3. Discussion

A. Denial of the Application

Application 02-10-007 requests authority under § 854(a) to transfer control of NTC. Section 854(a) states, in relevant part, as follows:

No person or corporation...shall...acquire, or control...any public utility organized and doing business in this state without first securing authorization to do so from the commission...Any...acquisition, or control without that prior authorization shall be void and of no effect.

NCT is no longer a public utility in California pursuant to Resolution T-16962. Therefore, because NCT is not a public utility, § 854(a) does not apply, and A.02-10-007 must be denied.⁹ But even if NCT were a public utility, we would deny the Application because Bartel is manifestly unfit to own a public utility as demonstrated by NCT's violations of the Public Utilities Code, Commission decisions, and Rule 1 found by today's Decision, infra, that have occurred since Bartel acquired NCT.

B. Orderly Termination of Service

SBC California and Verizon report that NCT is the designated PIC for approximately 288 lines, even though NCT no longer has a CPCN. It is unlawful for NCT to provide service without a CPCN. Therefore, we will require SBC California and Verizon to remove NCT as the PIC for the lines in question.

So that NCT's customers are informed about the termination of service, we will require SBC California and Verizon to send a written notice to the billing addresses for the lines served by NCT that contains the following information:

_ Calls will no longer be routed to NCT starting 30 days from the date of the notice.

_ The customer needs to switch to another interexchange carrier within 30 days to avoid an interruption of interexchange service.

The notice shall be reviewed and approved by the Commission's Public Advisor. SBC California and Verizon shall mail the approved notice to NCT's customers no later than 30 days from the effective date of this Decision. SBC California and Verizon shall also file a copy of the mailed notice at the Commission's Docket Office.

C. Collection of Regulatory Fees

The information provided by CPSD shows that NCT has failed to remit $174,225 of regulatory fees for the period of January 2003 through May 2005. NCT shall remit these fees to the Director of TD no later than 30 days from the effective date of today's Decision. Legal Division should take any steps it deems appropriate to collect any unremitted fees.

D. Fines for Violating Statutes, Commission Decisions, and Rule 1

i. Summary of the Violations

The record of this proceeding demonstrates that NCT has violated several statutes, Commission decisions, and Rule 1. These violations are summarized below.

a. Failure to Remit Regulatory Fees

NCT is required to bill, collect, and remit several regulatory fees to fund public programs. The following Table identifies the specific regulatory fees that NCT failed to remit and the statutes and Commission decisions that require NCT to bill, collect, and remit these fees:

CPSD's sworn declaration represents that NCT failed to remit $174,225 of regulatory fees for the period of January 1, 2003, through May 2005. NCT denies the allegation, but provided no information to refute CPSD. In light of NCT's violations of Rule 1 addressed elsewhere in today's Decision, we accord little weight to NCT's denial. Accordingly, we find that NCT has failed to remit $174,225 of regulatory fees in violation of the previously identified statues and Commission decisions.¹⁰

b. Violation of § 702

Section 702 states, in relevant part, as follows:

§ 702: Every public utility shall obey and comply with every order, decision, direction, or rule made or prescribed by the commission...in any way relating to...its business as a public utility, and shall do everything necessary or proper to secure compliance therewith by all of its officers, agents, and employees.

NCT violated § 702 by failing to remit regulatory fees, operating after its CPCN was revoked by Resolution T-16962, and submitting false information to the Commission in violation of Rule 1.

c. Violation of § 854(a)

Section 854(a) states, in relevant part, as follows:

§ 854(a): No person or corporation...shall...acquire, or control...any public utility...doing business in this state without first securing authorization to do so from the commission.

NCT violated § 854(a) when ownership of the company was transferred from Kathleen Helein to Karyn Bartel without Commission authorization.

d. Violation of § 1013(a)

Section 1013(a) states, in relevant part, as follows:

§ 1013(a): A telephone corporation operating in this state shall either have a [CPCN] or be registered under this section or be a telephone corporation authorized to operate in California without a [CPCN].

NCT violated § 1013(a) by continuing to operate after its CPCN was revoked on October 27, 2005, by Resolution T-16962.¹¹

e. Violation of Rule 1

Rule 1 states, in relevant part, as follows:

Rule 1: Any person who signs a pleading or brief...or transacts business with the Commission...agrees to comply with the laws of this State and...[to] never to mislead the Commission or its staff by an artifice or false statement of fact or law.

As described previously, NCT violated Rule 1 by (1) failing to comply with certain statutes, and (2) providing false information to the Commission on two occasions regarding matters that are material and relevant to this proceeding.

f. Alleged Violations of § 2889.5(a) and § 2890(a)

Sections 2889.5(a) and 2890(a) state, in relevant part, as follows:

§ 2889.5(a): No telephone corporation, or any person, firm, or corporation representing a telephone corporation, shall make any change or authorize a different telephone corporation to make any change in the provider of any telephone service for which competition has been authorized of a telephone subscriber.

§ 2890(a): A telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized.

CPSD provided evidence that the Commission's CAB received 134 informal slamming complaints against NCT, SBC California received 241 informal slamming complaints against NCT, and two billing aggregators received 8,271 informal cramming complaints against NCT. Although the evidence provided by CPSD is troubling, we have previously held that informal complaints require corroborating evidence to establish that slamming or cramming has occurred.¹² No such corroborating evidence was provided. Accordingly, we decline to conclude that NCT violated § 2889.5(a) or § 2890(a).¹³

ii. Imposition of Fines

The Commission is authorized by § 2107 to levy a fine of $500 to $20,000 for each of the previously described violations. This statute states as follows:

§ 2107: Any public utility which violates or fails to comply with any provision of the Constitution of this state or of this part, or which fails or neglects to comply with any part or provision of any order, decision, decree, rule, direction, demand, or requirement of the commission, in a case in which a penalty has not otherwise been provided, is subject to a penalty of not less than five hundred dollars ($500), nor more than twenty thousand dollars ($20,000) for each offense.

We conclude that NTC should be fined for the previously described violations pursuant to our authority under § 2107. This is because any violation of statutes, Commission decisions, and Rule 1, regardless of the circumstances, is a serious offense that should be subject to fines. Further, as the Commission has previously recognized, "The primary purpose of imposing fines is to prevent future violations by the wrongdoer and to deter others from engaging in similar violations.¹⁴" Therefore, to deter future violations by NCT and others, it is necessary to fine NCT for the violations found by today's Decision.

To determine the amount of the fine, we will rely on the following criteria adopted by the Commission in D.98-12-075¹⁵:

Physical harm: The most severe violations are those that cause physical harm to people or property, with violations that threatened such harm closely following.

Economic harm: The severity of a violation increases with (i) the level of costs imposed on the victims of the violation, and (ii) the unlawful benefits gained by the public utility. Generally, the greater of these two amounts will be used in setting the fine. The fact that economic harm may be hard to quantify does not diminish the severity of the offense or the need for sanctions.

Harm to the Regulatory Process: A high level of severity will be accorded to violations of statutory or Commission directives, including violations of reporting or compliance requirements.

The Number and Scope of Violations: A single violation is less severe than multiple offenses. A widespread violation that affects a large number of consumers is a more severe than one that is limited in scope. For a continuing violation, § 2108 counts each day as a separate offense.

The Utility's Actions to Prevent a Violation: Utilities are expected to take reasonable steps to ensure compliance with applicable laws and regulations. The utility's past record of compliance may be considered in assessing any penalty.

The Utility's Actions to Detect a Violation: Utilities are expected to diligently monitor their activities. Deliberate, as opposed to inadvertent wrongdoing, will be considered an aggravating factor. The level and extent of management's involvement in, or tolerance of, the offense will be considered in determining the amount of any penalty.

The Utility's Actions to Disclose and Rectify a Violation: Utilities are expected to promptly bring a violation to the Commission's attention. What constitutes "prompt" will depend on circumstances. Steps taken by a utility to promptly and cooperatively report and correct violations may be considered in assessing any penalty.

Need for Deterrence: Fines should be set at a level that deters future violations. Effective deterrence requires that the size of a fine reflect the financial resources of the utility.

Constitutional Limits on Excessive Fines: The Commission will adjust the size of fines to achieve the objective of deterrence, without becoming excessive, based on each utility's financial resources.

The Degree of Wrongdoing: The Commission will review facts that tend to mitigate the degree of wrongdoing as well as facts that exacerbate the wrongdoing.

The Public Interest: In all cases, the harm will be evaluated from the perspective of the public interest.

Consistency with Precedent: Any decision that levies a fine should address previous decisions that involve reasonably comparable factual circumstances and explain any substantial differences in outcome.

Several of the above criteria suggest that only a modest fine is warranted. In particular, there is no evidence that NCT's violations caused any physical harm to people or property. In addition, the number and scope of the violations is relatively small. Further, based on NCT's representation that it is going out of business and cannot afford the cost of transferring its customers to another carrier, it appears that NCT's financial resources are limited and diminishing.

On the other hand, several criteria weigh in favor of a larger fine. First, NCT failed to remit $174,225 of regulatory fees. Because the cost of the public programs funded by the fees did not change, NCT's failure to remit the fees had to be made up by other Californians. Thus, NCT's actions inflicted economic harm of at least $174,225. Although today's Decision orders NCT to remit $174,225 of regulatory fees, which would reduce or eliminate the economic harm to others, we are doubtful that NCT will do so.¹⁶

Second, NCT knowingly provided false information to the Commission regarding issues that are material and relevant to this proceeding. The submittal of false information causes substantial harm to the regulatory process, which cannot function effectively unless participants act with integrity at all times.

Finally, there is no evidence that NCT made any effort to prevent, detect, disclose, or rectify the violations.

There are several decisions that involve reasonably comparable factual circumstances. In the following decisions, the Commission imposed fines that ranged from $2,500 to $7,500 for violations of § 854(a) involving non-dominant telecommunications carriers like NCT: D.04-04-017, D.04-04-016, D.03-05-033, D.00-12-053, and D.00-09-064. In D.05-02-001, the Commission imposed a fine of $45,350 for slamming, cramming, failure to remit regulatory fees, and violating Rule 1. In D.03-01-079, the Commission imposed a fine of $35,000 for violating Rule 1. And in D.01-08-019, the Commission imposed a fine of $10,000 for each Rule 1 violation found by the decision

Based on the facts of this case and the criteria established by D.98-12-075, we conclude that NCT should be fined $5,000 for violating § 854(a), $40,000 for multiple violations of Rule 1, and $10,000 for the other violations found by today's Decision. These fines are meant to deter future violations by NCT and others. The fines levied by today's Decision do not differ substantially from those levied by previous decisions addressing reasonably comparable circumstances. We emphasize that the fines we adopt today are tailored to the unique facts before us in this proceeding. We may impose larger fines in other proceedings if the facts so warrant.

Within 30 days from the effective date of this Order, NTC shall remit to the Commission's Fiscal Office at 505 Van Ness Avenue, Room 3000, San Francisco, CA 94102, a check for $55,000 made payable to the State of California's General Fund. The number of this Decision shall be shown on the face of the check.

⁹ The unauthorized transfer of control of NCT that occurred in March 2003 is void and of no effect pursuant to § 854(a).

¹⁰ There is insufficient information in the record of this proceeding to determine if NCT billed and collected the regulatory fees and, if so, unlawfully kept these fees.

¹¹ NCT is not registered to operate in California and is not authorized to operate in California without a CPCN or registration.

¹² D.05-06-033, Conclusion of Law 5; D.04-09-062, 2004 Cal. PUC Lexis 453, *65.

¹³ As noted earlier, the FCC has determined that NCT engaged in 27 instances of slamming, and the Florida PSC staff found 42 slamming violations. This information, while troubling, does not corroborate the slamming and cramming reported in California.

¹⁴ D.01-08-058, mimeo. at 80, and D.04-09-062, mimeo. at 62.

¹⁵ D.98-12-075, 84 CPUC 2d at 188-190.

¹⁶ As noted previously, NCT's counsel represents that NCT is going out of business.