5. Discussion

5.1. Need to Clarify Existing Rules

Despite the existence of GO 168, and extensive efforts by this Commission and our staff, along with the carriers, the record shows that unauthorized charges continue to vex California telecommunications customers. DRA presented Commission records from deeply frustrated customers showing unauthorized charges that reappear on monthly bills despite extensive time and effort to dispute the charges. The U.S. District Court opinion describes this "vulnerable underbelly" and finds the market "under-regulated." AT&T has entirely discontinued billing for certain services due to the high rate of customer complaints, and is considering additional stringent limitations.

A key objective in establishing cramming reporting requirements is to provide information to assist the CPSD in identifying unauthorized billing, bringing it to a halt, and obtaining refunds for subscribers. However, this objective can only be achieved if the information requirements are clearly articulated such that the resulting reports are useful.

Since unambiguous substantive requirements are necessary to achieve our compliance objectives, we find that it is important to ensure that Part 4 of GO 168 clearly specifies the rules required to ensure that only authorized charges are placed on a subscriber's bill. Accordingly, we clarify the current rules in Part 4 of GO 168 so that there is no ambiguity concerning the carriers' obligations under the Public Utilities Code to ensure that only authorized charges are placed on a subscriber's bill.

The revised Part 4 of GO 168, we adopt today will also provide a consistent set of rules that would apply to all carriers.

5.2. Subscriber Authorization

In response to repeated and statewide unauthorized telephone billing scandals, the Legislature adopted stringent consumer protection standards for California telephone corporations providing billing and collection services to third parties. The Legislature also required the Commission to oversee third-party billing on California telephone bills. The Legislature adopted specific statutory protections for subscribers, and allowed the Commission to "adopt rules, regulations, and issue decisions and orders, as necessary, to safeguard the rights of consumers and enforce the provisions of this article." (§ 2889.9(i).)

Section 2890(a) places all authority for all charges on a telephone bill with the subscriber: "A telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized." Where a dispute arises about authorization, the same statute goes on to further protect the subscriber: "[i]n the case of a dispute, there is a rebuttable presumption that an unverified charge for a product or service was not authorized by the subscriber and that the subscriber is not responsible for that charge. (§ 2890(b)(2)(D).)

For purposes of enforcement, the Public Utilities Code extends the Commission's jurisdiction over nonpublic utilities that generate a charge on a subscriber's telephone bill. Where the Commission finds that "a person or corporation" has violated §§ 2890 and/or 2889.9, the Commission is authorized to treat that person or corporation as if it were public utility for purposes of fines, contempt citations, and other penalties. (§ 2889.9(b).) The Commission also has explicit authority to order any billing telephone company to "terminate the billing and collection services" for any person or corporation failing to comply with these statutory sections. To assist the Commission in making this determination, the statute also directs the Commission to require each billing telephone corporation, billing agent, and service provider to report subscriber complaints to the Commission, and the Commission to initiate formal investigations as necessary. (§ 2889.9(d) and (e).)

The record of this proceeding shows that many California telephone corporations do not require the firms that place charges on subscribers' bills to obtain purchase authorization from the subscriber.81

We have adopted modifications to GO 168 as reflected in the rules attached to today's decision to clarify that, as unambiguously required by the Public Utilities Code, the subscriber must authorize all charges that appear on a California telephone bill. We have also clarified the definition of subscriber.

5.3. Wireless Carriers and Subscriber Authorization

Currently, wireless carriers place charges for third-party content on a subscriber's bill if a text message is sent to request the third-party content and then affirmed after being informed of the price. The carriers maintain that this "double opt-in" process ensures that only third-party charges authorized by the subscriber are placed on the subscriber's bill. Finally, CTIA states that the "best practices guidelines" developed by the MMA directly addresses how charges can be placed on a subscriber's bill. It has been suggested that these proposed rules are not needed due to the adoption of the MMA's best practices guidelines by most of the wireless carriers. We do not agree, as we do not believe the MMA guidelines sufficiently meet the requirements of §§ 2889.9 and 2890. For example, the MMA guidelines would allow any person in possession of the wireless handset to authorize charges to be placed on the subscriber's bill,82 not just the subscriber as mandated by § 2890.83

As clarified in the revised rules, only the subscriber may authorize that a charge be placed on his/her bill. Since the current MMA guidelines do not currently limit authorization to the subscriber, use of the double opt-in process to purchase third-party content and services does not, by itself, demonstrate affirmative authorization by the subscriber.

We have considered whether the rules should be revised to require that subscribers "opt-in" to third-party billing - all bills would be closed to third-party charges absent affirmative subscriber authorization - or "opt-out" by requesting a block be placed on their lines. In their comments, some parties have proposed an "opt-in" approach as an alternative means to enhance consumer protection while simultaneously offering abundant options, and without imposing undue costs on Billing Telephone Corporations. While it is clear that an opt-in option would offer subscribers more protection from unauthorized charges, this would represent a significant operational change from current third-party billing practices and may result in customer confusion and dissatisfaction. At the same time, we are concerned that allowing all subscribers of Billing Telephone Corporations to be open to all third-party billings, regardless of the subscriber's preference, leaves subscribers too vulnerable and fails to comply with Pub. Util. Code § 2890(a).

DRA recommended that all Billing Telephone Corporations be required to provide subscribers with a cost-free option to block all third-party billing, and actively inform their customers of the option.84 Further, DRA, UCAN, and TURN supported offering subscribers the option to block all third-party charges when they initiate service.85 DRA explained that the Commission had received complaints of carriers telling subscribers who request such a block that state and federal law mandates that the carrier provide billing to third parties. In response, both AT&T and Verizon stated that most Billing Telephone Corporations offer subscribers the ability to block third-party charges, free-of charge.86

MMA and CTIA contend that the statutory requirement would be "impossible" for carriers to implement, with only a single subscriber to a plan being permitted to make purchases.87 The MMA, however, agreed that other regulators when considering this same question have concluded that "carriers and content providers must require that only users authorized by the subscriber be permitted to make mobile billed content purchases" and offered a plan from the Florida Attorney General to address these concerns.

The Florida plan put forward here by the MMA is reflected in a settlement agreement with a wireless carrier providing for enhanced third-party billing disclosures to customers and offering customers means to limit or prohibit such charges from appearing on their bills. Specifically, the Florida Attorney General reached an Assurance of Voluntary Compliance Agreement with T-Mobile which required the carrier to affirmatively inform new customers of the potential for third-party charges on the bill and to offer the customer the option of blocking or limiting such charges. Written notices to existing customers were also required as well as generally available information on the carrier's web site and in customer brochures.88 As noted above, this type of authorization to receive third-party charges is also supported by DRA, UCAN, and TURN.

Given the record showing that wireless carriers are not and will encounter great operational difficulty in meeting the statutory definition of subscriber authorization, we have considered the Florida plan offered by the MMA and the general support for such proposals from three of our leading consumer organizations. Based on this record, we are prepared to interpret the statutory definition of subscriber to include more than just the person listed on the bill under certain circumstances. We do so as a means of balancing our responsibilities to protect consumers from unscrupulous Service Providers while at the same time fostering an abundant mobile media marketplace in California.

We, therefore, find that the statutory requirement for subscriber authorization can be met by Service Providers for telephone lines where the subscriber has been informed by the Billing Telephone Corporation that the subscriber's line is open to third-party charges and has been provided the option to block this access. A subscriber giving a Billing Telephone Corporation permission to place third-party charges on the subscriber's bill after having been informed and not opting to block access satisfies the requirement found in § 2890 that the subscriber authorize the purchase because the subscriber is affirmatively indicating a willingness to be responsible for charges originating from Service Providers other than the Billing Telephone Corporation.

This interpretation places responsibility on the subscriber to be aware of the potential for third-party charges and to carefully review the bill to ensure only authorized charges are presented. The subscriber will also have notice of the potential for third-party charges on any handset the subscriber allows another person to possess. This interpretation is consistent with and furthers the statutory objective of allowing the subscriber to determine the contents of a California telephone bill.

To effectuate this interpretation, we will modify the definition of subscriber to include:

any person lawfully in possession of a wireless handset where the subscriber of record after being fully informed of the optional nature of this feature and the associated responsibilities has authorized the Billing Telephone Corporation to place third-party charges on the subscriber's bill for the line serving the handset.

We will further require that wireless carriers relying on this definition of subscriber explain at service initiation in clear and concise written terms that the subscriber's line is open to charges from third-party service providers and that the subscriber has the option to block these charges. The Billing Telephone Corporation shall not charge for blocking and must allow subscribers to add or remove this feature quickly and easily at any time.89 Subscribers must be reminded in writing no less than once each calendar year that third-party charges may be placed on the bill and of the option to block such charges at anytime and at no additional cost. Full explanations of this option shall be presented in the wireless carrier's web site, tariffs, and customer brochures. The carriers relying on this definition shall also cooperate with the Commission's staff in presenting these options in any consumer information prepared by staff including the Cal Phone Info web site.

To avoid customer confusion, wireline carriers will also be required to offer cost-free measures to limit or block the placement of third-party charges on a subscriber's bill.

5.4. Billing Telephone Corporation Responsibility to Investigate

The record shows that customers do not carefully check bills and often pay small charges, even if unauthorized, due to the time and inconvenience of disputing the charge. Ensuring comprehensive refunds for all unauthorized charges are available is essential to removing the reward for unauthorized billing. Billing Telephone Corporations must remain responsible for refunding up to one year after the bill, even if mistakenly paid by the subscriber. Billing Telephone Corporations must prevent or detect what the federal court called "fraudsters" from surreptitiously placing unauthorized charges on many bills, cheerfully refunding to those that complain, and pocketing the payments from the unsuspecting. To comprehensively address this situation for all wrongfully billed subscribers, all such subscribers must have access to refunds.

The revised rules clarify that the Billing Telephone Corporation has an affirmative duty to investigate, not only when there are allegations of unauthorized billings, but also when there are reasonable grounds for concern. The revised rules also make clear that a Billing Telephone Corporation is responsible for refunding all unauthorized charges presented in its bill, regardless of whether the unsuspecting subscriber may have paid the charge.

5.5. Reporting Requirements

This Commission is required to adopt rules that provide for reports on the number of subscriber complaints of unauthorized charges being placed on their bills:

The Commission shall establish rules that require each billing telephone company, billing agent, and company that provides products or services that are charged on subscribers' telephone bills, to provide the Commission with reports of complaints made by subscribers regarding the billing for products or services that are charged on their telephone bills as a result of the billing and collection services that the billing telephone company provides to third parties, including affiliates of the billing telephone company.90

Over the years the Commission has adopted a series of rules culminating in the current version found in GO 168, Part 4, that provide for reports to the Commission staff. As noted earlier, these rules require clarification, particularly regarding wireless carriers.91

As set out in Rule 10 of the revised GO 168, Part 4, included with today's decision, we clarify that all Billing Telephone Corporations must retain sufficient subscriber records to enable refunds to be issued if necessary. This information need not reside in a single database. However, the Billing Telephone Corporation must be able to compile the information, upon request by the Commission and its staff, to enable refunds to customers. We have also added substantial flexibility to this requirement.

We find that the reports proposed by CTIA in its Supplemental Comments do not meet the requirements of § 2889.9(d). Among other things, CTIA's proposed reports are limited by "campaigns," not service providers. This would not provide sufficient information for CPSD staff to pursue an enforcement action against firms or natural persons. Moreover, CTIA's proposed termination and suspension reports include no objective standards.92 Finally, these proposed reports would be based on national, rather than California-specific, data. Nonetheless, we find that with some modifications, the report formats proposed by CTIA would provide the necessary information to assist CPSD in identifying service providers who warrant further investigation. Once these service providers are identified, CPSD may seek further information from the Billing Telephone Corporation or the Billing Agent through data requests.

We adopt the reports listed below. We recognize that further refinements to the reporting requirements may be needed once we gain experience with the data provided. Any future refinements to the rules would only be considered to the extent that the revisions are necessary to safeguard the rights of consumers.

Report of Refunds

On a quarterly basis, all wireless Billing Telephone Corporations and their Billing Agents shall submit a calendar month summary of all refunds made to subscribers with California area codes. This report shall provide the following information by service provider:

We believe that the information required in this report reasonably balances our mandate under § 2889.9(d) with the desire to not overly burden the Billing Telephone Corporations. Although § 2889.9(d) refers to subscriber "complaints," we have expanded the rule to include "refunds" as a proxy for complaints as a more complete and expedient means to gather appropriate information on a timely basis. This expansion of the rule addresses the concerns raised by the wireless carriers that tallying subscriber complaints of unauthorized charges would be excessively burdensome. We understand that a tally of refunds will necessarily include items beyond unauthorized charges, but over time the resulting data will be useful to indicate unusual increases in customer contacts, which could for the basis for further investigation. In a similar manner, we recognize that a report by California area code may include wireless subscribers who do not reside in California and exclude subscribers who reside in California, but have a wireless handset with a non-California area code.

Complaint Reports

For the wireline Billing Telephone Corporations and their Billing Agents, we retain the current complaint reporting requirements adopted in D.00-03-020. As noted by AT&T, these requirements have been in place since 2000, and there is insufficient basis to conclude that they are deficient.

Report of Suspensions and Terminations

On a quarterly basis, all Billing Telephone Corporations and Billing Agents shall submit a report listing all third-party services that have been suspended or terminated, grouped by service provider. The report of suspensions and terminations shall not include services that are complete or otherwise expired. The report may be based on either national or California-specific data and shall include the following information:

This report shall include not only Premium SMS campaigns, but also any other offerings by third-party providers.

In addition to the Report on Suspensions and Terminations, Billing Telephone Corporations and Billing Agents shall be required to notify the Director of CPSD of any terminations of service providers within 10 business days. This notification will include contact information for the service provider and an explanation of why the provider was terminated.

Blocking Report

On an annual basis, all Billing Telephone Corporations shall submit a report describing the means offered to subscribers to restrict or otherwise block the purchase of Premium SMS or third-party services.

5.6. Consumer Education

All carriers who offer third-party services to their customers shall cooperate with the Communications Division and CPSD by participating in workshops for the purpose of: (1) creating new and updated consumer information to be placed on the CalPhoneInfo web site maintained by the Commission and (2) reviewing customer education materials to be provided by the carriers. The on-going objective is to provide consumers with the latest and most useful information regarding the use of third-party services, including how to subscribe and unsubscribe to such services, the tools made available by carriers to filter and/or block third-party services or their related charges, information to assist consumers in avoiding cramming, and a description of how consumers can obtain relief if cramming occurs. CPSD shall schedule such workshops as necessary to discuss and update customer education materials provided by the carriers. All carriers offering third-party billing must attend these workshops in furtherance of these goals.

5.7. Easing of Administrative Burdens

Today's decision clarifies the rules previously adopted in GO 168, Part 4 and adopts reporting requirements for all Billing Telephone Corporations. In light of these directives as well as the voluminously articulated comments on the cost of reporting requirements, we have eased the requirement that Billing Telephone Corporations and Billing Agents have in place and comply with a protocol for identifying unauthorized charges and terminating billing service to any Service Provider or Billing Agent that submits such billings. The revised rules require that the protocol be submitted to the Director of CPSD upon request.

Finally, in response to many comments seeking blanket exemptions from the reporting rules, a process for requesting such an exemption is created for pre-paid wireless carriers and carriers that provide service only to business and wholesale customers.

5.8. Implementation Period

Carriers have requested time to conform their operations to the revised rules adopted in today's decision. We will direct that all California Billing Telephone Corporations comply with the revised GO 168, Part 4 at the earliest practicable date and in no event later than 90 days after the effective date of this order.

81 See, e.g., Verizon Wireless Comments discussed above.

82 See Verizon Wireless Comments at 6 - 8.

83 We note as well that BSG's "URU" tool described above, which uses thirteen vendors to confirm that the identity of the person ordering the service, similarly does not confirm that the person placing the order is the subscriber.

84 DRA Opening Comments at 10.

85 Id.; UCAN Opening Comments at 18; TURN Opening Comments on the PD at 3.

86 Reply Comments of AT&T California, AT&T Communications of California, Inc., and New Cingular Wireless PCS, LLC at 10; Reply Comments of Verizon California Inc. at 13.

87 MMA Opening Comments on the PD at 10; CTIA Opening Comments on the PD at 4.

88 See Attachment A to MMA Opening Comments on the PD.

89 For wireline Billing Telephone Corporations, this option to block third-party services shall not extend to any services they are required by law to provide, such as the option to purchase long distance services from a competitor, or services or products offered by their affiliates.

90 Pub. Util. Code § 2889.9(d).

91 Some of the current rules were initiated in the late 1990's, when the wireless industry was in a nascent stage and did not offer third-party billing. See, e.g., D.00-03-020.

92 We are mindful of Verizon Wireless' statement that it terminates third-party billing customers based on "the totality of the circumstances" as described above.

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