B. Discussion
Although the application before us appears straight-forward, the matter requires some discussion because of the extensive regulatory history before this Commission of NOS, ANI, NOSVA and Blue Ridge.
1. Prior Regulatory Proceedings Involving NOS, ANI and Their Affiliates
More than four years ago, NOS and ANI were named as respondents in Investigation (I.) 02-05-001, in which the Commission's Consumer Protection and Safety Division (CPSD) alleged that the two companies had engaged in deceptive marketing, slamming, and cramming, in violation of Pub. Util. Code §§ 2889.5 and 2890. The Order Instituting Investigation (OII) alleged that NOS and ANI had engaged in this conduct in the following manner:
"They solicit new customers, primarily small and medium size businesses, by telemarketing. Respondents' telemarketers represent that telephone service will be charged on a per minute usage basis. However, customers are subsequently charged according to a `Total Call Unit' (TCU) pricing methodology that consists of usage and non-usage charges and [is] not based on cents per minute usage. Determining the TCU charges requires a conversion calculation that few, if any, customers can understand." (OII, p. 2.)
The allegations in I.02-05-001 paralleled those in an investigation by the Federal Communications Commission (FCC) that was also directed at the TCU pricing plan.
Ultimately, CPSD and the respondents entered into a settlement of I.02-05-001. The settlement was first presented to the Commission in December 2003, and it was conditionally approved in D.04-06-017.3 One of the conditions imposed by the Commission, however, was the rejection of a term which provided that upon the withdrawal of CPSD's protest to A.01-12-013 (the proceeding in which Blue Ridge sought a CPCN), "the Commission agrees . . . to resolve A.01-12-013 as an unopposed application." D.04-06-017 concluded that this term unreasonably tied the Commission's hands, and that before any CPCN could be granted, (1) Blue Ridge should be required to supplement its application with information regarding its litigation history and that of its affiliates, and (2) the assigned Administrative Law Judge (ALJ) should be free to hold a hearing on Blue Ridge's fitness if the ALJ considered a hearing necessary. Because the respondents objected to this modification of the settlement agreement, they caused the settlement to be rescinded according to its terms and filed an application for rehearing of D.04-06-017.
Eventually, after a hearing was held, the Commission conditionally granted a CPCN to Blue Ridge in D.04-12-021.4 The parties to I.02-05-001 then submitted a revised settlement agreement, which the Commission approved in D.05-06-032.
The parties' regulatory history with this Commission does not end with the settlement of I.02-05-001, however. One of the conditions that the Commission insisted upon in D.04-06-017 was that in any future application under Pub. Util. Code § 854, the respondents in I.02-05-001 would be required to disclose "(a) the fact that [I.02-05-001] was filed, (b) the fact that [I.02-05-001] was settled pursuant to the settlement agreement approved [in D.05-06-032], and (c) the relationship between the applicant and [I.02-05-001]." This requirement was incorporated into the settlement agreement ultimately approved by the Commission as paragraph 5.10.
Compliance with paragraph 5.10 became an issue in A.05-12-007 and A.05-12-008, in which NOS and ANI each sought to expand their operating authority to include facilities-based carriage. On January 12, 2006, CPSD filed protests to both applications on the ground, among others, that neither NOS nor ANI had made timely disclosures about I.02-05-001 in their applications.5 When NOS and ANI tried to withdraw the applications (apparently after concluding that they were unnecessary), CPSD objected to the purported withdrawals. Eventually, the parties entered into a settlement agreement concerning A.05-12-007 and A.05-12-008, which settlement is still pending before the Commission. 6
In addition to the controversy surrounding A.05-12-007 and A.05-12-008, the instant application points out that a new investigation of NOS marketing practices is underway at the FCC. The application gives the following explanation of this new investigation:
"Shortly after the prehearing conference held on March 8, 2006 in [A.] 05-12-007 and 05-12-008, NOS received a communication from the staff of the [FCC] advising NOS that the FCC staff is investigating `allegations that NOS Communications, Inc. dba International Plus & Zero 11 Communications, or an entity acting on behalf of your company, may have made [calls] to telephone lines that are contained in the National Do Not Call Registry . . .' The communication also indicated that the Enforcement Bureau was investigating allegations related to representations made to customers to switch their preferred carrier and/or other marketing related allegations. The communication was in the form of a data request to which NOS was to respond by April 9, 2006. Following an agreement on an extension of time, the Company filed its response on May 15, 2006." (Application, p. 10; emphasis supplied.)
In response to an inquiry from the ALJ assigned to this proceeding, counsel for the applicants stated in a letter dated September 28, 2006 that the FCC staff's investigation of the above-described matters is still ongoing, and has been docketed as file number EB-05-TC-055. The letter also noted that on September 6, 2006, the FCC staff asked NOS to provide further information, that NOS had done so, and that the company "anticipates having a meeting in person with the staff at a date to be set."
2. In View of the Tools Available to the Commission, the Issues Raised by A.05-12-007, A.05-12-008
and the New FCC Inquiries Do Not Justify Denial
of the Change of Control Application
While the fact that the FCC staff is conducting a new investigation into the marketing practices of NOS is troubling, we do not think it justifies denying the application here. We have reached this conclusion because, as explained below, (1) the applicants' representations about the ownership interests in the four companies are consistent with statements they have made previously, (2) Delug will be bound by all of the conditions in the CPCNs that have been granted to NOS, ANI, Blue Ridge and NOSVA, and (3) any evidence of marketing abuse that the new FCC investigation discloses can be dealt with in future Commission proceedings.
To begin with, the statements in the application about ownership interests in the four companies are consistent with the statements that Joseph Koppy, the president of NOS and ANI, made during his testimony in A.01-12-013, the proceeding that resulted in the issuance of a CPCN to Blue Ridge. On page 6 of D.04-12-021 (the decision that conditionally granted the CPCN), we gave the following description of Koppy's testimony concerning the ownership of NOS and its affiliates:
"Although Messrs. Arnau and Koppy are CEO and president, respectively, of NOS and the other companies named in I.02-05-01, neither of them owns any stock in these firms. Instead, 50% of the stock is owned by Robert Lichtenstein, 25% by Samuel Delug, and 25% by Delug's former wife, Rosette Delug. Lichtenstein is a director of NOS and the other companies, but Samuel Delug is not . . . Koppy testified that so far as he is aware, the FCC has brought no proceedings against either Lichtenstein or Samuel Delug . . .[7] Koppy also stated that no civil litigation has been brought against the NOS companies based on the conduct described in the FCC's Winback Order to Show Cause; all of the private litigation of which he is aware relates to the marketing of TCU plans. (Mimeo. at 20-21; footnote omitted.)
A second reason for approving the change of control sought here is that, as is usual in applications of this kind, we will require the four companies and Delug (who is a named applicant in this proceeding) to abide by all of the terms and conditions set forth in the CPCNs granted to NOS, ANI, Blue Ridge and NOSVA.8 Conditioning our approval in this manner will help to ensure, as the application promises, that the change of control "will be completely transparent to the customers of the carriers," and "will not result in any change in the management of NOS, ANI, NOSVA or Blue Ridge." (Application, pp. 1-2.)9
Finally, as we observed in D.04-12-021 (the decision that conditionally granted a CPCN to Blue Ridge), we have ample authority under the Public Utilities Code to bring enforcement proceedings against, and impose appropriate penalties on, the applicant companies if it turns out that any of them have engaged in or authorized marketing abuses. (D.04-12-021, mimeo. at 11-12.) The penalties for such misconduct include fines, penalties, and suspension or revocation of CPCNs.
3 D.04-06-017 contains an extensive discussion of the parallel FCC proceeding involving the TCU plan, as well as a second FCC proceeding that alleged marketing abuses in connection with NOS's "Winback Campaign." See, D.04-06-017, mimeo. at 8, 10, 13-17.
4 The condition was that a CPCN would issue to Blue Ridge only upon the Commission's approval of a new settlement agreement in I.02-05-001.
5 In their responsive papers to the protests, NOS and ANI asserted that a January 5, 2006 letter from their counsel to the Commission's Executive Director about I.02-05-01 constituted sufficient compliance with paragraph 5.10 of the settlement agreement approved in D.05-06-032.
6 Under the terms of the settlement, NOS and ANI stipulate that their failure to disclose (a) the existence and settlement of I.02-05-001, and (b) a previous disciplinary action in Wisconsin, even if such failures were inadvertent, constitute a violation of Rule 1.1 of the Commission's Rules of Practice and Procedure. NOS and ANI also agree to pay a $10,000 fine due to their failure to disclose these matters, all but $500 of which will be waived. In consideration of these admissions and the payment, CPSD agrees to drop its objections to the withdrawal of A.05-12-007 and A.05-12-008.
7 However, paragraph 2(g) of the "Winback Consent Decree," which is described on pages 10 and 15-17 of D.04-06-017, includes both Lichtenstein and Delug in its definition of "affiliate."
8 CPCNs were granted to the applicants in the following Commission decisions: D.92-02-007 (authorizing NOS to resell interLATA services in California); D.98-11-043 (authorizing NOS to resell local exchange services in the service territories of Pacific Bell and GTEC); D.91-03-012 (authorizing ANI to resell interLATA services in California); D.99-05-027 (authorizing ANI to resell local exchange services in the service territories of Pacific Bell and GTEC); D.94-11-059 (authorizing NOSVA to resell interLATA services within California and to terminate calls originating in California to all points in the United States and various international points); D.95-03-038 (authorizing NOSVA to offer intraLATA services); D.04-12-021 (conditionally granting CPCN to Blue Ridge to provide limited facilities-based and resold local exchange services); D.05-06-032 (holding that the condition in D.04-12-021 for issuance of Blue Ridge's CPCN had been satisfied.)
9 In the joint application, NOS, ANI, NOSVA and Blue Ridge argue that (1) each of them is a non-dominant telecommunications carrier, (2) under D.86-08-057, the Commission's Executive Director is authorized "to approve certain noncontroversial applications by [such] carriers for authority to transfer assets or control under §§ 51-855 of the Public Utilities Code," and (3) such approval is appropriate here. While it is true that the Executive Director has been delegated authority under D.86-08-057 to approve uncontested transfers of control, the unusual regulatory history of NOS, ANI, and their affiliates before the FCC and this Commission makes such treatment inappropriate.
