San Francisco, California

May 27, 2004

Dissenting Opinion of

Commissioner Susan P. Kennedy

Item 44a: Consumer Protection Rules

May 27, 2004

I dissent.

It's a good thing this Commission is not held to the same standards as the companies that do business in California.

Because if we were, today's decision would be an open and shut case of false and misleading advertising.

Under the banner of protecting consumers, this Commission is proposing a sweeping expansion of feel-good regulation that will do nothing more than launch a frenzy of litigation, expand bureaucracy, increase costs to consumers, and make it more expensive to do business in this State.

We're letting people think they'll have better phone service if we add more regulations. They won't.

We're letting people believe that with new regulations they'll have fewer dropped calls on their cell phone, they'll finally be able to understand their wireless phone bill, and there won't be any more fine print to worry about when they sign a contract.

None of that is true.

We're encouraging people to think that by expanding regulations, the PUC will make sure that sales solicitations are clear, that a customer's billing question will be answered as fast as a sales call, and that we can do this all without raising the costs for consumers.

None of that is true.

It's really easy to say we're going to protect consumers when we're never forced to prove our claim. No one ever examines regulations after the fact to see if they delivered on their promises, or if the benefits were worth the costs.

In this case, we don't even admit that there are costs. We paid lip service to the Governor when he asked us to examine the economic impact of new regulations before moving forward. We did a head fake by giving companies three weeks to submit information on the economic impact - and then refused to hold a single hearing on the data.

We just pile on regulation after regulation, put out our press release congratulating ourselves, and then the next day we deplore companies that outsource jobs to India. We make companies spend millions of dollars on new regulations and then rail against them for reducing health benefits to their employees.

And we wonder why California's economy is slower to produce jobs than the rest of the country and why California's technology sector is losing ground to other states where the cost of doing business is not so high.

Yet after five years of drafting these regulations, we ignored many options that might have presented a less economically damaging way of achieving the same goals. Because the philosophical gap between us is larger than the policy differences in our alternates, rational discussion and compromise are difficult to achieve - so we didn't really try.

It hasn't been fun being attacked as anti-consumer because I care about keeping jobs in the state, or because I question the wisdom of forcing companies to change their operating systems in the middle of the holiday season. We're all talking about protecting consumers - we just passionately disagree on which path gets us there.

Many people who oppose the direction this Commission is headed with these rules, including me, strongly believe that we have successfully moved to a competitive market in telecommunications - and that in doing so, consumers now have the single most powerful weapon to protect themselves - the power of choice.

This Commission, by injecting old-style, command and control regulation into this fiercely competitive industry and trying to "standardize" the operations of more than 200 wildly different competitors who don't employ the same technologies, sell the same products, or use the same tools to reach customers, is doing the absolutely worst thing it could for consumers.

Right now, a customer can walk into a Costco or a 7-Eleven store, pick up a cheap cell phone, click onto the web site of any one of a dozen carriers, and be talking to their grandmother by noon. No contract, no termination fees, no fine print.

He can walk into a store in any shopping center and get the latest new high-tech PDA or camera phone that also surfs the web and allows him to get email or baseball scores while he's in line at the grocery store. He can pay a lot or a little for it, depending on what he's willing to commit to in terms of a contract.

There are prototypes being tested right now that will allow customers to use one handset to move seamlessly between their home phone, their cellular service, and a wi-fi hotspot.

If I don't like the service of one of my carriers - and believe me, I don't - I have a dozen others to choose from.

By injecting one-size-fits-all regulation between these millions of consumers and hundreds of diverse carriers, there is a high probability that this agency will screw up the very competition that gives consumers the choices they have today. These rules will determine how the market functions - or dysfunctions.

California just emerged from the world-renowned embarrassment of an electricity crisis that was caused by the collision of badly written regulations and a competitive marketplace.

We are the people who brought this debacle to the citizens of California - regulators and politicians so drunk with the idea of sweeping change that we forgot to focus on the details.

Are we so insulated from the consequences of our actions that we aren't a little bit afraid of what we could do to the $30 billion telecommunications industry by imposing sweeping new rules - rules that we all privately admit still need a lot of work?

I've made no secret of the fact that I believe these rules bring nothing but lawsuits and costs to consumers of this state.

The only thing customers would notice if these rules were to go into effect is that it takes longer to sign up for service. Contracts won't be easier to understand, they will just cost more to print and take longer to read. Consumer choice will not increase, phones and services will simply cost more here than they do in other states.

Big companies may be able to absorb some of these costs and spread them across their customer base. But dozens and dozens of smaller companies that serve rural areas, low-income consumers and small businesses (like Cricket Communications, Metro-PCS, or Virgin Mobile) will have to charge their customers more to cover these costs or change their business models entirely - and some will find it harder to stay in business.

But our fingerprints won't be on that because added regulatory costs are hidden within the rates that customers pay. They don't show up as an explicit tax increase or premium increase like workers' compensation - they show up as costs to the bottom line, dead weight costs to consumers, and reduced tax revenue to the State.

If you don't think that the cost of doing business in this State, job creation, and the impact of PUC regulations on the economy are things this Commission should be worried about - ask former Governor Gray Davis.

It's as if my fellow Democratic appointees on this Commission learned absolutely nothing from the recall, or from the year our Democratic colleagues in the Legislature just spent with their tails between their legs, forced by the new Governor to finally address the poster child for skyrocketing regulatory costs -- workers' compensation.

Any element in these rules that actually could provide some benefit to consumers will be lost, because in our zeal to have the biggest, most sweeping regulations in the nation, we've created so many legal challenges that these rules will, without question, be hung up in court for the next year. And California's premier hi-tech telecommunications industry will be weighted down with lawsuits and economic uncertainty in the process.

I commend Commissioner Brown for eliminating some of the most expensive and legally problematic elements in Commissioner Wood's proposal. But I'm afraid that his modifications of the remaining rules only made their language more ambiguous and litigation about them more likely.

For example, today's decision says that the rules are not intended to permit a private right of action for money damages. Yet it leaves open the door to private actions seeking other remedies such as injunctive relief and restitution, even if a company is in compliance with the rules. I understand that this ambiguity about companies' exposure to private actions is deliberate. But after five years of drafting there is no reason for this language to be so ambiguous other than to invite litigation.

Today's decision also leaves in place unrealistic timetables for compliance by the carriers. Although it isn't as bad as Commissioner Wood's proposed decision, it still ignores the reality that mandatory changes in the form and content of bills will require costly and tedious and time-consuming retooling of billing systems. The decision adopts an arbitrary and capricious implementation schedule, given the carriers' many presentations regarding the need for 14-18 months to implement the system changes required to comply with the rules.  While it recognizes the need for more time for some billing system changes, it only extends the compliance period for Rule 6(j) and not for the other portions of Rule 6 or the other rules (such as Rule 3(f)) that will also require billing system changes.

Another example is the decision's attempt to "split the baby" on expanding the PUC's jurisdiction into marketing and advertising. Today's decision recognizes that the PUC does not have jurisdiction to enforce Business & Professions Code statutes on advertising without legislation, so it simply drops certain language from that statute into PUC regulations. It avoids regulating advertising per se, but creates a giant loophole by including the phrase: "Statements about rates and services that are deceptive, untrue or misleading, are prohibited."

Let's be clear: This is not about whether a company should be allowed to make representations that are deceptive, untrue or misleading - that is already against the law. It is a crime under B&P Code §§ 17200 & 17500, punishable by a fine of $2500 for each offense and six months in prison for violations. This is about who enforces the law. The statute gives exclusive authority to enforce this law to the Attorney General, District Attorneys, City Attorneys, or persons representing the public in a court of law.

There is a reason why the law grants exclusive jurisdiction to law enforcement agencies for enforcing statutes that involve First Amendment issues of commercial speech. We are a regulatory agency, not a court of law.

Someone used the Food and Drug Administration as an example of an administrative agency that regulates advertising. That is true, but Congress specifically granted FDA the authority to do so, because there are grave health and safety risks associated with prescription drugs. The Legislature has not granted this Commission explicit authority to regulate phone company advertising.

What today's decision does by inserting this language from the B&P Code into a PUC regulation is open the door for our Consumer Protection & Safety Division to interpret what constitutes a "deceptive" or "misleading" statement or offer. And then this Commission gets to decide what "statements" in a carrier's advertisements or brochures are or are not misleading. That's regulating advertising and commercial speech - period.

I sympathize with the sentiments expressed by Commissioner Brown that it is expensive and difficult for consumers to go through the legal process with grievances against companies for misleading advertising and that it would be much easier for them to come to the Commission. But you know what? It's supposed to be difficult to challenge rights that are protected by the First Amendment.

If the Attorney General believes that consumers are being misled or ripped off then he should do his job and bring actions against those companies.

The first time this Commission tries to utilize this newly minted jurisdiction we've granted ourselves, we will be in court. Parties will spend millions of dollars in litigation costs and we will lose.

And as we learned recently with the City of Folsom water case, ignoring the plain meaning of the law has serious and expensive consequences that consumers will ultimately bear. I have no doubt that we will learn this lesson, once again, the hard way.

The statement I tried to make with my alternate is that we started out on the wrong path.

We need to recognize that we're in a competitive market and be careful not to interfere where regulation is not absolutely warranted - as it was with local number portability and E911.

If we learned anything from the electricity crisis, it ought to be not to let the politics of the moment force us to rush forward with sweeping regulations that we know are flawed.

I know it feels good to say we're protecting consumers. But it would be wiser to say to ourselves: Slow down, accept incremental change, and first of all do no harm.

My alternate was built on rules to empower consumers in a highly competitive marketplace. It didn't interfere with existing laws that make competition work for consumers. It avoided unnecessary litigation and didn't impose substantial new costs on one of the State's largest businesses. My alternate recognized that California needs to create and retain good jobs far more than this Commission needs to make a national political statement.

Finally, my alternate recognized that the rules we adopted today fly in the face of national policy laid down by the FCC. Today's decision puts California on a collision course with the federal government.

The US Congress specifically decided to foster the national development and rollout of wireless service for the good of the country. The national model included significant limits on what individual states can do to regulate the industry. Chief among these limits is rate regulation. A number of the provisions in the CP rules are blatant rate regulation and in my view are subject to federal preemption. Section 332 of the Communications Act expressly prohibits States from regulating wireless carriers' rates and entry into the wireless market. The FCC has construed Section 332 to bar States from regulating the structure of wireless carriers' rates, from prescribing how much a wireless carrier may charge for services and from specifying which services provided by wireless carriers are subject to charges and which are not. If any such regulation is warranted, it must come from the FCC, not from each of the 50 States.

In fact, the rules taken as a whole could be viewed as a "barrier to entry," another category of regulation off limits to states under federal law. Not only has the Commission entered areas forbidden by Congress, but it has also done so without sufficient evidence that a problem exists or that the perceived benefits are worth the actual costs to consumers, the industry and the state economy. We seem to have the attitude that we will push and push until a court stops us. This attitude leaves the parties with little choice but to call upon the courts to compel us to follow the law.

/s/ SUSAN F. KENNEDY

SUSAN P. KENNEDY

Commissioner

San Francisco, California

May 27, 2004

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