FCC Probe Pops Primus

Primus Telecommunications Group Inc. (Nasdaq: PRTL), an up-and-coming player in the VOIP market, is blaming its telemarketing troubles on an Indian company it hired to handle telephone sales.

Yesterday the carrier agreed to pay $400,000 to the U.S. government to end an investigation into its telemarketing practices. The investigation centered around whether the McLean, Va.-based telephone and data services provider illegally called consumers who were registered in the national do-not-call database.

The FCC began to investigate Primus, a division of Primus Telecommunications Group, on December 17 after receiving dozens of consumer complaints.

The FCC probe revolved around Primus division International Consumer Marketing, which used telemarketing to sign up 40 percent of its long-distance customers. Spokeswoman Gerry Simone says these sales represent only about 2 percent of Primus’s total revenues.

She blames the alleged violations of the do-not-call rules on Spanco Telesystems & Solutions Ltd. in India, a company Primus hired last year to solicit prospective customers for its long-distance telephone service. She says Primus severed its contract with Spanco the following day and no longer uses telemarketing in the United States.

In its consent decree released Tuesday, the FCC said Primus would make a voluntary payment of $400,000 to the U.S. Treasury and adopt tougher training policies for its customer representatives.

Primus, like other long-distance telephone providers, is leaning on VOIP to stay afloat in an increasingly competitive market. A big chunk of Primus’s revenues has come from selling cheap long-distance services, especially for international calling.

A class action suit was filed against Primus last month for misleading investors about the company’s financial prospects. The suit claims that Primus was forced to accelerate its investment in VOIP because of declining sales in long-distance services.

Primus posted a net loss of $150 million for the quarter ended June 30. This compares with a $20 million profit reported for the same period last year.

“Their future depends on getting into IP communications, and they already have this strong international network in place,” says Jon Arnold, a Toronto-based analyst at Frost & Sullivan.

Primus launched its VOIP service, called Lingo, in June; It charges $19.95 per month for unlimited local and domestic long-distance calling, as well as unlimited long-distance calling to Canada and Western Europe. The price is lower than VOIP services by AT&T Corp. (NYSE: T)and Vonage Holdings Corp..

U.S. Lingo customers can select international numbers for an extra $9.95 month which can be used for incoming calls only. This overseas number will allow people in Tokyo, for example, to call a Lingo user at the price of a local call.

Primus wouldn’t say how many VOIP subscribers it has.

“Like most everyone, they are newcomers [to VOIP],” says Kevin Mitchell, an analyst with Infonetics Research. “But they are making a serious push for mass-market consumers and they seem to have a pretty aggressive, bundled offering.”

— Joanna Sabatini, Reporter, Light Reading

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