9. Remedies

Pacific Bell's violations implicate marketing of certain services as well as specific marketing programs and tactics. Our remedy plan addresses each violation.

9.1. Caller ID Blocking

Our objective is to ensure that all customers are fully informed of their service options and the privacy consequences of each option so that customers who choose to transmit their telephone number to called parties are knowingly waiving their privacy rights. On a prospective basis, we instruct Pacific Bell to comply with this decision, and our previous decisions, in making the required explanations.

On a retrospective basis, Pacific Bell's actions have called into question customers' transfers from Complete Blocking to Selective Blocking, beginning with the implementation of the practices discussed in this decision. The evidence does not clearly show when these practices began, but the Residence Caller ID Plan seems to contemplate changes occurring in 1998. Lacking a definitive date, we will use December 31, 1998, as the date the violations began, because the best reading of the evidence is that the campaign to switch customers began in the Fourth Quarter of 1998. (See Exhibit 101, 102).

The next question is how to best inform customers of their options and to allow them to make any needed changes. Our guide to the answer is found in Pacific Bell's reaction to the BRI incident. There, Pacific Bell first attempted to contact by telephone each customer who had switched from Complete Blocking to Selective Blocking. (Out of the 260,000 customers contacted by BRI, 107,000 switched from Complete to Selective Blocking, according to Pacific Bell witness Gilley.) As Pacific Bell stated in its investigation report, Hearing Exhibit 102, approximately 70% of the customers who switched were reached through this method.32 The remaining customers received a letter which contained an explanation as well as a dedicated 800 number to call with additional questions or to change blocking options. Thus, Pacific Bell employees directly contacted as many customers as possible and only used mailings after several failed personal attempts.

We direct Pacific Bell to use a similar plan to contact customers who were switched to Selective Blocking since January 1, 1998, excluding those customers whose choice has already been confirmed through the BRI remedial effort. Pacific Bell is directed to switch all customers that so request back to Complete Blocking without charge.

To provide customers regular reminders of their blocking status, we also require Pacific Bell to note on each bill the blocking status of the line. Currently only lines that have Complete Blocking are so noted. Pacific Bell shall also include on the bill (front or back) a brief description of the two blocking options and the codes used to block or unblock the number.

Because the choice of Complete Blocking or Selective Blocking has no financial impact (there is no charge for either service), we need not consider the issue of financial reparations.

9.2. Inside Wire, Packages Offered Sequentially, The Basics, and ULTS

Remedying Pacific Bell's actions on these issues will require that Pacific Bell notify customers of optional services of their service options, and provide for them an opportunity to cancel unwanted services.

Pacific Bell shall mail a notice to customers of optional services indicating their current service selections and associated prices, and confirm that the customer sought these services and wishes to continue purchasing these services. ULTS customers shall receive a specific explanation of the cost for ULTS service as clearly distinguished from optional services. Wire Pro customers shall be notified that landlords are responsible for inside wire. Pacific Bell shall discontinue optional services for those customers who indicate that they did not seek, or no longer wish to purchase these services, and shall inform customers of all lower-cost service options.

9.3. Separation of Customer Service and Marketing

At the core of our objections to Pacific Bell's offer on every call policy, incentive compensation, and sequential sales methods is the commingling of marketing of optional services with Pacific Bell's customer service obligations that arise from its role as essentially the sole provider of basic residential service. To provide customers protection where warranted, while also allowing Pacific Bell to participate in the marketplace, we find that a clearer distinction is needed between Pacific Bell's customer service function and its marketing opportunities. This distinction will allow customers to receive the protections inherent in §§ 451 and 2896 for customer service, but will allow Pacific Bell the appropriate latitude when engaging in conventional marketing

As discussed in detail above, subjecting customers who call in seeking unrelated customer service to unwanted marketing efforts causes delays in obtaining the desired service and diminishes Pacific Bell's ability to respond to other customers. To ensure that Pacific Bell provides customer service as a priority, we direct Pacific Bell to address customer service requests prior to engaging in marketing efforts. We establish the four essential components to this directive below. Pacific Bell shall modify Tariff Rule 12 to fully implement each of these components:

Implementing the revised Tariff Rule 12 will require that Pacific Bell train its customer service managers and representatives about the new responsibilities created by the revised rule. Continuing oversight and guidance will also be necessary to ensure consistent adherence to this rule.

Commission staff will also have an active role in ensuring that customers receive the protections created by these revisions to Tariff Rule 12. We expect our staff to actively monitor Pacific Bell's customer service function, and to take all appropriate steps to achieve compliance with these directives.

These reasonable restrictions allow Pacific Bell to accomplish the customer information and service requirements of §§ 451 and 2896, as well as Tariff Rule 12. This rule shall remain in effect so long as Pacific Bell serves 60% or more of residential access lines.

9.4. Fine

The Commission may impose fines payable to the State of California pursuant to § 2107. Such fines must be between $500 and $20,000 per offense. Each day of a continuing offense constitutes a separate and distinct offense.

(§ 2108.)

The primary purpose of imposing fines is to prevent future violations by the wrongdoer and to deter others from engaging in similar violations. Fines should, therefore, be set at a level within the range permitted by § 2107 that is sufficient to achieve the objective of deterrence without being excessive in light of the offending utility's financial resources.

In determining an appropriate fine within the statutory range, we are guided by the factors set forth in our previous decisions. These factors include the severity of the offense, Commission precedent in comparable cases, the conduct of the utility in mitigating the offense, and the financial resources of the utility. (See D.00-11-017; D.98-12-075, Appendix B.)

The marketing practices in which Pacific Bell engaged constitute serious violations of the Public Utilities Code, Tariff Rule 12, and prior Commission orders. These practices unfold numbers of captive residential customers, and in particular, immigrant and low income Lifeline customers who are most vulnerable to such marketing tactics. The seriousness of Pacific Bell's wrongful conduct is compounded by the fact that Pacific Bell engaged in similar conduct that we declared unlawful in the 1986 marketing abuse case. Indeed, we are struck by what appears to be a disturbing pattern of compliance during periods of special oversight, only to be followed by noncompliance in furtherance of Pacific Bell's revenue goals when the special oversight ends. Examples in this proceeding include: sequential marketing of optional service packages without disclosure of lower priced plans, misleading attempts to change Caller ID-blocking options, misleading marketing of inside wire repair services, and mandatory sales offers on every call to the detriment of "offer on every call" customer service.

We had hoped that the sanctions imposed in the 1986 marketing case would have permanently deterred Pacific Bell's abusive marketing practices. Sadly, they did not. Pacific Bell has chosen to resume unlawful practices to the detriment of its customers, both in terms of time and money. We are particularly disturbed that Pacific Bell included in its targeted customers those who can ill afford to pay any more than necessary for phone service, and customers whose primary language is not English. At the same time, we cannot help but note that the revenues Pacific Bell expected to gain as a result of its improper marketing tactics are substantial: $312.9 million (net present value of $1.2 billion over a 10-year period) for increased sales of vertical services.33

As a counterbalance to the above, we also consider any mitigating factors that militate in favor of a reduced fine. In this case, Pacific Bell effectively monitored its contract with BRI, its sales marketer, and promptly terminated the contract when Pacific Bell learned that BRI had failed to abide by Pacific Bell's express instructions for marketing Caller ID service. In addition, Pacific Bell contacted customers to confirm their blocking choice in a timely manner. Pacific Bell's conduct demonstrates to us that Pacific Bell is capable of closely monitoring its sales practices and taking swift and appropriate corrective action when such practices deviate from legally-acceptable standards.

Lastly, we consider the financial resources of the offending utility in determining the appropriate fine. The level of the fine should be sufficient to deter similar conduct by the offending utility and others in the future. We note that Pacific Bell is a large corporation, which earned $9.4 billion in revenue in 1998.34 In this case, a fine of substantial proportion is necessary to achieve deterrence. The most comparable precedent is the 1986 Pacific Bell penalty of $16.5 million, discussed previously. In 1998, GTE California Incorporated paid $13 million in settlement of marketing abuse allegations (See D.98-12-084.) Both cases involved widespread marketing abuses and charges for unauthorized services. We note that the GTE California Incorporated payment is a much larger proportion of its operating revenue. GTE California Incorporated's 1997 operating revenue was $3.3 billion as stated in its FCC Report 43-02, at p. 40. Pacific Bell's 1998 revenue, as noted above, was $9.4 billion.

Having considered all of these factors and the totality of the circumstances, particularly the scope, severity, and repeat nature of Pacific Bell's marketing abuses, but mitigated by the factors stated above, we conclude that the fine should be set near the middle of the range permitted by § 2107. While it is clear from the record that improper acts were committed, for purposes of calculating the fine, we will treat Pacific Bell's actions as two distinct offenses which occurred daily over a period of two years: (1) violations of the Caller ID decision D.92-06-065, and § 2896, following Pacific Bell's adoption of their Residence Caller ID Marketing Plan, and initiating their campaign to switch customers (Exhibits 4, 101 and 102); and (2) incomplete disclosure of information when marketing optional services (as described in Sections 6.3, 7.1 and 7.2 of this decision) in violation of §§ 451, 2896, and Tariff Rule 12. Thus, we will impose a fine of $17,500 per day for each of two offenses over a period of two years, for a total of $25.55 million. ($35,000 x 730 = $25.55 million.) Pacific Bell shall pay $25.55 million to the State General Fund within 180 days of the effective date of this order.

Findings of Fact

1. On October 30, 1998, the parties filed a statement of undisputed facts that addressed some, but not all, facts in issue.

2. At the hearing which led to D.86-05-072, Pacific Bell acknowledged its obligations to disclose and itemize the prices for component parts of its tariffed packages of services.

3. Pacific Bell sells the Caller ID service as a tariffed service. This service provides the name and telephone number on a special box, screen phone, or audio box, that announces the caller. Offered in California since July 1996, this service costs $6.50/month for residences and $7.50/month for businesses when purchased separately. Approximately 1 million residential and 51,000 business customers subscribe to the Caller ID service.

4. The Commission required Pacific Bell to enable callers to block the display of their name and telephone number. Pacific Bell has two Caller ID blocking options: Complete Blocking and Selective Blocking. Complete Blocking prevents a caller's name and number from appearing on the receiving party's Caller ID display unless the caller chooses to unblock the number on a per call basis by dialing *82. Selective Blocking displays the caller's name and number to the receiving party unless the caller chooses to block the number on a per call basis by dialing *67. Every telephone line has either Complete Blocking or Selective Blocking, and both options are free of charge. If a customer does not choose Complete Blocking, the default is Selective Blocking. If a customer has elected Complete Blocking, it is so indicated on the monthly telephone bill. The default, Selective Blocking, is not indicated on the customer's bill.

5. In D.92-06-065, the Commission ordered all California local exchange carriers to implement a ratepayer-funded Customer Notification and Education Plan to ensure that all Californians were aware of the Caller ID services and their implications, including understanding their options for maintaining their privacy as a calling party. The plan included individual letters to each customer; TV, newspaper, and radio advertisements; and community outreach to over 500 organizations. Pacific Bell's campaign cost over $30 million and concluded in mid-1998.

6. In October 1997, SBC developed a new Residence Caller ID Marketing Plan for Pacific Bell. In that plan, SBC stated that among the means for increasing the value of Caller ID to customers was to reduce the number of lines that have Complete Blocking so that more numbers would be displayed. The specific plan to accomplish this included attempting to convert customers to Selective Blocking on all customer contacts associated with Caller ID, and implementing a sales incentive program to reward net increases in Selective Blocking Pacific Bell implemented this plan in 1998.

7. Pacific Bell provided its service representatives with the following suggested language to use when talking with customers about Caller ID Complete Blocking:

8. Pacific Bell changed customers' blocking option from Complete Blocking to Selective Blocking based on the representations set out in Finding of Fact 7; no other information was provided to the customer at the time the change was made.

9. Pacific Bell contracted with BRI to do outbound telemarketing to "downgrade nearly 2 million customers from Complete Call Blocking to Selective Call Blocking," and BRI stated that it "understands the urgency involved in removing Complete Call Blocking from as many lines as possible during the fourth quarter of 1998 and the first quarter of 1999."

10. Pacific Bell compensated BRI on an hourly basis, with incentive compensation to be considered after a test period.

11. Pursuant to the contract, Pacific Bell supplied BRI with a list of customers whose telephone numbers were published and who had Complete Blocking. Using Pacific Bell approved scripts, BRI's telemarketers called the customers and informed them of new services like Anonymous Call Rejection which could interfere with their calls being completed and recommend switching to Selective Blocking.

12. A Pacific Bell manager trained BRI's agents and observed live calls in St. Louis on the first day of calling during which all observed agents used the approved scripts. BRI conducted its own subsequent monitoring.

13. In response to customer complaints, Pacific Bell promptly suspended its contract with BRI, initiated an investigation, and determined that BRI had used unapproved scripts in its calls which used the word "upgrade" several times and included other unapproved information as well.

14. Pacific Bell determined that BRI had contacted 278,010 customers and that approximately 107,000 customers had been switched from Complete to Select Blocking as a result of those calls. Pacific Bell contacted each switched customer to confirm the choice.

15. Pacific Bell should have done more than one day of monitoring to ensure that BRI's contacts with Pacific Bell customers included the requisite disclosures.

16. Pacific Bell took prompt action to terminate BRI's contract when it became clear that BRI was not adhering to the approved scripts, and subsequently contacted consumers to confirm their blocking choice.

17. Pacific Bell corrected the lack of disclosures and misstatements of fact by BRI.

18. Anonymous Call Rejection allows called parties to refuse to receive calls from telephones that have the number blocked by terminating such calls at the central office so that no toll charge is assessed. The rejected caller instead hears a recording stating that the called party does not accept anonymous calls, and if the caller wishes to complete the call, the caller's line must first be unblocked by using the *82 code, and then redialing the number.

19. Greenlining's witness testified that the purpose of this product was to "punish consumers who have chosen to keep their numbers private - whether they use Selective or Complete Blocking," and that it invades rather than protects the caller's privacy.

20. Greenlining contends that Anonymous Call Rejection violates § 2893, which requires that no charge be imposed for withholding a number. To complete a call where the called party subscribes to Anonymous Call Rejection, the caller must incur the cost of calling from a pay phone to withhold the telephone number, thus incurring a charge to withhold the number.

21. Intervenor Roberts states that he has found Anonymous Call Rejection to be invaluable in protecting and enhancing his and his family's privacy.

22. Pacific Bell offered two types of inside wire maintenance plans. For 60 cents/month, Wire Pro covers the repair of phone wiring and jacks on the customer's side of the demarcation point. For $2.25/month, Wire Pro Plus adds a 60-day use of a loaner telephone to the services covered by Wire Pro (Prices in effect at the time of the hearings held in this case.)

23. Pacific Bell had instructed its service representatives to offer Wire Pro Plus, and to explain Wire Pro only if the customer was not interested Wire Pro Plus.

24. Pacific Bell does not proactively inform apartment dwellers of the landlord's statutory duty to maintain inside wire and one jack.

25. The fact that some other entity may be responsible for providing a service that a customer is considering purchasing from Pacific Bell is necessary to make an informed decision on a Pacific Bell offer.

26. The Commission has approved Pacific Bell's tariff for Saver Packs of optional services. The names of the different Saver Packs are: Classic, Caller ID, Essentials, the Basics, and the Works. Pacific Bell began marketing "The Basics" and "The Essentials" in 1998.

27. Pacific Bell service representatives first offer customers the Works Saver Pack or Works Plus and, if rejected, offer the Basics Saver Pack.

28. Pacific Bell served copies of its tariff filings on complainants UCAN and Greenlining. No complainant, nor any other entity, protested the filings.

29. Pacific Bell's market research showed that focus group participants found the name "The Basics" to imply plain old telephone service ("a phone that works") and that the name is misleading because it contained too many optional services to be "The Basics."

30. In D.96-10-066, the Commission adopted rules that govern the provision of universal service to California telecommunications users and which require that all carriers provide all the 17 elements of basic service, including: access to single party local exchange service, ability to place calls, one directory listing, free white pages telephone book, and access to operator services.

31. "Basic" is commonly associated with local exchange service and, at least in the context of universal service, is a term of art meaning local exchange service.

32. There is no relationship between local exchange service or "basic" telephone service and "The Basics Saver Pack," a group of optional features.

33. The translation of "The Basics" to other languages carried through and in some cases accentuated the erroneous impressions created by the name.

34. "Essential" is virtually a synonym for "basic" and the services included in "The Essentials Saver Pack" are not at all essential for telephone service.

35. Pacific Bell offered customers a package of services named "The Basics Plus Saver Pack" which included The Basics Saver Pack and The Message Center. The Message Center is a voice mail service provided by Pacific Bell Information Services (PBIS), a Pacific Bell affiliate, but the service is tariffed with the Commission by Pacific Bell.

36. In 1997, Pacific Bell instituted a policy of promoting optional services, such as Call Waiting, Saver Packs, and Caller ID, on all customer contacts other than when a customer is disconnecting service or is temporarily disconnected for non-payment.

37. When promoting optional services, Pacific Bell's sales representatives are trained to offer first The Works Saver Pack, with nine custom calling features at a cost of $16.95/month, or The Works Plus Saver Pack at $24.95/month. If the customer is not interested in these packages, the service representative is trained to offer the Basics Saver Pack, which costs $14.95/month with four custom calling features or $12.95 with three custom calling features.

38. The sequence in which Pacific Bell has chosen to present customers with information on the multitude of custom calling services and packages is the sequence that most encourages sales.

39. Pacific Bell's 1986 script, which was part of the package selling abuses in the 1986 case, (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.

40. Pacific Bell's 1998 script entitled "Selling to Success with the New Connect Model Contacts!!!" instructs the service representative to ask the customer a few questions about household composition, frequency of use of the phone, and whether the customer ever works at home or telecommutes. Regardless of the customer's response, the service representative is directed to recommend Basics Saver Pack to the customer. If the customer refuses, a fallback package of fewer services is offered. If the fallback package is rejected the service representative is to attempt to sell individual services.

41. In both the 1986 and the 1998 scripts, the service representative is instructed 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.

42. In 1998, Pacific Bell began paying service representatives up to $150/month for meeting their sales revenue targets, and a 25% commission on all sales above the target, with no upper bound to the amount of the commission.

43. Pacific Bell's sales strategy that emerged following our 1986 decision was focused on customer service and full and accurate disclosure of service information as demonstrated by its 1992 Sales Quota Policy.

44. Pacific Bell's 1992 Business Office Sales Policy and Guidelines 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.

45. In contrast to the 1992 policies, which formed the basis for lifting the marketing prohibitions, Pacific Bell's current sales strategies, as reflected in evidentiary record, rely on sales quotas, packaged selling and bonus/rewards based on sales volumes.

46. Pacific Bell has essentially changed course from its 1992 policies and reinstated certain abusive marketing practices that we enjoined in 1986.

47. Pacific Bell hires outside vendors and uses its corporate affiliates to handle both inbound and outbound customer contacts. Pacific Bell provides the vendors and/or affiliates access to customer information, including services purchases and financial information.

48. Complainants have not alleged that the information disclosed to non- affiliated, third-party vendors or corporate affiliates was used for any purpose other than to market Pacific Bell's custom-calling products.

49. Over 20% of Pacific Bell's service representatives handle calls at its foreign language centers. These representatives speak Spanish, Cantonese, Mandarin, Japanese, Korean, Vietnamese and Tagalog.

50. Pacific Bell engages in marketing efforts to build awareness of its products and services by using print advertising, newsletters, other media, and telemarketing, in addition to customer initiated contacts with service representatives, to explain the benefits of its products and services to these markets. Pacific Bell retains experts in each of the languages to translate and review marketing and service representative scripts, and it also works closely with groups that represent these customers.

51. Complainant Greenlining contends that immigrant and language minority groups are particularly vulnerable to high-pressure sales tactics and are less likely than other consumers to report abuse.

52. Field Research Corporation market research shows the following percentage interest levels for Caller ID: White, 23%; Hispanic, 39%; African-Americans, 37%; Asians, 42%.

53. All local exchange carriers charge ULTS qualified residential low-income customers a discounted installation charge of $10, and a monthly fee of $5.62 for flat rate service or $3.00 for measured service.

54. For each ULTS customer served, the local exchange carriers are reimbursed from the ULTS Fund for the difference between the ULTS rate and the respective local exchange carrier's usual rate for residential basic service. The ULTS program is currently funded by a surcharge on all end users' bills.

55. UCAN provided a Pacific Bell document which stated: "when regrading a customer to Universal Lifeline, offer Caller ID and advise the customer that they will be paying roughly the same dollar amount they were paying before but enjoying the benefits of Caller ID."

56. Pacific Bell's Caller ID scripts have called into question customers' transfers from Complete Blocking to Select Blocking from January 1, 1998, to the present.

57. Remedying Pacific Bell's actions on Inside Wire, Packages Offered Sequentially, "The Basics," and ULTS requires customer notification.

58. In D.86-05-072, the Commission ordered Pacific Bell to cease and desist from: conducting an unauthorized trial program for enhanced services, engaging in "package selling abuses," violating Rule 6 in establishing credit, renaming basic service, and improperly administering the Universal Service program. The Commission also ordered Pacific Bell to refrain from any cold selling telemarketing and implementing any sales quota systems.

59. In response to the marketing abuses found in D.86-05-072, the Commission ordered Pacific Bell to refund over $62 million to customers (as of November 1988) and to contribute $16.5 million to the Ratepayer Education Trust Fund. Pacific Bell's marketing practices were also placed under the guidance of the Customer Marketing Oversight Committee.

60. In D.86-05-072, the Commission found that Pacific Bell had violated Tariff Rule 12 by packaging basic local exchange service with expensive optional services in such a way as to "mask the basic rate, thereby causing ratepayers to unwittingly pay more for telephone service than they otherwise would, or worse, to go without such service at all," and by failing to disclose the option to purchase services separately with the price for each component part of package of services.

61. To remedy Pacific Bell's 1986 marketing abuses, the Commission established the Customer Marketing Oversight Committee that oversaw Pacific Bell's adoption of sales policies that were consistent with the law and regulatory policy. Pacific Bell has since abandoned those policies.

62. Pacific Bell has exhibited a pattern of regulatory compliance during periods of special oversight, only to be followed by noncompliance in furtherance of Pacific Bell's revenue goals when the special oversight ends.

63. Pacific Bell's practices of instructing its representatives to ask each caller, at the beginning of every call, for permission to access the subscriber's proprietary network information and to repeat the question if the answer is "no", and forcing customers to listen to unwanted sales pitches are unreasonable.

64. Pacific Bell forecasted that it would gain $312.9 million in revenues (net present value of $1.2 billion over a 10-year period) for increased sales of vertical services.

65. Pacific Bell's Tracking Report # P.D.-01-27, Cumulative Through December 1998, line 7, shows annual revenue of $9.4 billion.

Conclusions of Law

1. Neither Robert nor TIU presented sufficient justification to set aside submission.

2. Section 451 requires that all charges imposed by a public utility be just and reasonable and that all utilities' rules pertaining to or affecting a utility's charges or service to the public be just and reasonable.

3. Charges obtained by means of misleading or confusing sales tactics are unjust and unreasonable.

4. Pacific Bell has a duty, pursuant to § 451, to provide adequate, efficient, just and reasonable customer service to its customers.

5. Section 2896 requires utilities offering telephone services in California to meet reasonable standards of customer service.

6. Section 2896 mandates that every telecommunications corporation provide its customers: "Sufficient information upon which to make informed choices among telecommunications services and providers. This includes, but is not limited to, information regarding the provider's identity, service options, pricing, and terms and conditions of service." This provision sets a minimum disclosure standard for utilities offering telecommunications services in California.

7. Pacific Bell's Tariff Rule 12 governs the offering of optional services to a customer. It states that Pacific Bell may call a customer's attention to the fact that optional services are available, that the customer may designate which services are desired, and that Pacific Bell must disclose all applicable recurring rates and nonrecurring charges for those services.

8. Tariff Rule 12 is required by the Commission's GO 96-A, which requires that each utility provide customers with up-to-date information regarding their service, and allow customers to choose from among any service options available to them.

9. Implicit in the language of Tariff Rule 12 is the premise that a utility will not insist on giving customers information about optional services when customers do not wish to listen to such information.

10. Tariff Rule 12 and Commission decisions require that when offering packages of services, a telecommunications utility must (1) offer basic exchange service apart from packages of optional services, (2) disclose that package components can be purchased separately, and (3) itemize each price on a stand- alone basis.

11. Section 2893 requires that every telephone corporation that provides Caller ID comply with the Commission's rules on blocking services, which require them to provide each caller with a means of withholding display of the caller's telephone number from the telephone instrument of the called party.

12. The Commission has determined that, to the greatest extent possible, a customer's decision to allow a calling party's number to be displayed must be the result of informed consent and a knowing and intelligent waiver of the right to privacy.

13. Pacific Bell's Caller ID scripts as set out in Finding of Fact 8 were deficient in that customers were neither fully informed of the two options nor allowed to choose between them on that basis.

14. Pacific Bell changed customers' Caller ID blocking choice in violation of § 2893 and the Commission decisions authorizing the sale of Caller ID services.

15. Pacific Bell may determine that it is financially advantageous to Pacific Bell that customers use Selective Blocking rather than Complete Blocking, and may raise the issue of blocking options with its customers that have Complete Blocking. When presenting the options to customers, however, Pacific Bell must give customers sufficient non-misleading information to enable customers to make an informed decision.

16. BRI's calls were deceitful and dishonest.

17. BRI's script violated the disclosure requirements because customers were not presented information upon which to make a knowing waiver of the right to privacy, and customers also received misrepresentations of fact.

18. The Commission has previously determined that the called party has every right not to answer the phone, and to secure services from Pacific Bell to prevent certain calls from being presented to the phone.

19. Section 2893 places no burden on called parties to receive anonymous calls; it only requires that telephone corporations provide a blocking service at no charge to the caller.

20. Anonymous Call Rejection does not violate the requirements of § 2893.

21. By offering Wire Pro Plus first and only discussing the alternative of Wire Pro upon the customer's rejection of Wire Pro Plus, Pacific Bell effectively "masked" the lower-priced alternative of Wire Pro and may have caused customers unwittingly to pay more for inside wire service than they otherwise would have.

22. Pacific Bell has violated Tariff Rule 12 by failing to state that components of the Wire Pro Plus package may be purchased separately at a lower price.

23. In D.99-06-053, we noted that Pacific Bell's service representatives only present customers with the option of Wire Pro as a fallback when the customer rejects Wire Pro Plus, found that this sequence "may be misleading to residential customers," and ordered Pacific Bell to clearly explain both options to residential customers.

24. The Commission previously required Pacific Bell to disclose the landlord's responsibility for inside wire, by stating in bold and underlined (when in writing) "You should be aware that, under state law, landlords, and not tenants, are responsible for repairs to and maintenance of inside telephone wire." This disclosure requirement expired on September 1, 1994.

25. In marketing inside wire repair service to renters, Pacific Bell has an affirmative duty, pursuant to § 2896 and its Tariff Rule 12, to disclose to customers all facts needed to make informed decisions about inside wire repair options, including the fact that landlords are responsible for maintenance and repair of inside wire.

26. In D.99-09-036, we ordered Pacific Bell's service representatives to clearly explain to its residential customers that they have four options for the repair and maintenance of inside wire: (1) Pacific's Wire Pro plan which covers repair of the customer's inside wire and jacks, (2) Pacific's Wire Pro Plus plan that covers the use of a loaner telephone instrument for up to 60 days, (3) outside vendors to perform inside wire repair maintenance, and (4) making the repairs themselves.

27. D.99-09-036 addressed the issue that complainants have raised regarding disclosure of alternative vendors for inside wire repair.

28. The public interest requires that Pacific Bell notify its inside wire maintenance plan customers that landlords are responsible for maintenance and repair of inside wire.

29. In D.86-06-072, the Commission found that creating an association between local exchange service and packages of optional services violated Tariff Rule 12.

30. Pacific Bell knew or should have known that transplanting the term "basic" from local service to what could be the most expensive group of optional services available created a potential for customer confusion.

31. The name "The Basics Saver Pack" creates an association between local exchange service and optional services in violation of Tariff Rule 12. In its marketing efforts, Pacific Bell used this name in a manner that was misleading and confusing, and that undermines our universal service goals.

32. The package named "The Essentials" suffers from a potential to mislead customers in a manner similar to "The Basics."

33. Pacific Bell's "offer on every call" strategy violates §§ 451 and 2896 and Tariff Rule 12 because it interferes with providing customers with information to which they are entitled.

34. Pacific Bell used sales tactics likely to mislead customers by creating the often unfounded impression that the representatives were recommending that a customer purchase additional products or services based on an analysis of that particular customer's usage patterns.

35. Package sales tactics that result in a quotation of rates for individual services only if customers persistently refuse the packages violates Tariff Rule 12 because information necessary to allow customers "to designate which optional services they desire" is withheld.

36. Pacific Bell may offer optional services on incoming calls, but in doing so, it must comply with the disclosure standards and informed choice requirements of §§ 451 and 2896, and must provide customer service of reasonable quality.

37. Pacific Bell's current incentive compensation programs closely resemble the marketing programs that did not comply with violated statutes, orders, and tariffs, and which led to the Commission's prohibition on cold selling telemarketing and sales quotas in D.86-05-072.

38. The public interest requires limitations upon Pacific Bell's incentive compensation programs.

39. The public interest requires that Pacific Bell's service representative compensation based on sales volume be limited to five percent of the sales representative's monthly pay, which is not affected by sales volume.

40. P.U. Code § 2896 directs us to set reasonable statewide service quality standards, including customer service standards. Pursuant to our authority in § 2896 we declare that customer service quality is compromised when Pacific Bell representatives ask each caller, at the beginning of every call, for permission to access the subscriber's proprietary network information and to repeat the question if the answer is "no", and force customers to listen to unwanted sales pitches prior to providing a response to a customer service inquiry. Therefore such practices are inconsistent with reasonable service quality.

41. As codified in under 47 C. F. R. § 64.2005, the FCC regulations implementing 47 U.S.C. § 222 allow telephone corporations to use customer private network information to market custom calling services such as those featured in The Basics, The Savers Pack, and The Works, without obtaining prior customer approval.

42. Section 2891 prohibits all California telephone corporations from making available to "any other person or corporation" various types of customer information, including customer calling patterns and financial information.

43. Complainants have not alleged that subscriber information Pacific Bell disclosed to corporate affiliates or to non-affiliated, third party vendors was used for any purpose other than to market Pacific Bell's custom calling products.

44. UCAN has failed to state a claim under either 47 U.S.C. § 222 or Public Utilities Code §2891.

45. The statutory standards applicable to Pacific Bell's marketing to ethnic minority customers are the same standards applicable to its other customers.

46. ULTS is designed to promote the use of affordable, statewide, basic telephone service among low income households by providing a subsidy to low income customers funded by a surcharge on all end-users' bills.

47. The purpose of the ULTS subsidy program is to provide affordable service to low income consumers, not to provide Pacific Bell a cross-marketing sales opportunity. Attempting to undo the lower-priced service offering undermines the Legislature's, and this Commission's, universal service goals.

48. The public interest requires that Pacific Bell confirm that all customers who have switched from Complete Caller ID Blocking to Selective Blocking since January 1, 1998, understood the privacy consequences of the switch and intended to make the change.

49. The public interest requires that Pacific Bell notify customers who, since January 1, 1998, have purchased a discounted package of custom calling services of the full range of choices for discounted packages of custom calling services, including the option to decline to subscribe to any of these services.

50. The public interest requires that Pacific Bell determine which, if any, of the inside wire options and discounted packages of custom calling services customer wish to purchase, and immediately implement the customer's choice.

51. The public interest requires that Pacific Bell provide to ULTS customers who also subscribe to optional services a specific explanation of the price for ULTS service as clearly distinguished from optional services.

52. The Commission may impose fines of between $500 and $20,000 per offense payable to the State of California pursuant to § 2107. Each day of a continuing offense constitutes a separate and distinct offense per § 2108.

53. In setting fines, the Commission considers the severity of the offense, the utility's conduct, including conduct in mitigation, the financial resources of the utility, the totality of circumstances in light of the public interest, and the role of precedent.

54. The violations identified in this proceeding are serious offenses. A major aggravating factor is the fact that Pacific Bell's conduct is recidivist.

55. The fact that Pacific Bell took action to halt abuses by BRI, has cooperated in these proceedings, and that the applicable laws and regulations may have lacked clarity are mitigating factors.

56. In light of Pacific Bell's corporate size and 1998 revenues, a substantial fine is necessary to achieve deterrence.

57. The most comparable fine precedents are the Pacific Bell penalty of $16.5 million imposed in the 1986 case and the payment of $13 million in settlement of marketing abuse allegations against GTE California Incorporated approved by the Commission in D.98-12-025.

58. The public interest requires that Pacific Bell be fined $25.55 million.

59. To remedy the results of improper marketing by Pacific Bell without further delay, and to reform those practices as soon as possible, this decision should be made effective immediately.

60. ORA's and Pacific Bell's requests for official notice meet the requirements of Rule 73 and Evidence Code § 452 and should be granted.

FINAL ORDER

IT IS ORDERED that:

1. Pacific Bell shall comply with this decision, all previous decisions, and other applicable law in making the required disclosures about Caller ID blocking options.

2. No later than 90 days after the effective date of this order, Pacific Bell shall begin including on every bill the Caller ID blocking status of each telephone line. The bill shall also contain (either on the front or back) the code required to block or unblock the number.

3. No later than 90 days after the effective date of this order, Pacific Bell shall mail a written notice, approved by the Public Advisor, to all residential customers that have been switched from Complete Caller ID Blocking to Selective Blocking since January 1, 1998, setting forth the privacy consequences of such change. The notice shall also contain a telephone number for customers who wish to switch back to selective blocking to do so without charge.

4. No later than 90 days after the effective date of this order, Pacific Bell shall resume disclosing to its inside wire customers and shall mail a notice to all Wire Pro customers stating in bold and underlined "You should be aware that, under state law, landlords, and not tenants, are responsible for repair to and maintenance of inside telephone wire."

5. Pacific Bell shall mail a notice to custom calling service package customers informing them of the full range of individual services and packages of services available and giving the customer the opportunity to discontinue any undesired services.

6. Within 90 days of the effective date of this order, Pacific Bell shall include prices in all descriptions of optional services, and packages of such services, presented to customers. The descriptions of the services shall be included in all published telephone directories and shall include prices.

7. Within 45 days of the effective date of this order, Pacific Bell shall file an advice letter modifying Tariff Rule 12 to create a clear distinction between customer service and sales or marketing efforts in conformance with the directives set out in Ordering Paragraph 8 and as described in Section 9.3 of this order. This rule shall remain in effect so long as Pacific Bell serves 60% or more of residential access lines.

8. Revised Tariff Rule 12 shall provide that service representatives who answer inbound customer service calls must first fully address and resolve the customer's request. The service representative must describe the lowest-priced option for purchasing the requested services. After completely addressing all the customer's requests, the service representative shall summarize the customer's order including itemized prices, and inform the customer that the order is finished. After that, the service representative may inquire whether the customer is interested in hearing about other optional services. If the customer responds in the affirmative, only then may the service representative engage in unsolicited sales or marketing efforts.

9. Pacific Bell shall train its managers and service representatives on implementation of Ordering Paragraph 8.

10. Revised Tariff Rule 12 shall be prominently displayed in the work area of service representatives.

11. The Consumer Services Division (CSD) shall comment on Pacific Bell's advice letter containing revisions to Tariff Rule 12 and recommend any changes necessary to ensure enforcement of our objective to clearly distinguish between customer service and sales and marketing efforts. In consultation with the Telecommunications Division, CSD shall also prepare a plan for monitoring of Pacific Bell's compliance with the revised Tariff Rule 12 and §2896, and such plan shall include periodic unannounced visits to Pacific Bell service offices.

12. Pacific Bell sales-volume based incentive compensation to service representatives and their immediate supervisors shall not exceed five percent of the service representatives' or supervisors' monthly compensation.

13. Within 45 days of the effective date of this decision, Pacific Bell shall submit an advice letter setting out its standards for proposed internal corporate rules and practices that would prohibit unfair, misleading, and predatory sales practices.

14. Pacific Bell shall provide customers contacted in compliance with this order an opportunity to have their concern or complaint regarding the subject optional service immediately addressed.

15. We will assess a fine of $17,500 for each day of violation of the Caller ID disclosure requirements and for each day of violations of § § 451, 2896, and Tariff Rule 12, for a total of $35,000/day. We will use the time period from January 1, 1998, to December 31, 1999, or 730 days. This yields a fine of $25.55 million. Within 180 days of the effective date of this order Pacific Bell shall pay a fine of $25.55 million to the General Fund of the State of California.

16. Greenlining's request that Anonymous Call Rejection be prohibited is denied.

17. Greenlining's request for special disclosure requirements for ethnic minorities, recent immigrants, and customers that prefer to use a language other than English is denied.

18. Complainants have failed to meet the burden of proving that Pacific Bell has violated state or federal laws covering the use of Customer Proprietary Network Information.

19. This proceeding is closed.

This order is effective today.

Dated September 20, 2001, at San Francisco, California.

I will file a dissent.

/s/ RICHARD A. BILAS

Commissioner

I will file a dissent.

/s/ HENRY M. DUQUE

Commissioner

Commissioners Henry M. Duque and Richard A. Bilas dissenting:

We find that the majority decision's interpretation of the standards of review for this complaint case is erroneous, and the fines and requirements imposed on Pacific Bell are too harsh and unwarranted.

Section 2107 of the Public Utilities Code allows fines to be set in the range of $500 to $20,000 per offense. The Commission has used this standard many times in the past. The level of fines is a judgment call to be based on, among others, the seriousness of the offense tempered by mitigating factors. One of those factors is the conduct of the utility in mitigating the offense. Today's decision recognizes that Pacific Bell did take mitigation efforts (page 82). For example, Conclusion of Law 55 states that "... Pacific Bell took action to halt abuses by BRI, has cooperated in these proceedings, and that the applicable laws and regulations may have lacked clarity are mitigating factors." And in apparent recognition of these factors, it establishes that "the fine should be set near the middle of the range permitted by Section 2107." (Page 83) However, the majority decision departs from these findings and sets an unreasonably excessive and harsh fine at near 90% of the maximum limit or $17,500 per offense. In this respect, the majority decision tramples well-established precedents of considering mitigating circumstances whereby, as in here, (1) actions taken to correct improper behavior and (2) cooperation in proceedings, would otherwise help to reduce levels of fine. The majority decision trivializes these values and is capricious.

We will now turn to other infirmities of the decision that caused us to dissent. The standard to be derived from § 2896 is a general directive to telecommunications corporations to provide consumers with sufficient information to allow them to make informed choices among telecommunications services and providers. The statute does not set out any specific script or presentation sequence that must be followed by utility sales personnel. Nor is there any requirement that Pacific Bell, or any telecommunications corporation, must explain to a customer in each transaction, each product, optional service, package of services, or promotion that the carrier has in its tariffs.

As a policy matter, the relationship between any telecommunications service provider and customers of basic exchange monopoly service is, and should be, different than the relationship between a provider of discretionary, competitive services and its customer. In recognition of that fact § 2896 (c) required the Commission to "require telephone corporations to provide customer service to telecommunications customers that includes, but is not limited to, ... reasonable statewide service quality standards including but not limited to, standards regarding ... customer service.... "Although this mandate became effective January 1, 1994, the Commission failed to act upon it until after this case was filed. On February 3, 2000, the Commission initiated Order Instituting Rulemaking on the Commission's own Motion to Establish Consumer Rights and Consumer Protection Rules Applicable to all Telecommunications Utilities, known as the Telecommunications Bill of Rights proceeding. Issues we should have dealt with before this complaint was filed were included in this proceeding. It was cases such as this one, which finally spurred the commission to take long overdue action. To date, there are still no clear guidelines or directions in the marketing of telecommunications services as the majority decision expected Pacific to act in its marketing efforts.

Tariff Rule 12, by far the most specific direction to Pacific from this Commission on sales practice, requires that Pacific Bell disclose the applicable recurring rates and nonrecurring charges for each service designated by the customer.35 However, as a matter of regulatory requirement, this rule does not obligate Pacific Bell to separately quote applicable rates and charges for those optional service packages the customer has not designated. Therefore, although Pacific's marketing practices at issue in this decision fall short of disclosure of all possible options, such conduct is not prohibited by Tariff Rule 12.

Moreover, a requirement such as that envisioned by the majority decision would be unfeasible even if the Commission were to require such sales practice. Due to the myriad of options and packages of enhanced services now available, to require any provider to disclose each and every one of the options, separately and as packages, is impractical for Pacific and unfriendly to customers.

Tariff Rule 12 is vague, despite the Commission's decisions in the 1986 marketing abuse case in which Tariff Rule 12 was in fact modified to prevent against marketing abuses regarding packages, the term "optional service" continues to be vague as to whether it includes a package or the components of a package. Thus, while there is good reason to fix Rule 12 prospectively, there is no basis to find a violation of Rule 12 and impose a hefty fine on Pacific Bell.

The majority decision on Pacific Bell sales practice misses the point

In D.99-06-053, we addressed the interrelationship of Pacific Bell's inside wire services and the use of other vendors to perform the actual repair of faulty wires. The instant Complaint was filed on April 6, 1998; two months after Pacific filed its Application to re-categorize Inside Wire Repair Services. The Commission's decision disposing of Pacific's Application was rendered on June 10, 1999 while this proceeding was underway. Complainants have not produced substantially different evidence that distinguishes this allegation from the issues the Commission addressed in D.99-06-053. That decision addressed and resolved the disclosure issue the complainants raise in this proceeding.

Decision 99-06-057 determined that residential inside wire repair is one "market" with two payment options - either on a per-month basis or on a per-visit basis because both payment options are designed to solve the same problem, faulty inside wire. (D.99-06-053, mimeo., at 54.) The record in this complaint case does not change the Commission's findings and conclusions reached in D.99-06-053 with respect to Inside Wire services marketing the disclosure requirement Pacific was directed to follow. There is no basis to revisit this issue.

The case involving the landlord's responsibility to maintain inside wire is also a matter for which the Commission lacks a basis to fine Pacific. The Commission previously required Pacific Bell to make a specific written disclosure, to inform tenants that, under state law, landlords, and not tenants, are responsible for repairs to and maintenance of inside telephone wire. The Commission required Pacific to make this statement to all customers receiving information in person or over the telephone. (Revision of the Accounting for Stations Connections and Related Ratemaking Effects and the Economic Consequences of Customer-Owned Premise Wiring, (D.92-09-024 at 9, 45 CPUC2d 411)) However, the requirement for Pacific Bell make this specific disclosure expired on September 1, 1994. (Id.) As a matter of law, Pacific Bell is no longer under an obligation to disclose that landlords and not tenants are responsible for inside wire repair.

While the irrational expiration of this requirement is puzzling and would justify reinstating the requirement, it deprives the Commission a basis to fine Pacific Bell for its failure to make the disclosure to tenants.

Similarities between the 1986 complaint case and this complaint case are misplaced

In the first of a series of decisions in the "1986 Marketing Case", the Commission found that Pacific Bell was marketing its basic local exchange service in a package with expensive optional services. (D.86-05-072, 21 CPUC2d 182, 188.) Such marketing, the Commission determined, contravened the Legislature's and this Commission's universal service directives because it masked the basic rate. The statutes and our decisions all focused on reducing the basic rate as the means of ensuring universal service.

Creating an association between local exchange service and packages of optional services was at issue in 1986, when the Commission found that these "package selling abuses" violated Tariff Rule 12. (21 CPUC2d 182, Finding of Fact 2, Conclusion of Law 2.) The Commission also found that such an association "masks" the basic rate, which is the focus of the universal service subsidy program. (Id. at 188.)

In contrast to the 1986 Marketing Case, in this complaint case there is no allegation that Pacific Bell is selling local exchange service as part of its packages of optional services. Each of the packages contains only optional services such as call forwarding and call waiting. The complainants know that and instead allege that the name "The Basics" creates an association with local exchange service, which they believe is prohibited by the earlier decisions. Both the complainants and the majority decision commit a grave error in false analogies and jumping to conclusions. The facts do not support the findings.

The order in which Pacific presents customers with service choices obviates any confusion between the basic service and optional packages, unlike the 1986 case. Here, customers first select their local service (flat rate or measured rate), and then discuss optional services. The optional services are offered to a customer only after the customer has initiated local exchange service. In this way, Pacific Bell creates clear separation between its local service offerings and its optional services, as is required by the 1986 decision. The 1986 decision prohibits packages that mix local exchange service and optional services. There is no evidence in this record that Pacific Bell has violated this prohibition.

Similarly, the finding that "offer on every call" policy, under which Pacific must quote all recurring rates and nonrecurring charges for all services, violates Tariff Rule 12 is baseless. Again, proving a violation of this rule requires the opposite of what UCAN has shown: customers may be receiving unwanted information, but they are not being deprived of information. The Commission may presume that offer on every call could potentially degrade service quality, even though the record provides no help, but finding a violation on this basis that it violated a provision of law or any order or rule of the Commission is preposterous.

Offer on every call and sequential offerings are not prohibited

Pacific's marketing strategy of offering the higher priced package (The Works Plus or The Works) first and withholding information on the lower priced package (such as The Basics Plus or The Basics) until the customer rejects the first offer is not a violation of any law or standard because there is no law that orders Pacific to sell these optional services in any order. The majority decision errs in finding a violation on regarding sequential offerings (even if the offer is made starting with high-priced services and proceeding to lower priced options only when the customer refuses to accept the first offer). Some sort of a 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 is only one of many possible sequences, all of which could comply with the statutes and Commission directives.

Today's decision also enters a realm in which there is not much precedent in its draconian limits on incentives. If it does not like the message, the majority decision would kill the messenger. First, we have serious doubt that this Commission has the authority to place limits on employees' compensation. However, even if we have the authority to set limits on employees' incentives, exercising that authority in the manner the majority decision does is improper as a policy matter. It punishes those that do not deserve it.

Pacific Bell negotiates salaries and wages with the Unions of its service representatives through the collective bargaining process. The evidence in this case shows no wrongdoing on the part of the service representatives. Nothing in the record establishes a correlation between incentives and wrongdoing by sales reps. These employees performed their duties as prescribed

by management. If the Commission finds management gave improper instructions to the service representatives, then the focus should be on correcting management's behavior. It is neither appropriate nor warranted for the CPUC to intercede in employee and employer negotiated labor and compensation agreements.

For all the above reasons, we dissent.

/s/ Henry M. Duque /s/ Richard A. Bilas

Henry M. Duque Richard A. Bilas

Commissioner Commissioner

September 20, 2001

San Francisco, California

32 Pacific Bell stated that it reached 70% of the 107,000 customers, or about 75,000 customers, between January 22 and February 11, 1999. 33 See Hearing Exhibit 80. Pacific Bell also forecast that Caller ID would add $2 billion in additional revenue over the same period. Exhibit 100. 34 Pacific Bell's Tracking Report # P.D.-01-27, Cumulative Through December 1998, Line 7.

35 "Where there are additional residence optional services (other than exchange access service) available, the Utility, or its authorized employees, may call applicant's attention, at the time application is made, to the availability of such optional services and the customer may designate which optional services they desire. The Utility shall provide a quotation of the applicable recurring rates and non recurring charges applicable to each service designated by the customer. The quotation of applicable rates and charges shall be stated separately for each optional service designated by the customer." (Emphasis added.)

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