Freezing out the cold callers

Updated Monday, 22nd October 2007

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They wake us up in the morning, they interrupt our dinner at night, they force the sick and elderly out of bed, they hound us until we want to rip the telephone right out of the wall.”

This is what US Senator Earnest Hollings said to US Congress while introducing Automated Telephone Consumer Protection Act, in 1991. Are we any better today after 16 years? Telemarketers, direct mailing companies and others want our attention to sell us range of products and services or to ‘help’ us change the suppliers of utilities to save £100s by ‘easy switching’ options!

A broken mobile phone

Some cold callers' tactics can cause people to suffer undue stress

[Image: Jupiterimages]

The main reason for the increase in telephone and internet marketing directly to consumers is the cost of reaching the consumers directly has reduced drastically. This reduction is due to lower call charges, the reduced cost of call centres due to offshoring and the relative ease of obtaining personal details such as address and telephone numbers. The internal cost of all this to companies is quite low. But there are external costs to consumers and to society at large like wasted time, irritation, and in many cases entering into expensive contracts. This externality makes aggressive telemarketing cheaper for companies. Combine this with any unethical/illegal practices such as agents taking consumers for ride by telling lies compounds the problem.Here I try to make economic sense of this market behaviour and to suggest how the irritation caused to consumers might be reduced.

What can consumers do about this? Well one response would be to de-list their telephone number. Another would be to register with an agency such as the Telephone Preference Service, that allows individuals to record their wish to opt out of receiving unsolicited telephone sales calls. This service is free to consumers. However, is there ever such a thing as a free lunch? Having studied economics for many years, I would say not! So who finances the Telephone Preference Service then? Well it is the Direct Marketing Industry, so in the end it is consumers that pay for this service.

What can regulators do? Ofcom for example can take action against companies mis-using electronic communication technologies that causes unnecessary annoyance, inconvenience or anxiety to consumers under Communications Act and Enterprise Act. However, the maximum penalty that Ofcom can impose is £50,000, which may not be enough of a deterrent.

Now consider an alternative view of the situation - and a possible solution - from Ian Ayres and Mathew Funk. Remember that external costs i.e., consumer time and irritation are not factored in the companies’ decision. So one way to ensure these costs are internalised by companies is to put price on consumer’s time (it may be difficult to put value on ‘irritation’). We all know about ‘caller pays the receiver’ numbers like 0845 or 090 numbers where the receiver’s account is credited with £1 or even more in the case of some services. Reverse this logic and combine it with the price put on private time. If then there were a regulation which said that all consumers willing to ‘listen’ or ‘entertain’ direct marketing calls need to be compensated by the calling company - say at £1 per minute - this will ensure that the costs of contacting potential consumers will be internalised by companies which will result in lowering of direct marketing calls as companies become more selective in who they call.

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