Decision 02-08-074 August 22, 2002

Before The Public Utilities Commission Of The State Of California

Investigation on the Commission's own Motion into the operations, practices, and conduct of Vista Group International, Inc. (U-5650), doing business as Vista Communications (Vista), Thomas Coughlin, Chief Executive Officer of Vista, and Philip Bethune, President of Vista, to determine whether they have violated the laws, rules, and regulations governing the manner in which California consumers are switched from one Long Distance carrier to another. ________________________________ Application for Authority to transfer control of Communications Billing Inc. (U-6020-C) from its current shareholders to Thomas M. Coughlin, Sr. and Philip A. Bethune.

Investigation 99-04-020 (Filed April 22, 1999) Application 99-09-038 (Filed September 20, 1999)

Regina M. DeAngelis and James McTarnaghan for Communications

Billing, Inc., applicant.

David Crocker and Lawrence M. Brenton for Vista Group

International. Inc., respondent.

Stephanie Krapf for Pacific Bell, interested party.

Carol Dumond for Consumer Services Division.

ORDER DENYING REHEARING OF

DECISION (D.) 01-09-017

I. INTRODUCTION

On April 22, 1999, we instituted an investigation into alleged cramming and slamming activities by Vista Group International, Inc. ("Vista"). Vista is an Ohio corporation certified by Decision (D.) 96-07-051 to do business in California as a switchless reseller. In the investigation, Vista was alleged to have violated Public Utilities Code Sections 702 and 2889.5¹ by failing to adequately supervise its telemarketers, such that thousands of customers switched long distance providers after receiving misleading solicitations and inadequate information about the rates and switching charges. We also investigated whether fines should be imposed pursuant to Sections 2107 and 2108, whether Vista should be ordered to cease and desist from any unlawful operations or pay restitution, and whether Vista's certificate of public convenience and necessity should be suspended or revoked.

On November 10, 1999, the Assigned Commissioner consolidated this proceeding with Application (A.) 99-09-038, which was filed on September 14, 1999. The investigation proceeding was adjudicatory with a 12-month deadline, whereas the later filed application is ratesetting. On April 6, 2000, pursuant to Section 1701.2(d), we issued D.00-04-032, which extended the 12-month deadline in the consolidated proceeding in order to accommodate the later schedule of the application.

An evidentiary hearing was held on October 18-22, November 15-19, and December 6 and 15, 1999. Vista and the Commission's Consumer Services Division ("CSD") filed concurrent opening and closing briefs on January 7 and 14, 2000, respectively.

At the hearing, CSD produced the following evidence against Vista. Vista purchases long distance services from other carriers and does not have its own primary interexchange carrier ("PIC") code with local exchange companies ("LECs"). Customer data accumulated by LECs regarding Vista appears in the name of the underlying exchange carrier, but underlying carriers are able to separate out any PIC disputes regarding Vista. In 1996, shortly after starting to operate in California, Vista contracted with telemarketing firms to solicit California small business customers for Vista's long distance services. In 1998, Vista had approximately 67,000 California customers and reported total revenues nationwide of $40 million with an overall net loss.

During 1997 and 1998, customer complaints about Vista were received from all over the state by the Commission, Vista, the Federal Communications Commission, and the Better Business Bureau of Ohio ("BBB"), where Vista was incorporated. CSD reviewed 133 written complaints against Vista and personally interviewed 122 complaining customers. CSD also received a copy of BBB's annual report on Vista, which stated that BBB had processed a pattern of complaints alleging that Vista used deceptive selling practices.² In the written complaints, customers alleged that their long distance service was switched to Vista from their chosen carrier without the customer's knowledge, authorization or consent, and most of the complaining customers state that the telemarketer contacting the customer claimed to represent a company other than Vista, such as Pacific Bell.³ A majority of complaining customers also claimed that the telemarketer offered to consolidate local and long distance charges into one bill, and represented that nothing else would change. Other customers indicated that the telemarketer claimed to be calling to conduct a telephone survey, to obtain billing information, to simplify the company's billing, or to obtain the best long distance rates available for the customer.

In addition to interviewing virtually all customers who filed written complaints, CSD determined that 10,773 PIC disputes were recorded against Vista by various local exchange carriers and underlying interexchange carriers during 1997-1999.⁴ Customer complaints may be lodged with a local exchange company, long distance carrier, billing agent or reseller. A PIC dispute is recorded for each telephone line involved in the dispute.

Vista submitted verification tapes at the hearing in support of its claim that all switches in service were independently verified. Vista played these verification tapes for several customers who testified at the hearing. After hearing the verification tapes, all but one of the customers still insisted they did not authorize their service to be switched, and some customers indicated that their conversation with the verifier was terminated when they declined to switch service or asked for clarification about the transaction.

A Presiding Officer's Decision ("POD") was issued in this matter on May 4, 2001. On June 4, 2001, CSD filed an appeal of the POD, alleging several errors in the POD and recommending an increase in fines assessed to Vista. Vista filed a response to CSD's appeal on May 12, 2001.

On September 19, 2001, we issued D.01-09-017. The Decision ordered Vista to cease and desist from engaging in "slamming" (unlawful switches in service) by fraudulent telemarketing solicitation and to pay a fine of $7.0 million to the General Fund of the State of California within 12 months of the effective date of the Decision. The Decision also granted the application by Communications Billing, Inc. to withdraw the joint application to transfer a portion of its customer base to Thomas M. Coughlin, Sr. and Philip A. Bethune, owners of Vista.

Vista filed a timely application for rehearing of D.01-09-017 on October 19, 2001. No responses have been filed.