ALJ/MCK/eap DRAFT Agenda ID #4614

Adjudicatory

6/16/2005 Item 47

Decision DRAFT DECISION OF ALJ MCKENZIE (Mailed 5/17/2005)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Investigation into NOS COMMUNICATIONS, INC. (U-5251-C), dba International Plus, 011 Communications, Internet Business Association (INETBA), I-Vantage Network Solutions; AFFINITY NETWORK, INC. (U-5229-C), dba QuantumLink Communications and HorizonOne Communications; and the corporate officers of NOS and ANI, to determine whether they have violated the laws, rules, and regulations governing the manner in which California subscribers are solicited, switched from one presubscribed carrier to another, and billed for telephone services.

Investigation 02-05-001 (Filed May 2, 2002)

OPINION APPROVING REVISED SETTLEMENT AGREEMENT

In this decision, we consider a settlement agreement submitted by the parties on January 19, 2005, which is appended hereto as Attachment A. ¹ The agreement is a revised version of the December 9, 2003 settlement agreement in this proceeding that was approved with modifications in Decision (D.) 04-06-017. However, because NOS Communications, Inc. (NOS) and the other respondents herein objected to some of the modifications required by D.04-06-017, they caused the December 9, 2003 settlement agreement to be rescinded pursuant to its terms and then filed an application for rehearing of D.04-06-017.

The principal modification in D.04-06-017 to which respondents objected was the refusal to approve a term under which the Consumer Protection and Safety Division (CPSD) agreed to withdraw its protest to Application (A.) 01-12-013. In that application, Blue Ridge Telecom Systems, LLC (Blue Ridge), an NOS affiliate, sought a certificate of public convenience and necessity (CPCN) authorizing it to offer limited facilities-based and resold local exchange services. The December 9, 2003 settlement agreement provided that upon the withdrawal of CPSD's protest, "the Commission agrees . . . to resolve A.01-12-013 as an unopposed application." D.04-06-017 concluded that this term unreasonably tied the Commission's hands, and that before any CPCN could be granted, (1) Blue Ridge should be required to supplement its application with information regarding the litigation history of itself and its affiliates before courts and administrative agencies, and (2) the assigned Administrative Law Judge (ALJ) should be free to hold a hearing on Blue Ridge's fitness if the ALJ considered a hearing necessary.

The respondents' objections to these modifications have now been mooted by the conditional issuance of a CPCN to Blue Ridge in D.04-12-021. Accordingly, the respondents herein have now joined with CPSD in executing a new settlement agreement, the terms of which that relate to this investigation are virtually identical to those contained in the agreement of December 9, 2003. Because we concluded in D.04-12-021 that our concerns about the original settlement's disposition of the Blue Ridge application had been satisfied, and because D.04-06-017 concluded that, with minor exceptions, the parts of the original settlement agreement relating to this investigation met our requirements for settlements, we approve the revised settlement agreement submitted by the parties on January 19, 2005. By virtue of this approval, the condition set forth in Ordering Paragraph (OP) 1 of D.04-12-021 has been satisfied, so the CPCN conditionally granted to Blue Ridge in that decision is also deemed issued.

A. Procedural Background

As noted in D.04-06-017, this investigation was commenced three years ago, when the Commission issued an Order Instituting Investigation (OII) alleging that NOS and its affiliate, Affinity Network, Inc. (ANI), had engaged in deceptive marketing, slamming and cramming. The OII alleged that NOS and ANI had engaged in this unlawful conduct through the following means:

"They solicit new customers, primarily small and medium size businesses, by telemarketing. Respondents' telemarketers represent that telephone service will be charged on a per minute usage basis. However, customers are subsequently charged according to a `Total Call Unit' (TCU) pricing methodology that consists of usage and non-usage charges and [is] not based on cents per minute usage. Determining the TCU charges requires a conversion calculation that few, if any, customers can understand." (OII, p. 2.)

The OII also noted that while respondents contended their telemarketers disclosed the general terms of the TCU methodology to prospective customers, many customers who had signed up for respondents' services claimed otherwise:

"Consumers consistently express surprise when they discover their telephone billings are based on TCUs and exceed the per minute usage rates promised by the Respondents' telemarketing. Consumers complain that they were not informed of the TCUs before they switched to the Respondents and never authorized the TCUs. Those who have reviewed the Respondents' explanations of the TCU, find [them] so complicated and indecipherable as to amount to no disclosure or an apparent effort to deceive, hide, or misrepresent the Respondents' excessive rates." (Id. at 3.)

The OII concluded that the alleged conduct appeared to violate several provisions of the Public Utilities Code, including §§ 2889.5 and 2890.

At the first prehearing conference (PHC) held on June 21, 2002, counsel for the Consumer Services Division (CSD), predecessor of CPSD, stated that his client would need several more months to complete its investigation, and then might move to amend the OII to add additional allegations. For their part, the respondents filed a series of motions directed at the sufficiency of the OII. (D.04-06-017, mimeo. at 5-7.)

As a result of the investigation's slow progress, we eventually issued D.03-04-053, which concluded that the 12-month deadline for the OII set forth in Pub. Util. Code § 1701.2(d) could not be met, and that the appropriate course of action was to extend this deadline and take steps to ensure that the investigation was either brought to hearing or settled within a reasonable time. (Mimeo. at 9.) To these ends, the ALJ was instructed to hold another PHC within 90 days.

The required PHC was held on June 20, 2003. Based on the parties' representations that they had made significant progress in negotiating a settlement, the ALJ ruled that the parties should continue their discussions and advise him by July 21, 2003 whether they had been able to reach a settlement. If they had not, the ALJ continued, another PHC would be held shortly thereafter to set a hearing schedule. Because no settlement was reached by the July 21 deadline, a PHC was held on July 28, 2003 to establish the hearing schedule. However, this schedule was rendered moot when the parties informed the ALJ about two weeks later, on August 8, that they had been able to reach a settlement. (D.04-06-017, mimeo. at 8-9.) As noted above, the settlement agreement was filed on December 9, 2003, and received detailed consideration in D.04-06-017.