8. Appeals of POD and Briefs of the Amici Curiae
The appeals and the briefs of the amici curiae fall into three groups. Cingular argues that the POD is factually and legally erroneous and must be rejected in its entirety. Two of the amicus briefs, filed by the CCAC and the Joint Utilities, side with Cingular, though CCAC and the Joint Utilities purport to take no position on the facts unique to this proceeding.
In their "limited appeals" of the POD, CPSD and UCAN argue that the POD is too conservative in its analysis and its reach. These parties urge the Commission, after reweighing the evidence, to find additional violations. UCAN contends that the Commission should find Cingular's failure to disclose network problems was recurring during the entire period at issue, not just 2001, and should sanction Cingular for inaccurately advising specific customers that network improvements would soon be in place to solve various coverage and capacity problems. CPSD contends the Commission should assess the record against the requirements of the UCL and other consumer protection laws discussed in Section 4.1.2. UCAN and CPSD both contend that the Commission should find Cingular engaged in deceptive advertising. UCAN proposes the Commission order $4,850,000 more in penalties; CPSD does not seek additional penalties, but argues the record would support an increase, should the Commission choose to order a greater fine.
The two other amicus briefs, filed by CWA and TURN/CU, support the POD. They argue that the POD's legal and policy analysis is correct and urge the Commission to adopt the POD.
We examine several major contentions more closely below. We do not address the federal preemption arguments raised in Cingular's appeal and CCAC's brief, since we have previously reviewed and rejected the arguments these pleadings reiterate. (See Section 4.1.1 of this decision, which references our interim opinion in this proceeding, D.02-10-061). Under the theories Cingular and CCAC advance, the federal prohibition on state regulation of wireless providers' rates or terms of entry would prevent any meaningful exercise of the consumer protection authority reserved to the states.
8.1 § 451 Challenges
Cingular and the aligned amici curiae base their primary challenge on the POD's allegedly unprecedented reliance upon § 451 as a basis for levying penalties and ordering reparations. Cingular and these amici contend that § 451's just and reasonable service mandate is constitutionally too vague to support such remedies or reparations unless linked to violation of other, more specific law, whether statute, rule or tariff. (See Section 6.1.1 of this decision, which quotes the relevant portions of § 451.) They also argue that Cingular had no notice, actual or constructive, that its behavior might run afoul of § 451.
As the amicus brief of TURN/CU points out, the void for vagueness argument appears to conflict with the position Cingular and other wireless carriers have advanced in R.00-02-004, the pending Consumer Bill of Rights and Consumer Protection Rules proceeding. In that rulemaking, they have opposed the adoption of detailed consumer protection rules, arguing that existing general rules provide sufficient regulatory control, in conjunction with market forces and voluntary efforts by the wireless industry.
Apart from the apparent conflict between Cingular's position here and in R.00-02-004, the void for vagueness challenge is without merit. The Commission rejected a similar challenge in Carey v. PG&E, D.99-04-029, 1999 Cal. PUC LEXIS 215. In that case, a complaint filed after an explosion at a multi-unit apartment building, the Commission found the utility had violated § 451's safe service obligation by following an internal company policy of authorizing fumigation contractors, rather than trained utility employees, to terminate natural gas service as part of building fumigation projects. The Commission's rationale in Carey is apt here and we quote it in pertinent part:
Section 451's mandate that a utility provide "reasonable service, instrumentalities, equipment and facilities" as necessary to promote the public safety is constitutional and not violative of due process. (fn omitted) There are no cases directly involving the constitutionality of Section 451, but California courts have found similar terms under comparable statutory schemes constitutional. The instant case is analogous to Chodur v. Edmonds (1995) 174 Cal.App.2d 565. In Chodur, the Court of Appeal held that the term "dishonest dealing" in Bus. & Prof. Code 10177(j) was not unconstitutionally vague. Id. at 570. While lacking an exact definition to cover every circumstance, the Court of Appeal explained that the term "dishonest dealing" still possessed "a common understanding." Id. The Court of Appeal also noted that "`[i]t would be almost impossible to draft a statute which would specifically set forth every conceivable act which might be defined as being dishonest.'" Id.; quoting Wayne v. Bureau of Private Investigators and Adjusters (1962) 201 Cal.App.2d 427, 440.
Similarly, it would be virtually impossible to draft Section 451 to specifically set forth every conceivable service, instrumentality and facility which might be defined as "reasonable" and necessary to promote the public safety. That the terms are incapable of precise definition given the variety of circumstances likewise does not make Section 451 void for vagueness, either on its face or in application to the instant case. The terms "reasonable service, instrumentalities, equipment and facilities" are not without a definition, standard or common understanding among utilities. Commission cases reviewing utility conduct frequently require that the conduct meet a standard of reasonableness. For example, in ratesetting proceedings, the disallowance of utility expenses, whether from contracts, accidents, or other sources are reviewed under a reasonableness standard. See Re Southern California Edison Company (1994) 53 CPUC2d 452, 464.
Accordingly, Section 451's mandate that a utility provide "reasonable service, instrumentalities, equipment and facilities" is not an unconstitutionally vague standard with which to assess a fine or penalty. (Carey, slip. op. at pp. 13-14.)
Like the Commission in Carey, the POD recognizes that application of § 451's "reasonable service" requirement involves fact-specific analysis. The Commission is an expert trier of fact (unlike a jury) and uniquely qualified to undertake such review. It is impossible to list or otherwise identify every utility action or omission that might fall afoul of § 451 and the law does not require the Commission to do so.
The record of this investigation reveals a corporate operating practice that objectively resulted in unjust and unreasonable customer service. It is undisputed that Cingular (and its agents) imposed an ETF for early termination of one- and two-year contracts-and thus, did not allow customers any trial-even though Cingular recognized that using the phone was the most effective way for customers to determine whether Cingular's service met their needs. The critical importance of a trial is underscored by the record's comprehensive showing that Cingular did not provide customers with alternative, readily accessible and accurate means to assess the adequacy of service. At hearing, for example, Cingular admitted that the maps and brochures provided to customers who asked about coverage were actually rate area maps, not coverage maps, and did not accurately depict coverage. As a result of the aggregate effect of these multiple factors, many customers were trapped into unsatisfactory wireless service contracts or had to pay to be relieved from them.
At oral argument, Cingular suggested that the ETF provisions governing its one- and two-year contract plans were not unfair because customers had the option of choosing a prepaid plan instead. (Tr. pp. 1448-1449.) The record is silent on such a prepaid option and Cingular's marketing of it. Moreover, the existence of such an option, without a full and clear explanation of the coverage issues that might incline a customer to prefer that option over Cingular's contract plans, does not mitigate the objective unfairness of the contract plans, viewed in terms of the record as a whole.
Yet, in spite of the extensive record (on which it allegedly takes no position), CCAC contends that Cingular's conduct never "was so objectively improper that it fairly could be deemed to have put Cingular on notice" that such conduct might be sanctioned. (CCAC amicus brief, pp. 3-4.) The Joint Utilities (who likewise purport to take no position on the extensive record) go even further, asserting that "the POD represents a serious misuse of regulatory power" and that "if the Commission were to approve the POD, every utility subject to the Commission's jurisdiction will be subject to huge monetary penalties for conduct that the utility at the time had no reason to believe-or even to suspect-was prohibited." (Joint Utilities amicus brief, p.2.) These contentions ignore the guidance provided by Carey and the numerous other Commission decisions cited in Section 6.1.1. No utility, whether one operating in a more traditional, tariffed environment, or one operating in a partially deregulated environment, should expect to be insulated from the obligation to treat its customers fairly.
Cingular also contends that neither the September, 2001 cease and desist letter nor the June, 2002 OII provide actual notice that Cingular's ETF policy might be held unreasonable for lack of a trial or "grace period." We disagree. Both documents clearly constitute notice that the Commission was receiving consumer complaints about Cingular's imposition of an ETF, and that the complaints put at issue the legality of the practice. As Cingular admits, the ETF was imposed without any "grace period" until May 1, 2002, when Cingular revised its corporate policy to permit a 15-day trial during which service could be cancelled and a phone could be returned without incurring an ETF. Thus until Cingular changed its ETF policy in 2002, Cingular's imposition of an ETF necessarily meant imposition of an ETF without a trial.
8.2 § 2896 Challenges
Cingular and the aligned amici challenge the POD's finding that during 2001, Cingular's lack of disclosure of known network problems, coupled with aggressive advertising and marketing, violated §§ 451 and 2896. They assert that the POD does not define what Cingular should have disclosed, that the POD misconstrues evidence on the status of Cingular's network in 2001, and that the record contains little comparative information on the performance of Cingular's wireless competitors during 2001. On the basis of these assertions, they conclude that the POD's analysis is fatally flawed.
These assertions ignore the fact that the record clearly illustrates the kinds of coverage information customers need and undisputedly establishes that Cingular chose not to provide that information (see Sections 5.2.1 and 5.4); instead Cingular pursued customer growth that its network often could not accommodate.
UCAN succinctly notes:
Cingular's voluminous appeal obscures one key fact about the POD: Each and every violation found in the POD is fundamentally based on Cingular's own admissions about the limited information it provides to customers, its own admission about the state of its network, and it own admission about specific choices Cingular made about treating customers in California. (UCAN Response to Cingular Appeal, p. 1.)
The contention that the POD should have identified specific disclosure requirements is not well taken, given the pendency of the two, generic rulemakings to which the POD properly defers, R.00-02-004 (the Consumer Bill of Rights and Consumer Protection Rules proceeding) and R.02-12-004 (the Telecommunications Service Quality Rulemaking).
With respect to network problems during 2001, Cingular attempts to discount its own admission that it failed to meet internal measurement standards for dropped calls, etc. during part of that year, and argues such evidence cannot support a penalty. However, Cingular's arguments are misplaced, since the POD does not base the penalty on that evidence, alone. A more comprehensive review of the record identifies numerous examples of network problems, derived from multiple, credible sources. While Cingular's network problems spanned the entire review period (see, for example, Appendix 3), the record as a whole demonstrates that these problems spiked in 2001. We agree, however, that Finding of Fact 3 could better summarize this evidence, which includes witness testimony, customer complaints, market research prepared for Cingular, internal communications between Cingular employees, and Cingular's admitted inability to meet its own internal measurement targets during parts of 2001. We have revised the finding to avoid any inference that the penalty is based primarily on failure to meet internal measurement standards.
Cingular faults the evidentiary record for a lack of comparative data. Cingular's contention misses two critical points, however. First, the Commission issued this OII to examine Cingular operations, practices and conduct based on probable cause that Cingular's activities were not in compliance with law. The activities of other wireless carriers, whether lawful or unlawful, are not determinative of this OII. Second, Cingular was not barred from offering comparative evidence in its defense during the hearings. In fact, when Cingular introduced copies of competitors' newspaper advertisements during its cross-examination of CPSD's witness Pratkanis, the ALJ overruled objections to use of these documents and subsequently received them in evidence as Ex. 509, Ex. 510 and Ex. 511.
8.3 Miscellaneous Corrections
We have corrected several clerical errors identified by CPSD and have revised the text of the POD in several places to make the text clearer and more complete. In response to UCAN's request, we have revised the reparations discussion and associated ordering paragraph, etc., to make the language more precise. We decline to reweigh the evidentiary record as CPSD and UCAN request.
1. From January 1, 2000 through April 30, 2002, Cingular's official corporate policy in California prohibited refunds or returns after execution of a contract for service and imposed an ETF of $150 for early contract cancellation; some of Cingular's agents imposed an additional ETF of as much as $400, which increased the total ETF to as much as $550.
2. Cingular concedes that the best way for a customer to assess whether wireless service meets that customer's needs is to use the phone.
3. Cingular's customer growth and an increase in minutes of use per customer between January 2000 and the end of 2001 led to ongoing network coverage and capacity problems during that period and into 2002. The record as a whole demonstrates that these problems were greatest during 2001.
4. In spite of known network problems, in 2001 Cingular advertised and marketed its services heavily without disclosing its network problems to customers and without modifying its official no return/no refund/ETF policy.
5. At the point of sale, customers cannot obtain detailed coverage and capacity information, including the likelihood of outdoor, in-vehicle or in-building coverage at a given location or within a larger area, since Cingular's sales agents do not have such information and Cingular's maps show rate areas, not coverage areas.
6. Cingular's customer service representatives do not have ready access to detailed coverage and capacity information, including the likelihood of outdoor, in-vehicle or in-building coverage but must contact radio frequency engineers to obtain it, which takes a day or two at a minimum.
7. Cingular's capital investment in its California infrastructure between 2000 and 2002 continued to lag behind infrastructure needs. Cingular invested $1.9 billion, but only 20% was spent in 2000, 30% in 2001 and the final 50%, in 2002.
8. Cingular promotes a consistent image for its exclusive agents so that all such agents' stores or kiosks have the same "look and feel." Cingular permits agents and dealers to use its "Cingular Jack" logo and other brand identification in advertising and marketing materials.
9. Once Cingular determined to implement its new ETF policy, effective May 1, 2002, it required agents and dealers to execute an "Amendment to Agency Agreement Re Phone Return Policy," which requires such entities to honor the new policy as of that date.
10. Cingular concedes that the law of agency applies to its relationships with its sales agents.
11. Caceres and the customer witnesses provide firsthand, verified statements and sworn testimony about problems with Cingular's service. These witnesses' stories are not equally specific nor do they relate equally egregious facts, but they are largely credible.
12. Cingular's evidence lends credibility to and, in some cases, validates, portions of other, albeit unverified, data sources offered by CPSD and UCAN to document customer dissatisfaction with Cingular.
13. Cingular waived part or all of its ETF (which did not include its agents' ETF) for an undetermined number of customers who happened to attempt to cancel their contracts within the first 15 days, but the record includes little persuasive evidence that most eligible customers benefited from this policy.
14. The record includes no persuasive evidence that Cingular and its agents sold ineffective or defective wireless equipment.
15. Reparation of ETF payments to customers who can be identified will help to make them whole and will limit Cingular's unjust enrichment from ETF receipts.
16. Wireless service cannot be guaranteed, given the physics of radio energy, but Cingular (like all wireless carriers) has detailed engineering information that can predict the likelihood of outdoor, in-vehicle and in-building coverage, typically with 95% accuracy.
17. This record does not supply a comprehensive assessment of the range of methods for disseminating useful coverage and capacity information, the comparative utility costs and the associated timelines. These issues should be considered R.02-12-004, the Telecommunications Service Quality rulemaking.
18. Some customers were confused by the disclosures in Cingular's advertising and marketing. D.04-05-057, the recent interim decision in R.00-02-004, the Consumer Bill of Rights and Consumer Protection Rules proceeding, requires that certain documentation use a minimum of 10-point type.
19. A 15-day ETF policy, such as Cingular's present policy, may not provide sufficient time for many consumers to reasonably test a provider's service, particularly considering the lack of information about coverage and capacity available to consumers. D.04-05-057, the recent interim decision in R.00-02-004, the Consumer Bill of Rights and Consumer Protection Rules proceeding, requires that wireless providers (and other telecommunications carriers) permit subscribers to cancel service without termination fees or penalties within 30 days after the service is initiated.
1. The record establishes, by a preponderance of the evidence, that Cingular has committed the violations described in Conclusions of Law 2 and 3.
2. From January 1, 2000 to April 30, 2002, Cingular's official no return/no refund/ETF policy constituted an unfair rule resulting in a corporate pattern and practice that failed to provide adequate, just, and reasonable service to customers, in violation of § 451 and D.95-04-028.
3. During 2001, Cingular's corporate pattern and practice of failing to disclose known network problems to customers resulted in a failure to provide adequate, just, and reasonable service, in violation of § 451, 702, 2896 and D.95-04-028.
4. Pursuant to §§ 2107 and 2108 and Commission precedent, for the violations of law for the period January 1, 2000 to April 30, 2002 (849 days), Cingular should pay a penalty of $10,000 per day, or $8,490,000.
5. Pursuant to §§ 2107 and 2108 and Commission precedent, for the violations of law for the period January 1, 2001 to December 31, 2001 (365 days), Cingular should pay a penalty of $10,000 per day, or $3,650,000.
6. Under the law of agency, Cingular is legally responsible for ETFs charged by its agents between January 1, 2000 and April 30, 2002.
7. In order to avoid unjust enrichment to Cingular and provide reasonable reparation to as many deserving customers as possible, Cingular should be required to reimburse, with interest, those customers who paid Cingular or its agents partial or full ETFs for early cancellations of contracts entered into between January 1, 2000 and April 30, 2002. Cingular also should be required to reimburse, with interest, any customers who paid Cingular or its agents partial or full ETFs after April 30, 2002 for early contract cancellations that occurred between day 1 and day 15 of the contract period. Cingular should prepare and file a refund plan in conformance with today's decision.
8. Binding judicial precedent holds that the Commission lacks jurisdiction to adjudicate the UCL in the Business and Professions Code; accordingly, the Commission lacks jurisdiction to order remedies under the UCL.
9. Because the Song-Beverly Consumer Warranty Act and the Consumer Legal Remedies Act, both codified in the Civil Code, require aggrieved persons to bring actions in the courts for redress, we lack jurisdiction to adjudicate them or order remedies under them.
10. Since the record does not establish that Cingular or its agents sold faulty wireless equipment, we need not resolve whether the Commission has jurisdiction to adjudicate the implied warranty provisions in Com. Code § 2314-2316.
11. Since the record does not establish that Cingular or its agents sold faulty wireless equipment, and since we can assess Cingular's culpability for imposing an unjust and unreasonable ETF and for disclosure failures under §§ 451 and 2896, we do not need to inform our decision making by considering the Song-Beverly Consumer Warranty Act, the Consumer Legal Remedies Act or the UCL. Our decision not to consider those acts does not violate Northern California Power Agency v PUC, 5 Cal.3d 370 (1971).
12. Since the OII's Ordering Paragraphs cannot reasonably be interpreted to provide notice to Cingular of charges under Bus. and Prof. Code 17026.1(b) or Civ. Code § 1671, we disregard these arguments in the parties' briefs.
13. In order to protect customers, provide certainty to the parties and promote an efficient use of the resources of the parties and of the Commission, this decision should be effective immediately.
IT IS ORDERED that:
1. For the two violations of law found herein, Cingular Wireless (Cingular) shall pay a penalty of $12,140,000 to the State of California General Fund within 45 days after the date this decision is mailed to the service list. Proof of payment shall be filed and served on the service list and shall be provided to the Executive Director of the California Public Utilities Commission (Commission) within 5 days of payment.
2. Within 75 days of date the date this decision is mailed to the service list, Cingular shall file a refund plan for accomplishing customer reparations, as further described in Ordering Paragraph 3. The refund plan shall estimate the total refunds due and shall describe the methodology for locating all customers (including prior customers) eligible for reparations. The refund plan shall be served on the service list for this proceeding and a copy shall be provided to the Director of the Commission's Telecommunications Division so that the Division may monitor implementation of the plan.
3. The goal of the refund plan described in Ordering Paragraph 2 shall be to:
(a) return, with interest, any sums received for early cancellation of contracts entered into between January 1, 2000 and April 30, 2002, to the customers who paid those sums to Cingular or to Cingular's sales agents; and
(b) review early termination fee (ETF) receipts for contract cancellations beginning May 1, 2002, and determine if any sums were paid for contract cancellations within day 1 and day 15 of the contract period. If so, such sums shall be reimbursed, with interest, to the customers who paid them to Cingular or to Cingular's sales agents.
(c) Interest due shall be calculated at the rate of prime, three-month commercial paper, as reported in Federal Reserve Statistical Release G.13.
4. Any unpaid reparations shall escheat to the State of California General Fund.
5. Rulemaking (R.) 02-12-004, the Commission's review of service quality standards for all telecommunications carriers, including wireless providers, shall examine options to provide wireless consumers with the kinds of coverage and capacity information sufficient to enable them to make informed choices among wireless providers.
6. Cingular shall revise its corporate policies and practices in California regarding marketing, advertising and, service initiation and change, to conform
to the rules adopted in R.00-02-004, the Commission's consumer bill of rights and consumer protection rules proceeding.
7. This proceeding is closed.
This order is effective today.
Dated ____________________, at San Francisco, California.
