X. Remedies

In order to remedy Qwest's multiple violations of § 2889.5 and § 2890, we direct Qwest to provide full reparations pursuant to § 734 for the customers listed on the PIC dispute reports from the LECs, Qwest, as well as those complaining to CAB, according to the criteria set forth below.⁴²

Additionally, we fine Qwest a total of $20,340,500. This fine consists of $5,000 for 3,581 violations of § 2889.5($17,905,000), based on Qwest's own admission of "realized" PIC disputes (3,420) and the actual slamming violations from the customers CSD (159) and Greenlining/LIF (2) presented in the form of witnesses or interviews. We also fine Qwest for 4,871 violations of § 2890 ($2,435,500), based on the BOR report figures as adjusted.⁴³ This is lower than CSD's recommended fine of over $100 million (based on the PIC dispute data) and Greenlining/LIF's proposed fine of about $83 million, based on a percentage of Qwest's total revenues. However it is higher than Qwest's recommended $55,500 fine, based on a $500 fine for each of the 111 violations Qwest believes CSD has proven. Finally, pursuant to § 451 and § 701, we impose conditions on Qwest in order to ensure future compliance with § 2889.5 and § 2890. CSD and Qwest agreed to most of these conditions. We decline to appoint an independent monitor to supervise Qwest, as proposed by Greenlining/LIF.

A. CSD's and Greenlining/LIF's Recommendations

CSD recommends refunds, special conditions, and penalties against Qwest to remedy the violations found this investigation. CSD states that Qwest has not credited or made refunds to some of the customers interviewed by CSD. CSD recommends that the Commission direct Qwest to make these customers whole, and impose special conditions and restrictions on Qwest to ensure future compliance with § 2889.5 and § 2890.

CSD's recommended penalty in this investigation is about $106 million. CSD recommends the maximum $20,000 penalty for what it believes to be each falsified proof of authorization. According to CSD, this penalty should apply to the 41 declarants and 41 customers CSD interviewed who stated that the third-party verification tape does not contain their voice, or the letter of authorization does not contain their signature. Additionally, CSD believes that this penalty should apply to Qwest's 3,420 "realized" PIC disputes.

CSD also recommends Qwest be fined $500 for each of the 71,495 PIC dispute and cramming complaints registered in the LECs' and Qwest's reports, as well as a minimum, $5,000 for each day since November 30, 2000, that Qwest has failed to comply with D.00-06-079.

Because Greenlining/LIF believe that the thousands of reported PIC disputes are the "tip of the iceberg," these parties recommend that all " potential victims" be contacted and advised of their right (a) to be switched back to the carrier of their choice at no cost to them, and (b) of their potential eligibility for reparations or refunds. According to Greenlining/LIF, the Commission should order Qwest to place about $10 million in an escrow account for this purpose. Because Greenlining/LIF believe the $1.5 million fine imposed by the FCC was inadequate to change the way Qwest does business, they recommend a fine set at 0.5% of Qwest's total revenues, for a total of $83 million. Greenlining/LIF also recommend that the Commission establish an independent monitor, paid by Qwest, who would have full access to Qwest's systems and data and would advise Qwest and the Commission how to best protect customers from slamming.

B. Qwest's Response

Qwest believes that CSD has proven that Qwest is responsible for 111 slams and crams. Qwest argues that there is no need for the Commission to order a penalty here because Qwest (a) did not intentionally commit the slams or crams because they were caused by third-party sales agents, (b) made the complainants whole, (c) did not profit from the slamming or cramming,⁴⁴ (d) has a "zero-tolerance" policy for slamming, (e) took prompt action to address customer complaints and to terminate sales representatives responsible for slamming, (f) improved its own and its sales representatives' internal processes to reduce slamming, and (g) currently has a "state of the art anti-slamming process."

Alternatively, if the commission decides to impose a penalty, Qwest believes it should be the minimum penalty, or $500 for each of the 111 violations Qwest believes CSD has proven. Under Qwest's calculations, the appropriate penalty should be no more than $55,500. Qwest also agrees to many of the conditions proposed by CSD, while recommending changes to others.

C. Discussion

1. Refunds

Qwest has not provided refunds or a credit to all customers who allege an unauthorized switch of their telephone service. (See, e.g. Exhibit C24, interviews 30 (Camarena), 34 (Kapoor), and 26 (Abe).) For purposes of reparations, we use the full count of the PIC disputes from the LECs, Qwest, and the complaints received by CAB.

No later than 90 days from the effective date of this decision, Qwest shall provide full refunds for every customer on these lists for which it has not already done so under the following criteria. Qwest shall provide these customers with a refund of any PIC change fee and other applicable administrative fees, as well as any charges paid by the subscriber in excess of the amount that the subscriber would have paid his or her carrier of choice. Qwest shall make any checks payable to the subscriber of record for the telephone line, and shall meet and confer with CSD to ensure that it has refunded all appropriate customers.

No later than 120 days from the effective date of this decision, Qwest shall file a compliance report with the Director of the Commission's Consumer Services Division, served on the service list of this investigation, which demonstrates that it has fully complied with this directive.

2. Fines

We fine Qwest a total of $ 20,340,500 for slamming and cramming in violation of § 2889.5 and § 2890. We fine Qwest for 3,581 violations of § 2889.5 for changing a subscriber's telephone service without authorization, based on Qwest's own admission of "realized" PIC disputes (3,420) and the actual slamming violations from the customers CSD (159) and Greenlining/LIF (2) presented in the form of witnesses or interviews. We also fine Qwest for 4,871 violations of § 2890 based on the BOR report figures as adjusted. Under § 2107 and § 2108, the range of a fine for 8452 slamming and cramming violations is between $4,226,000 and $169,040,000. Our fine is significant, but still at the lower end of this range.

In determining the amount of the fine, we look to the criteria we established in D.98-12-075, Appendix B, which has provided guidance in all subsequent cases in which such issues arise. That decision stated that the purpose of a fine is to effectively deter further violations by this perpetrator or others.

In setting the amount of the fine in this proceeding, we consider the following criteria:

The severity of the economic or physical harm;




The utility's conduct to prevent, detect, disclose, and rectify the violation;




The utility's financial resources;




The public interest involved;




The totality of the circumstances; and




Commission precedents.

We require each public utility to fully comply with all relevant statutes, rules, regulations, and Commission orders, and we expressly order each utility to do so as a condition of our approval of its authority to operate. Since such compliance is the cornerstone of our regulation, the disregard of a relevant statute, rule, regulation or Commission order is a substantial violation. In this case, the violation harmed thousands of customers. The FCC and numerous other states have investigated Qwest for the same problems set forth in the OII, demonstrating that Qwest's slamming and cramming problems are nationwide and persistent.

We find the over 8,000 violations of § 2889.5 and § 2890 to be substantial, and to warrant a significant fine especially with respect to the slamming violations. The 3,581 violations of § 2889.5 occurred during a small portion of the period we investigate (from October 2000 to March 2001.) Not only did Qwest slam these customers' telephone service, but in some instances Qwest: (a) forged the letter of authorization or third-party verification tape; (b) did not retain the verification record and make it available to the Commission or the subscriber upon request; and/or (c) failed to remain independent from its third-party verification company. The LECs' and Qwest's PIC dispute numbers indicate further widespread violations of § 2889.5. These factors justify us imposing a higher fine for each slamming violation than for the other violations. We do not mitigate the fine on the grounds that Qwest's independent contractors caused the violations, because Qwest is responsible for the acts of its independent contractors.

With respect to Qwest's efforts to prevent and rectify violations, we are troubled that Qwest permitted the serious violations outlined above to occur. Largely in response to the FCC investigation, Qwest has implemented improved policies to minimize slamming and cramming. Given the recent PIC dispute numbers, we are pleased that Qwest's improved policies have decreased the number of reported slams. However, Qwest's current policies still need improvement. For instance, Qwest's hiring of Results Marketing as a subcontractor of Snyder Direct at the same time it was implementing its improved policies causes us to question its commitment to a "zero tolerance" policy. Also, in October 2000, even after the improvements were in place, customers such as Mr. Dong complained their long distance service was changed without authorization, and Qwest took until April 2001 to resolve the problem. Qwest also failed to timely file the slamming and cramming compliance reports required by D.00-06-079. Balancing Qwest's inadequate monitoring of its business activities in the past with its improved policies and the need for further improvement, we conclude that Qwest's preventive and remedial efforts warrant some mitigation of the amount of the fine. However, we do not agree with Qwest that its mitigation efforts warrant either no fine, or a minimal fine, because of the other factors that we balance, and because that outcome would not deter further violations by Qwest or others.

Qwest's financial statement indicates total assets of about $72 billion, and revenue for 2000 of approximately $11 billion. Qwest's California residential long distance revenues for 2000 were about $92 million. Qwest appears to have the ability to pay a substantial fine. Furthermore, Qwest's CEO's total compensation for 2000 was about $95 million, with a base salary of $854,165, a bonus of $193,736, a long term stock payment worth $1,107,913 and $93,454,973 million of what Qwest describes as "fortuitously earned" stock options.⁴⁵

As we stated in Vista, the public interest in slamming cases is significant because the customer's right to choose a long distance carrier is crucial to the competitive environment in telecommunications. For similar reasons, it is crucial that a customer's bill be free of unauthorized charges. These harms have been lessened but not eliminated when the customers were switched back to their carrier of choice (although in some instances it took several months for this to occur) or by the customers receiving refunds (although this has not occurred in all instances.) Thus, the public interest has been harmed.

Considering all the circumstances, we fine Qwest $5,000 for each of the 3,581 violations of § 2889.5, and $500 for each of the 4,871 violations of § 2890. This fine is consistent with a recent Commission decision concerning slamming issued after D.98-12-075.

In Vista, the Commission fined Vista $1000 per violation for a total of $7 million; however, the slams were based on Pacific's PIC dispute data, where here, each slam has been investigated and verified, some of the slams involved forgery, and they occurred during a limited part of this investigation. Moreover, we found that Vista reported a net loss in 1998 of $4.6 million with gross revenues of $40 million nationwide. Thus, a $ 20,340,500 fine in this case, when Qwest had total revenues for the year 2000 of $11 billion, and its California residential long distance revenue for 2000 was about $92 million, falls within the realm of reasonableness.

3. Additional Conditions

a. CSD's Recommended Conditions

CSD also recommends that the Commission impose 21 additional conditions on Qwest to ensure future compliance with § 2889.5 and § 2890. Qwest states it has already implemented 14 of these, and agrees to implement the remaining with some modification.

The parties have a significant disagreement on one recommended condition, namely, that Qwest be required to terminate a third-party sales agent for a single proven forgery by one of the agent's representatives. Qwest believes the term "proven forgeries" is ambiguous, and also states that this requirement would put it out of business in California, because it would not be able to contract with a sales agent employing perhaps thousands of sales representatives due to the alleged misconduct of one employee. Qwest states it terminates individual sales representatives responsible for any realized PIC dispute.

Qwest believes that the agreement in the FCC Consent Decree, requiring it to terminate a sales agent with a realized PIC dispute rate of 2%, is appropriate. However, in order to cooperate with CSD, Qwest would agree to modify the realized PIC dispute thresholds for agents selling in California so that Qwest would terminate an agent who remains above a 1% realized PIC dispute rate after Phase II probation.

Qwest's proposal is reasonable as modified below, so that Qwest can contract with some sales agents. We require Qwest to place third-party sales agents on a 90-day probationary/retraining period if they remain above a 1% realized PIC dispute rate for any calendar month, and to terminate a sales agent if it remains above a 1% realized PIC dispute rate for any calendar month after its first 90-day probationary period. Ninety days should be sufficient time to retrain sales agents.

We also modify CSD's proposed condition regarding Qwest maintaining a "Stay Away" list of customers who have previously been slamming victims to ensure that telemarketers do not call this list in the future. CSD does not put any time limit on Qwest's ability to contact these customers, whereas Qwest recommends that the names be added to its "Do Not Call" list for a year, to accommodate the reissuing of the phone number to a new customer. Given the serious slamming violations in this proceeding, a year is too short a period. In balancing the gravity of the violations with the need to accommodate reissuing telephone numbers, we place a three-year limit on this condition.

We adopt the conditions as set forth in Appendix B.

b. Other Conditions

Many customers who call Qwest complaining about a slam were not promptly transferred to their carrier of choice. Qwest states that it cannot make the transfer itself, that only the LEC can do so, and that it so advises customers. Until the customer calls the LEC to reverse the switch, Qwest places these customers in "casual billing".

Credible witnesses testified Qwest did not advise them to call the LECs in all instances when the customer reported being slammed. Also, witnesses testified they spent much time and aggravation trying to rectify a slamming problem. We therefore direct that, at the time the customer calls to complain that the telephone service has been switched to Qwest without authorization, Qwest shall provide customers with the telephone number of the LEC which customers must call to reverse the unauthorized switch, if, (a) in response to a required inquiry from Qwest's customer service representatives, the customers identify their LEC; and (b) CSD provides Qwest with a list of customer service telephone numbers for the LECs doing business in California, updated every six months and more frequently if conditions warrant. Additionally, within two business days of the call, Qwest shall mail a postcard to that subscriber with the same information. In order to minimize customer confusion, Qwest shall not use that postcard for any other activity (marketing or otherwise). Qwest shall have this postcard written in English, Spanish, and Asian languages and send it in the language in which the customer was originally solicited.

Finally, Greenlining/LIF states that Qwest's Welcome Postcard is misleading to the customers who have been slammed, because the card not only thanks customers for "choosing Qwest", but also asks them to remove any PIC freeze on the line so the service can take effect. Greenlining/LIF recommend Qwest refrain from sending this card until it receives notification from the LEC that the order has been processed. Qwest states it is required by California law to send the Welcome Card within 14 days, and therefore must send the card as soon as Qwest receives the customer's order.

In Appendix B, we adopt an additional condition suggested by CSD requiring Qwest's Welcome Postcard to contain an 800 number to report any unauthorized switch or change in service, or any unauthorized charges in order to address this problem.

Qwest shall obtain approval from CSD and the Commission's Public Advisor on the content of the notices required to be sent to customers by this decision.