Dueling For Dialers

Late last year, the concerned folk at the Federal Trade Commission finally began following through on long-simmering threats by reinvigorating what they undoubtedly anticipate will be a prolonged campaign of litigious intimidation against the adult Internet industry. Always on the prowl for credit card fraud and other marketing improprieties, they began in October to zero in on dialers, the controversial descendants of the 900 number, which provide a mechanism for charging access to porn sites through users' phone bills. If in the process they hoped to create a domino effect of fear and paranoia within the vast ranks of adult webmasters, they succeeded perhaps beyond even their own expectations. Nuclear aircraft carriers have been known to have a similar effect on small countries.

Despite the victorious crusade of terror, however, they were also obliged to back down from what they surely expected would be the high profile elimination of a major Internet porn player - RJB Telcom. Were they victims of premature e-regulation? Or, as some have suggested, did the FTC merely stumble in its headlong rush to get a punitive jump on the Justice Department?

Or maybe the Feds just don't get it. The industry, that is. By bringing a photon torpedo to a knife fight, they showed once again that they simply do not yet grasp the delicate intricacies of either consumer-to-business or business-to-business Web transactions. Innovations tend to out-maneuver them like Greenpeace speedboats.

Of course, they don't always get it wrong. Some of the largest perpetrators of big-time adult fraud on the Net are so inept in their illicit conspiring that even a twentieth century behemoth like the FTC is able to nab them before they disappear into the vast filigree of aliases and electronic monetary transfers that comprise international banking. Though even when they do nail the crook, the money sometimes vanishes before their eyes like Keyser Sose into dense urban traffic.

The silver lining of a stick for the FTC is that everyone in online porn is now well aware that the appetent eyes of Big Brother are watching. That's probably a good thing, but the cold hard truth is that for most businessmen who blaze new marketing trails on the still lucrative adult Internet, a far greater incentive for behaving honestly is the simple carrot of a fact that it makes better business sense. They make more money. They survive and prosper. And yes, they don't end up on the run, forever looking over their shoulder.

Fatally Flawed

Conspicuously, the only real loss for RJB Telcom had to do with its dialer program, which, for lack of a better word, is dead. "It is further ordered that Defendants are hereby restrained and enjoined from using a telephone or modem dialer program as a means of obtaining compensation from consumers who view their web sites," reads the December 1, 2000 Order of the Court. It was the only prohibited business practice that resulted from the lawsuit that was settled but a month after it was brought. This is conspicuous not because RJB was necessarily doing anything wrong with the dialer, but because, despite all efforts so far by dialer service providers to provide authenticating safeguards, the method may ultimately be fatally flawed, legally speaking. If it is used by adult webmasters solely as an alternative to processing credit cards with no surefire way to ensure that the person accessing the site is an adult, the powers that be, at least in this country, will by all accounts never allow it to flourish.

This may be why no one who was interviewed for this article was eager to be identified by name. Two of the three didn't even want their company to be named, even though they are publicly visible and advertise in industry publications. They were all too fully aware that, at least as of deadline, the heat was still very much on. Still, to a one they insist that they are trying to gain strict control of their product by self-regulating the manner in which it can be advertised. And one is going so far as to work with attorneys aligned with the FTC to ensure that they are abiding by strict price disclosure and billing guidelines. So, because of the sensitive terrain in which we now find ourselves deployed, for the purposes of this article, and to be fair to everyone, no individuals or companies, except for those that have already felt the wrath of the FTC, will be identified.

Blame Jesse

Helms, that is. It was his 1989 amendment to the Communication Act of 1934, in response to the proliferation of "dial-a-porn" or "900" services, that made "indecent communication for criminal purposes" available to anyone under 18 years of age a crime. However, a waiver was allowed for those who agreed to abide by a pre-subscription procedure. Federal Communications Commission (FCC) regulations that accompanied the amendment required that payment by credit card be made in advance of a conversation, that an authorized access or identification code be given prior to the message, or that a "descrambler" be needed to hear the message. In addition, any dial-a-porn provider that used a telephone company to do its billing collection could only be used by a consumer who first requested access to the service in writing from the telephone company.

Another name for such services is, of course, audiotext, and as anyone in that business knows, the combination of the Helms Amendment and the Internet cut so deeply into profits that by the late 1990s, they were all but negligible. There are still audiotext companies of course; diehards who insist that there will always be a market for telephone porn, no matter how restrictive the regulations. The last four years have seen the rise of the modern dialer, which uses international termination points to ostensibly, and with some value, provide a viable alternative to dependence on credit cards and the chargebacks that accompany their use. But in the era of the Wild West Internet, the new dialer came complete with built-in problems, including practices that were out and out fraudulent - hidden charges, deceptive marketing, unauthorized calls and over billing, to name a few.

There were prosecutions, and many of the dialers have since cleaned up their act, but not all, and as a recent case that had not been adjudicated by deadline clearly shows, the jury is still literally and figuratively out. That case involves Verity International, Ltd. (VIL), which was sued by the FTC in October 2000 for "misusing the international telephone billing system to charge consumers for "videotext" services - Internet-based adult entertainment - that the consumers never purchased or authorized." The complaint goes on to claim that "VIL's bills deceptively represented the facts that the calls reconnected consumers modems to the Internet terminated in Madagascar, [when] in fact they were 'short-stopped' in London or some other location. Thus, line subscribers were charged the rates to Madagascar at $3.99 per minute, compared to about $.08 per minute to London."

This is a case with widespread implication for the future of dialing, because, as we were anonymously told, "This is going to be the case that everyone is going to point to. It's classic because it addresses all of the issues that we're dealing with. What are the sticking points that you need from the end user to collect money from them? What is an acceptable identifier to bill an end user? Do you need more than that? Do you need a physical address of the person, their social security number or a credit card? This case will determine what a billing company needs off an end user in order to facilitate an acceptable transaction from a governmental standpoint, as well as from a commercial standpoint."

Dialer X

"We have a new dialer that was released about a month ago (October). We have a check box now where users have to click to accept the line authorization charges that no other dial company has ever done. On the top [of the dialer] there's a password protection and uninstall feature that no one else in the business does, but they all should do.

"It's a highly risky business. People think the dialer is so profitable and everybody walks away with a lot of money. In reality, they're walking away with nothing more than a credit card option billing solution. I think the people who make the most money is AT&T, however they're not going to publish that because it's more of a social issue. At the end of the day, we only get back whatever AT&T pays us, minus chargebacks. That could be a lot. But just last month (October) we sent a letter to all our clients (webmasters) saying we have to reduce your rate by 5 cents because AT&T chargebacks have gone up 12 to 13 percent. That's a lot. But AT&T will never explain those chargebacks, or anything, to us.

"Do I think it's expensive? The answer is yes. At $6.65 a minute, by any means it's expensive. Do I think we will have a new route that is going to be much cheaper? Yes. I would say that that price in the next couple of months will be totally gone and you'll be looking at even maybe $1.20 per minute.

"On the front end, when someone doesn't know, when you have a guy whose looking at this from the outside, at first glance they will say it is outright fraud. But you have to look at it from the whole perspective, which is, am I doing the dialer wrong? Did I use a disclaimer? Did I do more security precautions than they ask for? Do I sacrifice conversion? We've worked day in and out for the last two years to make a dialer that really protects the user and us."

Dialer XX

"We are very strict about our rules. We do not use the word 'free,' and anybody who uses it will be automatically taken off of our system.

"Believe it or not, lots of webmasters are not educated about dialers and don't even know what they are. We were at the show (ia2000) in New Orleans. Basically the only thing we did was educate people, telling them that it's an alternative to their existing billing system, not to replace any systems to what they already have. The biggest resistance we have is price, because the price is so high that it can range from $3.99 to $6.99 a minute.

"In this country, the charge varies depending on who their long distance carrier is. It can vary maybe ten percent either way. But the $6 is also semi-misleading, because you also sometimes have a connection fee, which can be $2 a minute, making it as high as $8 a minute. I believe there's a warning when it actually dials.

"The difference in dialers and dialer companies would be... well, give me an adjective similar to honesty. There was a fellow who was busted a couple of years ago who sent out millions of dialers to people, and he set a timer on them. So he was playing a numbers game where dialers would randomly dial in the middle of the night, which would be very illegal. So I would say honesty and reliability, because a lot of the dialers don't even work properly."

Dialer XXX

"Dialers can be marketed as aggressively or passively as a marketing agent (webmaster) wants. As a dialer company, we build all of our warnings and cost disclosures and all of our legal and what we consider user-friendly applications hard-coded directly into the dialing mechanism. So we will never be presenting an end-user billing opportunity without having our word first.

"We have a very stringent marketing guideline that we follow. If we do find marketing agents distributing even at the point of distribution, that wold be the entire HTML presentation, if the word 'free' is present anywhere, we discontinue service to the marketing agent, which is pretty painful from a marketing point of view. A lot of people only react when you punish them.

"Law enforcement believe that the person who goes for impulse purchases is either not smart enough to figure out what is, or they can't afford it, and [we] as a group have made enormous strides in our dialogue with the FTC. We are encouraged by what they are trying to do, because we believe that fooling someone who can't pay the bill is in no one's benefit.

(Is there a limited life span for dialers?) "No, definitely not. Everybody asks, what are you going to do about cable or DSL, and all these dedicated situations? But the standard PC dial-up is not going to go away. Maybe in the US it'll get smaller, but the rest of the world is not going as fast as we are.

"I can see prices coming down for us within the next thirty days. We are going to be moving primarily on to networks that are within the 2 to 3 dollar per minute range, which is obviously a dramatic difference. Just making it a better end user experience, and for repeat volume, because we're a company that's been around for four ears, and want to be around for another four."


Several of the dialers we spoke with also provided optional pin-code capabilities that allow the user to block out children or friends. We asked an attorney familiar with the subject if that would protect them from a "harmful matter to children" charge. Are they getting a credit card up front, he asked? We didn't think so. He got a funny look on his face. He didn't have to say any more. The answer was obvious. The government accepts credit cards as proof of age. Right or wrong, without one, you've got a problem. ?