Decision 03-06-034 June 5, 2003

Before The Public Utilities Commission Of The State Of California

Investigation on the Commission's Own Motion Into the Operations and Practices of Telmatch Telecommunications, Inc., (U 5715), to Determine Whether It Has Violated the Laws, Rules and Regulations Governing the Manner in which California Consumers are Billed for Telecommunications Services.	Investigation 99-09-001 (Filed September 2, 1999)

ORDER CORRECTING ERROR AND

DENYING REHEARING OF DECISION (D.) 02-06-077

I. INTRODUCTION

We instituted this investigation into the billing and consumer solicitation practices of Telmatch Telecommunications, Inc. ("Telmatch") on September 2, 1999. The Order Instituting Investigation ("OII") into Telmatch's operations and practices contained allegations from the Commission's Consumer Services Division ("CSD") that Telmatch, through its intermediary billing agents, imposed unauthorized charges on consumers' telephone bills (a practice known as "cramming"). The evidence presented against Telmatch at Commission hearings is summarized below.

Telmatch initially began doing business in California under the name Geo Communications, LLC ("Geo"), and received its Certificate of Public Convenience and Necessity on September 27, 1996. (See D.96-12-055.) On February 19, 1997, Geo filed an advice letter that requested a change in the corporate structure of Geo from a limited liability corporation to a regular business corporation to be known as Geo Communications, Inc., doing business as Telmatch.

Evidentiary hearings were held in this proceeding on September 27 and October 12-14, 1999. During these hearings, CSD presented evidence that Telmatch's consumer solicitation methods violated Public Utilities Code Section 451, which requires all charges by a public utility to be just and reasonable.¹ CSD also submitted evidence indicating that Telmatch violated Section 2890(a) by imposing unauthorized charges on consumers' telephone bills.

The evidence and testimony submitted by CSD demonstrates that, from 1997 to January, 1998, Telmatch, using the name "Benefits Plus," employed a "sweepstakes method" of solicitation in which consumers were promised an opportunity to win $25,000 cash or a new car. Consumers filled out a sweepstakes entry form which, on the front side in large print, stated, "Your telephone service will not change!!!" The consumer's home telephone number was listed as required information on the front of the entry form. On the reverse side of the entry form, in small print, the entry form stated that the consumer consented to purchase a telephone calling card, and that all charges for the calling card would appear on the consumer's regular monthly telephone bill. The entry form also stated, "No purchase is necessary to enter or win." However, there is no option on the entry form that allows the consumer to enter the sweepstakes but yet decline to purchase a calling card. Through billing agents, Telmatch continued to bill consumers for these calling cards up until the issuance of the OII on September 2, 1999.

CSD interviewed several types of consumers in order to demonstrate the misleading and fraudulent nature of Telmatch's consumer solicitation methods. CSD interviewed consumers identified by Telmatch as its "customers," and also interviewed consumers who lodged complaints with Pacific Bell and with the Commission. CSD investigators testified that even those consumers identified by Telmatch as its own "customers" stated that they were unaware that Telmatch was billing them for calling cards. (D.02-06-077, pp. 7-8.) These consumers expressed surprise and anger when they discovered the charges imposed by Telmatch. (D.02-06-077, p. 8.) Further, CSD investigators determined that the majority of consumers who filed complaints with Pacific Bell did not know why they were being billed, and the majority of consumers who filed complaints with the Commission stated that their telephone bills contained unauthorized charges. (Id.)

On October 22, 1999, we issued an Interim Decision, D.99-10-069, which ordered billing agents and Local Exchange Carriers ("LECs"), such as Pacific Bell, to submit to the Commission's fiscal office all funds collected on behalf of Telmatch. Telmatch filed a "Petition for Clarification" of D.99-10-069 on November 12, 1999, seeking clarification as to whether these funds should include amounts held by the billing agents and LECs for fees, reserves or customer refunds. In response to D.99-10-069, the Commission received an approximate total of $62,000 from Verizon California, Pacific Bell and Clearworld Communications. On September 7, 2000, we issued D.00-09-006, which extended the 12-month statutory deadline due to the complexity of the issues involved in this proceeding.²

On July 2, 2002, we issued D.02-06-077 and permanently revoked Telmatch's operating authority within the State of California. The Decision found that Telmatch's consumer solicitation practices violated Sections 451 and 2890(a), and imposed $1.74 million in fines, or $2,000 for each of Telmatch's 870 violations. We determined that the severity of Telmatch's offenses was great, its acknowledgement of any wrongdoing was minimal, and it had taken no steps to change its unlawful conduct. (D.02-06-077, p. 28.) We also ordered Telmatch to pay $5.5 million in reparations to the Commission's Fiscal Office no later than July 27, 2002, to be held in trust on behalf of consumers while the Commission formulated a consumer reparations plan. In addition, Telmatch was provided an opportunity to contest the amount of reparations owed to consumers within ten days of the issuance of D.02-06-077. (D.02-06-077, p. 39, Ordering Paragraph 3.) To date, Telmatch has paid neither the fines nor the consumer reparations ordered in D.02-06-077, and did not challenge the amount of reparations within ten days, as required by the Decision.

On July 31, 2002, Telmatch filed a timely application for rehearing of D.02-06-077. CSD filed a consumer reparations plan on August 16, 2002.

We have reviewed all of the allegations raised in the rehearing application, and determine that cause does not exist for granting the application. However, we will correct a slight miscalculation in the amount of reparations ordered in D.02-06-077.