III. OSP'S COLLECT CALL OPERATOR SERVICE

Respondent OSP claims that it offered consumers a service that allowed them to make collect calls. According to OSP, it provided collect call service in the following manner:

Customers would dial a toll free access number that was provided on the back of the debit card which was purchased from convenience store locations. The instructions on the back of the debit card would inform that if they no longer had any usage minutes left they could still place a collect call by dialing the toll free number. Upon calling the toll free access number, they would be prompted to enter a destination number to be called and prompted to speak their name. The switching platform would then place a call to the desired destination and inform the answering party that had a collect call from, (play the originator's recorded name), and ask them to press "1" to accept the call or deny the call. If accepted the parties would be connected and end party would be billed.³⁰

Based on this explanation, Staff alleges that OSP set up its switching platform in a deceptive way.³¹ It appears that OSP could still bill the called party for denying the call because it provides the same option, to press "1", to either deny or accept the collect call.

According to OSP, it would bill the called party for the following items per collect call: $2.50 operator charge, $1.00 surcharge, $1.05 per minute, and an 11% Universal Service Fund fee.³² OSP also states that it marketed the toll-free number for its collect call service on the back of a calling card which could be purchased from convenience stores.³³ OSP further states that a majority of its customers used its collect call services from payphones and residences.³⁴

OSP utilized LEC billing to bill all of its supposed customers for collect calls. In FTC v. Inc21.com Corp., the Court explained how LEC billing works in practice and described it as a "fraud-friendly" practice:

Four entities are typically involved in the LEC-billing process: (1) local exchange carriers (or "LECs"), (2) billing aggregators (also called "clearinghouses"), (3) third-party vendors (like defendants), and (4) customers. In exchange for fees, LECs allow preapproved third-party vendors to place charges for their products and services onto their customers' telephone bills. Although charges from third-party vendors are listed separately on these telephone bills from LEC-related charges, the "total amount due" presented to customers includes third-party vendor charges []. Billing aggregators act like "middle men" in this process. They contract directly with third-party vendors to facilitate the placement of their charges onto customer telephone bills. They also aid in the collection of these charges from LECs []. Customers pay third party vendor charges directly to the LECs by simply paying the "total amount due" on their phone bills. After subtracting fees, the LECs then pass the payments along to the billing aggregators. The billing aggregators then pass the payments along to the appropriate third-party vendors, minus their own service fees.³⁵

Here, OSP used the billing and collection services of Integretel from approximately June 1, 2007 to October 8, 2008 to place its charges on the telephone bills of AT&T and Verizon customers in California. During that time, OSP generated over
$5 million in revenue, which Integretel billed and collected on behalf of OSP.³⁶

After TBR purchased Integretel's assets from its bankruptcy estate, TBR became OSP's billing agent from approximately October 9, 2008 through June 3, 2009. During the time TBR acted as OSP's billing agent, TBR facilitated the placement of OSP's charges onto AT&T and Verizon California customers' telephone bills. OSP generated approximately $3 million in revenue, which TBR billed and collected on behalf of OSP.³⁷ Of that amount, TBR is still holding approximately $1.2 million.³⁸

On June 3, 2009, TBR terminated its billing and collection agreement with OSP for fraudulent billing activity.³⁹ As described below, TBR did not remit the monies it billed and collected on behalf of OSP because it suspected OSP generated invalid and fraudulent charges, which OSP could not validate with call records from Verizon.

³⁰ Ibid. at 5.

³¹ Id.

³² Id.

³³ Ibid. at 4.

³⁴ Ibid. at 5.

³⁵ FTC v. Inc21.com Corp., 745 F. Supp. 2d 975, 982, 994-995 (N.D. Cal. 2010).

³⁶ Staff Report at 23.

³⁷ Id.

³⁸ Ibid. at 26.

³⁹ Ibid. at 25.