5. Establishing the Error Rate

5.1 The Case for a Zero Error Rate

The Attorney General, the Consumer Coalition, DCA and PCI support the proposed allowable error rate of zero, stating that only a zero error rate accomplishes the goals of the legislation. The Attorney General comments that California has a substantial interest in protecting the privacy rights of its residents, which includes the right to be free from receiving telephone calls initiated by telemarketers using predictive dialers that hang up soon after the consumer answers the phone.

TURN, UCAN and the Privacy Rights Clearinghouse (an affiliate organization of UCAN emphasizing privacy advocacy) were sponsors of AB 870. Through the legislation, they sought an absolute prohibition on the practice of using a predictive dialer to make a telephone connection when no agent is

available for the person called. They argue that hang-up calls are not merely an annoyance, but constitute a threat to public safety and intrusion into the privacy and security of one's home. The Coalition states:

The Privacy Rights Clearinghouse has received numerous complaints from consumers about abandoned calls. Unfortunately, it is often the case that the consumer doesn't even realize that the calls are coming from telemarketers. Instead, they think they are being harassed, stalked, or perhaps their residence is being scoped by a burglar who is checking if anyone is home. When the director of the PRC makes presentations to the public, she is often asked about "hang-up" calls, especially when she is speaking at senior citizens centers. She has observed that these individuals are often frightened by abandoned calls. When she explains that the vast majority of such calls are generated by the predictive dialing technology of telemarketers, those individuals' fear turns to anger. That fear and anger is the heart of AB 870 and its requirement that abandoned calls be reduced to zero. (Consumer Coalition Comments, at 3-4.)

Even using predictive dialers, according to the Consumer Coalition, a telemarketing firm can achieve a zero error rate for abandoned calls. Abandoned calls are a direct result of the algorithms used to set the calling pattern. These algorithms can be adjusted to account for the number of operators, length of call, time of day, and so forth. The dialers can be set to call fewer numbers to ensure an operator will be available. Or, the Coalition argues, if the companies want a large amount of "talk time" and a high volume of numbers dialed, they can hire more agents or standby agents to ensure someone will be available to take every call in which a person answers.

The Coalition notes that the industry itself recommends that abandoned calls should be kept as close to 0% as possible, but it also states that in no case should hang-up calls exceed 5% of answered calls per day in any telemarketing campaign. According to the Coalition, a 5% rate would generate millions of abandoned calls.

The Coalition acknowledges that even if the Commission sets a zero error rate, consumers will still experience hang-up calls, and enforcement will be difficult. However, the Coalition states, responsible companies will seek to achieve the zero error rate, and this will reduce the number of abandoned calls overall.

PCI, an Illinois-based for-profit corporation that represents 4,000 members in seeking to eliminate unwanted telemarketing calls, criticizes the telemarketing industry and its intrusion into American homes. It estimates that predictive dialers are used to make 177 million calls a year, many of them hang-up calls, and it urges California to take "swift and effective action to protect its residents from an industry that is out of control...." (PCI Comments, at 9.).

Setting a 0% error rate and turning off a predictive dialer's answering machine detector will not eliminate the usefulness of predictive dialers, according to PCI, since the device still can be used to auto-dial phone numbers, filter out no-answer, busy and disconnected lines, show on-screen data pertinent to the called party, and perform real-time calculations of the telemarketing campaign.

5.2 The Case Against a Zero Error Rate

Most of the users of predictive dialing equipment urge the Commission to adopt an acceptable error rate similar to that recommended by the Direct Marketing Association - as close to 0% as possible but in no case exceeding 5% of answered calls per day in any campaign.

WorldCom urges the Commission to recognize that predictive dialers have contributed to the efficiency of commerce, enabling small and large companies to reach more prospective customers who could not be reached through other means. It states that non-profit organizations can realize a much higher return on volunteer hours with the technology than through door-to-door solicitation. WorldCom states that 4% of the U.S. workforce is employed in telemarketing, and that predictive dialers are a tool used in an industry that employed about 5.7 million workers in year 2000. According to WorldCom, more than three-quarters of the customers of MCI bought their services through telemarketing.

WorldCom states that it supports the objective of having an agent or telemarketer available for parties called by a predictive dialer, but it states that there are practical limits on how quickly a service representative can be available to a called party. In WorldCom's case, a predictive dialer generally is based at a call center staffed with the firm's service representatives. The dialer is programmed to dial calls to a select database of telephone numbers. When the dialer reaches a live person, the dialer hands off the circuit to an automatic call distributor (ACD), which then delivers the circuit to an available service representative. When the agent picks up the circuit, the ACD has made the agent "available" to the called party. Given this two-stage architecture, WorldCom states that there is an inevitable delay between the time the called party picks up the phone and the instant that an agent can be available.

Based on its own experience, WorldCom states that a 0% error rate is technically impossible if predictive dialers are to be used at all. While noting the industry recommendation that abandoned calls should be kept as close to 0% as possible and in no case exceed 5%, WorldCom states that it would support a 3% error rate measured over six months. WorldCom also urges a 12-month implementation period to allow utilities time to develop the necessary business rules and facilities to comply with the requirements.

ATA, an industry trade association, notes that while its membership includes companies like Pacific Bell, AT&T, Wells Fargo and IBM, it also includes less obvious users of teleservices, such as the American Cancer Society, Blue Cross of California, and the Metropolitan Opera. ATA asserts that the Commission in proposing a zero error rate has neglected the clear mandate of the Legislature, that "the Commission shall establish an acceptable error rate." (Pub. Util. Code § 2875.5(b).) ATA states:

If it was the intent of the legislature to simply establish a zero percent abandonment rate and prohibit the use of automatic dialing equipment for which no person, acting as an agent or telemarketer, is available for the person called, then there would be no need for subsection (b). The language found in Pub. Util. Code Sec 2875.5(a) would have been all that was needed to achieve such a result. Yet, the legislature went further and specifically mandated the creation of an acceptable error rate. (ATA Comments, at 4.)

ATA contends that the proposed zero abandonment rate will cause irreparable harm to California consumers and legitimate businesses. It points to a December 1999 study by the State of Oregon describing the number of states that use predictive dialer technology to increase the efficiency of government services. The study reports that autodialing technology has allowed state revenue departments to increase the efficiency in which they collect delinquent tax dollars. The study reports that autodialing contributed to a 49% increase in collection of defaulted student loans by the Oregon State Scholarship Committee.

AT&T contends that telemarketing has become an integral part of the manner in which companies from a wide array of industries conduct business. According to AT&T, it can be a highly cost-efficient means of gathering data as well as providing consumers with important information about products and services that they want and need. AT&T adds that, with the concern about the safety of mail, telemarketing has become an even more important tool for reaching out to the marketplace.

AT&T acknowledges that there are times when the use of a predictive dialer will result in more calls being answered by live voices than there are agents available, and that some calls may then be terminated by the equipment after a predetermined maximum period of time. AT&T terms this "a very rare occurrence" and the worst result from a telemarketer's perspective because of the loss of a potential customer.

Like AT&T, Pacific states that telemarketers have a built-in incentive to keep the number of abandoned calls placed by predictive dialers as close to zero as possible. It notes that telemarketers are in the sales industry, and a sale cannot be completed if a customer is not reached. Pacific's campaigns using predictive dialers "typically see abandoned call rates of one percent or less." (Pacific Reply, at 1.) According to Pacific, this low error rate demonstrates two key factors the Commission should consider: first, telemarketers will minimize error rates without Commission intervention, simply as a matter of good business practices; second, errors - no matter how small - will still occur, and it is unreasonable to penalize an individual or company that is not able to achieve absolute perfection.

Publishers, representing some 500 daily and weekly newspapers in the state, supports a 5% error rate and states that a 0% error rate is unworkable. Similarly, Verizon states that an error rate of 0% would have the effect of eliminating the use of predictive dialers.

In late-filed comments, DialAmerica Marketing, Inc. (DialAmerica) warns that an overly restrictive rule will cause California employers to move to another state. DialAmerica states: "Those same businesses could then call into California under the jurisdiction of the Federal Communications Commission and/or the Federal Trade Commission. The end result would be no change in the type or number of abandoned calls received by California residents [from these companies] and a loss of industry in the State." DialAmerica is based in New Jersey and employs 11,000 persons in 50 locations, with 471 employees in California.

5.3 Setting an Error Rate

As we have noted, AB 870 added Section 2875.5 to the Public Utilities Code, which requires any person operating a predictive dialer to have an agent available to talk to the called party. While Section 2875.5(a) prohibits the use of a predictive dialer unless the agent is available, subsection (b) states:

Notwithstanding subdivision (a), the commission shall establish an acceptable error rate for telephone connections made in violation of subdivision (a). The commission shall determine the error rate, if any, before July 1, 2002.

The legislation appears to presume that an "acceptable" error rate greater than zero may be considered. It deferred to this Commission the determination of what an "acceptable" error rate is. The term "if any" may be construed to allow the Commission to decline to adopt an error rate, thus effectively setting the rate at zero, but only after the Commission has investigated what an acceptable error rate should be.

We have carefully considered the comments of interested parties. They contain a wealth of information about the advantages, and disadvantages, of predictive dialing equipment. We continue to believe that abandoned calls - that is, calls that are answered by an individual and then disconnected by the dialer because no agent is available - are a nuisance (at best) and the cause of fearful apprehension (at worst). On the other hand, we also recognize that responsible companies strive to avoid abandoned calls since they represent lost sales opportunities. The voluntary guideline propounded by the Direct Marketing Association is one in which abandoned calls are as close to 0% as possible but in no case exceeding 5% of answered calls per day in any campaign.

Most of the industry comments urge the Commission to make that voluntary guideline a mandatory one, requiring telemarketers to program their predictive dialers to ensure an error rate of no more than 5% of answered calls. The Consumer Coalition argues that the 5% rate, albeit voluntary, was in place when the Legislature adopted AB 870 and obviously was deemed insufficient to stem the tide of hang-up calls. We agree that if a 5% error rate solved the problem of predictive dialer hang-up calls, there would have been no need for the Legislature to act.

Conversely, however, a 0% error rate would mean that even a single abandoned call by a predictive dialer would be a violation of the law. The caller, whether a telemarketing company or a charitable organization, would be subject to legal action and penalties. Public utilities, for example, could be subject to a penalty of $500 for each violation under Pub. Util. Code § 2876. Most industry comments state that a zero error rate cannot be achieved and would effectively eliminate predictive dialing. Even the Consumer Coalition, which strongly supports a zero error rate, concedes that consumers still will receive abandoned calls, and enforcement will be difficult. Sytel cautions that if the error rate is set too low, other abusive practices may increase. For example, a predictive dialer can be set to dial numerous calls and, as soon as the first live call is detected, hang up on all the other calls before they are answered. Calls that are disconnected before an answer are not considered errors or abandoned calls because no connection with the called party has been made.

The comments also make it clear that an error rate lower than 5% is feasible and can be accomplished with minimal reprogramming of the predictive dialing equipment. Pacific, for example, states that its campaigns using predictive dialing equipment typically see abandoned call rates of 1% or less. WorldCom, while supporting the industry guideline of 5% or less, states that a 3% error rate averaged over six months would be reasonable. The Consumer Coalition changed its position slightly after reviewing the comments of the other parties, stating:

As discussed in its Opening Comments, the Consumer Coalition acknowledges the industry's concern about setting a zero rate. While these concerns are mostly economic, the Coalition recognizes that the Commission must consider the impact of its actions on both consumers and industry. Therefore, the Coalition would be willing to support a proposal by the Commission for a greater than zero error rate, but only to address concerns regarding the difficulties of establishing an enforcement regime, a phase-in period (if necessary), and the occasional computer glitch. To be acceptable to consumers, however, the error rate should be set at zero with no more than a de minimus amount of departures from this requirement to accommodate these considerations. (Consumer Coalition Reply, at 6.)

On balance, we believe that an "acceptable error rate" for predictive dialer hang-up calls should be 3% of all such calls answered, measured on a monthly basis, and that the rate should be reduced to 1% on and after January 1, 2003, following a six-month phase-in period. Based on the comments, we believe that most responsible users of predictive dialing equipment are either already at or near a 3% error rate or can achieve it with minimum reprogramming effort. The 1% error rate will require more extensive changes in programming and personnel, particularly for those with multiple call centers, and we believe that a six-month phase-in period is reasonable to accomplish that. As part of the workshop discussed below, we will ask our staff and the parties to further explore whether we should impose the 1% acceptable error rate and whether such a rate should go into effect on January 1, 2003, or some later date. The recommendations of staff and the parties will be considered in our final decision in this proceeding.

The proposed January 1, 2003 date for implementation of a 1% acceptable error rate coincides with the date that a statewide do-not-call registry is to be available in California. We believe that the combination of a lower error rate and the availability of a do-not-call registry will dramatically reduce the number of times consumers answer the telephone, encounter dead air, and then hear the tell-tale click of a predictive dialer disconnecting the call.