STATE OF CALIFORNIA ARNOLD SCHWARZENEGGER, Governor



PUBLIC UTILITIES COMMISSION

505 VAN NESS AVENUE

SAN FRANCISCO, CA 94102-3298

May 13, 2004 Agenda ID #3569

Alternate to Agenda #2513

TO: PARTIES OF RECORD IN RULEMAKING 00-02-004

RE: NOTICE OF AVAILABILITY: INTERIM DECISION ISSUING GENERAL ORDER ____, RULES GOVERNING TELECOMMUNICATIONS CONSUMER PROTECTION IN RULEMAKING 00-02-004

Consistent with Rule 2.3(c) of the Commission's Rules of Practice and Procedure, I am issuing this Notice of Availability of the above-referenced alternate draft decision of Commissioner Susan P. Kennedy to the draft decision previously mailed to you by Commissioner Karl Wood. It is on the Commission's agenda at the regular meeting of May 27, 2004. The Commission may act then, or it may postpone action until later.

An Internet link to this document was sent via e-mail to all the parties on the service list who provided an e-mail address to the Commission. An electronic copy of this document can be viewed and downloaded at the Commission's Website ( www.cpuc.ca.gov). A hard copy of this document can be obtained by contacting the Commission's Central Files Office [(415) 703-2045].

When the Commission acts on the draft decision, it may adopt all or part of it as written, amend or modify it, or set it aside and prepare its own decision. Only when the Commission act does the decision become binding on the parties.

Parties to the proceeding may file comments on the draft decision as provided in Article 19 of the Commission's Rules of Practice and Procedure. These rules are accessible on the Commission's website at http://www.cpuc.ca.gov. Pursuant to Rule 77.7(b), comments and replies to comments are governed by Rules 77.2 through 77.5.

All opening comments are due not later than May 20, 2004 and replies to comments are due not later than May 25, 2004.

Comments and replies to comments must be served separately on the Assigned Commissioner and assigned Administrative Law Judge (ALJ), and for that purpose I suggest hand delivery, overnight mail, or other expeditious method of service. In addition, parties should send an electronic copy of their comments and replies to the assigned Administrative Law Judge by e-mail to: jcm@cpuc.ca.gov. Finally, please

send electronic service to Commissioner Susan P. Kennedy at sk1@cpuc.ca.gov, Karl Bemesederfer at kjb@cpuc.ca.gov, and Timothy Sullivan at tjs@cpuc.ca.gov. Electronic service will assist in final revisions to the alternate draft decision.

_/s/ ANGELA K. MINKIN

Angela K. Minkin, Chief

Administrative Law Judge

ANG:tcg

COM/SL1/ham ALTERNATE DRAFT Agenda ID #3569

Alternate to Agenda ID #2513

Decision ALTERNATE DRAFT DECISION OF COMMISSIONER KENNEDY

(Mailed 5/13/2004)

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

Order Instituting Rulemaking on the Commission's Own Motion to Establish Consumer Rights and Protection Rules Applicable to All Telecommunications Utilities

Rulemaking 00-02-004 (Filed February 3, 2000)

INTERIM DECISION ISSUING GENERAL ORDER ____,

MARKET RULES TO EMPOWER TELECOMMNICATIONS CONSUMERS AND TO PREVENT FRAUD

I. SUMMARY

By this decision the Commission adopts General Order No. ___ (G.O.___), Market Rules to Empower Consumers and to Prevent Fraud, applicable to all Commission-regulated telecommunications utilities.

Consumer protection is the underlying goal of all regulatory functions of the California Public Utilities Commission. That role has changed dramatically with increased competition and advances in technology. The telecommunications industry has become more and more competitive, and intermodal competition increasingly blurs the line between regulated and deregulated providers and services. It is imperative that the Commission, whose regulatory tools were designed to regulate monopolies, periodically calibrate its rules to adjust to this new environment rather than to force competitors to adhere to ill-fitting rules.

The 1996 Telecommunications Act established a national telecommunications policy framework, setting us on a path toward full competition and deregulation. A central premise of that framework is recognition that competitive markets provide the most effective consumer protection: the power of choice. As competition takes hold and market forces mature, the regulatory regime must recognize and accede to the role competitive forces play in empowering consumer to protect themselves. If the regulatory regime fails to adapt, it becomes an impediment to both the consumer's benefit and the societal benefits of economic growth, innovation, and the efficiencies that competition was intended to produce.

The single most important tool a consumer can have to protect him- or herself is the power to say "No." Indeed, the objective of most consumer protection rules at both the federal and state level is to ensure that consumers have the information they need to exercise that fundamental choice. The rules adopted herein are designed to clarify the obligations of telecommunications carriers to provide consumers with information sufficient to make informed decisions, and to strengthen the regulations that empower consumers to protect themselves.

Consistent with the legislative mandate of Public Utilities Code §321.1, we also assessed the economic impact of each new provision considered for inclusion in these rules. In each case we sought to ensure that the rules were narrowly drafted to address a specific problem or weakness; to avoid unnecessary conflicts with existing statutes, federal regulations or relevant case law; and to provide for implementation in the least disruptive and most cost-effective way possible. In subjecting each provision to this test we attempted to ensure that the benefit of these rules to customers, separately and combined, outweighs the cost of implementing the rules. To make this judgment, we looked in the first instance at the incremental costs of regulation to the company. Such costs are normally passed on to customers in the form of higher prices. In the absence of compelling evidence that they will be absorbed by the company, they are a good measure of the burden the rules place on customers.

We also subjected each provision to a process we call the "Cricket" test.¹ It is easy for regulators to focus on the large carriers when designing rules. For the most part, the billing practices, customer service operations and back office functions are similar enough for large carriers in like industries that it is possible to draft a rule change in such a way that substantially mitigates implementation problems. But for a small provider, particularly a new entrant or one attempting a different business model, the change can be devastating, and even put them out of business.

For example, Cricket offers "low cost, low stress" cellular service with no term contract or early termination fees. They offer flat rate, all-you-can-eat plans on a month to month basis where their customers are free to switch providers at any time. This company relies heavily on third party and indirect retailers to market its product, and their handsets can be purchased by consumers at stores such as Costco, Staples, Office Depot, 7-Eleven and various grocery chains. This business model makes it imperative that a company such as this keep its overhead low and service quality high. A regulation as seemingly benign as disclosure rules requiring certain information to be delivered "at the point of sale," if not drafted with enough flexibility, could force them to make costly changes to their entire operations or put them out of business. And, for companies that do not require term contracts, where customers can walk away at any time, imposing detailed and time consuming disclosure rules on a carrier would provide little or no benefit to consumers. Onerous, inflexible rules could also become a barrier to entry for other small or rural carriers, stifling competition.

Thus, with each provision of these rules, we tested their applicability to, and impact on, both the largest and the smallest telecommunications service providers.

Finally, it is important to recognize that attempting to apply regulations to the entire telecommunications industry is difficult at best, and disastrous to competition and innovation at worst. There are virtually no similarities between the wireline industry and the wireless industry in terms of technology, costs, business model, market dynamics, customer interaction, billing systems, contracts or regulatory structure. In fact, the only element of similarity is that they both provide services that allow the human voice to be transmitted between devices called by the same name - telephones. New technologies such as Voice over Internet Protocol (VoIP) are reshaping the entire telecommunications landscape as these rules are being drafted, making it even more difficult to apply any regulation on a one-size-fits-all basis.

There is little in the record to justify increasing regulation at all on the wireless industry, which is by far the most competitive and vibrant segment of the telecommunications industry today. Even if it were justified, as carriers from across the spectrum have commented, most of the regulatory tools we have were designed for monopoly wireline carriers and are simply inapplicable.

For example, the vast majority of our current regulatory framework focuses on the provision of "basic service" with an entire regime of additional requirements and regulations designed to protect consumers from being cut off from their only telephone service. The definition of "basic service" is based on local, wireline calling only, and has not changed in nearly 100 years. However, a significant percentage of consumers have already replaced their "basic" wireline service with wireless phones, and many carriers no longer differentiate between local and long distance calling. As voice services become available over other platforms, such as DSL, cable and electric power lines, and are bundled with other services such as video and high-speed Internet access, the definition of "basic service" and the regulations that apply to it will become meaningless. Having said that, changing the definition of "basic service" would be a monumental undertaking affecting the entire industry, and we do not attempt to change it in this decision.

Any attempt to treat disparate industries under the same broad brush would thwart competition, strangle innovation and harm California's economy without providing commensurate benefits. Therefore, in this decision, we carefully differentiate between which rules apply to wireline services and which rules apply to wireless services.

These rules focus on three main areas of concern: Carrier Disclosure, Service Terms and Conditions, and Billing.