated with the
equipment and its specific features.  The warning in the instructional
manual or literature should discuss the customer's financial exposure
and measures available to limit that exposure.  In the case of PBX and
similar equipment, if default codes are set by the manufacturer,
vendor, or carrier, those codes must be fully explained in the
instructional manual or literature and the warning required by this
section must explain the risks of using the equipment without
modifying those default codes.


FOOTNOTES

[1] The Commission's jurisdiction relates to interstate and foreign
communications by wire or radio.  See 47 USC 152

[2] The following were released as Public Notices: "Consumer Alert --
Toll Fraud" released 4/19/91; "Consumer Alert, Telecommunications Toll
Fraud, Second in a Series" released 6/9/93; "Consumer Alert, Toll
Fraud Risks During the Year-End Holiday Season, Third in a Series"
#31003 released 12/17/92; "Consumer Alert -- Toll Fraud, Fourth in a
Series" released 6/15/93; "Consumer Alert -- Toll Fraud --
Impersonators of Investigative Officers, Fifth in a Series" released
8/3/93.  Consumer Alerts have been distributed to the industry, trade
associations, and the press.

[3]  See Public Notice #23921, 7/9/92

[5]  See Public Notice DA 92-1464 released 10/22/92; file no. 93-Toll
Fraud-01, Appendix A.

[6] See Order on Reconsideration, CC Docket 91-35, 7 FCC Rcd 4355 (1992)

[7] E.G., the Toll Fraud Prevention Committee, a committee formed
under the auspices of the Alliance for Telecommunications Industry
Solutions (ATIS) in order to identify issues involving toll fraud and
develop resolutions for voluntary implementation by the industry; the
Communications Fraud Control Association, a non-profit national
clearinghouse for toll fraud information and prevention; the United
States Secret Service, Electronic Crimes Branch of the Financial
Crimes Division.

[8]  Chartways Technologies, Inc. v. AT&T Communications, Memorandum
Opinion and Order, FCC 93-394 released 8/19/93

[9]  See 47 USC 201(b), 202(a)

[10]  Chartways Technologies, Inc. v. AT&T Communications, 6 FCC Rcd
2942 (Common Carrier Bureau, 1991).

[11] We note that on November 5, 1992, Judge Irving Hill, United
Stated District Court, Central Division of California, granted summary
judgment to the plaintiff, AT&T, in AT&T v. Pacific Mutual.
Specifically, Judge Hill was persuaded by the logic of the Bureau's
Chartways decision and found the tariff unambiguous.  File no. CV
91-6793-IH (filed 11-5-92); see also AT&T v. Jiffy Lube, United Stated
District Court, File no. K-9- 2400 (concurring with Judge Hill and
finding AT&T tariff unambiguous).

[12]  Chartways, FCC 93-394, paragraphs 11-13

[13]  Id. at paragraph 16

[14]  Id. at paragraphs 19-20

[15] United Artists Payphone Corp. v. New York Telephone Co. and
American Telephone and Telegraph Co., Memorandum Opinion and Order,
FCC 93-387 released 8/18/93 (_United Artists_)

[16]  Id. at paragraph 5

[17]  Id. at paragraph 10-11

[18]  Id. at paragraph 12

[19]  Id. at paragraph 13

[20]  Id. at paragraph 14

[21]  See paragraph 21, infra.

[22]  _United Artists_, paragraph 15

[23]  See paragraph 35, infra.

[24]  See Public Notice released 3/14/91

[25]  See Public Notice released 4/5/93

[28] According to the U. S. Secret Service, most federal criminal
investigations of toll fraud are undertaken pursuant to the Access
Device Fraud statute, 18 USC 1029, which was enacted to stop credit
card fraud.  The Secret Service estimates that as few as thirteen
states have enacted statutes specifically dealing with telephone fraud
crimes.

[29]  See paragraph 33, infra.

[30]  See Public Notice DA 91-284 released 3/14/19

[31]  See Appendix C

[32]  See Comments of AVNET and Mitsubishi

[33]  See e.g. Comments of Directel, Inc.

[34]  See e.g. Comments of Broyhill, FMC, and Panel Concepts.

[35]  See also Comments of CCCS, Inc.

[36]  See e.g. Comments of MCI, LiTel, MidAmerican, SWB, and Ameritech

[37]  In its comments, Bell Atlantic refer to Amendment of Section
64.702 of the Rules, 77 FCC 2ed 384 (1980)

[38] With regard to the reply comments of Bell Atlantic, we are not
proposing to regulate carriers' provision of CPE, but rather carriers'
imposition of charges for fraudulent interstate service

[39]  Originating line and billed number screening services inform
operator service providers of any billing restrictions on its lines.

[40]  Florida Administrative Code, rules 25-4.076, 25-24.475, and 25-
24.515.  Order number PSC-93-0108-FOF-TP

[41] The Florida approach was raised by a commenter in the OSP
rulemaking proceeding, but was not examined substantively by the
Commission because it was beyond the scope of that proceeding.  See
Report and Order, CC Docket 91-35, 6 FCC Rcd 4736, 4744-45 (1991)

[42] The Florida rule prohibits a company providing interexchange
service or local exchange service from collecting from a pay telephone
provider for charges billed to a line for calls that originated from
that line through the use of 10xxx+0, 10xxx+1, 950-1/0xxx+0, or 1-800
access code, or when the call originated from that line otherwise
reached an operator position, if the originating line is covered by
outgoing call screening and the call was placed after the effective
date of the outgoing call screening order.  The rule also prohibits a
company providing interexchange service or local exchange service from
collecting from a pay telephone provider for charges for collect or
third party billed calls, if the line to which the call was billed was
covered by incoming call screening and the call was placed after the
effective date of the incoming call screening order.  The rule further
provides that any calls billed through the LEC or directly by the IXC,
or through a billing agent, that have been identified as not
collectable must be removed from any pay telephone provider's bill
after the pay telephone provider gives notice of the fraudulent
charges to the billing party and such notice must be provided to the
LEC and IXC in writing no later than the due date of the bill.  The
LEC is responsible for charges that are associated with the failure of
the LEC's screening services, and the IXC is responsible for charges
that are associated with its failure to properly validate calls via
the appropriate LEC data base.

[43]  Florida PSC petition at 3.

[44] See attachment at 27, Question No. 5, Florida PSC petition.  The
Florida PSC asks what disposition would be made of toll fraud charges
if they had originated or terminated at an AT&T payphone.  AT&T
responds that "because of the differing status of AT&T payphones which
are part of AT&T's network, the calls could not have occurred under
the same circumstances."

[45] see e.g. Comments of IMR Capital Corp., Indiana Payphone
Association, Intellical, Inc., Louisiana Payphone Association, Midwest
Independent Coin Payphone Association, Mississippi Public
Communication Association, Minnesota Independent Payphone Association,
New Jersey Payphone Association,, Inc., North Carolina Payphone
Association, South Carolina Division of Information Resource
Management, Utah Payphone Association, Arizona Payphone Association,
California Payphone Association, Florida Payphone Association, Georgia
Public Communications Association, GET Service Corp., and Independent
Payphone Association of New York.

[46] Our operator service rules require only the unblocking of
operator-assisted access, not direct-dialed (1+) access.  See 47 CFR
64.704

[47]  See e.g. Comments of Sprint, Interexchange Carrier Industry
Committee Toll Fraud Subcommittee, MCI, SWB,  Ameritech, Bell Atlantic,
BellSouth, and AT&T.

[48]  See Comments of Bell Atlantic at 2.

[49] In our Order on Further Reconsideration and Further Notice of
Proposed Rulemaking, Policies and Rules Concerning Operator Service
Access and Pay Telephone Compensation, 8 FCC rcd 2863 (1993), we
requested comment on whether to require BNS and OLS services to be
tariffed at the federal level, whether these services should be
available unbundled, to all customers, and at reasonable rates, and
whether to require LECs to extend their international blocking
services to non-aggregator business and residential subscribers.  With
regard to the issue of BNS and OLS, the record in this proceeding
reflects that the LECs generally oppose federal tariffing of these
services because these services are traditionally provided through
state tariffs.  The record in this proceeding also indicates, however,
that existing state tariffed screening services are not uniform and
are frequently not available to all classes or aggregators.

[52] Pre-call validation occurs when the cellular switch compares an
incoming caller's ESN/MIN number against a subscriber database before
the call is completed.

[53] See Proposed Section 22.929 which provides that each mobile
transmitter must have a unique ESN that must be factory set, and must
not be alterable, removable, or otherwise able to be manipulated in
the field.  This proposed rule requires that the ESN host component
must be permanently attached to the main circuit board of the mobile
transmitter and the integrity of the unit's operating software must
not be alterable.  Finally, the cellular equipment must be designed so
that any attempt to remove, tamper with, or change the ESN chip will
render the mobile transmitter inoperative.

[54] See Section 503(b)(5) of the Commission's rules that provides for
forfeiture proceedings against non-licensees or non-applicants who
willfully or repeatedly violate the Commission's rules.

[55]  See Local Exchange Carrier Line Information Database, CC Docket no
92-24 (1993) (LIDB Investigation Order)

[56] LEC joint use calling cards bear account numbers supplied by a
LEC, are used for the services of the LEC and an IXC, and are
validated by access to data maintained by the LEC.  See Second Report
and Order, Policies and Rules concerning Local Exchange Carrier
Validation and Billing Information for Joint Use Calling Cards, CC
Docket No. 91-115, 8 FCC Rcd 4478, 4478 fn.5 (1993)

[57] In the recent _LIDB Investigation Order_, the Commission
investigated 10 LIDB databases offering validation services.  The
record indicates that these databases are updated 24 hours a day,
seven days a week, and that each LEC offering LIDB validation services
also had a fraud control program.

[58]  15 USC 1643; 12 CFR 226.12(b)(1)

[59]  _LIDB Investigation Order_, at paragraph 19 and 27-34

[60]  Id. at paragraphs 29-30

[61] See e.g. Western Union Telegraph Company v. Esteve Brothers &
Co., 256 US 556, 571 (1921); Primrose v. Western Union Telegraph Co.,
154 US 1 (1894); Robert Gibb & Sons, Inc. v. Western Union Telegraph
Co., 428 F.Supp. 140 (DND 1977)

[63]  See Comments of Science Dynamics Corporation (SDC), Pacific Mutual
proceeding.