Submission for OMB Review; Comment Request

FEDERAL TRADE COMMISSION

Submission for OMB Review; Comment Request

AGENCY: Federal Trade Commission.

ACTION: Notice.

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SUMMARY: The FTC has submitted to OMB for review and clearance under

the Paperwork Reduction Act information collection requirements

stemming from (1) a regulation that the Commission enforces and (2) a

study to assess the effectiveness of Commission divestiture orders in

merger cases. On May 13, 1998, the FTC solicited comments concerning

these information collection requirements. No comments were received.

The current Office of Management and Budget (OMB) clearances expire on

July 31, 1998. The FTC proposes that OMB extend its approval for the

regulation an additional three years from clearance expiration and that

approval for the divestiture order study be extended through December

31, 1999.

DATES: Comments must be submitted on or before August 31, 1998.

EFFECTIVE DATE: Send written comments to the Office of Management and

Budget, Office of Information and Regulatory Affairs, New Executive

Office Building, Room 10202, Washington, D.C. 20503, ATTN: Edward

Clarke, Desk Officer for the Federal Trade Commission, and to Gary M.

Greenfield, Office of the General Counsel, Federal Trade Commission,

Washington, D.C. 20580, (202) 326-2753. All comments should be

identified as responding to this notice.

FOR FURTHER INFORMATION CONTACT:

Requests for additional information or copies of the proposed

information collection requirements should be addressed to Gary M.

Greenfield at the address listed above.

SUPPLEMENTARY INFORMATION: The FTC has submitted requests for OMB

review of the two items described below. Further information concerning

the entities subject to, and the burden estimates for, these

requirements can be found at 63 FR 26607 (May 13, 1998). The relevant

information collection requirements are as follows.

1. The Telemarketing Sales Rule, 16 CFR Part 310 (OMB Control

Number 3084-0097).

Description of the information collection and proposed use: The

Telemarketing Sales Rule implements the Telemarketing and Consumer

Fraud and Abuse Prevention Act, 15 U.S.C. 6101-6108 (``Telemarketing

Act'' or ``the Act''). The Act seeks to prevent deceptive or abusive

telemarketing practices. As specified by the Act, the Telemarketing

Rule mandates certain disclosures regarding telephone sales and

requires telemarketers to retain certain records regarding advertising,

sales, and employees. The disclosures provide consumers with

information necessary to make informed purchasing decisions. The

records are to be made available for inspection by the Commission and

other law enforcement personnel to determine compliance with the Rule.

Estimate of information collection annual hours burden: 2,301,000

hours.

The estimated recordkeeping burden is 50,000 hours for all industry

members affected by the Rule. The estimated burden related to the

disclosures that the Rule requires is 2,251,000 hours (rounded to

nearest thousand) for all affected industry members, for a total of

2,301,000 burden hours.

Recordkeeping: At the time the Commission issued the Rule, it

estimated that during the initial and subsequent years after the Rule

took effect, 100 new telemarketing entities per year would find it

necessary to revise their practices to conform with the Rule and that

it would take each such entity approximately 100 hours to develop a

compliant recordkeeping system, for a total of 10,000 burden hours a

year. The Commission received no comments of any kind in connection

with this estimate when it was issued and this estimate continues to be

appropriate. There is no reason to believe that the number of new

entrants into the telemarketing field who find it necessary to revise

their recordkeeping system as a result of the Rule's recordkeeping

requirements has increased. Of the estimated 39,900 industry members

who have already assembled and retained the required records in their

recordkeeping systems, staff estimates that each member requires only

one hour per year to file and store records required by the Rule. This

estimate was rounded up to 40,000 hours. Therefore, the total yearly

burden hours associated with the Rule's recordkeeping requirements is

50,000.

Disclosure: Staff previously calculated the burden associated with

the Rule's disclosure requirements based primarily on the total number

of telemarketing calls and the amount of time needed to make the

required basic disclosures, as well as the number of calls resulting in

sales and the amount of time needed to make the additional disclosures

required before a customer pays for goods or services. While this

methodology remains appropriate in large part, staff has determined

that the resulting burden estimate substantially overstates the impact

of the Rule unless the analysis is refined to take into account the

number of firms that would make the required disclosures even in the

absence of the Rule.

As noted above, the purpose of the Rule's disclosure provisions is

to help prevent consumer injury from deceptive or abusive telemaketing

practices by ensuring that telemarketers provide consumers with

information they need to avoid being misled. In fact, however, the vast

majority of telemarketing firms are legitime businesses. Although

telemarketing fraud causes significant harm to consumers--Congress has

estimated that misrepresentations or material omissions in

telemarketing sales presentations result in $3 billion to $40 billion

annually in consumer injury--the harm caused by

[[Page 40714]]

telemarketing fraud remains a small fraction of the $400 billion in

total annual sales through telemarketing.

Staff believes that a substantial majority of telemarketers now

make the disclosures required by the Rule in the ordinary course of

business because doing so constitutes good business practice. To the

extent this is so, the time and financial resources needed to comply

with disclosure requirements do not constitute ``burden.'' 16 CFR

1320.3(b)(2). Moreover, many state laws require the same or similar

disclosures mandated by the Rule. Thus, the disclosure hours burden

attributable solely to the Rule is far less than the total number of

hours associated with the disclosure. Staff estimated that the

disclosures required by the Rule would occur in at least 75 percent of

telemarketing presentations even in the absence of the Rule.

Accordingly, staff has determined that the hours burden estimate for

the Rule's disclosure requirements is 25 percent of the total amount of

hours associated with disclosures of the type required by the Rule.

Staff previously estimated this total to be 9,003,000 hours. No

comments were received refuting this estimate. The portion attributable

to the Rule is accordingly 2,250,750 hours (.25 x 9,003,000). For

present purposes, this amount was rounded up to 2,251,000 hours.

Staff's basis for its underlying estimate of 9,003,000 total

disclosure hours was derived as follows. In connection with issuing the

Rule and obtaining OMB clearance, staff previously estimated that the

39,900 (rounded to 40,000) industry members make approximately 9

billion calls per year, or 225,000 calls per year per company. The

Telemarketing Sales Rule provides that if an industry member chooses to

solicit inbound calls from consumers by advertising media other than

direct mail or by using direct mail solicitations that make certain

required disclosures, that member is exempted from complying with other

disclosures required by the Rule. Because the burden of complying with

written disclosures is less than the burden of complying with the

Rule's oral disclosure requirements, staff estimated that at least

9,000 firms will choose to adopt marketing methods that exempt them

from the oral disclosure requirements.

In connection with issuing the Rule, staff estimated that it takes

7 seconds for telemarketers to disclose the required outbound call

information orally. Staff also estimated that at least 60 percent of

calls result in ``hang-ups'' before the seller or telemarketer can make

all the required disclosures. Staff estimated that ``hang-up'' calls

last for only 2 seconds. Accordingly, staff estimated that the total

amount of time associated with these initial disclosure requirements is

approximately 250 hours per firm (90,000 non-hang up calls (.40 x

225,000) x 7 seconds per call + 135,000 hang-up calls (.60 x

225,000) x 2 seconds per call). Thus, the total time expenditure for

the 31,000 firms choosing marketing methods that require these oral

disclosures is 7.75 million hours. When the Commission initially

published this estimate, it received no comments and staff believes the

estimate remains appropriate. Based on the assumption that no more than

25 percent of this time constitutes ``burden'' imposed solely by the

Rules (as opposed to the normal business practices of most affected

entities apart from the Rule's requirements), the burden subtotal

attributable to the basis disclosure is 1,937,500 hours.

The Rule also requires additional disclosures before the customers

pays for goods or services. Specifically, telemarketers must disclose

the total cost of the offered goods or services; all material

restrictions; and all material terms and conditions of the seller's

refund, cancellation, exchange, or repurchase policies (if a

representation about such a policy is a part of the sales offer). If a

prize promotion is involved in connection with the sales of goods or

services, the telemarketer must also disclosure information about the

non-purchase entry method for the prize promotion. Staff estimated that

these disclosures take approximately 10 seconds. However, these

disclosures are required only where a call results in a sale. Staff

estimated that sales occur in the approximately 6 percent of

telemarketing calls. Accordingly, the estimated amount of time for the

disclosures is 17.5 hours per firm (13,500 calls resulting in a

sale--.06 x 225,000-- x 10 seconds) or 1.163 million hours for the

31,000 firms choosing marketing methods that require oral disclosure.

When the Commission initially published this estimate, it received no

comments and staff believes the estimate remains appropriate. Based on

the assumption that no more than 25 percent of this time constitutes

``burden'' imposed solely by the Rule, the burden subtotal attributable

to these additional disclosures is 290,750 hours.

As noted, staff estimated that approximately 9,000 telemarketing

firms will choose to use the written disclosure option. Firms choosing

this option are likely to be those using written advertising materials.

Thus, the burden of adding the required disclosures should be minimal.

Staff estimated that a typical firm will spend approximately 10 hours

per year engaged in activities ensuring compliance with this provision

of the Rule, for an estimated total burden of 90,000 hours for all

9,000 firms using written disclosure. When the Commission initially

published this estimate, it received no comments and staff believes the

estimate remains appropriate. Based on the assumption that no more than

25 percent of this time constitutes ``burden'' imposed solely by the

Rule, the burden subtotal attributable to these written disclosures is

22,500 hours.

Estimate of information collection annual labor cost burden:

$34,361,250.

The estimated labor cost for recordkeeping is $600,000. Assuming a

cumulative burden of 10,000 hours/year to set up compliant

recordkeeping systems, and applying to that a skilled labor rate of

$20/hours, set up costs would approximate $200,000 annually for all new

telemarketing entities. Staff also estimated that existing industry

members require 40,000 hours to maintain compliance with the Rule's

recordkeeping provisions. Using a clerical cost rate of $10/hour,

cumulative recordkeeping maintenance would cost approximately $400,000

annually. The estimated labor cost for disclosure is $33,761,250, based

on an estimate of 2,250,750 disclosure burden hours and a wage rate of

$15/hour.

Estimate of information collection annual capital and operating

cost burden: $10,022,000.

Total capital and start up costs: Staff estimates that the capital

and start up costs associated with the Telemarketing Sales Rule's

information collection requirements are de minimis. The Rule's

recordkeeping requirements mandate that companies maintain records but

not in any particular form. While the recordkeeping requirements

necessitate that the affected entity have some storage device,

virtually every entity is likely already to possess the means to store

the required records. Most entities keep the type of records required

by the Rule in the ordinary course of business. Even assuming that an

entity found it necessary to purchase a storage device, which could be

as inexpensive as a cardboard box, the annual expenditure is likely to

be very small when the cost of the device is annualized over its useful

life. The Rule's disclosure requirements require no capital

expenditures.

Total operation/maintenance/purchase of services costs: Affected

entities need some storage media such as file folders, computer

diskettes, or paper in order to comply with the Rule's

[[Page 40715]]

recordkeeping requirements. Although staff believes that most affected

entities would maintain the required records in the ordinary course of

business, staff estimated that the approximately 40,000 industry

members affected by the Rules spend an annual amount of $50 each on

office supplies as a result of the Rule's recordkeeping requirements,

for a total recordkeeping cost burden of $2,000,000.

In connection with the Rule's disclosure requirements,

telemarketing firms likely incur additional costs for telephone

service, assuming that the firms spend more time on the telephone with

customers as a result of the required disclosures. Staff believes that

the hour burdens relating to the required oral disclosures amount to

8,913,000 hours (7.75 million initial disclosure hours + 1.163 million

hours regarding sales). Assuming all calls to customers are long

distance, at a commercial calling rate of 6 cents per minute ($3.60 per

hour), affected entities as a whole may incur up to $32,086,800 in

telecommunications costs as a result of the Rule's disclosure

requirements. However, as noted above, only 25 percent of such

disclosures constitute ``burden.'' Accordingly, the adjusted oral

disclosure cost burden is $8,021,700, rounded to $8,022,000.

As indicated previously, staff estimated that approximately 9,000

entities will choose to comply with the Rule through written

disclosures. However, staff estimated that those companies incur no

additional capital or operating expenses as a result of the Rule's

requirements because they are likely to provide written information to

prospective customers in the ordinary course of business and adding the

required disclosures to that written information requires no

supplemental expenditures.

Thus, the total estimated operating cost burdens associated with

the Rule is $10,022,000 (rounded to nearest thousand).

2. Study of the Effectiveness of Commission Divestiture Orders in

Merger Cases (OMB Control Number 3084-0115)

Description of the information collection and proposed use: The

Commission is directed to prevent ``unfair methods of competition''

under Section 5 of the Federal Trade Commission Act (``FTC Act''), 15

U.S.C. 45, and is authorized to enforce the Clayton Act's proscriptions

against anticompetitive mergers. 15 U.S.C. 18, 21. Under these

authorities, the Commission examines proposed transactions to determine

whether anticompetitive effects are likely. If it has reason to believe

that a transaction is unlawful, the Commission either seeks to enjoin

the transaction or seeks a remedy that it believes will alleviate the

likely anticompetitive effects.

When a proposed merger raises competitive concerns, it is sometimes

the case that the problem arises in only a limited number of markets in

which the parties compete, while the remainder of the proposed

transaction poses no competitive harm. Thus, in 1978, the Commission

began requiring respondents in certain merger cases with likely

anticompetitive effects, as a condition for the Commission's decision

not to oppose a transaction, to divest certain assets of business(es)

in order to cure the competitive problem. The Commission requires that

the divested assets or business(es) be commercially viable, and that

the buyer of the assets or business(es) have the capability of

competing effectively in the applicable market(s).

In 1995, the FTC's Bureau of Competition and Bureau of Economics

undertook a pilot study to determine whether a more comprehensive study

of these Commission divestiture orders would be feasible and

productive. The staff concluded that further study is necessary to draw

more general conclusions about the effectiveness of the Commission's

divestiture process, as the circumstances surrounding the orders vary

widely. OMB subsequently granted clearance of such an expanded study.

Pursuant to that authority, FTC staff has interviewed numerous parties

subject to divestiture orders (``respondents'') and buyers of divested

assets or businesses (``buyers''). As with the pilot study, the

information that staff has obtained continues to offer important

insights into the effectiveness of the divestiture process.

Accordingly, the Commission's Bureau of Competition and Bureau of

Economics intend to continue to conduct interviews with respondents and

buyers in order to complete their review of the 36 sample orders

comprising the study. Thereafter, staff will interview third parties

and solicit sales data from respondents and buyers. The objectives of

the study continue to be to determine: (1) The effectiveness of

Commission orders that seek to preserve or reestablish competition

where the Commission required divestiture of certain assets; (2) the

effect of certain provisions in Commission orders (e.g., length of time

permitted for divestiture, ``crown jewels'' provisions, etc.) on the

timeliness of divestitures and on the success of the business or assets

divested; (3) the effect of the procedures that respondents use to find

a buyer on the timeliness of the divestitures and on the success of the

business or assets divested; (4) the effect of the divestiture contract

on the success of the divested business or assets; (5) the effect of

the type of assets divested on the success of the divested business;

(6) the effect of the type of buyer on the success of the divested

business; and (7) the extent to which respondents fully complied with

the requirements under the order.

Securing information about the success of divested businesses (or

businesses that have acquired divested assets) will provide a better

understanding of the kind of order provisions most likely to lead to

successful divestitures in merger transactions. The survey is designed

to expand the Commission's knowledge by eliciting information across a

broad spectrum of industries. Such information will be used to enhance

the effectiveness of Commission divestiture orders.

Estimate of information collection annual hours burden: 1,000 hours

(rounded).

The information to be collected will be obtained by telephone

interviews, document requests, and a questionnaire. Staff will conduct

telephone interviews with respondents, buyers, and third parties (such

as competitors, customers, and suppliers). The divestiture study

includes a total of 51 divestitures arising out of 36 orders. Staff has

already interviewed 32 buyers and 6 respondents; thus it will contact

another 19 buyers and 30 respondents. It will also contact 153 third-

parties (on average, three per divestiture) for a total of 202

remaining telephone interviews. All of the remaining interviews, like

those already conducted, should take about 1.5 hours to complete, for a

total burden estimate of approximately 303 hours.

After interviewing respondents and buyers, staff will ask them to

submit certain existing financial documents for a five-year period

beginning the year before the divestiture occurred. Staff will not

request that any new documents be created. Because only documents

already in existence will be requested, the anticipated burden of

producing these documents will be minimal, approximately two hours per

participant, for a total of 174 hours (51 buyers + 36 respondents = 87,

87 x 2 = 174).

Staff is also asking respondents and buyers to complete a two-

question chart that requests sales in dollars and units of each product

or asset that was the subject of the Commission's competitive concern

in the case over a five-year

[[Page 40716]]

period beginning the year before the divestiture. Staff estimates that

the burden on each participant to provide this information will be 4

hours, for a total of 348 hours (51 buyers + 36 respondents = 87, 87

x 4 = 348). The total cumulative burden of the document production and

chart completion will be 522 hours (174+348). The estimated total

burden for the entire study is therefore calculated to be 825 hours

(303+522), which has been rounded to 1,000 hours to allow for small

additions such as interviews with and follow-up document requests of

subsequent buyers.

Estimate of information collection annual labor cost burden:

$75,000.

It is difficult to calculate reliably the costs associated with

this information collection, as they entail varying compensation levels

of executives, management, and/or support staff among many companies

and various industries. Individuals among some or all of those labor

categories may be involved in the information collection process.

Nonetheless, assuming that responses to interviews, the questionnaire,

and the document request are handled by executive and mid-management

level personnel alone, and applying a blended average hourly

compensation rate of $75/hour for their labor, the total cost should

not exceed $75,000 (based on the upward rounding of estimated total

hourly burden for the study).

Estimate of information collection annual capital and operating

cost burden: None.

The data for the study are being collected in two principal ways.

Staff is conducting telephone interviews and asking respondents and

buyers to respond to a brief questionnaire and produce existing

documents. None of these means of collecting information requires any

capital expenditure. Interviews solely involve respondents and buyers

making available one or more company officials for approximately 1\1/2\

hours. The questionnaires and document requests seek only information

that the respondents and buyers maintain in the ordinary and usual

course of their business. No additional cost burden is imposed.

Debra A. Valentine,

General Counsel.

[FR Doc. 98-20298 Filed 7-29-98; 8:45 am]

BILLING CODE 6750-01-M