COM/RB1/rmn ALTERNATE H-4b

3/15/2001

Decision ___________

BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA

The Utility Consumers' Action Network, Complainant, vs. Pacific Bell (U 1001 C), Defendant.	Case 98-04-004 (Filed April 6, 1998)
And Related Matters.	Case 98-06-003 (Filed June 1, 1998) Case 98-06-027 (Filed June 8, 1998) Case 98-06-049 (Filed June 24, 1998) Investigation 90-02-047 (Filed February 23, 1990)

FINAL OPINION ON PACIFIC BELL'S

MARKETING PRACTICES AND STRATEGIES

(Appearances are listed in Attachment A.)

FINAL OPINION

Summary

In this decision we address a number of Pacific Bell's techniques for marketing its optional services to residential customers. Although marketing is the overarching theme, each individual issue is fact intensive and we address each separately and in the context of the applicable standards.

First, we find that Pacific has violated the disclosure standards of the Commission in its marketing of Caller ID Services. A customer's decision to switch from Complete Blocking to Selective Blocking based on the marketing script Pacific provides to its consumer service representatives do not constitute a fully informed waiver of a customer's privacy rights, a precondition the Commission laid out for carriers to follow in selling Called ID services.

Second, we direct Pacific to take specific actions to inform affected customers on the status of their blocking and allow those customers who want to switch to Complete Blocking to do so at no charge to the customer. This remedial effort will most likely translate into millions of dollars.

Third, although we find that Pacific's sequential offering of packaged services is not a violation of existing standards, we do find Pacific in violation of §2896 for failing to inform customers of the availability of other options in marketing the packages.

Fourth, we order Pacific to fix its Tariff Rule 12 so that customers are aware of other options and that each component service of the packages can be purchased on a stand-alone basis.

We impose a total fine against Pacific Bell of $10,039,000. In mitigation, due to Pacific Bell's candor and cooperation in this proceeding and its steps voluntarily to correct some abuses found herein, we stay $5,019,500 and may ultimately rescind that amount, dependent upon Pacific Bell's cooperation with remedial steps ordered in this decision. Within 120 days from the effective date of this order, Pacific shall make a payment of $5, 019,000 to the General Fund of the State of California.

Fifth, we find that customers of Pacific who are tenants have the right to know that the landlord is responsible for inside wire maintenance so that customers can make informed choices if they elect to purchase inside wire maintenance from Pacific Bell. We order Pacific to inform its customers that the landlords, not the tenants, have the statutory responsibility to maintain the inside wire and usable jack.

We find in favor of Pacific Bell on several issues raised by complainants. First, no law or decision prohibits Pacific Bell from requiring all service representatives to offer optional services on every call, so long as the call answering standards of General Order (GO) 133-B are met.

Second, the statutory and decisional standards that apply to Pacific Bell's marketing efforts make no distinctions based on ethnicity or duration of residency in this country. Hence, the request of some complainants that we hold Pacific Bell to a different disclosure standard for certain groups of customers is denied.

Third, based on the record before us, we find that complainants have failed to meet their burden of proof to counter Pacific's explanation with significant showing of customers who were actually confused by the name The Basics Saver Pack and the Essentials.

Fourth, we deny complainants' request that we order Pacific Bell to cease and desist from offering any individual monetary incentives to service representatives and decline to interject this Commission into the collective bargaining process. Increasing regulatory oversight is contrary to our goals.

Fifth, although Pacific Bell is subject to stringent federal and state regulations regarding the privacy of customers' information, those standards do not prevent Pacific Bell from providing customer information, subject to

BRI. In addition, Pacific Bell has been cooperative and forthcoming in this complaint litigation.

We also consider precedents in determining whether this is a continuing problem. Repeat violations can lead to harsher fines. In the case before us we do not believe a pattern of recidivism exists as to the 1986 marketing abuse cases. Those decisions specifically dealt with, among other violations, the selling of basic exchange service as part of a package of optional services and selling services without Commission authorization, a situation unlike the alleged violations in this case. As we stated above, Pacific's marketing of optional packages in this 1998 case neither contain basic service as a component of the package nor were they unauthorized services. Pacific has established, and based on the evidence we have accepted, that it offers a customer optional services only after the customer has selected basic service. We have also found that the Commission approved all the optional package services that are the subject of alleged violations in this proceeding.

Finally, the financial resources of the utility also play a role in determining the appropriate level of fine. Pacific Bell's 1998 report filed with the Commission shows total California revenue of $9.4 billion.²² Thus a fine of substantial proportion is necessary to secure future deterrence.

While prior precedent is a factor in setting an appropriate fine, neither the 1986 marketing abuse cases nor the recent GTE California Incorporated (GTEC) case (D.98-12-084) are dispositive in this proceeding. We have distinguished the instant facts of this case from the prior Pacific Bell marketing abuse cases. We likewise find significant differences between the instant case and the facts underlying D.98-12-084. Our original fine assessed against GTEC, via Resolution (Res.) T-15404, was $3.2 million. Thereafter, it came to our attention that the marketing abuses may have occurred over a longer period and have involved concealment by GTEC's upper management. Therefore, we opened a new proceeding to investigate such allegations and possible breaches of ethical rules and our Rule 1, as well as whether the redress ordered in Res. T-15404 was adequate. Evidence disclosed material alterations of reports to the Commission and concealment of information from the Commission. In D.98-12-084, this Commission approved a settlement of $9.8 million more. This $9.8 million included $4.85 million for a consumer protection fine, $100,000 in reimbursements of Commission costs, and $4.85 million in fines. The instant proceeding contains no such evidence of adultered evidence or concealment of evidence by Pacific Bell. Therefore, D.98-12-084 is not proper precedent to apply. If anything, it dictates that a much lesser fine, in the range of the original resolution's fine of $3.2 million, be the appropriate precedent herein. Particularly in light of Pacific Bell's candor and cooperation herein, D.98-12-084, which deals with deceit and intransigence, should not be a guidepost in our assessment of a fine against Pacific Bell.

In light of the above, and mitigated by the two factors noted, we will impose a fine of $10,000 per day for each day of violation starting on the day Pacific began marketing its Caller ID Plan. We consider in assessing this figure that Pacific should have known it was under a continuing obligation to fully inform customers on Caller ID options.

The evidence does not clearly show when these practices began but the Residence Caller ID Plan appears to contemplate marketing to occur in 1998. Therefore, for the purposes of determining the fines we shall use January 1, 1998,

as the date on which violations began. We shall apply the fine for each day of violation commencing on January 1, 1998 and ending on December 31, 1999. This appears to be the period covered by Pacific's Residence Caller ID Marketing Plan (Exhibit 4.) Based on $10,000 per day and the total number of days in 1998 and 1999, we shall impose a fine of $7,300,000 on Pacific. We also consider the cost, which is undetermined in this record but nonetheless significant, that Pacific will incur in contacting customers as part of the fine.

We also find Pacific in violation of §2896 for its failure to make customers aware of their lower cost options in its sequential marketing of optional services. As we have noted in this order, we do not find Pacific in violation of §2896 or Tariff Rule 12 in selling these packages or even the sequential offering of the packages. We see no nexus or pattern connecting the facts of this proceeding to the 1986 marketing abuse cases. Our problem is Pacific's failure to inform the customer about the availability of other (lesser priced and with fewer services) options and his or her ability to buy each service separately.

With sequential marketing of Saver Packages, the record does not make clear when Pacific started and ended the marketing of the Saver Packages in the manner alleged to violate §2896. We know from Pacific's advice letter filings that it promoted The Basics and The Works Saver Packs starting in 1998 and through 2000. Whether Pacific continued the same problematic marketing approach throughout these years is not apparent. However, the record does not show that Pacific has ceased marketing the Saver Packs in the manner, which we now find to be in violation §2896. Therefore, for the purpose of determining a fine in this particular violation, we shall use each day of 1998, 1999 and the first six months of 2000 to approximate the duration of violation. We will impose a fine of $3,000

per day applied to the total number of days in these years and order Pacific to pay a total fine of $2,739,000.

Therefore, Pacific should be assessed a total fine of $10,039,000 plus the costs of the Caller ID remedial efforts. To provide Pacific Bell a quantifiable incentive to fully cooperate with the remedial actions required by this decision, we will stay one half of the fine, or $5,019,500, pending Pacific Bell's compliance with this decision. Should Pacific Bell fail to so comply, we may reinstate the stayed portion of the fine.

Thus Pacific Bell shall pay $5,019,500 to the State General Fund within 120 days of the effective date of this order. The remaining $5,019,500 fine is stayed pending full compliance with the requirements of this decision. We

believe this fine is necessary and warranted under the circumstances described in this order to protect the public interest.

Pursuant to P.U. Code Section 1701.2, the Commission must provide a statement explaining the changes from a proposed decision. This item changes the fine assessed in the modified presiding officer's decision (MODPOD). The MODPOD assesses a fine of $20,000,000 and stays 50% of that amount. This Order assesses a fine of $10,039,000 and stays 50% of that amount pending Pacific Bell's compliance with the decision.