3. Should the Commission Revise
the NDIEC Registration Process?
Before addressing the specific proposals put forth in the OIR, we first address challenges to the need to revise the NDIEC registration process established by D.97-06-107.
DRA and UCAN support the OIR's proposals to revise the NDIEC registration process to require applicants to undergo a more thorough review because, according to DRA and UCAN, adopting more stringent registration requirements for NDIECs will help screen out illegitimate providers and reduce the number of defrauded consumers. UCAN states that stricter NDIEC registration requirements will make it more difficult for applicants to disguise financial instability or hide past violations, and that additional safeguards to identify illegitimate providers will reduce the Commission's work load because the Commission will have fewer consumer complaints to investigate, fewer fines and less restitution to pursue, and fewer certificates to revoke.
UCAN recommends, however, that the Commission determine if the simplified registration process should be eliminated altogether and instead require all carriers to use the Certificate of Public Convenience and Necessity (CPCN) application process. UCAN also requests that the Commission expand the OIR or open a new proceeding to consider whether the CPCN process is sufficient to address the issues raised in the Audit Report.
Parties representing NDIECs assert that the OIR is based on stale data, and contend that there is currently not a problem with NDIECs or the NDIEC registration process that requires correction. ExteNet states that the Audit Report focused on deficiencies in the Commission's collection process, not the Commission's certification processes, and ExteNet opposes additional NDIEC registration requirements.
CALTEL states that the current NDIEC registration process is working, and that selecting NDIEC registrants for increased regulation is not competitively neutral. CALTEL recommends that the Commission first determine if there is a problem with NDIECs before undertaking potentially unnecessary revisions. CALTEL states, however, that, based on its conversations with the Commission's Consumer Protection and Safety Division (CPSD), CALTEL supports CPSD's desire to revise the NDIEC registration form to provide information to help the Commission better evaluate new NDIEC applications.
According to CALTEL, there are fewer and larger telecommunications companies as a result of industry consolidation occurring since the late 1990s, and "fly-by-night" companies that appeared at that time no longer exist. CALTEL states that it is unable to identify any Orders Instituting Investigation (OIIs) issued against a registered NDIEC since 1999.
DRA disagrees with CALTEL's assertions that the OIR is based on stale data and that there is currently not a problem with NDIECs. According to DRA, CPSD has protested 16 registration applications since 2007. Some of the protests were settled, some applications were withdrawn as a result of CPSD's protests, and some applications resulted in settlements for the payment of penalties. Thus, DRA asserts that there are ongoing problems with NDIEC registrants and, therefore, the OIR is timely and necessary.
CALTEL asserts that most remaining NDIECs also hold CPCNs as competitive local exchange carriers (CLCs) or incumbent local exchange carriers (ILECs). As a result, according to CALTEL, NDIECs with CPCNs have undergone a more thorough review and are subject to more stringent regulations than registration-only NDIECs.
CALTEL recommends that, before revising the NDIEC registration process, the Commission first review the Commission's utility (U-Number) database to determine how many NDIEC-only carriers continue to operate in California, and then provide carriers an opportunity to review and update obsolete or duplicative information in the U-Number database. CALTEL asserts that cleaning up the U-Number database will show that most remaining NDIECs also hold CPCNs to operate as CLCs or ILECs.
CALTEL further recommends that the Commission conduct a review to determine if there have been Commission enforcement actions against NDIECs in recent years, and whether the NDIEC-specific problems identified by the Audit Report still exist. CALTEL recommends that the Commission consider revising the NDIEC registration process only after the Commission knows how many NDIEC registrants remain and whether these registrants are creating enforcement problems. CALTEL contends that, without current information, parties cannot determine if there is sufficient justification for revising the NDIEC registration process.
The Audit Report clearly documented the issues that the OIR seeks to address, including, in particular, the need to more carefully review the background of registration applicants to identify unscrupulous individuals or companies, and to improve the Commission's ability to successfully collect fines and bring about restitution. The concerns identified in the Audit Report, and addressed in the OIR, exist whether or not the Commission has recently undertaken enforcement actions.
The Audit Report stated that the Commission has little leverage to collect fines or restitution from companies that engaged in fraudulent or inappropriate practices and ceased to operate or filed bankruptcy after the Commission initiated investigations or shortly after the Commission imposed fines.6 The Audit Report found that the intervening time required to conduct an investigation, and to impose fines on, or require restitution from a carrier, provides violators ample opportunity to evade sanctions and to hide or shield ill-gotten assets from recovery.
The Audit Report also stated that the current registration process is inadequate because registration applicants need provide only minimal information and pay a nominal application fee to register as a telecommunication provider.7 The Audit Report recommended that the Commission conduct more stringent background and financial viability reviews of registration applicants, and require registration applicants to post a performance bond. Thus, according to the Audit Report, while the Commission may not be able to ensure that fines are paid or restitution is made in every case of wrongdoing, the current registration process remains insufficiently rigorous to prevent unscrupulous individuals or companies from obtaining authority to operate in California in the first place.
The purpose of the OIR is to consider revisions to the registration process to reduce the potential for fraud or other inappropriate practices. Obtaining additional relevant data on registration applicants during the application process and establishing other requirements proposed in the OIR should reduce the likelihood that subsequent enforcement actions against a carrier will be necessary, and, when enforcement actions against a carrier are necessary, should improve the Commission's ability to collect fines, assess penalties, and bring about restitution.
In light of the problems identified in the Audit Report, it is unreasonable to refrain from action at this time merely because there may have been fewer recent enforcement proceedings, or to delay revising the NDIEC registration process until we again find that we are unable to collect fines or ensure that a carrier makes restitution. The Commission does not need to make a showing of recent failures to collect fines or effect restitution, in order to justify revising the registration process.
We agree with the Audit Report that, once an investigation is launched, it is "inherently difficult" in many cases - particularly involving less established carriers - to ensure the collection of fines or payment of restitution.8 Therefore, it is reasonable and prudent to take steps now, both to reduce the need for future enforcement actions, and to increase the likelihood of successfully collecting fines or bringing about restitution once an enforcement action is initiated.
The Commission's Communications Division (Communications Division) reports that there are currently 551 active NDIECs in California, of which 257 (47%) hold CPCNs obtained through a full application process (i.e., pursuant to § 1001), 232 (42%) are registered through the streamlined process pursuant to § 1013 (registration-only),9 and 62 (11%) are both registered and hold a CPCN. Thus, a large portion of active NDIECs are registration-only, and registration-only NDIECs will likely remain a significant portion of active NDIECs for the foreseeable future. Therefore, we are persuaded that revisions to the NDIEC registration process will be worthwhile.
We will not adopt CALTEL's recommendation to first determine how many NDIEC-only carriers continue to operate in California and provide carriers an opportunity to review and update obsolete or duplicative information before revising the registration process. Carriers may review and update obsolete or duplicative information at any time, and we urge them to do so. However, to postpone revisions to the registration process while conducting CALTEL's recommended review will delay changes to the registration process that may help prevent unscrupulous individuals or companies from imminently operating in California. Ultimately, the outcome of such an exercise will not improve the Commission's ability to collect fines or bring about restitution.
In their joint comments on the proposed decision (PD), CALTEL and ExteNet recommend that, before requiring registration license holders to submit an Information-Only advice letter containing proof of an executed performance bond, the Commission list all carriers that the Commission believes are registration license holders as of the date of the Decision, and establish a process for the listed carriers to initiate an inquiry and work with the Communications Division to resolve any disputes regarding their "registration-only" status.
We do not adopt this recommendation for the same reasons we do not adopt CALTEL's recommendation to review and update obsolete or duplicative carrier information before revising the registration process. A carrier that disputes its status as a registrant, pursuant to § 1013, need only provide documentation showing that it has interexchange authority, pursuant to § 1001, that is currently in effect.
ExteNet recommends that any additional requirements the Commission may adopt should be imposed only prospectively on new applicants. ExteNet states that it provides service only to other carriers and does not serve mass market consumers like those carriers of concern in the Audit Report. ExteNet states that the OIR does not analyze or identify particular risk factors that justify revising the registration process, and that the instances of carrier misconduct identified in the Audit Report do not justify new requirements for NDIECs such as ExteNet. ExteNet recommends that, before making changes to the NDIECs registration process, the Commission collect sufficient data to determine which, if any, categories of NDIECs pose a risk of financial failure or consumer harm.
We will not limit the scope of the rules established in this OIR to registrants serving only mass market consumers, or conduct analysis to determine if NDIECs serving particular types of customers pose special risks, as ExteNet recommends. The Commission does not limit the types of customers that NDIECs may serve. Thus, an NDIEC, such as ExteNet, serving wholesale customers today may choose to serve other types of customers, including mass market consumers, at any time without additional authorization.10
Because NDIECs may serve wholesale customers, mass market customers, or both kinds of customers, and may change their business strategy at any time, it would be administratively impossible to exempt from any revised rules certain registrants based on the type of customers served. Therefore, we will not adopt ExteNet's recommendation to assess the risk of financial failure or consumer harm by the type of service offered or type of customer served by registration-based NDIECs before making changes to the NDIECs registration process.
CALTEL and ExteNet assert that the Commission cannot legally impose new registration, bonding and other requirements on carriers that registered under existing rules, and changes to the registration requirements can be made only prospectively for new entrants. At the same time, however, CALTEL contends that any changes to the registration process that impose additional burdens only on new registrants creates barriers to entry and gives existing carriers an unfair competitive advantage.
CALTEL and ExteNet misstate the law. The Commission may at any time, upon notice to the parties, and with opportunity to be heard as provided in the case of complaints, rescind, alter, or amend any order or decision made by it.11 The simplified registration process has not been substantially revised in more than a decade, and changes that the Commission determines to be appropriate are within the Commission's authority to make and to apply to those carriers under its jurisdiction.
We will not adopt UCAN's recommendation to consider at this time eliminating the simplified registration process altogether and require all carriers to instead use the CPCN application process that we conduct pursuant to § 1001. As stated in D.97-06-107, our objective with the simplified registration process is to allow applicants that have no history of questionable behavior and that present noncontroversial applications to rely on an expedited and inexpensive means of securing operating authority. Before discontinuing the simplified registration process we should first consider reasonable modifications to better protect consumers while retaining the benefits of an expedited process.
We will not adopt UCAN's recommendation to expand the OIR or open a new proceeding to consider whether the CPCN application process undertaken pursuant to § 1001 is sufficient to address the issues raised in the Audit Report. The Audit Report does not specifically raise concerns about the adequacy of the Commission's CPCN application process, and none of the instances cited in the Audit Report involved a carrier that obtained authority through the CPCN application process.12
In its comments on the PD, DRA recommends that all NDIECs be required to use the registration process conducted pursuant to § 1013, and not be allowed to use the CPCN application process that the Commission conducts pursuant to § 1001 so carriers can not avoid posting a bond or complying with the additional disclosures requirements that we adopt. DRA alternatively recommends that the new requirements proposed in the PD also apply to NDIECs that apply for authority through the CPCN application process conducted pursuant to § 1001.
In reply comments on the PD, CALTEL and ExteNet oppose DRA's recommendation because, among other things, DRA's recommendations are beyond the scope of this proceeding.
This proceeding is limited to considering revisions to the simplified registration process established by D.97-06-107. Modifications to the CPCN process conducted pursuant to § 1001, including DRA's recommendations, are beyond the scope of this proceeding.
6 Audit Report, at 7.
7 We note that none of the instances cited in the Audit Report involved a carrier that obtained authority through the CPCN application process (although we do not conclude from this fact that the current CPCN application process is flawless). One of the three instances cited in the Audit Report involved a carrier that obtained authority through the simplified registration process (Accutel Communications), one involved a billing aggregator that did not offer regulated telecommunications services (USP&C), and one involved a carrier that operated without Commission authority (Coral Communications).
8 Audit Report at 7.
9 As a result of this Decision, the CPCNs issued since D.97-06-107, pursuant to § 1013, are now referred to as "registration licenses."
10 Moreover, this Commission has seen instances where wholesale carriers - once authorized - use the authorization to compel interconnection with incumbent and competitive carriers, and then refuse to pay interconnection charges, plead indigence, and generally ignore Commission orders, rules and regulations. (See, for example, D.07-06-044.)
11 § 1708.
12 We noted in the OIR, however, that CLCs were on notice that any rules adopted here may in the future be applied to other carriers certificated under Pub. Util. Code § 1001. (Slip Op. at 9.)
