8. Marketing Programs and Tactics

In this section we address several Pacific Bell marketing programs and tactics that are not directed at a specific service. "Offer on every call" refers to Pacific Bell's requirement that its service representatives offer customers additional services on every incoming call to Pacific Bell. Sequential offering is Pacific Bell's policy of ordering service representatives to offer large packages of services first and to only offer smaller packages upon refusal of the larger one. Incentives and targets refer to sales incentive programs for service representatives with specific sales goals. Finally, we address Pacific Bell's policy of releasing customer information to its affiliates and agents.

While we do have problems with the deficiencies in Pacific's sequential offering policy rather than the mere use of sequential offering itself, we are loath to impose only upon Pacific, in the context of a complaint case, marketing restrictions that other carriers need not follow. We are concerned about dictating a policy without due consideration of its effect on competition and consumers' welfare in the evolving telecommunications market. We believe an overall look at all carriers' marketing practices is more properly addressed in our Telecommunications Bill of Rights proceeding (R.00-02-004.)

8.1. Offer on Every Call

In 1997, Pacific Bell instituted a policy of offering optional services, such as Call Waiting, Saver Packs, and Caller ID, on all customer contacts other than when a customer is disconnecting service or is temporarily disconnected for non-payment.

UCAN alleges that this policy elevates sales over service and results in excessive delays for customers to reach a service representative.¹⁴ Pacific Bell states that it has a constitutional right to offer its products and services to residential customers in California.

As the complainant, UCAN bears the burden under § 1702 of proving by a preponderance of the evidence that Pacific Bell has violated a provision of law or any order or rule of the Commission. Here, UCAN alleges that Pacific Bell gives higher priority to increasing sales than to providing service to its customers, and UCAN cites the 1986 "cease and desist" decision for the proposition that these priorities are impermissible. (UCAN Opening Brief at 40, citing 21 CPUC2d 182, 188 (D.86-05-072).) That decision, however, was directed at specific practices that violated other laws or rules.

UCAN alleges that Pacific Bell's offer on every call policy also violates § 2896, which requires that customers receive "sufficient information upon which to make informed choices among telecommunications services." UCAN, however, does not demonstrate that customers are being deprived of information; if anything, customers are receiving excess information in the form of undesired sales pitches. Section 2896 does not prohibit such information.

UCAN next contends that the offer on every call policy violates Tariff Rule 12, under which Pacific must quote all recurring rates and nonrecurring charges for all services. Again, proving a violation of this rule requires the opposite of what UCAN has shown: customers may be receiving unwanted information, but they are not being deprived of information.

UCAN has failed to meet its burden of proving that Pacific Bell's offer on every call policy violates a provision of law or any order or rule of the Commission. We can envision, however, implementation measures that could cause this policy to interfere unreasonably with a customer's attempt to obtain services from Pacific Bell. We caution Pacific Bell against forcing a customer to endure extended sales offers prior to responding to the customer's requests.

8.2. Sequential Offerings

When offering optional services, Pacific Bell's sales representatives were trained to offer first the Basics Plus Saver Pack with nine custom calling features, Caller ID, and The Message Center at a cost of $32.90/month.¹⁵ If the customer was not interested in this package, the service representatives were trained to offer the Basics Saver Pack, which included all services except The Message Center, and costs $24.95/month.

Effective September 14, 1998, Pacific Bell changed the name, contents, and price of certain saver packs. The Basics Saver Pack with nine custom calling features became The Works Saver Pack and cost $16.95/month. Pacific Bell also created The Works Plus Saver Pack which included all the services contained in the Works Saver Pack along with The Message Center and cost $24.90/month. (See Hearing Exhibit 57.) The Basics Saver Pack continued at a cost of $14.95/month with four custom calling features or $12.95 with three custom calling features. Subsequent to filing this tariff, Pacific Bell service representatives were instructed to offer The Works or The Works Plus Saver Pack first and, if rejected, to offer The Basics Saver Pack or The Basics Plus Saver Pack.

TIU alleges that service representatives are directed to inform the customer of the availability of individual custom calling services only after all saver packs have been rejected. Pacific Bell states that as of September 1998, only the Basics Saver Pack is offered as a fallback package. TIU provided documents which revealed Pacific Bell's strategy to "offer high, watch them buy, offer low, nowhere to go." TIU also provided evidence that Pacific Bell requires service representatives to offer the packages of services on every call, establishes team and individual sales goals for such packages, and provides service representatives with financial incentives for these sales. TIU concludes that this system results in vital information regarding lower-cost options being withheld from customers.

In response, Pacific Bell states that service representatives are trained (and are reminded with prompts) to advise customers that they may separately purchase services in a saver pack. Pacific Bell states that package offers occur "only" on 50% to 75% of all calls. Pacific Bell contends that it discloses "sufficient information" for customers to make an informed decision, and that it has no obligation to disclose all material facts.

The questions TIU raises before us is whether Pacific's marketing strategy of offering the higher priced package (The Works Plus or The Works) first and withholding information on the lower priced package (The Basics Plus or The Basics) until the customer rejects the first offer provide insufficient information for customers to make intelligent choices. We agree that the manner in which Pacific offered sequential offering in the absence of the customer's awareness of her ability to buy individual services on a standalone basis or the availability of other options violates §2896.

We will rule out a finding of violation on the mere act of sequential offerings . None of the rules require that carriers make service offers following a certain order. We recognize that some sort of sequence is inevitable whenever Pacific Bell presents customers with information on the multitude of custom calling services and packages. However, the sequencing strategy that Pacific Bell has chosen and has mandated that service representatives use fails to properly inform customers that optional services can be purchased separately and that packages exist which contain fewer numbers of services and at lower prices.

We take note that the custom calling services (CCS) Pacific offers to its customers are packaged to meet perceived demands of customers. Thus each package comes with a variety of services selected from a set of CCS and designed to meet what Pacific believes are specific needs of segments of customers. The number of CCS it contains and its price differentiate each package from the others. The Works Saver Pack has a bundled fixed number of eight CCS at $16.95 while the Basics Saver Pack permits the customer to pick and choose three to eight CCS at prices that vary from $12.95 to $24.95. In this sense the options are not necessarily perfect substitutes for each other. Each package serves a multitude of purposes at different prices. However, the average residential customer may not be sophisticated enough to be aware of the differentials among these options. We recognize that these custom calling features are discretionary services which serve various purposes, and we have no intention of micromanaging Pacific's actions in selling competing packages of its services or requiring it to offer them in any particular order. But we do believe that customers must be aware of the availability of smaller packages and the ability to purchase enhanced services separately before Pacific begins sequential offerings. Thus, by withholding necessary information, Pacific has misled customers.

8.3. Incentives and Sales Quotas

Pursuant to agreements with the unions representing Pacific Bell's service representatives, Pacific Bell began paying service representatives monetary rewards for exceeding sales revenue targets in 1998. In the first level of the incentive system, service representatives receive up to $150/month for meeting their sales revenue targets. The second level of the incentive gives each service representative a 25% commission on all sales above the target. There is no upper bound to the amount of the commission: "[t]his plan is not capped." The example from the TIU agreement shows that on the first $1,890 of sales in a given month, a service representative could earn up to $150. On the second $1,890, with a commission of 25%, the service representative could earn $472.50, with no maximum. (See Hearing Exhibit 42.)

Sales incentives and sales targets or quotas played a significant role in the earlier Pacific Bell marketing abuse case. In the initial 1986 "cease and desist" order, the Commission directed Pacific Bell to stop "cold selling telemarketing activities and [to] discontinue its sales quota program until further order of this Commission." (D.86-05-072, 21 CPUC2d 182, 191.) In 1989, the Commission subsequently granted Pacific Bell a limited waiver of the prohibition against incentive compensation¹⁶ for a certain classification of employees, but only after the incentive compensation plan had been reviewed and approved by the Customer Marketing Oversight Committee (Committee) then advising Pacific Bell on its marketing operations. (D.89-02-048, 31 CPUC2d 112 (headnote only).)

According to TIU witness Ribeiro, the Pacific Bell sales strategy that emerged following the 1986 decision was focused on customer service and full and accurate disclosure of service information. To demonstrate this, the witness presented a copy of Pacific Bell's 1992 Sales Quota Policy, which prohibits establishing sales quotas for nonsalaried employees and their immediate supervisors. This witness also offered Pacific Bell's 1992 Business Office Sales Policy and Guidelines, which stated that service representatives are to engage in "consultative selling" by responding to verbal cues from the customer and to cues from the customer records in order to make personalized product and service recommendations in all appropriate contacts.

In contrast to the 1992 policies, Pacific Bell's current sales strategies, as reflected in evidentiary record, rely on sales quotas, packaged selling and bonus/rewards based on sales volumes. Pacific Bell documents show that it established an Individual Incentive Plan that provided monetary compensation based on each service representative's sales of specific services. (See, e.g., Attachment A to Exhibit 58.) Pacific Bell also set revenue goals which were broken down into the number of Caller ID and custom calling features each service representative would need to sell each day to reach the overall total. The monthly goals also included numeric targets for Caller ID Complete Blocking removals, which were also broken down to per representative daily goal. (Exhibit 8 to Hearing Exhibit 38.)

TIU requests that we order Pacific Bell to immediately cease and desist from offering any individual monetary incentives to service representatives. TIU would allow Pacific Bell to implement such incentive plans but only with Commission authorization. TIU would require that Pacific Bell file an application, and the Commission to hold hearings and issue a decision, demonstrating with "clear and convincing evidence that the incentive plan proposed by Pacific . . . would not be likely to encourage service representatives to engage in unethical or deceptive sales practices." (TIU Post-Hearing Brief at 48.)

TIU's proposal calls for a substantial increase in this Commission's oversight of Pacific Bell's day-to-day operations and interjects this Commission squarely into the collective bargaining process. Increasing regulatory oversight is contrary to our goals. We believe that the collective bargaining process is best left to employees and Pacific Bell. Therefore, we reject TIU's proposal.

While Pacific Bell's extensive use of incentive compensation for its service representatives is a change from past practices, complainants have presented us with no sound rationale for prohibiting Pacific Bell from using this common compensation mechanism in the increasingly competitive local exchange market. We may revisit this issue as to all carriers in R.00-02-004, but in the instant proceeding we find that complainants have failed to demonstrate that the extraordinary limitations we imposed on Pacific Bell in 1986 are warranted by the instant facts, or consistent with the increasingly competitive local exchange market of 2000.