Client Alert: FCC Considers Market-Based Auction to Assign Vanity and Other High Demand Toll Free Numbers

By Douglas Bonner and Katherine Barker Marshall

On September 28, 2017, the FCC released a Notice of Proposed Rulemaking (“NPRM”) which proposes to significantly reform current rules governing how “high demand” vanity and other toll free numbers (“TFNs”) are assigned. Specifically, in connection with the opening of a new 833 toll free code, the FCC proposes to reform the current “first-come, first-served” rule for assignment of toll free numbers such as vanity and repeater numbers “to better promote the equitable and efficient use of numbers.” Though the FCC initially allowed a right of first refusal for 800 number subscribers to secure corresponding numbers in the 888 code twenty years ago, since 1998 the FCC has had the current first-come, first served rule in place for the next four toll free code openings (877, 866, 855, and 844). This re-examination of TFN assignment follows the Toll Free Numbering Administrator’s review of 833 number requests from RespOrgs for toll free number subscribers and determining that there are 17,000 mutually exclusive numbering requests. TFNs that are not the subject of mutually exclusive TFN requests will continue to be awarded on a first-come, first-served basis, and already have been awarded for the 833 code.

The Proposed Auction

The FCC proposes and seeks comment on a single round, sealed-bid “Vickrey” auction for the set aside 17,000 numbers for which there were multiple, mutually exclusive requests. The FCC seeks comment on its tentative conclusion that this market-based auction approach will yield a more equitable and efficient outcome by allowing any RespOrg the opportunity to bid for numbers based on their valuations. The FCC reasons that RespOrgs and their customers will be more likely to acquire only the numbers that they need and will not have an incentive to acquire those numbers that they do not, limiting exhaustion of toll free numbers in the new code. The Commission has developed its 833 number auction proposal relying on the experience of the Australian Communications and Media Authority in auctioning highly competitive TFNs between 2005 and 2015. The FCC also seeks comment on the uses for any proceeds for such an auction, after any costs are offset. Should the proceeds be used to administer numbering resources in the future, or, as Commissioner Rosenworcel suggests, be used to fund nationwide 911 service, or for other uses?

Though it proposes a Vickrey auction model to assign 833 mutually exclusive tollfree numbers, the FCC also asks whether a reserve price should be used in a TFN auction. It also asks about the desirability of alternative auction methodologies such as a pay-your-bid auction or an open auction. The FCC also proposes that only RespOrgs be allowed to bid in an auction, reflecting their role for managing records in the TFNA database and as market makers for toll free numbers. For example, RespOrgs may be able to coalesce geographic coalitions of subscribers less able to organize by themselves. By contrast, the Commission also asks whether subscribers should be able to directly bid in an auction. Similarly, the FCC asks whether the TFNA database should include subscriber information so that the TFNA can notify not just RespOrgs but TFN subscribers directly about auctions, about TFN disputes, or help law enforcement agencies identify subscribers if a TFN is being used for illegal purposes.

Opening Secondary Markets for Toll Free Numbers?

Despite longstanding FCC and judicial precedent that telephone numbers are a public resource and not private property that can be sold, the FCC seeks comment on whether it should promote development of a secondary market for TFNs generally. This could impact the sale of a business whose value is impacted by an associated vanity TFN or other TFN, benefiting both buyer and seller. The Commission believes that creating a lawful market for the sale of such numbers legally would permit subscribers to obtain valued numbers and promote efficient use of numbers. Accordingly, the Commission seeks comment on eliminating, relaxing or modifying its brokering rule, which prohibits RespOrgs and subscribers from selling a toll free number for a fee, and on a related topic, whether a fee should be charged if the numbering administrator should realize proceeds from the transfer of a TFN to another party. The FCC now questions whether its anti-brokering rule is achieving its original intention of fairly assigning numbers and reducing number exhaust. NPRM, para. 36. Similarly, the FCC requests comment on whether its warehousing and hoarding prohibitions are effective to achieve their intended goals, or whether market forces could ensure efficient assignment. Would a rule requiring use of a number within a certain period of time after it is obtained (like spectrum resources) be sufficient? Should the FCC adopt a rule preserving its ability to reclaim any TFN that is used for fraudulent or unlawful purposes after assigned to a non-profit health, safety, education or other public interest organization or to an auction or secondary market purchaser?

Comments and reply comments will be due 30 and 60 days, respectively, following publication in the Federal Register.

Note: This Bulletin is not intended as legal advice. Readers should seek professional legal counseling before acting on the information it contains.