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STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor

PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

June 3, 2010

TO PARTIES OF RECORD IN CASE 08-08-008, DECISION10-06-001
MAILED JUNE 3, 2010.

On April 29, 2010, a Presiding Officer's Decision in this proceeding was mailed to all parties. Public Utilities Code Section 1701.2 and Rule 15.5(a) of the Commission's Rules of Practice and Procedures provide that the Presiding Officer's Decision becomes the decision of the Commission 30 days after its mailing unless an appeal to the Commission or a request for review has been filed.

No timely appeals to the Commission or requests for review have been filed. Therefore, the Presiding Officer's Decision is now the decision of the Commission.

The decision number is shown above.

/s/ JANET A. ECONOME for

Karen V. Clopton, Chief

Administrative Law Judge

KVC:jt2

Attachment

ALJ/MCK-POD/jt2 Date of Issuance 6/3/2010

Decision 10-06-001 June 2, 2010

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Utility Consumers' Action Network (UCAN),

            Complainant,

vs.

MPower Communications Corp. dba TelePacific Communications fka MPower Communications aka TelePacific Holding Corp and related entities collectively "TelePacific," U5859C,

            Defendant.

Case 08-08-008

(Filed August 12, 2008)

    Art Neill, Attorney, Utility Consumer's Action Network, for Complainant.

    John L. Clark, Attorney at GOODIN, MACBRIDE, SQUERI, DAY & LAMPREY, LLP., for Defendant.

DECISION GRANTING COMPLAINT AND FINDING TELEPHONE CHARGES UNREASONABLE UNDER SECTION 451 OF THE PUBLIC UTILITIES CODE

Table of Contents

Title Page

DECISION GRANTING COMPLAINT AND FINDING TELEPHONE CHARGES UNREASONABLE UNDER SECTION 451 OF THE PUBLIC UTILITIES CODE 1

Assignment of Proceeding 46

Findings of Fact 46

Conclusions of Law 54

ORDER 56

DECISION GRANTING COMPLAINT AND FINDING TELEPHONE CHARGES UNREASONABLE UNDER SECTION 451 OF THE PUBLIC UTILITIES CODE

In this decision, we resolve the complaint filed by the Utility Consumers' Action Network on behalf of the Edelweiss Flower Salon and its owners. Utility Consumers' Action Network alleges that defendant MPower Communications Corp.1 acted wrongfully in billing Edelweiss Flower Salon in 2006 for telephone calls to foreign countries that were placed over Edelweiss Flower Salon's telephone lines, apparently as a result of computer hacking. Utility Consumers' Action Network alleges that Mpower's actions in billing Edelweiss Flower Salon on account of these calls - which Edelweiss Flower Salon denies were authorized - violated Sections 451, 2890, and 2896 of the Public Utilities Code.

As set forth below, we agree with Utility Consumers' Action Network that Mpower's actions violated Section 451, which requires that the rates charged and the service rules promulgated by public utilities must be just and reasonable. However, we reject the contention of Utility Consumers' Action Network that Mpower's actions constituted "cramming" in violation of Section 2890. In addition, although the information that Mpower presented to prospective customers was not a model of clarity, we also reject the contention of Utility Consumers' Action Network that the information furnished by Mpower to Edelweiss Flower Salon did not meet the requirements of Section 2896, which requires telephone corporations to furnish their customers with enough information so that the customers can make informed service choices.

Our decision today rests largely upon three factors: (1) the limited warning about toll fraud that Mpower gave to its new customers in 2005, which failed to mention the risks of modem hacking; (2) the measures that Edelweiss Flower Salon took in 2005-6 to secure its computer and telephone facilities, which were reasonable under the circumstances; and (3) the particular language of the parties' service agreement, which - as interpreted by Mpower - unfairly gives the company the unilateral right to determine whether the measures taken by a customer to secure the customer's telephone and computer systems are adequate. In view of the peculiar facts of this case, we are not deciding today the more general question of whether a telephone corporation regulated by this Commission is ever precluded from shifting liability for novel forms of toll fraud onto business customers.

1. Introduction

The complaint in this case was filed in August 2008. It alleged that Mpower Communications Corp. (Mpower) imposed unauthorized direct dialing charges on customers, failed to provide notice that international calls could be placed on the customers' accounts, and issued bills reflecting unpublished rates that were significantly higher than defendant's published rates. According to the complaint, these alleged acts constituted violations of Sections 451, 2890, and 2896 of the Public Utilities Code.

As explained below, the conduct at issue arises out of international calls that were placed from a telephone line used for facsimile (fax) service by the Edelweiss Flower Salon (Edelweiss), a flower shop located in San Diego, California. Originally a partnership, Edelweiss is now owned solely by Natalja Stepanova. In 2005, Edelweiss's owners contracted with Mpower for a business telephone package that included, among other things, a DSL internet access line, a DSL modem and three so-called POTS lines.2

According to the complaint, Edelweiss's troubles with Mpower began in September 2006, when Ms. Stepanova received a bill for the fax line totaling $1,043.13 (before taxes, fees and surcharges), most of which was attributable to 17 allegedly unauthorized international calls made to expensive satellite facilities. An even larger bill for the fax line was issued by Mpower for October 2006. It totaled $2,180.01 and, once again, reflected charges for another group of international calls made to expensive satellite facilities, calls that Ms. Stepanova insisted were unauthorized.

Ms. Stepanova declined to pay the bills, insisted to Mpower that the international calls were unauthorized and the result of fraud, and requested that the charges for the disputed calls be removed from her bill. When the charges were not removed, Ms. Stepanova hired an attorney. The attorney thought he had reached an understanding with Mpower that if Edelweiss paid the undisputed amounts relating to the fax line, Edelweiss's telephone service would not be cut off pending completion of Mpower's investigation into the alleged fraud. However, this was apparently not Mpower's understanding, and on November 28, 2006, after Ms. Stepanova refused to pay the full amount of the bills, the service on all of her lines was disconnected. On December 20, 2006, Mpower also billed Ms. Stepanova approximately $1,350 in early termination fees as a result of her decision to cancel her service agreement with Mpower. On January 30, 2007, Ms. Stepanova filed an informal complaint with the Commission's Consumer Affairs Branch (CAB).

In its answer, Mpower alleged that although it cannot be determined with certainty, it appears that the international calls Ms. Stepanova claims were unauthorized took place as a result of someone's hacking into the DSL modem that was connected to the computer connected to Edelweiss's fax line. Mpower also alleged that its June 2005 contract with Edelweiss specifically required the customer to secure its equipment against such unauthorized access, but that Edelweiss apparently failed to do so. Mpower also contended that the disputed calls were billed at $14.67 per minute, the lawful rate set forth on its website for Global Mobile Satellite System (GMSS) calls.3

1 According to the answer, the defendant's correct corporate name (and the name to which its Commission identification number is assigned) is Mpower Communications Corp. The answer was filed on behalf of Mpower Communications Corp. and its corporate parent, U.S. TelePacific Holdings Corp., which was named as a d/b/a in the caption of the complaint. In the discussion in this decision, we refer to the defendant simply as "Mpower."

2 "POTS" stands for Plain Old Telephone Service.

3 According to page 2 of the answer, publication of Mpower's GMSS rates on the company's website satisfies the applicable rules of the Federal Communications Commission (FCC).

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