Application 99-09-038
After the start of evidentiary hearing in this proceeding, CBI filed Application (A.) 99-09-038 and Advice Letter No. 1 with issues related to those in this proceeding. Vista filed a similar Advice Letter No. 4. In the application, CBI, a certified California reseller with few California customers, requested to transfer control of its company to Thomas Coughlin, Sr., and Philip A. Bethune, both shareholders of Vista. The CBI transferors, Courtney Maroon and Amanda Bethune, are Thomas Coughlin's daughters, and Philip A. Bethune is his son-in-law. CSD, in protesting this application, characterized the transfer as a possible "laundering" of a customer base obtained by unlawful slamming. The Commission foresaw such a filing when it issued its order to investigate and mandated that any such application be consolidated with the investigation in Ordering Paragraph 9.
The advice letters filed by Vista and CBI purported to notify the respective customers of the transfer of a portion of CBI's customer base. CSD also protested the advice letters as inadequate and unauthorized.
Subsequently, the assigned Administrative Law Judge agreed with CSD that the advice letters were not authorized under expedited procedures established in D.95-05-051 and that the Commission intended such applications be consolidated with the investigation. Advice Letters No. 1 and 4 were rejected for filing. Thus, the application and issues in the advice letters are all consolidated with the investigation. However, prior to evidentiary hearing on the application, the parties agreed that since a final decision in the investigation may impact CBI's desire to proceed with the application, a decision in the investigation should be rendered first.
On January 27, 2000, after all evidence in the investigation was submitted, CBI filed a motion to withdraw A.99-09-038. CSD filed a timely response opposing withdrawal unless a grant of the motion was conditioned upon service to CSD of any future application to transfer Vista customer base. We grant the motion to withdraw upon CSD's requested condition, which is reasonable. Any future Vista transfer applications or advice letters must be served on the Commission's Director of the Consumer Services Division.
1. In 1996, Vista entered into a contract with various telemarketers to solicit California business customers to switch to Vista's long distance service in order to obtain combined billing whereby the customer paid only one telephone bill for all business lines. Vista's contract expressly prohibited telemarketers from representing themselves to be any company other than Vista.
2. Vista provided a script of the sales solicitation for the telemarketers to follow. The script did not include a discussion of Vista's rates and charges for switching long distance service.
3. Between January 1997 and November 1998, Vista's telemarketers solicited California business customers by misrepresenting themselves to be local exchange companies (LECs), obtaining an agreement to receive the service. Customers who asked were assured by telemarketers that their long distance service would not be switched. Telemarketers did not inform potential customers of any charges associated with switching long distance carriers.
4. Between January 1997 and March 1999, and possibly on one occasion in August 1999, as a result of Vista's telemarketing, thousands of California businesses were switched to Vista's long distance service without proper authorization. Many of these customers were charged a one-time switching fee and monthly long distance line charges for each business line. One customer reported an unlawful switch in August 1999.
5. Between January 1997 and March 1999, numerous California business customers complained orally and in writing to the Ohio Better Business Bureau, Vista, the Commission and various Vista affiliates alleging unlawful switches of their primary interexchange carrier (PIC disputes) to the service of a carrier later determined to be Vista.
6. Between January 1997 and March 1999, 629 customers complained to Pacific that Vista telemarketers represented themselves as employees of an LEC offering combined billing, and that subsequently their long distance service was switched without authorization.
7. Between January 1997 and March 1999, and in August 1999, PIC disputes alleging Vista unlawfully switched long distance service on a total of 10,773 lines were filed with Pacific, MCI, Sprint, Cable and Wireless, and GTE.
8. The testimony of customers shows a pattern of unlawful switching by telemarketers' misrepresentations and failure to specifically inform customers that they were being solicited to switch their long distance service.
9. Pacific immediately refunded the switching charges for customers complaining to it of unlawful switching. Customers identifiable to Vista obtained total or partial refunds.
10. Vista alleges it voluntarily terminated all telemarketing solicitation of California customers in November 1998, although there is slight evidence of telemarketing after that date.
11. Vista has a tape recorded by its third-party verifier for each business customer complaining of an unlawful switch to Vista's long distance service. After listening to their own verification tape at the hearing, nine of the ten customers testifying still indicated they did not understand or intend to switch their long distance service to Vista. Several customers had their verification terminated when they asked questions. For other customers who asked questions, telemarketers were placed back on the line and assured them that their service would not be switched and they should answer "yes" to all questions.
12. After Pacific demanded in July 1997 that Vista cease all misrepresentation, Vista so informed its telemarketers. Between August 1997 and May 1998, Vista terminated the contracts of eight telemarketing companies for misrepresenting their affiliation.
13. In 1998, Vista's gross revenues nationwide reportedly were $40 million, and it recorded a net loss of $4.6 million.
14. Vista's telemarketers harmed the customers who were slammed, causing harm to those businesses and to the competitive market for telecommunications services.
15. Vista's conduct before and after the complaints did not fulfill its public utility obligations. In particular, Vista did not report these incidents to the Commission, and Vista did not monitor telemarketing sales presentations after reports of misrepresentation and misinformation. Thus, Vista did not take all reasonable steps to secure compliance with Commission regulation.
16. Vista's acts to prevent and resolve incidences of slamming, although not adequate under the circumstances, warrant some mitigation of any fine.
17. Vista's acts to investigate and resolve identifiable PIC disputes warrant some mitigation of any fine. However, Vista has not addressed many additional PIC disputes identified in this proceeding.
1. The solicitation by Vista's telemarketers violated Section 2889.5.
2. Vista failed to fulfill its duty under Section 702 to ensure that marketing by its agents was carried out consistent with Section 2889.5.
3. Vista's telemarketing constituted a substantial offense, albeit mitigated by Vista's acts to prevent and resolve incidences of slamming.
4. The purpose of fines and penalties is to punish violations and deter future unlawful behavior.
5. The public interest requires that customers' right to choose a long distance carrier be protected, the competitive provision of long distance service be preserved, and further violations be deterred.
6. Weighing the severity of the offense, Vista's financial resources, mitigation measures, and the public interest in this proceeding, a fine of $3.5 million is warranted, which is at the low end of the fine range (between $3.5 million and $140 million) under Pub. Util. Code § 2107.
7. Vista should complete its restitution process by providing $20 per business line to customers identified in this proceeding whose PIC dispute(s) Vista has not addressed.
8. Suspension of Vista's operating authority for any period is an unduly harsh sanction given the mitigating circumstances in this proceeding.
9. This order should be effective immediately in order to provide customer restitution as soon as possible.
IT IS ORDERED that:
1. Vista Group International, Inc. (Vista), must immediately cease and desist from engaging in "slamming" (unlawful switches in service) by fraudulent telemarketing solicitation and from all further violations of the Public Utility Code and other applicable California or federal law.
2. Within 12 months after the effective date of this order, Vista will pay a fine of $3.5 million to the General Fund of the State of California.
3. Within 90 days after the effective date of this order, Vista must provide restitution to complaining business customers identified in this proceeding at $20 per business line (approximately 10,773 business lines).
4. Within 120 days after the effective date of this order, Vista must submit to the Director of the Commission Consumer Services Division a report of all restitution provided in compliance with this order. This report must include the name, address, telephone number, number of lines disputed, and total restitution for each customer. If Vista is unable to locate a complaining business customer, it must show that it has made reasonable efforts to locate the customer. Vista will retain all documents supporting this report for a period of three years from the effective date of this order, and shall promptly submit them to any Commission audit of these and any other related records. Any restitution which cannot be made will escheat to the State of California.
5. Should Vista, any corporate affiliates, any of its officers, directors, management employees or contractors, or 5% or greater shareholders, seek to transfer or acquire any customer base, such a request must be through the formal application process. In addition, this proceeding and its outcome must be disclosed in any future application, and any such application must be served on the Commission's Director of the Consumer Services Division.
6. Communications Billing, Inc.'s motion to withdraw Application 99-09-038 is granted.
7. Investigation 99-04-020 and Application 99-09-038 are closed.
This order is effective today.
Dated , at San Francisco, California.
