II. BACKGROUND

A. Legacy and Its Operations

Legacy (utility number U-5786-C) is a California corporation located in Cypress, California. It was incorporated in 1996. In Decision 97-06-055, issued in June 1997, the Commission granted Legacy a Certificate of Public Convenience and Necessity ("CPCN") to resell interLATA and intraLATA telephone services in California.² Legacy operates as: (1) a reseller of interexchange services; and (2) a provider of operator services in California. Legacy provides operator and long distance services to Coin-Operated Pay Telephone (COPT) companies and to hotels and motels. Ninety percent of Legacy's operator services business is provided at outdoor payphones, and ten percent in rooms in hotels and motels.³ Legacy provides service to approximately 150 COPTs owning approximately 60,000 payphones in California as of March 9, 2007. Beginning in October 2009, Legacy provides inmate telecommunications services in some California facilities. Legacy also provides resold dial tone to approximately 600 payphones in California.⁴ Legacy's customer billings from 2005 through 2008 are in Table 1 below⁵.

TABLE 1

Legacy's Customer Billings

Amount Billed and Number of Unique Billing Telephone Numbers

Year	Amount Billed	Number of Unique Billing Telephone Numbers
2005	$ 4,998,747	189,803
2006	$ 6,221,998	203,866
2007	$ 3,869,716	142,614
2008	$ 2,597,333	90,839
Total	$17,687,794	627,122

Source: Billing Aggregator BSG Quarterly Reports to CPSD

Ninety percent of Legacy's call center business is in collect calls placed from pay phones and billed through live and automatic operator services. Ten percent comes from calls made using credit cards, calling cards, and third party billing. Legacy negotiates with payphone companies and offers contracts that feature tailored rate plans. Each payphone company can choose a combination of rates, surcharges, non-subscriber fees, and premise-imposed fees, depending on its needs. For example, one company might choose a rate plan in which live operator services cost more than automatic operator services; another company might choose a rate plan in which automatic operator services cost more than live operator services. Each collect call can generate an operator-connection fee, a minutes-of-usage charge, a premise-imposed fee, and a nonsubscriber fee. Legacy bills consumers via its billing aggregator, Billing Services Group (BSG), which submits Legacy's charges to the end consumers' telephone providers for inclusion in their respective telephone bills.

B. CPSD's Protest Of Legacy's Application For Expanded Authority

On November 3, 2006, Legacy applied (in A. 06-11-003) for a CPCN for expanded authority to operate as a facilities-based competitive local exchange telecommunication services provider. CPSD protested Legacy's application on December 14, 2006, on the basis of misrepresentations⁶ in its application, in violation of Rule 1.1 of the Commission's Rules of Practice and Procedure. In its protest, CPSD alleged that Legacy knowingly misled the Commission when it stated that it had never been sanctioned or investigated by any state regulatory agency at the time of its application. Contrary to this attestation, CPSD discovered substantial evidence showing Legacy had been investigated, fined, sanctioned and/or penalized, and had its tariff and registration cancelled or its corporate certificate of authority revoked in 16 states.⁷ In addition, CPSD found and Legacy acknowledged that it had billed California consumers under tariffs that Legacy had never filed with the Commission, in violation of P.U. Code §495;⁸ and CPSD found that Legacy billed consumers at rates higher than permitted in its filed tariffs, in violation of P.U. Code §532.⁹ Legacy also violated P.U. Code §489 by failing to file its tariffs timely.¹⁰

CPSD served its testimony in the form of an Investigation Report on August 13, 2007¹¹. On November 7, 2007, Legacy filed its testimony in response to CPSD's report¹². Due to intervening illness, the respondent requested and Administrative Law Judge (ALJ) Patrick granted an extension of time for the scheduled hearing. Prior to hearings being rescheduled, Legacy formally withdrew its application on January 30, 2008 stating that it no longer had an interest in obtaining authority to provide service as a facilities-based competitive local carrier in California. CPSD did not object to Legacy's withdrawal, conditioned upon Legacy's agreement that it would refer to this withdrawal and CPSD's protest in any future applications before this Commission. On April 10, 2008, the Commission approved ALJ Patrick's decision, which granted Legacy's request for withdrawal and CPSD's conditions.¹³

C. Consumer Cramming Complaints Against Legacy

In the course of reviewing Legacy's CPCN application, Staff found a high number of cramming complaints against Legacy filed by consumers with Legacy's billing aggregator BSG and with the Commission's Consumer Affairs Branch (CAB).

1. Consumer Complaints Filed with Billing Aggregator BSG

BSG reports 686 complaints against Legacy from 2005 through the first half of 2008.¹⁴ These complaints were predominantly related to unauthorized charges or cramming. Since 2005, the number of consumer complaints reported to BSG against Legacy appears to have declined significantly. These complaints are summarized below.

TABLE 2

Consumer Complaints against Legacy as Reported by BSG

2005 through 2008

Source: Billing Aggregator BSG Quarterly Reports to CPSD

2. Consumer Complaints Filed with the Commission's CAB

Legacy was also the subject of numerous complaints to CAB, with a majority of complaints concerning unauthorized charges or cramming, disclosure issues, and unreasonable rates. CAB received 706 complaints from 2005 through 2008. Unlike the declining trend in the number of complaints against Legacy received by BSG, complaints received by CAB appear to have grown from 2005 and held steady through 2007. Legacy acknowledged in response to CPSD's Data Request 1, Question 8 that "A vast majority of the complaints received by CAB about Legacy are operator service rate related."¹⁵ Legacy President Curtis Brown confirmed that such complaints pertain to claims of unconscionably high rates and denials of ever having authorized or accepted the collect calls.¹⁶

TABLE 3

Consumer Complaints Concerning Legacy Received by CAB

2005 through 2008

YEAR	Total Number of Complaints Received by CAB	Unauthorized Charge	Unreasonable Rates	Lack of Disclosure	Other17
2005	160	41	70	31	18
2006	255	71	123	36	25
2007	228	53	110	36	29
2008	63	15	21	14	13
Total	706	180	324	117	85

Source: CPSD analysis of data in the CAB database.

Of the 706 complaints CAB received in the above 4-year period, 180 complaints concerned cramming. By comparison, 324 complaints concerned unreasonable rates and 117 were about the lack of disclosure of rates and/or charges. Upon reviewing the CAB complaint files, Staff found that many complaints characterized as disclosure or unreasonable rates are also cramming complaints. For example, consumers who complained of inadequate disclosure and lack of opportunity to inquire about collect call rates because of Legacy's automated operator system also had no opportunity to authorize or reject the collect calls in dispute. Hence, charges arising out of such calls can also be considered unauthorized charges. Legacy's President has admitted that Legacy's automated operator program does not permit California collect call recipients to ask for rates.¹⁸ CPSD found that the majority of the Legacy-related cramming complaints reported to CAB concerned collect calls placed from payphones for which Legacy provides operator service.

Given the large number and the nature of consumer complaints against Legacy, CPSD conducted further investigations to determine the scope of Legacy's potential wrongdoing.

D. Scope Of CPSD Investigation

The CAB database contained 706 consumer complaints filed against Legacy for the period 2005 to 2008. Of the 706 complaints, staff was successful in locating 345 paper files. Of the 345 paper files, 162 files contained sufficient background information (consumer letters and bills) to allow staff to evaluate the veracity of the complainant's case. Staff attempted to reach the 162 complainants and was successful in interviewing 91 complainants. The balance of 71 (162-91) complainants could not be reached or declined to be interviewed. The 91 complaints constitute the sample used by staff to form its conclusions presented in this report.

The complainants provided Staff with the authorization to obtain their automated messaging account (AMA) or "switch records" and/or telephone bills in relation to their complaints against Legacy. Staff reviewed and analyzed the details of the complaints raised by the 91 consumers. Staff determined whether these complaints are supported by switch records obtained from their respective carriers and from Legacy. Staff also reviewed the billing records associated with these complaints to understand the nature, duration, and point of origin of the subject calls. Staff summarizes its findings and conclusions in this report. Of the 91 complainants, 54 signed Declarations attesting to their respective complaints. Several complainants also agreed to testify before the Commission about their complaints, if called upon.

TABLE 4

CPSD Staff Contacts with Consumers Who Complained to CAB

Concerning Legacy

2005 through 2008

Year	Total Number of Complaints to CAB	Number of Paper Files CPSD Received	No Paper File Available, Anonymous, Duplicate, Out of State, No Information, Complainant Unavailable	Number of Complain-ants CPSD Attempted to Reach	Number of Complain-ants CPSD Reached	Number of CAB Complain-ants with Declarations
2005	160	90	15	13	0	0
2006	255	155	69	86	49	28
2007	228	90	37	53	34	20
2008	63	10	0	10	8	6
Totals	706	345	121	162	91	54

² A LATA - a Local Access and Transport Area - is a geographic region established to differentiate local and long distance telephone calls within the U.S.

³ Appendix 1, Deposition of Legacy President Curtis A. Brown., pp. 14-15, lines 27-1.

⁴ Appendix 2, Deposition of Legacy President Curtis A. Brown, p. 17, lines 3-6; Mr. Brown states that Legacy serves somewhere around 30,000 pay phones in California; also Appendix 3, Legacy Response to CPSD Data Request 1-13, citing 39,255 active lines, filed under seal; Appendix 4, Legacy Response to Data Request 2-1B, listing more than 61,000 separate pay phones in California, filed under seal.

⁵ Appendix 5, BSG Clearing Solutions Subscriber Complaint Reports Years 2005 - 2008, filed under seal. BSG is a subsidiary of Billing Concepts Inc.

⁶ Appendix 6, Protest of the Consumer Protection and Safety Division to the Application of Legacy Long Distance International, Inc., A.06-11-003, December 14, 2006.

⁷ Appendix 7, Report and Testimony, Protest of Legacy Long Distance International, Inc.
A.06-11-003, August 13, 2007, filed under seal.

⁸ Ibid.

⁹ Ibid.

¹⁰ Ibid.

¹¹ Appendix 7.

¹² Appendix 8, Testimony of Curtis A. Brown, President, Legacy Long Distance International, Inc., A.06-11-003.

¹³ Appendix 9, Decision 08-04-021 April 10, 2008. In the Decision, ALJ Patrick granted Legacy's request to withdraw its Application for a CPCN as a facilities-based local exchange carrier and granted CPSD's request that Legacy and/or any of its officers, directors, or owners of more than 10% of Legacy outstanding shares shall reference CPSD's protest and this decision in any future application for authorization to provide telecommunications services in California.

¹⁴ Appendix 5.

¹⁵ Appendix 10, Legacy Responses to Data Request 1-8.

¹⁶ Appendix 11, Deposition of Legacy President Curtis Brown, page 140, lines 20-24.

¹⁷ "Other" complaints cover such diverse matters as out of state complaints over which the PUC has no authority; complaints filed anonymously, duplicate complaints, complaints concerning another OSP, complainants whose contact phone numbers have been disconnected and there is no forwarding address or telephone, etc.

¹⁸ Appendix 12, Deposition of Legacy President Curtis Brown, page 189, lines 5-13.