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FCC to Appeal Ruling on Use of Telco Customer Data

A federal appeals court last month issued a ruling that phone companies say will allow them to conduct more targeted telemarketing campaigns, but the Federal Communications Commission said it would appeal the court’s decision to the Supreme Court, citing concerns over the potential misuse of private customer data.

In a 2-1 decision, the 10th Circuit Court of Appeals in Denver overturned an FCC rule that limited telephone companies’ abilities to use historical data about their customers’ calling habits and purchasing behavior. Telephone companies argued they should be able to share that data, known as customer proprietary network information – or CPNI, with affiliated companies and business units within their companies without obtaining permission from customers.

“We think it was a good ruling,” said Selim Bingol, a spokesman for SBC Communications Inc., San Antonio, TX, the parent of Southwestern Bell and one of the plaintiffs in the case. “It enables us to more precisely target product and service offerings to our customers.”

CPNI includes data on the quantity of calls customers make, the technical configuration of the customers’ phone service, the destination of the calls and the types of calls being placed. The restrictions on the use of CPNI were included in Section 222 of the Telecommunications Act of 1996. While Congress sought to protect CPNI by requiring phone companies to obtain the informed consent of customers before using the data, it did not specify whether that consent should be obtained through opt-in or opt-out methods. The FCC imposed an opt-in rule, requiring companies to obtain the permission of customers before sharing their CPNI. Telecommunications providers had been seeking an opt-out provision, in which they could use CPNI unless specifically asked not to do so by customers.

Several telephone companies, including U.S. West Inc., AT&T Corp., MCI Communications (the predecessor to MCI WorldCom Inc.), Sprint Corp., SBC Communications Inc., Frontier Corp. and BellSouth Corp., had contested the FCC opt-in rule on the grounds that it violated their First Amendment rights to commercial free speech and that it violated their Fifth Amendment rights because it diminished the value of CPNI, which phone companies regard as valuable property.

Commenting on the court’s decision, U.S. West, which was the lead plaintiff in the case, described it as “consumer friendly.”

“It would allow U.S. West to offer new services and products to people more efficiently, without contacting those whose customer information suggests they may not be interested,” said Mark Roellig, executive vice president of public policy at U.S. West, in a prepared statement.

But the Center for Democracy and Technology, a Washington, D.C., privacy advocate, supported the original FFC rule protecting CPNI and disagreed with the decision by the Circuit Court.

Ari Schwartz, a CDT policy analyst, said the group supported the FCC’s appeal of the court’s ruling and added that the CDT planned to file an amicus brief supporting the FCC’s policies protecting customers’ proprietary information.

“The court made a ruling that will have a detrimental effect on the government’s role in privacy and what the government can do to protect consumers,” he said. “We think the dissenting opinion was well-written and explains the situation very well, and we think the FCC was correct in appealing the case.”

The FCC did not return several phone calls seeking comment on the case and its decision to appeal.

In her dissenting opinion, Judge Mary Briscoe wrote that the FCC adoption of an opt-in provision was appropriate and within its bounds and that the court could not re-interpret Congress’ intentions in protecting consumer privacy.

Judge Deanell Tacha, in writing the majority opinion, said that the FCC “failed to adequately consider the constitutional implications of its CPNI regulations” and “insufficiently justified its choice to adopt an opt-in regime.”

Mike Sandifer, who represents the American Teleservices Association, said the ATA was following the case closely in light of any ramifications it might have on regulations governing privacy and the ability of consumers to opt out. He declined to comment specifically on the case, however.

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