The cable industry has won a big legal victory in the fiercely competitive phone services market. An appeals court has supported the Federal Communications Commission in its ruling that phone carriers—in this case Verizon—can't try to lure back customers after they've initiated a service switch but before their number has been transferred.

The FCC made that call last June in a dispute between Verizon and three cable companies that also provide phone service. Verizon took the decision to the United States Court of Appeals for the District of Columbia Circuit, and a three judge panel upheld the Commission on Tuesday.

The DC Circuit agreed that when one carrier sends another a "Local Service Request" (LSR), asking the latter to transfer a customer, it represents "proprietary information" as defined by the Communications Act—a tip off that can't be used to try to convince the departing consumer not to leave.

Take me to your lead list

In February of 2008, Time-Warner Cable, Comcast, and Bright-House complained that Verizon was doing just that. The FCC agreed. Its Order determined that Verizon had created a "lead list" pretty much based on LSRs. "Upon completion of the lead list," the agency concluded, "Verizon immediately - sometimes within 24 hours of receiving the LSR—contacts customers on the lead list, by express mail, e-mail, and/or automated telephone message. Those contacts encourage customers to remain with Verizon, offering price incentives such as discounts and American Express reward cards."

The Commission did not arrive at this decision easily. Then Chair Kevin Martin sided with Verizon, calling the telcos' program "a form of aggressive competition that has the potential to benefit consumers through lower prices and expanded service offerings." But his fellow Republican Robert M. McDowell led the agency in a 4-1 revolt against Martin's stance.

Phone companies can try to keep customers happy while they've got them, McDowell's statement declared. And they can try to win them back after they've switched. But "using proprietary customer information for marketing efforts cannot take place during the window of time when a customer’s phone number is being switched to a new provider."

Verizon put a number of technical arguments before the DC Circuit on behalf of its retention program. The telco doubted Comcast and Bright House's status as "telecommunications carriers," thus putting them beyond Communications Act language that supports the FCC's ruling. It also argued that the FCC's Order restricted speech, and therefore raised First Amendment concerns. The court rejected all this logic in an eleven page opinion. The Consumers Union also weighed in on behalf of the FCC's Order.

Needless to say, Comcast is happy about the decision. "Today's ruling is a win for consumers who are saving billions of dollars a year because of the entry of cable companies into the local phone business," Sena Fitzmaurice, Comcast Senior Director for Corporate Communications told Ars.

Less happy is Verizon. "We are reviewing the order," company spokesperson David Fish told us. "This looks like a loss for consumers, who now will have less information available when choosing between different competitors."