6. Statement of Facts
On July 18, 1997, the Commission gave to TracFone's predecessor, Topp Telecom, Inc., a Wireless Registration Identification number, U4231C.20 At some point between 1999 and 2001, Topp Telecom, Inc., began operating under the name TracFone Wireless, Inc.21 TracFone operates as a subsidiary of América Telecom, S.A.B. de C.V. (América Móvil), a telephone company based in Mexico City.22 TracFone describes itself as a reseller of telecommunication service, specifically of Commercial Mobile Radio Service (CMRS).23 TracFone does not dispute that its wireless telecommunication services include California intrastate wireless calls.24 TracFone also describes its services as prepaid wireless services, meaning that customers purchase specific quantities of wireless service in advance; no bill is rendered to the customer after TracFone provides service.25 TracFone also describes its services as debit card services.26
TracFone states it resells the wireless services of Verizon Wireless, AT&T Mobility, and T-Mobile27 and that Verizon Wireless, AT&T Mobility, and T-Mobile are all telephone corporations and public utilities under California law.28
TracFone explains that it uses the term "resale" to mean that, among other things, under its business model, it purchases wireless telecommunication services at wholesale prices from the above-noted companies29 and, in what TracFone describes as a classic example of arbitrage, it resells these wireless services in the retail market.30 Under its arbitrage business model, TracFone sets its own rate structures and, as such, does not offer its customers the exact rate structures of TracFone's underlying carriers, Verizon Wireless, AT&T Mobility, and T-Mobile.31
In reselling its wireless services, TracFone's California customers32 consider TracFone, not the underlying carriers, such as Verizon Wireless, AT&T Mobility, and T-Mobile, as their wireless carrier for customer service issues.33
TracFone's prepaid wireless service is marketed and sold under the "TracFone," "Net10," and "SafeLink" brands.34 In each case, the customer is required to purchase and activate a TracFone handset (a mobile phone).35 Customers must load minutes onto the handset and are able to purchase additional minutes either on-line through TracFone's website or via prepaid cards.36 As of June, 2010, TracFone had approximately 16 million subscribers nationwide,37 including all three brands, and describes itself as "the largest operator in the U.S. prepaid cellular market."38
According to TracFone, its "customer usage" is controlled using patented, proprietary software installed in each phone TracFone sells, and TracFone provides customer service and manages customers as though it were a network-based carrier.39 TracFone sells both its handsets (phones) and airtime (sometimes packaged as "monthly plans") online40 and through a variety of U.S. retail stores, including Mollie Stone's and Walmart.41
In 2003, TracFone informed a Commission staff person, Mr. Hassan Mirza, in the Commission's Telecommunications Division, of its understanding that TracFone "does not render any `billings'" which would be reportable on the then-existing forms used to report and calculate the user fees and PPP surcharges.42 Mr. Mirza is no longer employed by the Commission. TracFone did not seek clarification from the Commission of the terms or requirements of its Wireless Registration in this regard, including its obligation to collect and remit public purpose surcharges and user fees.43 Instead, TracFone sought clarification exclusively through Commission staff.44 TracFone engaged in one, possibly two, telephone conversations with Commission staff. 45
TracFone claims that the Commission's staff stated that TracFone was exempt from payment of the user fees and public purpose surcharges.46 TracFone further claims that the Commission's staff statements are equivalent to the positions adopted by the Commission. 47
However, the content of the staff's statements were never adopted by the Commission.48 Additionally, TracFone never requested that the Commission adopt the staff's statements via, for example, approval of a waiver of the user fees or surcharges.49
By electronic mail dated May 1, 2009, the Commission staff informed TracFone that the user fees and surcharges did apply to TracFone's services.50 The Commission subsequently issued this Investigation proceeding, as described in more detail above, to determine whether the user fees and surcharges apply to TracFone's service and the extent of TracFone's obligation to pay. The amount of past due surcharges owed by TracFone and an appropriate penalty, if any, is the subject of phase 2 of this proceeding.
20 Exhibit TR-116 (Salzman), Att. 1 at 2; Exhibit CPSD-1 (Tan-Walsh,) Att. B at 2.
21 D.04-09-023, 2004 Cal. PUC LEXIS 607 *2-3: "In D.99-10-053, the Commission authorized Topp Telecomm [sic], Inc. (Topp), to acquire control of Comm South. Topp subsequently changed its name to TracFone ... On May 9, 2001, Comm South filed an advice letter in accordance with the procedures established by D.98-07-094 for authority to transfer control of Comm South from TracFone to Arbros."
22 CPSD Exhibit-1, Tan-Walsh at Atts. K.1 (Annual Report) and L.1 (Form 20-F of América Móvil, S.A.B. de C.V., filed with the Securities and Exchange Commission May 25, 2010, for fiscal year ended December 31, 2009.
23 Declaration of F.J. Pollak in support of response of TracFone Wireless, Inc. to the motion of Consumer Protection & Safety Division for summary adjudication November 17, 2010 (herein Pollak Declaration November 17, 2010) at 3:9-10. Pollak's declaration is contained within the document submitted in support of TracFone's opposition to the Motion for Summary Adjudication and entitled Declaration of F.J. Pollak in Support of Response of TracFone Wireless, Inc. to the Motion of Consumer Protection & Safety Division for Summary Adjudication.
24 CPSD's Motion for Summary Adjudication, Attachment Q-1 - Petition by TracFone for Designation as ETC in State of California dated August 7, 2008 at 9 and 16. TracFone states at 9 that "TracFone provides its subscribers with the ability to send and receive local phone calls wherever it provides service" and at 16 that "TracFone, through its resale of wireless services provided by its underlying vendors in California, provides service in every Zip Code in the State of California."
25 Exhibit TR-111 (Pollak) at 5:3-22.
26 TracFone opening brief at 29, referring to February 2, 2011 RT 388:13-16 (Pollak).
27 Pollak Declaration November 17, 2010 at 3:20-22.
28 Id. at 4:6-8.
29 Id. at 4:9.
30 Id. at 4:15-17.
31 Pollak Declaration November 17, 2010 at Att. 1 (stating the customer's terms and conditions of service and rates established by TracFone); CPSD motion for summary adjudication, Confidential Attachments S and U - Resale Service Agreements at "Resellers Obligation;" F31F Response of TracFone to motion for summary adjudication, Exhibit A at 6.
32 Pollak Declaration November 17, 2010 at 5:8.
33 Pollak Declaration November 17, 2010 at Attachment 1 (stating the customer's terms and conditions of service and rates established by TracFone); CPSD motion for summary adjudication, Confidential Attachments S and U - Resale Service Agreements at "Resellers Obligation;"FF Response of TracFone to motion for summary adjudication, Exhibit A at 6.
34 CPSD Exhibit 1 (Tan-Walsh), Att. L.1 at 57. Safelink is TracFone's Lifeline brand, and not sold in California.
35 Exhibit TR-111 at 7:18-23.
36 Id. at 9-10.
37 CPSD Exhibit 1, Att. K.1, Annual Report at 26.
38 CPSD Exhibit 1, Att. L.1, Form 20-F at 57.
39 Id., compare Exhibit TR-111 at 11.
40 Exhibit TR-111 at 9-10.
41 Id. at 5.
42 TracFone opening brief at 3-4; Exhibit CPSD-1 (Tan-Walsh) March 24, 2003 letter from TracFone counsel to staff person Hassan Mirza (Att. C), attached to April 22, 2009 (Att. E).
43 TracFone opening brief at 4.
44 Id.
45 February 3, 2011 RT 557:2-12, 569:7-10.
46 Exhibit TR-116:10-13 (Salzman).
47 TracFone opening brief at 4; February 3, 2011 RT 557:2-12, 569:7-10.
48 Id.
49 TracFone opening brief at 4.
50 TracFone opening brief at 3, referring to Exhibit TR-116 (Salzman), Att. 11 at 1 and Exhibit CPSD-1 (Tan-Walsh), Att. F.
