III. Discussion

Although AT&T and Pacific resolved all issues between themselves, we look to the CPSD report to determine what impact, if any, the practices alleged in the complaints had or may have on California consumers.

CPSD randomly selected 128 California consumers to be interviewed from a list of customers whom Pacific identified as having been switched to AT&T without their authorization in 1999.⁷ Of those 128 consumers, CPSD completed 75 interviews. From those completed interviews, CPSD found discrepancies in Pacific's reporting of alleged slamming complaints. Because of those discrepancies, CPSD recommends that this proceeding remain open and that an outside (independent) auditor conduct a detailed study of the accuracy of Pacific's process for tracking and billing LPIC disputes, currently and for
1999-2000. CPSD also found discrepancies in Pacific and AT&T's compliance with the independent third-party verification (TPV) requirement of Pub. Util. Code § 2889.5.

A. Alleged Slamming

Of the 75 random interviews, CPSD found that 25 customers had been switched to AT&T without their authorization, 11 had authorized the switch of

their local toll service to AT&T, and 39 either couldn't recall switching their service provider or said that no switch had occurred. Those results led CPSD to conclude that AT&T had slammed some customers, Pacific had improperly billed AT&T for customers that switched to AT&T and then retuned to Pacific under Pacific's winback program, and that Pacific's coding of complaints in its billing system may be inaccurate.

AT&T and Pacific welcome further investigation into slamming and marketing practices within California. However, neither believes that such an investigation should be included in this complaint proceeding. AT&T recommends that we instead open an investigation into Pacific's process for tracking and billing LPIC disputes. AT&T also suggests we consider whether Pacific should be managing this process at all. Pacific does not believe that an audit would yield useful or reliable information because Pacific has changed and is in the process of further changing its procedures for tracking and billing LPIC disputes. If any such investigation is instituted, Pacific recommends that the practices of all market participants be included in the investigation.

We find from CPSD's report that Pacific's process of tracking and billing 1999 LPIC disputes, at a minimum, contributed to customer confusion. We further find that the public interest requires an independent audit and validation of Pacific's current process. Public interest, in this instance, is confirmation that (1) the switching of customers' LPIC service is done "only" upon specific request of customers, and (2) the confidential LPIC dispute reports being provided by Pacific to CPSD provide accurate information.

We find no benefit in keeping this proceeding open pending the results of an independent audit and verification of the 1999 process, as requested by CPSD. That process, which has already been scrutinized by CPSD, has and is currently

undergoing further changes. Rather, an audit should be conducted on the process currently being used by Pacific and relied on by CPSD. We also decline, for now, to open an investigation into Pacific's process; we may reconsider, however, if the audit results identify issues needing to be addressed in an investigation.

Pacific should retain the services of an independent auditor to audit its current process for tracking and billing LPIC disputes. That auditor should prepare and submit to CPSD a report on the scope and results of the audit. Pacific should make the auditor and all of the auditor's work papers available to CPSD upon request. Pacific should correct any deficiencies discovered by the independent auditor and report any corrective action taken to CPSD.

To the extent that CPSD is not satisfied with the audit results or corrective action taken by Pacific, CPSD should prepare an investigation into the tracking and billing of Pacific's LPIC disputes for our consideration.

In sum, as the complainants have resolved their differences, and as CPSD has not found that AT&T or Pacific intentionally slammed any customer, this proceeding should be closed. However, CPSD did find that Pacific's process in 1999 for tracking and billing LPIC disputes was flawed, so the closing of this proceeding should be conditioned upon an independent audit of Pacific's current process to determine whether Pacific has corrected those flaws.

B. Third-Party Verification

CPSD found that AT&T and Pacific did not "at all times" comply with the independent TPV requirements set forth in Pub. Util. Code § 2889.5(a)(3). That section requires, among other matters, an independent TPV company to confirm a customer's decision to change his or her telephone service provider. Although CPSD did not address the extent or frequency of AT&T and Pacific's

noncompliance with TPV requirements in the public version of its report, more detailed information was included in its sealed version. To the extent that such information is germane to the issues in this order and, if revealed, would not place the utilities at a competitive disadvantage, disclose disaggregated customer information, or disclose specific customer information, such information should be discussed in this order.

The sealed version of CPSD's report disclosed that Pacific used signed letters of authorization in lieu of TPVs for the period May 1999 through October 1999, approximately 180 days, for confirming residential subscribers' decisions to change their local toll telephone service to Pacific. The sealed version also disclosed that Pacific did not always use TPVs when returning residential customers back to Pacific's service as part of its winback program.

Pacific filed an August 28, 2001 response to the report and an October 25, 2001 reply to AT&T's response, but Pacific limited its comments to the proposed audit of its LPIC billing and tracking system. Thus, Pacific did not deny report's finding of noncompliance with the statutory TPV requirements. Pacific's September 6, 2000 statement at the second prehearing conference on this matter clearly concedes such noncompliance. At that time, its attorney stated that "very soon we'll implement a third party verification of slamming allegations so that whatever those numbers are, there is not going to be a dispute" because they will have been verified.⁸

As to AT&T, CPSD did not indicate the extent of noncompliance. Unlike Pacific, AT&T addressed this finding in its response to the CPSD report. AT&T

said that it did provide CPSD with the TPV confirmation date, name of person who performed the confirmation, the service confirmed, and the unique identifier provided by the customer (often a birth date) "for all but a very few of the residential accounts."⁹ This comports with CPSD's finding that AT&T did not "at all times" comply with the TPV requirement of Pub. Util. Code § 2889.5.

Although it is reasonable to expect minor noncompliance with TPV, full compliance in 1999 could have properly corrected and conceivably avoided customer confusion and the slamming of the 25 customers CPSD determined were slammed. This lack of compliance with TPV further justifies the need for an audit of Pacific's process.