VII. Other Issues In This Proceeding

As noted previously, this was a very contentious proceeding with numerous issues and disputes arising between parties. Although few of these issues were germane to our analysis of service quality, we address them in this section of the report.

A. Allegation by TURN that Pacific Inappropriately Aggregated Data Lacks Merit

TURN criticizes Pacific for aggregating data as part of Dr. Hauser's regression analysis.

We note that in our own analysis, we have not relied on any aggregate data. Moreover, we found much of the raw data contained in Dr. Hauser's testimony proved critical to our analysis. Quite simply, we cannot understand the basis for TURN's allegation. Our own analysis does not share that failing.

B. Technological Change and Affects on Pacific's Service Quality - None Documented

TURN contends that Pacific's deployment of advanced services - primarily its DSL service - threatens to create two classes of customers, those who have excellent service quality by virtue of their access to the most advanced telecommunications infrastructure, and "have nots" who have not had such architecture installed.

TURN's witness Terry Murray claimed that with Pacific's introduction of "Project Pronto," a project that involved broad deployment of advanced services technology, Pacific promised improvements in service quality from the new service. While Pacific backed off from several of its 1999 broadband network claims at hearing, in 1999 Pacific told investors that the new technology would 1) "be less vulnerable to weather conditions, thereby reducing trouble reports," 2) have "reduced activity . . . in the remaining copper plant because of improved reliability," 3) "avoid dispatches on many installations [and thereby] realize efficiencies in [SBC's] installation and maintenance operations," and 4) "substantially reduce the need to rearrange outside plant facilities when installing new or additional services."²⁴³

Pacific's witness confirmed the foregoing 1999 claims at hearing.²⁴⁴ For example, Pacific conceded that the use of fiber for voice service improves trouble report performance, that if fiber signal quality exceeds the minimum standard, Pacific does not reduce the quality to that minimum,²⁴⁵ and that, at least with regard to data transmission, fiber loops may allow data to travel at the standard 56k modem speed, while copper loops may not.²⁴⁶

There is, however, a clear disparity between claims and performance. DSL deployment, as our formal complaint history illustrates, has led to increases in service quality, not the nirvana promised. Thus, we greet both Pacific's claims and TURN's allegations with skepticism.

TURN also alleges that selective deployment of broadband services creates the risk of discrimination in service provision. TURN argues: "The service quality enhancement of Project Pronto and similar major network improvements raises the possibility of the improvements being deployed in a manner that produces two-tiered basic service and distinct sets of `haves' served off an advanced system and `have-nots' served off the unimproved network."

Pacific claims any such potential was mitigated in the Commission's SBC/Ameritech merger conditions addressing DSL availability in low-income neighborhoods and rural areas, there are at least three limitations on these conditions.

Despite the allegations made by TURN and ORA, our own experience indicates that the deployment of new technologies will not be correlated with socio-economic status. It turns out that it is the economically exclusive hillside homes in Northern and Southern California where advanced services such as DSL have proved problematic to deploy. Moreover, our own experience with previous telecommunications technologies is that even when the timing of the deployment of a technology is driven by market factors, eventually a technology becomes ubiquitous. In addition, the timing of deployment frequently proves poorly related to socio-economic factors. Indeed, the legacy infrastructure of offices in urban centers can even make it easier to deploy new technologies in declining areas than in areas of new growth.

Thus, we have no evidence that the deployment of new technologies will create a group of technology haves and have-nots. Furthermore, it is still unclear how income levels will affect subscription to advanced services, and there is no evidence before us on this matter. TURN and ORA have not suggested anything more than vague regulatory action at this stage. ORA simply states that "[b]ased on the record of this proceeding and on that of other proceedings before it, the Commission needs to verify the service quality impacts of Project Pronto. . . ."²⁴⁷ TURN suggests no regulatory changes either.

We see no need for action in this matter. We also note that we have recently opened a comprehensive rulemaking on broadband issues, which will address this issue based on facts, not speculation.²⁴⁸

C. Growth - Pacific

Pacific makes the point that its "service quality performance should be viewed in the context of developments during the NRF period . . . [including] growth in demand."²⁴⁹ It points not only to changes in the California economy that increase or decrease demand, but technological change that stimulates demand for more telephone lines. Pacific further cites unbundling and interconnection requirements imposed in the Telecommunications Act of 1996.

Our own analysis based on statistical trends blends periods of fast growth with slow or no growth, thereby providing a picture of service quality largely independent of growth trends.

D. Staffing - Pacific

TURN further alleges that Pacific has cut staff in customer-facing areas, harming service quality. It cites evidence that field staff positions were reduced at Pacific from 1989-95.²⁵⁰ It claims the number of splicing technicians decreased by 26%, the number of systems technicians decreased by 35%, and that the average years of experience of Pacific's service technicians declined over that time period.

TURN also challenges Pacific's increasing use of outside contractors to perform fieldwork. On this latter point, TURN calculates that outside field contractors caused 14% of the cable cuts causing 911 outages in 2001.²⁵¹ Pacific does not refute this statistic.²⁵² TURN claims that Pacific's "outsourcing" of its DSL business to an unregulated affiliate - SBC's Advanced Services, Inc. (ASI) - caused a rise in service quality complaints, leading to C.02-01-007.

ORA makes similar claims, and also points out that Pacific lent service employees to other states without regard for the impact these employee transfers would have on Pacific's service quality back in California.

Pacific focuses on a different, later time period, and states that evidence TURN's own witness presented shows that from 1996-2001, Pacific increased its staffing levels of personnel with direct customer interaction by over 30%. TURN concedes that Pacific increased the number of service representatives by 61% from 1996 to 1998.²⁵³ Pacific's witness Mr. Resnick explained further that, after the recession in the early 1990s when demand slowed for Pacific's services, Pacific actually increased these staffing levels by over 57%.

While the record supports the claim that Pacific's staff decreased during the early years of NRF, it also appears Pacific made up for those losses in the second half of the 1990s, at least in the area of the customer-facing employees who have the most direct impact on service quality. We do not find that the record of this proceeding, standing alone, supports the claim that Pacific's customer-facing staffing levels caused problems with service quality, especially since the uncontradicted evidence shows that Pacific increased its customer-facing staff in the latter part of the decade. We see no reason to change any reporting requirements in this area.

E. Weather - Pacific

Pacific claims that rainfall increased its trouble ticket rates and that findings regarding its service quality during periods of excessive rainfall should be tempered by this fact.

In response, ORA points out, Pacific's data showed that trouble tickets actually increased as rain declined in certain years.²⁵⁴ ORA's witness, Dale Piiru, therefore points out that Pacific's witness "does not provide an adequate correlation between extreme weather events (rainfall totals) and resulting protracted out-of-service intervals."²⁵⁵

According to Piiru, ORA found that in 1994-95, when rainfall was higher and economic damage throughout the state 355% higher as compared to 1998, Pacific's average residential repair intervals in 1994-95 were 49.25% less than in 1998. Overall, Pacific's average residential out-of-service repair interval increased by 130% from 1994 to 1998, with a 70.6% increase between 1996 and 1998.²⁵⁶ Piiru concludes that Pacific's assertions about weather and its impact on service quality are "overly general and unsupported."²⁵⁷

Pacific contends that ORA erroneously bases its analysis of weather on the dollar value of economic devastation in 1994-95 as compared to the El Niño year in 1997-98, and that the damage in the San Francisco area, where Pacific serves "millions of customers" was far higher during the El Niño season. An examination of weather data reveals that during the 1997-98 El Niño season, rainfall in downtown San Francisco was 47.19 inches,²⁵⁸ 230% of normal seasonal rainfall.²⁵⁹ In the 1994-95 season, the comparable total was 34.02 inches.²⁶⁰

Thus, Pacific is correct that the 1997-98 season had greater rainfall in San Francisco (the location on which Pacific focused) than did the 1994-95 season; that difference may explain some of the increase in trouble reports for the El Niño season as compared to 1994-95.²⁶¹

Our analysis seeks to explain broad trends in service quality, not year-to-year variation. Although it is true that meteorological events such as rainfall affect service quality, we see no reason to modify any of our findings.

F. Marketing - Pacific

The Commission's authority over service quality encompasses more than network technical performance.²⁶² The Commission recently stated it "believe[s] that service quality measures should go beyond technical performance measures, and should also include measures of customer service and related consumer impact measures."²⁶³ Thus, it is appropriate to consider trends and patterns in customer-affecting practices such as cramming, slamming and other marketing abuses during our assessment of service quality under NRF.

Both TURN and ORA point to cases in which the Commission found that Pacific engaged in abusive marketing to show problems in Pacific's service quality.

Pacific has already been penalized in connection with those cases. Moreover, our statistical and survey measures pick up any long-term or residual impacts on customers. Thus, we see no need to re-examine this issue.

G. Still Other Issues - Pacific

Finally, TURN points to changes since NRF that it contends also merit a reexamination of the incentives the framework creates. It claims that "to enhance revenues, utilities under incentive regulation will seek to charge for services that were formerly free." It cites Pacific's decisions to restrict the availability of free telephone directories and to charge more for directory assistance calls.

Pacific takes issue with TURN's facts regarding directories and directory assistance calls.

We have no evidence to find a connection between the NRF mechanism and the changes TURN alleges. Moreover, this Commission approved the requested rate changes after an examination of costs and consistent with NRF. It would therefore be wrong to either penalize utilities or declare NRF a failure because NRF it operates as designed.

H. Movement of Functions to Unregulated Affiliates - Verizon

TURN notes that "Recently, Verizon's California predecessor (GTEC) and Pacific Bell have respectively been merged into the nation's largest and second largest carriers."²⁶⁴ However, it identifies no specific problems stemming from the Verizon merger. TURN notes the FCC's MCOT requirements stemming from the Verizon-Bell Atlantic merger expired in November 2002, but in its motion seeking an order continuing Pacific's parallel reporting requirements, TURN stated that Verizon agreed voluntarily to continue these reporting requirements until after a final decision issues in this proceeding.

To make Verizon's obligation the same as Pacific's regarding MCOT reporting, we will require Verizon to continue to report MCOT data to this Commission until further notice. We agree with TURN that we should consider the usefulness of MCOT data in Phase 3B of this proceeding and determine whether we should require the carriers to continue to report such data even after their merger obligations expire.

Moreover, the assigned Administrative Law Judge made clear during the hearing that regulatory changes in this area are outside the scope of Phase 2A, and instead should be addressed in Phase 3B, if at all.²⁶⁵ We therefore defer this issue to later in this proceeding.

We note that there is one significant difference between Pacific and Verizon in the area of advanced services such as DSL, on which TURN focused much of its concern. While Pacific continues to offer its advanced services in a separate affiliate, Verizon seeks to transfer those services back to the regulated utility.²⁶⁶ If granted, the transfer may limit the concerns TURN raises, but it is premature to address this issue. Moreover, the organizational structure concerning the delivery of DSL services also involves complex Federal/State issues that we see no reason to examine here.

I. Service Performance Guarantee - Verizon

Verizon offers its customers a "service performance guarantee" (SPG) when customers believe - "rightly or wrongly"²⁶⁷ - that Verizon has delivered problematic service.²⁶⁸ We wholeheartedly support the SPG program as a good way to offer recompense to customers immediately after they suffer service problems.

In order for such a program to work fairly, Verizon should ensure it properly discloses the SPG to all customers. Moreover, because a customer must request the credit in order to get it - "it's our procedure that the customer requests the credit"²⁶⁹ - it is very important that every customer know of the credit up front in order for it to be applied fairly. Therefore, it is important for Verizon to follow their procedures clearly.

We note that the procedures are clear and embedded in Verizon's tariff. Moreover, there is no allegation in this proceeding that Verizon fails to follow it procedures, and no complaints concerning this matter. We see no need for further action on this matter. Indeed, in the absence of complaints, it would appear that regulatory scrutiny of a voluntary service quality initiative in excess of standard review of Verizon's tariffs would simply create regulatory disincentives and regulatory uncertainties that would discourage similar offerings by other carriers.

J. Technological Change - Verizon

Neither TURN nor ORA made specific allegations about Verizon related to the impact of technological change on its service quality.

K. Growth - Verizon

TURN made the same arguments with regard to Verizon as it did regarding Pacific. TURN states that a carrier should not benefit from relaxed service quality expectations because it experiences a period of great growth in demand, access lines, customers, or company size.

Verizon does not disagree with TURN in this regard. Rather, it simply reports increases in demand for its services and explains the investments it made to meet this growth.

We note that the statistical methods used in this analysis did not make adjustments for adverse impacts of growth on Verizon's service quality.

L. Staffing - Verizon

TURN shows that Verizon's field staff has declined over the period 1989-1994. TURN states that Verizon's field staffing declined by 35% from 1989, the year the Commission implemented NRF, to 2000, with a large reduction (42%) occurring from 1989-1994.

Verizon's reply testimony suggests that a smaller decline occurred. Verizon acknowledges reductions in force, but claims that because Verizon redefined certain field positions, the raw numbers TURN used above and elsewhere in its testimony are misleading. It states that the total reduction in cable splicers or their equivalents was 17%, not the much higher percentage TURN claimed.

Our analysis, however, found that Verizon offers exceptional service quality, and we find no need to second-guess staffing decisions.

M. Weather - Verizon

Verizon acknowledges that service quality suffered during the first quarter of 2001 due to unusually heavy rains: "[T]he [repair] intervals were extraordinarily high during the January, February, and March period, due to some prolonged rains that we experienced at that particular point in time."²⁷⁰

We note that although weather is clearly a factor affecting service quality, our findings of good service quality required no adjustments for weather.

N. Marketing - Verizon

In claiming Verizon has engaged in marketing abuse, TURN again cites C.98-04-004/D.98-12-084, in which the Commission approved GTEC's payment of $13 million to settle marketing abuse claims stemming from the period 1989-92.²⁷¹ TURN also claims that Verizon has "misused customer contacts as marketing devices."²⁷²

Clearly, this decision speaks for itself and for the Commission's willingness to investigate and sanction marketing abuses. There is no need for further action.

O. Mergers and Structural Changes - Verizon

No party alleges that Verizon's mergers and structural changes have had an impact on service quality. Nor does Verizon - in contrast to Pacific - argue that changes in the company attributable to its growth in size are mitigating factors that explain its service quality results.

Our earlier analysis of MCOT data found no diminishment of service quality as a result of GTE's merger with Bell Atlantic that resulted in Verizon. Based on this empirical analysis, we did not find that in Verizon's case mergers or structural changes have had an impact on its service quality.