VII. Other Issues In This Proceeding

As noted previously, this was a very contentious proceeding with numerous issues and disputes arising between parties. Many of the issues the parties raised were more appropriate for consideration in Phase 3B of this proceeding, where we will address whether changes to NRF are necessary to ensure good service quality, rather than in fact-finding on the carriers' statistical service quality performance, customer survey data and other objective information.

A. Allegation by TURN that Pacific Inappropriately Aggregated Data

TURN criticizes Pacific for aggregating data as part of Dr. Hauser's regression analysis.

We note that in our own analysis, we have not relied on any aggregate data. Moreover, we found much of the raw data contained in Dr. Hauser's testimony proved critical to our analysis. Quite simply, we cannot understand the basis for TURN's allegation.

B. Technological Change and Effects on Pacific's Service Quality

TURN contends that Pacific's deployment of advanced services - primarily its DSL service - threatens to create two classes of customers, those who have excellent service quality by virtue of their access to the most advanced telecommunications infrastructure, and "have nots" who have not had such architecture installed.

TURN's witness Terry Murray claimed that with Pacific's introduction of "Project Pronto," a project that involved broad deployment of advanced services technology, Pacific promised improvements in service quality from the new service. While Pacific backed off from several of its 1999 broadband network claims at hearing, in 1999 Pacific told investors that the new technology would 1) "be less vulnerable to weather conditions, thereby reducing trouble reports," 2) have "reduced activity . . . in the remaining copper plant because of improved reliability," 3) "avoid dispatches on many installations [and thereby] realize efficiencies in [SBC's] installation and maintenance operations," and 4) "substantially reduce the need to rearrange outside plant facilities when installing new or additional services."²⁴⁵

Pacific's witness confirmed the foregoing 1999 claims at hearing.²⁴⁶ For example, Pacific conceded that the use of fiber for voice service improves trouble report performance, that if fiber signal quality exceeds the minimum standard, Pacific does not reduce the quality to that minimum,²⁴⁷ and that, at least with regard to data transmission, fiber loops may allow data to travel at the standard 56k modem speed, while copper loops may not.²⁴⁸

TURN also alleges that selective deployment of broadband services creates the risk of discrimination in service provision. TURN argues: "The service quality enhancement of Project Pronto and similar major network improvements raises the possibility of the improvements being deployed in a manner that produces two-tiered basic service and distinct sets of `haves' served off an advanced system and `have-nots' served off the unimproved network."

Pacific claims any such potential was mitigated in the Commission's SBC/Ameritech merger conditions addressing DSL availability in low-income neighborhoods and rural areas.

While TURN has raised an important issue regarding even-handed deployment of increasingly essential advanced network facilities, we note that we have recently opened a comprehensive rulemaking on broadband issues, which is better suited to address this issue.²⁴⁹ Accordingly, we defer this issue to that docket.

C. Growth - Pacific

Pacific makes the point that its "service quality performance should be viewed in the context of developments during the NRF period . . . [including] growth in demand."²⁵⁰ It points not only to changes in the California economy that increase or decrease demand, but technological change that stimulates demand for more telephone lines. Pacific further cites unbundling and interconnection requirements imposed in the Telecommunications Act of 1996.

Our own analysis based on statistical trends blends periods of fast growth with slow or no growth, thereby providing a picture of service quality largely independent of growth trends. We expect utilities to meet service quality requirements in periods of both high and low growth.

D. Staffing - Pacific

TURN further alleges that Pacific has cut staff in customer-facing areas, harming service quality. It cites evidence that field staff positions were reduced at Pacific from 1989-95.²⁵¹ It claims the number of splicing technicians decreased by 26%, the number of systems technicians decreased by 35%, and that the average years of experience of Pacific's service technicians declined over that time period.

TURN also challenges Pacific's increasing use of outside contractors to perform fieldwork. On this latter point, TURN calculates that outside field contractors caused 14% of the cable cuts causing 911 outages in 2001.²⁵² Pacific does not refute this statistic.²⁵³ TURN claims that Pacific's "outsourcing" of its DSL business to an unregulated affiliate - SBC's Advanced Services, Inc. (ASI) - caused a rise in service quality complaints, leading to C.02-01-007.

ORA makes similar claims, and also points out that Pacific lent service employees to other states without regard for the impact these employee transfers would have on Pacific's service quality back in California.

Pacific focuses on a different, later time period, and states that evidence TURN's own witness presented shows that from 1996-2001, Pacific increased its staffing levels of personnel with direct customer interaction by over 30%. TURN concedes that Pacific increased the number of service representatives by 61% from 1996 to 1998.²⁵⁴ Pacific's witness Mr. Resnick explained further that, after the recession in the early 1990s when demand slowed for Pacific's services, Pacific actually increased these staffing levels by over 57%.

While the record supports the claim that Pacific's staff decreased during the early years of NRF, it also appears Pacific made up for those losses in the second half of the 1990s, at least in the area of the customer-facing employees who have the most direct impact on service quality. We do not find that the record of this proceeding, standing alone, supports the claim that Pacific's customer-facing staffing levels caused problems with service quality, especially since the uncontradicted evidence shows that Pacific increased its customer-facing staff in the latter part of the decade. We see no reason to change any reporting requirements in this area.

E. Weather - Pacific

Pacific claims that rainfall increased its trouble ticket rates and that findings regarding its service quality during periods of excessive rainfall should be tempered by this fact.

In response, ORA points out, Pacific's data showed that trouble tickets actually increased as rain declined in certain years.²⁵⁵ ORA's witness, Dale Piiru, therefore points out that Pacific's witness "does not provide an adequate correlation between extreme weather events (rainfall totals) and resulting protracted out-of-service intervals."²⁵⁶

According to Piiru, ORA found that in 1994-95, when rainfall was higher and economic damage throughout the state 355% higher as compared to 1998, Pacific's average residential repair intervals in 1994-95 were 49.25% less than in 1998. Overall, Pacific's average residential out-of-service repair interval increased by 130% from 1994 to 1998, with a 70.6% increase between 1996 and 1998.²⁵⁷ Piiru concludes that Pacific's assertions about weather and its impact on service quality are "overly general and unsupported."²⁵⁸

Pacific contends that ORA erroneously bases its analysis of weather on the dollar value of economic devastation in 1994-95 as compared to the El Niño year in 1997-98, and that the damage in the San Francisco area, where Pacific serves "millions of customers" was far higher during the El Niño season. An examination of weather data reveals that during the 1997-98 El Niño season, rainfall in downtown San Francisco was 47.19 inches,²⁵⁹ 230% of normal seasonal rainfall.²⁶⁰ In the 1994-95 season, the comparable total was 34.02 inches.²⁶¹

Thus, Pacific is correct that the 1997-98 season had greater rainfall in San Francisco (the location on which Pacific focused) than did the 1994-95 season; that difference may explain some of the increase in trouble reports for the El Niño season as compared to 1994-95.²⁶²

Our analysis seeks to explain broad trends in service quality, not year-to-year variation. Although it is true that meteorological events such as rainfall affect service quality, we see no reason to modify any of our findings. In any event, we expect carriers to be prepared for the foreseeable demands of seasonal and cyclical variations in weather.

F. Marketing - Pacific

The Commission's authority over service quality encompasses more than network technical performance.²⁶³ The Commission recently stated it "believe[s] that service quality measures should go beyond technical performance measures, and should also include measures of customer service and related consumer impact measures."²⁶⁴ Thus, it is appropriate to consider trends and patterns in customer-affecting practices such as cramming, slamming and other marketing abuses during our assessment of service quality under NRF.

Both TURN and ORA point to cases in which the Commission found that Pacific engaged in abusive marketing to show problems in Pacific's service quality.

Pacific has already been penalized in connection with those cases and we have already noted and considered them in our analysis.

G. Still Other Issues - Pacific

Finally, TURN points to changes since NRF that it contends also merit a reexamination of the incentives the framework creates. It claims that "to enhance revenues, utilities under incentive regulation will seek to charge for services that were formerly free." It cites Pacific's decisions to restrict the availability of free telephone directories and to charge more for directory assistance calls.

Pacific takes issue with TURN's facts regarding directories and directory assistance calls.

The Commission approved the requested rate changes after an examination of costs and consistent with NRF. We lack sufficient evidence in this record to find a cause and effect relationship between the NRF mechanism and the changes TURN alleges.

H. Movement of Functions to Unregulated Affiliates

1. Pacific

TURN contends that Pacific's transfer of functions formerly provided by the regulated utility to unregulated affiliates may be detrimental to service quality and our ability to detect that deterioration. We defer this issue to Phase 3B,²⁶⁵ as that is the time to focus on whether modifications to the NRF mechanism are necessary to ensure that ratepayers are protected. In the meantime, we note that the Commission does not intend to cede regulatory authority over ratepayer-affecting functions based on a change in the entity that carries out those functions.

2. Verizon

TURN notes that "Recently, Verizon's California predecessor (GTEC) and Pacific Bell have respectively been merged into the nation's largest and second largest carriers."²⁶⁶ However, it identifies no specific problems stemming from the Verizon merger. TURN notes the FCC's MCOT requirements stemming from the Verizon-Bell Atlantic merger expired in November 2002, but in its motion seeking an order continuing Pacific's parallel reporting requirements, TURN stated that Verizon agreed voluntarily to continue these reporting requirements until after a final decision issues in this proceeding.

To make Verizon's obligation the same as Pacific's regarding MCOT reporting, we will require Verizon to continue to report MCOT data to this Commission until further notice. We agree with TURN that we should consider the usefulness of MCOT data in Phase 3B of this proceeding and determine whether we should require the carriers to continue to report such data even after their merger obligations expire.

Moreover, the assigned Administrative Law Judge made clear during the hearing that regulatory changes in this area are outside the scope of Phase 2A, and instead should be addressed in Phase 3B, if at all.²⁶⁷ We therefore defer this issue to later in this proceeding.

We note that there is one significant difference between Pacific and Verizon in the area of advanced services such as DSL, on which TURN focused much of its concern. While Pacific continues to offer its advanced services in a separate affiliate, Verizon has obtained Commission authorization to transfer those services back to the regulated utility.²⁶⁸ The transfer may limit the concerns TURN raises, but it is premature to address this issue. TURN may address the issue in Phase 3B of this proceeding.

I. Service Performance Guarantee - Verizon

Verizon offers its customers a "service performance guarantee" (SPG) when customers believe - "rightly or wrongly"²⁶⁹ - that Verizon has delivered problematic service.²⁷⁰ We wholeheartedly support the SPG program as a good way to offer recompense to customers immediately after they suffer service problems.

In order for such a program to work fairly, Verizon should ensure it properly discloses the SPG to all customers. Moreover, because a customer must request the credit in order to get it - "it's our procedure that the customer requests the credit"²⁷¹ - it is very important that every customer know of the credit up front in order for it to be applied fairly. Therefore, it is important for Verizon to follow their procedures clearly.

We note that the procedures are clear and embedded in Verizon's tariff. Moreover, there is no allegation in this proceeding that Verizon fails to follow its procedures, and no complaints concerning this matter. We see no need for further action on this matter. Indeed, in the absence of complaints, it would appear that regulatory scrutiny of a voluntary service quality initiative in excess of standard review of Verizon's tariffs would simply create regulatory disincentives and regulatory uncertainties that would discourage similar offerings by other carriers.

J. Technological Change - Verizon

Neither TURN nor ORA made specific allegations about Verizon related to the impact of technological change on its service quality.

K. Growth - Verizon

TURN made the same arguments with regard to Verizon as it did regarding Pacific. TURN states that a carrier should not benefit from relaxed service quality expectations because it experiences a period of great growth in demand, access lines, customers, or company size.

Verizon does not disagree with TURN in this regard. Rather, it simply reports increases in demand for its services and explains the investments it made to meet this growth.

We note that the statistical methods used in this analysis did not make adjustments for adverse impacts of growth on Verizon's service quality.

L. Staffing - Verizon

TURN shows that Verizon's field staff has declined over the period 1989-1994. TURN states that Verizon's field staffing declined by 35% from 1989, the year the Commission implemented NRF, to 2000, with a large reduction (42%) occurring from 1989-1994.

Verizon's reply testimony suggests that a smaller decline occurred. Verizon acknowledges reductions in force, but claims that because Verizon redefined certain field positions, the raw numbers TURN used above and elsewhere in its testimony are misleading. It states that the total reduction in cable splicers or their equivalents was 17%, not the much higher percentage TURN claimed.

Based on the record before us, we find no need to second-guess Verizon's staffing decisions.

M. Weather - Verizon

Verizon acknowledges that service quality suffered during the first quarter of 2001 due to unusually heavy rains: "[T]he [repair] intervals were extraordinarily high during the January, February, and March period, due to some prolonged rains that we experienced at that particular point in time."²⁷²

Verizon's witness admitted that a company with significant outside plant, such as Verizon, should be prepared for inclement weather.²⁷³

We agree with Verizon, and find that inclement weather is an unacceptable excuse for the reduced service quality it delivered during that period. However, Verizon has taken steps since that time to improve its response to weather-related outages.²⁷⁴

N. Marketing - Verizon

In claiming Verizon has engaged in marketing abuse, TURN again cites C.98-04-004/D.98-12-084, in which the Commission approved GTEC's payment of $13 million to settle marketing abuse claims stemming from the period 1989-92.²⁷⁵ TURN also claims that Verizon has "misused customer contacts as marketing devices."²⁷⁶

This decision speaks for itself and for the Commission's willingness to investigate and sanction marketing abuses. There is no need for further action.

O. Mergers and Structural Changes - Verizon

No party alleges that Verizon's mergers and structural changes have had an impact on service quality. Nor does Verizon - in contrast to Pacific - argue that changes in the company attributable to its growth in size are mitigating factors that explain its service quality results.

Our earlier analysis of MCOT data found no diminution of service quality as a result of GTE's merger with Bell Atlantic that resulted in Verizon. Based on this empirical analysis, we did not find that in Verizon's case mergers or structural changes have had an impact on its service quality.

²⁴⁵ Exh. 2B:505A (Confidential Exhibits to Murray Direct Testimony), SBC Investor Briefing, "SBC Announces Sweeping Broadband Initiative," dated Oct. 18, 1999, at 7. There is nothing confidential about the investor briefing; indeed, the parties referred to its contents during the hearing. ²⁴⁶ Exh. 2B:360 at 9:10-23 (Boyer Reply Testimony); 23 RT 2915:11-14 & 2916:22-24 (Boyer) ("[T]he use of fiber to provide voice services could positively affect certain facts that contribute to trouble reports. . . . ALJ Thomas: And trouble reports affect customers? Witness Boyer: I will agree with that."). ²⁴⁷ 23 RT 2914:23-26 (Boyer). ²⁴⁸ Exh. 2B:357 at 45:9-12 (Resnick Reply Testimony) ("Although some customers have been able to use their 56 kbps [computer] modems to transmit data over voice-grade lines, transmission speeds of 56 kbps may not be attainable on POTS voice-grade lines for a number of reasons, such as bridge tap or loop length. Load coils and loop lengths can inhibit data transmission . . . ."). ²⁴⁹ R.03-04-030 ²⁵⁰ Pacific Opening/Service Quality at 46. ²⁵¹ TURN Opening/Service Quality at 17, citing Exh. 2B:507 at 8, table 1 (Schilberg Direct Testimony). ²⁵² TURN Opening/Service Quality at 36-37. ²⁵³ Pacific Reply/Service Quality at 57. ²⁵⁴ TURN Opening/Service Quality at 24. ²⁵⁵ ORA Opening/Service Quality at 23, citing Exh. 2B:356 (Resnick Direct Testimony) (Q2-Q3 1997, Q2-Q3 1998, Q2-Q3 1999 and Q2-Q3 2000). ²⁵⁶ Exh. 2B:139 at 3 (Piiru Reply Testimony). ²⁵⁷ Id. at 4. ²⁵⁸ Id. at 2. ²⁵⁹ Another website lists the total as 47.22 inches. http://ggweather.com/sf/daily.html#b. ²⁶⁰ See http://ggweather.com/nino/calif_flood.html & http://tornado.sfsu.edu/geosciences/elnino.html. Mr. Piiru cited the former website, and his testimony was admitted into the record without objection. Exh. 2B:139 at 4 & n.3 (Piiru Reply Testimony). ²⁶¹ http://ggweather.com/sf/daily.html#b. We may take official notice of rainfall totals pursuant to Rule 73. ²⁶² Comparable totals were as follows:


2000-01	19.47 inches
1999-00	24.89 inches
1998-99	23.49 inches
1997-98	47.19 inches
1996-97	22.63 inches
1995-96	24.89 inches
1994-95	34.02 inches
1993-94	15.22 inches
1992-93	26.66 inches
1991-92	19.20 inches
1990-91	14.08 inches
http://ggweather.com/sf/daily.html#2002

²⁶³ "The Commission shall require telephone corporations to provide customer service to telecommunication customers that includes, but is not limited to... reasonable statewide service quality standards, including standards regarding network technical quality, customer service, installation, repair, and billing." Cal. Pub. Util. Code § 2896(c). ²⁶⁴ R.02-12-004, mimeo., at 29. ²⁶⁵ Any reference to Phase 3B in this decision should be interpreted to include a separate phase if the Commission further segments this proceeding in the future. ²⁶⁶ TURN Opening/Service Quality at 7. ²⁶⁷ 18 RT 2263-67 ²⁶⁸ D.03-06-044. ²⁶⁹ Verizon Reply/Service Quality at 23. ²⁷⁰ Verizon's SPG was originally a provision of Contel of California's (Contel's) tariffs prior to the GTEC/Contel Merger. ORA's predecessor argued during the merger proceeding that Contel's SPG was superior to Verizon's, and adoption of Contel's SPG by Verizon should be a condition of the merger. However, before the Commission ruled on the issue, Verizon voluntarily adopted the SPG contained in Rule Nos. 18 and 19 of its tariffs. Advice Letter No. 5521, filed August 30, 1993. ²⁷¹ 20 RT 2493:20-21. See also id. at lines 17-19 (Q. "Does a customer get . . . a credit without ever having called Verizon to complaint? A. No, they shouldn't be . . . ."). ²⁷² 20 RT 2488:5-7 (Anders). ²⁷³ 20 RT 2490:11-19 (Anders). ²⁷⁴ Such improvements, according to Verizon, included reassigning technicians from non-demand activities such as preventative maintenance to service restoration activities; augmenting its construction workforce with contractors to free up additional employees to work on repair activity; using extensive overtime to increase man-hours committed to service restoration; making significant capital investment to help insulate Verizon's plant from rain related trouble; and developing procedures to more effectively deploy technicians during periods of extreme demand. Exh. 2B:219 at 8:16-17:5 (Anders Reply Testimony). ²⁷⁵ We discuss this case in full in the Section entitled "NRF Incentives and Service Quality - Verizon - Introduction," above. ²⁷⁶ TURN Opening/Service Quality at 42.