II. Allegations in the Order Instituting Investigation (OII)

The OII alleges that in 1997, Talk contracted with America On Line, Inc. (AOL) for the exclusive right to market Talk's telephone service to AOL subscribers, and entered into a similar arrangement with Discover Credit Card Company (Discover). According to the OII, beginning in 1998, Talk mailed California consumers over 7.5 million promotional checks and signed up over 300,000 new subscribers as a result.

The OII alleges that (1) neither the marketing materials nor the checks thoroughly informed the subscriber of the nature and extent of Talk's service; (2) the promotional check and the written order form comprised the front and back of a single document; and (3) the terms on the written order were not fully explained and were printed in gray in less than 10-point type. The OII alleges that at times, the promotional materials identified the telephone service provider as "AOL Long Distance" instead of Talk Long Distance. AOL Long Distance is not a registered telephone service provider in California.

According to the OII, Talk also marketed promotional checks offering a "$25 Instant Cashback Bonus Award from Discover Card and Talk" for switching to Talk, and that many customers complained that such solicitation misled them into believing the check was a rebate from Discover.

The OII alleges Talk violated several provisions of the Public Utilities Code and a Commission decision including:

· changing customers' long distance carrier without their authorization by failing to thoroughly informing them of the nature and extent of the service being offered and the charges associated with the change and without proper verification. This practice, known as slamming, is unlawful under Pub. Util. Code § 2889.5;

· placing unauthorized charges on customers' bills by failing to thoroughly inform the subscriber of the nature and extent of its service by printing written orders on the same document as the promotional check in less than 10-point type and in gray, and by marketing services so that the name of the service provider was unclear (some customers believed they were authorizing AOL Long Distance, not Talk, to be their carrier.) This practice is unlawful under Pub. Util. Code § 2890(b) which provides that a telephone bill may only contain charges for products and services which the subscriber has authorized; and

· failing to comply with the Commission's consumer protection and information rules for competitive local carriers, including failing to provide (1) current rate information on the new carrier; (2) information regarding the terms and conditions of service with the new carrier; and (3) legible solicitations in at least 10-point type.²

² The Consumer Protection and Consumer Information Rules for Competitive Local Carriers are set forth in Appendix B to D.95-07-054, 60 CPUC2d 611, 646 - 651. D.98-07-020, which granted Talk its operating authority, required it to comply with these rules. (See Conclusion of Law 8, 1998 Cal. PUC LEXIS 551 at * 18.)