7. Marketing Programs and Tactics

In this section we address several Pacific Bell marketing tactics 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 more expensive packages of services first and less expensive packages upon refusal of the larger one. Incentives refers to sales incentive programs for customer service representatives. In the last part of this section, we address Pacific Bell's policy of releasing customer information to its affiliates and agents.

7.1. "Offer on Every Call"

In 1997, Pacific Bell instituted a policy of offering optional services, such as Call Waiting and Caller ID, every time a customer calls Pacific Bell, regardless of the customer's purposes in calling. Pacific Bell implemented this "Offer on Every Call" policy by requiring its service representatives to offer optional services on every incoming call from a customer, unless a customer is requesting disconnection or has been disconnected for non-payment. Service representatives may offer optional services in response to a customer's stated or implied needs, but are encouraged to offer services based simply on current sales promotions. (Ex. 1, Testimony of Michael Shames, p. 35, and Attachments MS-19 and MS-82 through 85.) Pacific Bell trained its service representatives to "overcome" customers' objections to ordering specific services or packages. (Ex. 1, p. 36, and Attachment MS-87.) Sales by service representatives who offer optional services to customers when they call Pacific Bell is Pacific Bell's primary means of selling optional services. (Joint Stipulation of Undisputed Facts, No. 24.)

UCAN and ORA contend that this "Offer on Every Call" policy (especially in combination with the Pacific Bell's practice of offering most expensive options first, discussed in the following section) elevates sales over service, and interferes with the delivery of customer service of a reasonable quality, in the following ways: it interferes with customers obtaining the information or service they called to request, and to which they are entitled; some sales pitches are misleading in that they create the unfounded impression that additional services are being offered based on an analysis of the particular customer's calling patterns; customers, including low-income customers and even customers eligible for Lifeline Service, are sometimes pressured to accept services they may not want and may not be able to afford; and it slows Pacific Bell's response time on customer calls so that it is falling below the response time standard set in G.O. 133-B. Consequently, they contend, the practice violates the disclosure and service standards required by Public Utilities Code §§ 451 and 2896, Tariff Rule 12, and previous Commission decisions, notably our previous decision in the 1986 Pacific Bell marketing abuse case.

The record supports these contentions. The director of Pacific Bell's Consumer Markets Group, Jewell Stoddard, testified that Pacific Bell instructs its representatives to ask each caller, at the beginning of every call, for permission to access the subscriber's proprietary network information so that Pacific Bell can offer Pacific Bell or Pacific Bell Affiliate products on every call. (RT 5, p. 787.) If customer answers "no" to this question, Pacific Bell instructs its representatives to rephrase the CPNI statement. (Id.) If the caller still responds "no" to the CPNI question, Pacific Bell instructs its representatives to proceed to offer Pacific Bell products: "It is expected that the rep will offer Pacific Bell products on every call and in this case [when customer has not given permission to disclose CPNI information to other entities] will not continue to offer Pacific Bell Affiliate products." (Ex. 57, Decl. Of Jewell Stoddard, Attachment G.) On miscellaneous calls, Pacific Bell instructs its representatives to get the caller's permission to access account information before answering the caller's inquiry. (RT 5, p. 791 (Stoddard)).

Pacific Bell representatives try to sell the customer additional products before answering their inquiries. (Ex. 1, Testimony of Michael Shames, Attachments MS-85, MS-94.) In monitoring Pacific Bell Service Center calls, ORA heard calls in which customers called to ask for bill copies, for directories, to change service to a new residence, to change a PIN number on a calling card, or for information about an inter exchange carrier, only to be marketed packages and features and/or solicited to change blocking status before their questions were answered. (Ex. 24, Declaration of Kelly Boyd, p.7; Attachment B.)

As a practical matter, in today's market, most Pacific Bell residential customers do not have the option of obtaining basic local exchange service from another provider. Pacific Bell estimates that it lost no more than 3% of its residential lines to competitors through 1998. (Ex. 5.) This near-monopoly in the residential market imposes a heightened responsibility on Pacific Bell to provide residential customers service of reasonable quality. Forcing customers to listen to unwanted sales pitches when they call for information or service is not customer service of reasonable quality. As such, these practices disregard reasonable service standards set forth in Section 451 and 2896 (e) of the Public Utility Code.

Pacific Bell's practice of requiring its representatives to make sales offers on every call and evaluating them on the basis of their success in selling to callers has led to misleading, confusing, or inappropriate high-pressure sales pitches. Representatives are encouraged to promote products and to overcome customers' objections even in instances where customers have been suspended for non-payment. (Ex. 1, Testimony of Michael Shanes, p. 36-38 and Attachment MS-89.) In a document congratulating a team of service representatives for achieving 125% of its target and sharing the team's secrets of success, Pacific Bell commented: "Caller ID - Offer on Every Call - even those in treatment" (i.e. in danger of having service suspended for non-payment). (Ex. 1, Testimony of Michael Shanes, p. 36 and Attachment MS-90.) In an employee feedback exercise conducted for Pacific Bell, employees expressed concern that pressure to sell was leading to unethical sales tactics. One customer service representative commented: "How do you sell to a person who is in treatment?" (Attachment MS-95.)¹⁷

These tactics have resulted in customers buying features they do not want or cannot afford, as in this example observed by ORA when it monitored a service center:

During the monitoring on April 2, 1998 at Pacific, I heard a new service order call initiated by someone who said she was on a very limited income, was disabled and had two grandchildren living with her. The caller said she had had her service disconnected in the past, but she had no outstanding bills and that she needed to keep her phone bill cost down. She also said she needed Call Waiting for emergencies because of the children. She was qualified for ULTS service during the call, and she asked how much her monthly service would cost. She was told it would cost $5.62 a month. The service representative then went on to attempt to sell this caller a "Basics Plus" Package of custom calling services, including voice mail and Caller ID. The caller was told this would cost $19.95, and the caller asked, "So my service will be $19.95 a month?" The service representative quickly explained how some of the features in the package would work, but the caller voiced confusion. The caller was also sold the Caller ID box for $9.95 plus approximately $8 in shipping and handling costs. At the end of the call, when the service representative gave the caller her "new" telephone number, it was the same number the caller had given at the beginning of the call as a reference phone number. It was apparent to me, as I discussed with a Pacific Bell Regulatory staff person during the monitoring, that this caller had already ordered service and her order had been put on hold. Apparently, the customer had called back to finalize the order, at which time she was then sold additional packaged products and optional features to increase her monthly bill by $23.20, and to apply additional one time charges of approximately $18. (EX. 4, Declaration of Kelly Boyd, pp. 3-4.)

The available evidence of customers accepting services that they do not want or cannot afford is necessarily anecdotal because Pacific Bell does not track complaints of unwanted services or requests for removal of services. Nevertheless, in addition to practices such as the one described above, which was observed by ORA when monitoring a service center, UCAN was able to document instances of customers objecting to unwanted services and requesting their removal. (See Ex. 1, Testimony of Michael Shames, p. 39.)

To make matters worse, customers report that it is much more difficult to cancel a feature than to add one. (Exs.3, 26, 87.) This complaint highlights another way that unbridled "Offer On Every Call" negatively affects consumers: It takes a toll on their time whenever they try to contact customer service, both directly (the time they spend listening to sales pitches) and indirectly (due to the lengthening of response time because each service call is turned into a sales effort). According to data provided by Pacific Bell, the length of time spent on each call increased between January and July of 1998. When ORA monitored calls at a Pacific Bell call center in September 1998, average time spent on each call that day was 13.9 minutes, compared with an average call handle time of over 8 minutes in May 1998. (Ex. 57, Declaration of Kelly Boyd, p. 7 and Attachment C.)¹⁸

Pacific Bell argues that it has a constitutional right to offer its products and services to residential customers in California. This decision does not preclude Pacific Bell from offering information about products and services on incoming calls to the customer service centers. As set out in detail below, Pacific Bell may offer information about additional services to its customers when they call, but in doing so, it must respect customers' right to decline to hear about such services. Pacific Bell may not treat its customers as a captive audience and force them to endure unwanted sales pitches in order to obtain service or information to which they are entitled. While we do not prohibit Pacific Bell from offering services at every call, we will require them to respect customer's expressions declining such services, and we will require their representatives to give priority to their initial requests for service before subjecting the customer to any marketing of services or request for the release of CPNI. (See Section 9.3)

7.2. 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.¹⁹ 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 sequential offering 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.

In evaluating the opposing arguments, 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. The sequence that Pacific Bell has chosen and has mandated that service representatives use, however, is the sequence that most encourages sales. This sequence is driven by Pacific Bell's interest in increasing revenue, not by providing the customer complete information on the options available and allowing the customer to make an informed choice. This sequence starts with the highest-priced package and only goes as low as necessary to entice the customer to buy.

In the 1986 Pacific Bell marketing case,²⁰ the Commission reviewed Pacific Bell's sales strategies. The Commission concluded that Pacific Bell, by means of "an array of activities that have been referred to generically . . . as `package selling,'" was causing customers to believe that local exchange service was part of a package of optional services. (D.86-05-072, 21 CPUC2d 182, 190.) The "array of activities" included the scripts for selling packages of services where the service representatives were instructed to recommend that a customer purchase a "full package" of telephone service which included all available custom calling features. This package increased the monthly price for unlimited local phone service from $8.25 to $31.95. If the customer objected, the script instructed the service representative to recommend a package with one less feature that costs 50 cents less per month. (Exhibit 511, A.85-01-034.) To remedy these "abusive marketing practices," the Commission ordered Pacific Bell to undertake a massive Customer Notification Plan to reach customers, to notify them of the services they currently have, and to afford them an opportunity to have unwanted services removed and obtain refunds.

Pacific Bell's 1986 script which was part of the package selling abuses (1) made service recommendations to customers which reflected Pacific Bell's objective to increase sales, not provide service recommendations to the customer tailored to meet the customer's needs, (2) had fallback positions which attempted to sell as many services as possible to the customer, again without regard to the customer's needs, and (3) did not offer optional services on an individual basis.

At hearing in the current proceeding, complainants introduced one of the 1998 scripts used by Pacific Bell in selling packages of optional services. (See Exhibit 23.) Entitled "Selling to Success with the New Connect Model Contacts!!!" the script has the service representative telling the customer "I'd like to ask you a few questions to help you select your services." The service representative then asks a series of questions about household composition, frequency of use of the phone, and whether the customer ever works at home or telecommutes.

Regardless of whether the customer is a frequent or infrequent user of the phone, the service representative is instructed to "recommend" to the customer "based on what you've told me about how you use the phone" that the customer purchase the Basics Saver Pack.²¹ The customer's answers to the questions are thus irrelevant to the service representative's recommendation. If the customer refuses to purchase the packages, the Model Contacts direct the service representative to attempt to overcome objections by explaining the benefits of all the included services or, for customers that object to the price, pointing out that the per day price is only 70 cents. In all cases where the customer continues to object, a fallback package of fewer services is offered. Only after the fallback package is rejected is the service representative instructed to attempt to sell individual services.

To remedy the abuses created by the 1986 script, Pacific Bell reformed its practices and developed a completely new set of requirements for handling residential customer contacts. (Exhibit 513, A.85-01-034; see also, Exhibit 515, pages 11-15.) In addition to clearly separating basic service from optional services, the new customer contact scripts abandoned directives to "recommend" extensive packages and instead implemented "personalized solutions" for each customer. The new scripts required that each customer service representative use "fact finding and verbal and record cues" to solicit information on how the customer uses telephone service, and to then develop a personalized recommendation for that customer. In stark contrast to the 1986 script, the new script does not require the customer service representative to make a specific sales recommendation but rather to make "personalized solutions for every individual situation."

Comparing the 1986 script to the 1998 script reveals striking similarities. In both cases, the scripts require the service representative to feign an interest in how the customer actually uses the telephone and to make a pre-determined "recommendation" ostensibly based on the customer's information. The recommendation, in both scripts, is one of Pacific Bell's most expensive packages of optional features. Should the customer refuse to purchase the package, both scripts require the service representative to offer a fallback package that has fewer features and is less expensive. If the customer persists in refusing to purchase a package, the 1998 script then allows the service representative to attempt to sell individual services.

The 1998 script then, like the 1986 script, (1) reflects Pacific Bell's objective to make service recommendations to customers to increase sales, not to tailor recommendations to meet the customer's needs, (2) has fallback positions which attempt to sell as many services as possible to the customer, again without regard to the customer's needs, and (3) offers optional services on an individual basis only after all packages had been refused.

We determined that Pacific Bell's 1986 sales strategies violated Tariff Rule 12 because the actions failed to separately quote the prices for each service.²² As discussed earlier in this decision, Tariff Rule 12 was subsequently modified to clarify that price quotations shall be "separately stated" for each service. A sales strategy which is designed to create the mistaken impression in a customer that a particular service package recommendation is based on the customer's needs, and which results in a quotation of individual services only if the customer persistently refuses the service packages, fails to meet the requirements of current Tariff Rule 12. Customers are not presented with a quotation for optional services and "allowed to designate which optional services they desire," as required by Tariff Rule 12.

While we recognize that Pacific Bell must present the many service and package options to customers in some sort of order, the 1998 script, like the 1986 script, falls far short of the standard set in Tariff Rule 12. The script that Pacific Bell developed and implemented in response to the 1986 proceeding illustrated that Pacific Bell understood the applicable standard and could translate it into specific directions to its staff. That standard, and the more general statement found in §2896, require Pacific Bell to provide information to customers and guidance based on the customers' needs, not its revenue goals. The law does not preclude sales efforts, but does require that sales efforts be consistent with the disclosure standards and informed choice requirements of Tariff Rule 12 and §2896.

7.3. 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.)

UCAN witnesses Patricia Greenan and Janet Spector, both Pacific Bell employees, testified that the implementation of incentives (money and prizes) for customer service employees had resulted in overly aggressive sales efforts: "everybody's so consumed about this - the money, that in a lot of cases ethics are thrown by the wayside." Low-income customers who are signed up for expensive optional services that exceed their ability to pay particularly troubled witness Spector. This witness recalled one customer, whose service was limited to local calls only, who was being charged $100/month for optional services. Both witnesses stated that they have observed an increase in the number of customer calls they receive requesting that optional services be discontinued.

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 compensation²³ 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).)

The Committee retained The Center for Ethics and Social Policy, Drs. Charles S. McCoy and Fred N. Twining, to evaluate whether the safeguards put into place by Pacific Bell were adequate to restore public trust and prevent a recurrence of the marketing abuses which led to the 1986 "cease and desist' order. In their report to the Committee, McCoy and Twining stated that Pacific Bell's "practices and incentives used in residential marketing have changed from sales quotas, packaged selling and bonus/rewards based on sales volumes to evaluation of individual performance based primarily on customer service."²⁴ Based on this report and other information, the Committee reported to the Commission that Pacific Bell was in compliance with its tariffs, the Commission's general orders, and statutes. Relying on the Committee's report, the Commission lifted its prohibition on cold-selling telemarketing and sales quota programs. (D.90-02-043, 35 CPUC2d 488, 491.)

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 the 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 a per representative daily goal. (Exhibit 8 to Hearing Exhibit 38.)

Pacific Bell's current reliance on "packaged selling" is well documented, as discussed in the section above (Sequential Offerings). Similarly, the incentive compensation plans discussed previously clearly establish bonus/rewards based on sales volumes.

We find that Pacific Bell has essentially changed course and reinstated certain abusive marketing practices that we enjoined in 1986. The contrast between the 1992 sales policy and the current directions to service representatives well illustrates Pacific Bell's regression. The 1992 policy requires service representatives to engage in consultative selling, which is defined as responding "to verbal cues and cues provided by customer records to make personalized product and service recommendations." In contrast, the current sales strategy requires service representatives to ask questions but regardless of the response to recommend an expensive package of services. Similarly, the 1992 policy requires service representatives to ask customers if they wish to hear about additional products and services, while Pacific Bell's current policy is to offer packages of services on every call irrespective of the customer's interest or the purpose of the customer's call.

In conclusion, Pacific Bell's current incentive compensation programs closely resemble the marketing programs that we found did not comply with statutes, orders, and tariffs, and which led to the prohibition on cold selling telemarketing and sales quotas in D.86-05-072. These current policies are starkly at odds with the policies in place in 1990 when we both lifted those prohibitions and praised Pacific Bell for its "responsiveness and creativity in developing a series of internal safeguards to confront directly the internal problems that fostered these marketing abuses." (D.90-02-043, 35 CPUC2d 488, 491.)

Thus, we find ourselves in a dilemma. We have no desire to insert the Commission in day-to-day management decisions. Nevertheless, the above history shows a disturbing inability or unwillingness among Pacific Bell management to consistently comply with law absent exacting and continuous oversight. We see today essentially the same wrongdoing that we enjoined 14 years ago. The recurrence of these marketing abuses shows that our previous response failed to obtain, on a long-term basis, the level of customer protection we desired.

We are also aware of the critical role that sales volume based incentive compensation plays in fostering overly intense sales efforts. Pacific Bell recognized this as well in the 1986 case. Pacific Bell's own Vice President initiated the 1986 prohibition on sales incentive compensation "because it would eliminate the opportunity to improve personal results at the expense of the customer," or to "encourage customers to buy services they really don't need." Exhibit 515, pages 6,8, A.85-01-034. We agree with Pacific Bell's 1986 assessment that removing sales incentive compensation is key to emphasizing customer service over sales.

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.

Nevertheless, Pacific Bell's history and number of customers require that we take steps to ensure that these marketing abuses do not occur a third time. Accordingly, rather than create a temporary oversight committee as the Commission did in 1986, or create an approval process as TIU recommends, we will set out permanent limitations upon Pacific Bell's incentive compensation programs. Pacific Bell's history and its nearly exclusive role as the provider of residential local exchange service for millions of California households warrants these limitations.

Therefore, we will limit sales-volume-based incentive compensation for service representatives and their direct supervisors to 5% of monthly compensation.²⁵ This applies only to compensation incentives which reward increased sales to customers, and does not extend to incentive compensation keyed to any other factors. One of our objectives in limiting sales volume incentives is to encourage Pacific Bell to re-focus its service representatives on meeting customers' true service needs, rather than increasing sales. We encourage Pacific Bell to develop innovative compensation plans that reward customer satisfaction or other factors that benefit customers. We envision broad policy-level changes in the values and traditions that guide Pacific Bell's service representatives.

The duration of this limitation shall be that which is necessary to achieve our goals. It will take some time for new values to take root, and Pacific Bell has shown a propensity for backsliding after several years of compliance. Thus, we conclude that the minimum duration of the 5 % limitation prohibition on sales-volume-based incentives for service representatives and their direct supervisors shall be 10 calendar years from the effective date of this decision. After that period, if Pacific Bell believes that such incentives are consistent with its new values, then Pacific Bell may file an application seeking Commission authorization to implement an expanded sales-volume-based incentive program as part of a comprehensive incentive program that also rewards customer satisfaction. In such application process, Pacific Bell shall bear the burden of proving that it has instilled within its management a commitment to putting customer service ahead of single-mindedly increasing sales. Ten years is a reasonable period of time for this prohibition because lasting change in values is required at the senior management level to ensure that this does not happen a third time.

Incentive compensation is at the core of many of the violations detailed in this decision. It has a direct effect on the persons with whom customers interact. Thus, this prohibition plays a large role in the remedies of this case. Ensuring that customers will not be subject to service representatives excessively enticed by money and prizes to sell services is an important part of the overall remedy package we adopt in this decision.

While the record in this case clearly shows the relationship between incentive compensation and marketing practices that violate § § 451 and 2896, we believe the requirement for Pacific to complete a customer request prior to marketing its other services is also a necessary means to address the marketing abuses we have found in this proceeding. We will carefully monitor Pacific Bell's implementation and adherence to the incentive compensation directives set out above in addition to the directives that separate customer service provisioning from marketing, as described in section 9.3, below. Should these directives fail to adequately protect customers, we will not hesitate to take further remedial actions.

7.4. Improper Release of Customer Information

Complainants UCAN and ORA contend that Pacific Bell improperly divulged customer information to its unregulated affiliates and to non-affiliated, third-party vendors in violation of 47 U.S.C. § 222 and California Public Utilities Code § 2891. The complainants have failed to sustain their burden of establishing that Pacific Bell violated either statute.

47 U.S.C. § 222:

Complainants' contend that Pacific Bell violated its duty under 47 U.S.C. § 222 to "protect the confidentiality of the customer personal network information [CPNI] of its subscribers" when it shared such information with its affiliates and outside vendors such information about its residential subscribers without obtaining obtaining the subscribers' permission. The record supports complainants' assertion that Pacific Bell shared the names, telephone numbers, and product choice information of some of its customers with SBC Operations, Inc. (a subsidiary of Pacific Bell's parent, SBC Communications, Inc.), and with various third-party vendors. (Reporter's Transcript, vol. 5, at pp. 699-710; Exhibit 72 at 16-20; Exhibit 92, October 16, 1998.)

While the record supports these factual allegations, we conclude that as a matter of law, such release of information was permissible under Section 222. The Federal Communications Commission (FCC)'s implementing regulations, 47 C.F.R. §§ 64.2001-64.2009, specify the circumstances in which carriers may disclose CPNI for marketing purposes without the express consent of subscribers.²⁶ At the time UCAN's complaint was filed, 47 C.F.R. §  64.2005(b)(1) prohibited telecommunications carriers from using, disclosing, or permitting access to CPNI derived from its provision of local service without customer approval to provide information services such as call answering, voice mail, and voice storage and retrieval services. 47 C.F.R. § 64.2005(b)(1) (1998). However, under 47 C.F.R. 64.2005(c)(3), LECs may use CPNI without customer approval to "market services formerly known as adjunct-to-basic services, such as, but not limited to, speed dialing, computer-provided directory assistance, call monitoring, call tracing, call blocking, call return, repeat dialing, call tracking, call waiting, caller ID, call forwarding, and certain centrex features."²⁷ Thus,

Pacific Bell was permitted under federal law to use CPNI to market custom calling features without prior customer approval.

UCAN and ORA presented no evidence that Pacific Bell was using customer CPNI to market products outside those listed in § 64.2005(c)(3).^. Accordingly, they have failed to establish that, Pacific Bell violated § 222.²⁸

Public Utilities Code § 2891:

UCAN and ORA contend that Pacific Bell's practice of sharing sensitive subscriber information with affiliates and non-affiliate third-party vendors during marketing campaigns without subscribers' written consent also violates California Public Utilities Code § 2891. Section 2891 provides that telephone corporations must obtain a residential subscriber's written consent before sharing the subscriber's personal financial, purchasing, and calling pattern information with another person or corporation.²⁹ As noted above, Pacific Bell gave SBC Operations and various third-party vendors confidential subscriber information without obtaining prior subscriber consent. Based on the plain language of the statute, this release of residential subscribers' personal information appears to constitute a violation of § 2891.

Pacific Bell, however, contends that Section 2891 did not require it to obtain subscribers' consent before disclosing subscribers' confidential information to these other corporations because those other business entities acted as its agents. Because agents may "be authorized to do any acts which the principal might do," Pacific Bell argues (citing California Civil Code § 2304), that the other corporations in question are not "other persons or corporations" for the purposes of Section 2891. In effect, Pacific Bell argues that agency law creates an implied exception to Section 2891.

We cannot resolve this issue on the record of this case because it is insufficiently developed both on the law and on the facts. Although Pacific Bell asserts that this argument is based on "well-settled principles of agency law," it failed to provide any legal support for it, other than the citation to Civil Code section 2304. (See Post-Hearing Brief of Pacific Bell, March 5, 1999, p. 30.) The complainants made little effort to rebut Pacific's Bell agency law argument, other than to point out that Section 2891 contains no express exception for agency relationships. Should we conclude, based upon our own research, that Pacific Bell's legal argument has merit, it would be necessary to determine whether Pacific Bell took adequate precautions to ensure that the confidential information it released to its "agents" was used only for purposes permissible to Pacific Bell (for example, through the use of contract provisions, security protocols, and appropriate staff training). While the record contains some evidence on these issues, it is insufficient to resolve them. Without resolution of these legal and factual issues, we cannot determine whether Pacific Bell's treatment of confidential subscriber information violated § 2891. As the burden of demonstrating that a violation was committed lies with complainants, we decline to find Pacific Bell in violation of § 2891 in this proceeding. Our decision here, however, does not preclude our deciding, in another proceeding and on the basis of a more fully developed record, whether § 2891 is subject to an implied "agency law" exception, as Pacific Bell has argued here.