8. Appeals of POD and Briefs of the Amici Curiae
The appeals and the briefs of the amici curiae fall into three groups. Cingular argues that the POD is factually and legally erroneous and must be rejected in its entirety. Two of the amicus briefs, filed by the CCAC and the Joint Utilities, side with Cingular, though CCAC and the Joint Utilities purport to take no position on the facts unique to this proceeding.
In their "limited appeals" of the POD, CPSD and UCAN argue that the POD is too conservative in its analysis and its reach. These parties urge the Commission, after reweighing the evidence, to find additional violations. UCAN contends that the Commission should find Cingular's failure to disclose network problems was recurring during the entire period at issue, not just 2001, and should sanction Cingular for inaccurately advising specific customers that network improvements would soon be in place to solve various coverage and capacity problems. CPSD contends the Commission should assess the record against the requirements of the UCL and other consumer protection laws discussed in Section 4.1.2. UCAN and CPSD both contend that the Commission should find Cingular engaged in deceptive advertising. UCAN proposes the Commission order $4,850,000 more in penalties; CPSD does not seek additional penalties, but argues the record would support an increase, should the Commission choose to order a greater fine.
The two other amicus briefs, filed by CWA and TURN/CU, support the POD. They argue that the POD's legal and policy analysis is correct and urge the Commission to adopt the POD.
We examine several major contentions more closely below. We do not address the federal preemption arguments raised in Cingular's appeal and CCAC's brief, since we have previously reviewed and rejected the arguments these pleadings reiterate. (See Section 4.1.1 of this decision, which references our interim opinion in this proceeding, D.02-10-061). Under the theories Cingular and CCAC advance, the federal prohibition on state regulation of wireless providers' rates or terms of entry would prevent any meaningful exercise of the consumer protection authority reserved to the states.
8.1 § 451 Challenges
Cingular and the aligned amici curiae base their primary challenge on the POD's allegedly unprecedented reliance upon § 451 as a basis for levying penalties and ordering reparations. Cingular and these amici contend that § 451's just and reasonable service mandate is constitutionally too vague to support such remedies or reparations unless linked to violation of other, more specific law, whether statute, rule or tariff. (See Section 6.1.1 of this decision, which quotes the relevant portions of § 451.) They also argue that Cingular had no notice, actual or constructive, that its behavior might run afoul of § 451.
As the amicus brief of TURN/CU points out, the void for vagueness argument appears to conflict with the position Cingular and other wireless carriers have advanced in R.00-02-004, the pending Consumer Bill of Rights and Consumer Protection Rules proceeding. In that rulemaking, they have opposed the adoption of detailed consumer protection rules, arguing that existing general rules provide sufficient regulatory control, in conjunction with market forces and voluntary efforts by the wireless industry.
Apart from the apparent conflict between Cingular's position here and in R.00-02-004, the void for vagueness challenge is without merit. The Commission rejected a similar challenge in Carey v. PG&E, D.99-04-029, 1999 Cal. PUC LEXIS 215. In that case, a complaint filed after an explosion at a multi-unit apartment building, the Commission found the utility had violated § 451's safe service obligation by following an internal company policy of authorizing fumigation contractors, rather than trained utility employees, to terminate natural gas service as part of building fumigation projects. The Commission's rationale in Carey is apt here and we quote it in pertinent part:
Section 451's mandate that a utility provide "reasonable service, instrumentalities, equipment and facilities" as necessary to promote the public safety is constitutional and not violative of due process. (fn omitted) There are no cases directly involving the constitutionality of Section 451, but California courts have found similar terms under comparable statutory schemes constitutional. The instant case is analogous to Chodur v. Edmonds (1995) 174 Cal.App.2d 565. In Chodur, the Court of Appeal held that the term "dishonest dealing" in Bus. & Prof. Code 10177(j) was not unconstitutionally vague. Id. at 570. While lacking an exact definition to cover every circumstance, the Court of Appeal explained that the term "dishonest dealing" still possessed "a common understanding." Id. The Court of Appeal also noted that "`[i]t would be almost impossible to draft a statute which would specifically set forth every conceivable act which might be defined as being dishonest.'" Id.; quoting Wayne v. Bureau of Private Investigators and Adjusters (1962) 201 Cal.App.2d 427, 440.
Similarly, it would be virtually impossible to draft Section 451 to specifically set forth every conceivable service, instrumentality and facility which might be defined as "reasonable" and necessary to promote the public safety. That the terms are incapable of precise definition given the variety of circumstances likewise does not make Section 451 void for vagueness, either on its face or in application to the instant case. The terms "reasonable service, instrumentalities, equipment and facilities" are not without a definition, standard or common understanding among utilities. Commission cases reviewing utility conduct frequently require that the conduct meet a standard of reasonableness. For example, in ratesetting proceedings, the disallowance of utility expenses, whether from contracts, accidents, or other sources are reviewed under a reasonableness standard. See Re Southern California Edison Company (1994) 53 CPUC2d 452, 464.
Accordingly, Section 451's mandate that a utility provide "reasonable service, instrumentalities, equipment and facilities" is not an unconstitutionally vague standard with which to assess a fine or penalty. (Carey, slip. op. at pp. 13-14.)
Like the Commission in Carey, the POD recognizes that application of § 451's "reasonable service" requirement involves fact-specific analysis. The Commission is an expert trier of fact (unlike a jury) and uniquely qualified to undertake such review. It is impossible to list or otherwise identify every utility action or omission that might fall afoul of § 451 and the law does not require the Commission to do so.
The record of this investigation reveals a corporate operating practice that objectively resulted in unjust and unreasonable customer service. It is undisputed that Cingular (and its agents) imposed an ETF for early termination of one- and two-year contracts-and thus, did not allow customers any trial-even though Cingular recognized that using the phone was the most effective way for customers to determine whether Cingular's service met their needs. The critical importance of a trial is underscored by the record's comprehensive showing that Cingular did not provide customers with alternative, readily accessible and accurate means to assess the adequacy of service. At hearing, for example, Cingular admitted that the maps and brochures provided to customers who asked about coverage were actually rate area maps, not coverage maps, and did not accurately depict coverage. As a result of the aggregate effect of these multiple factors, many customers were trapped into unsatisfactory wireless service contracts or had to pay to be relieved from them.
At oral argument, Cingular suggested that the ETF provisions governing its one- and two-year contract plans were not unfair because customers had the option of choosing a prepaid plan instead. (Tr. pp. 1448-1449.) The record is silent on such a prepaid option and Cingular's marketing of it. Moreover, the existence of such an option, without a full and clear explanation of the coverage issues that might incline a customer to prefer that option over Cingular's contract plans, does not mitigate the objective unfairness of the contract plans, viewed in terms of the record as a whole.
Yet, in spite of the extensive record (on which it allegedly takes no position), CCAC contends that Cingular's conduct never "was so objectively improper that it fairly could be deemed to have put Cingular on notice" that such conduct might be sanctioned. (CCAC amicus brief, pp. 3-4.) The Joint Utilities (who likewise purport to take no position on the extensive record) go even further, asserting that "the POD represents a serious misuse of regulatory power" and that "if the Commission were to approve the POD, every utility subject to the Commission's jurisdiction will be subject to huge monetary penalties for conduct that the utility at the time had no reason to believe-or even to suspect-was prohibited." (Joint Utilities amicus brief, p.2.) These contentions ignore the guidance provided by Carey and the numerous other Commission decisions cited in Section 6.1.1. No utility, whether one operating in a more traditional, tariffed environment, or one operating in a partially deregulated environment, should expect to be insulated from the obligation to treat its customers fairly.
Cingular also contends that neither the September, 2001 cease and desist letter nor the June, 2002 OII provide actual notice that Cingular's ETF policy might be held unreasonable for lack of a trial or "grace period." We disagree. Both documents clearly constitute notice that the Commission was receiving consumer complaints about Cingular's imposition of an ETF, and that the complaints put at issue the legality of the practice. As Cingular admits, the ETF was imposed without any "grace period" until May 1, 2002, when Cingular revised its corporate policy to permit a 15-day trial during which service could be cancelled and a phone could be returned without incurring an ETF. Thus until Cingular changed its ETF policy in 2002, Cingular's imposition of an ETF necessarily meant imposition of an ETF without a trial.
8.2 § 2896 Challenges
Cingular and the aligned amici challenge the POD's finding that during 2001, Cingular's lack of disclosure of known network problems, coupled with aggressive advertising and marketing, violated §§ 451 and 2896. They assert that the POD does not define what Cingular should have disclosed, that the POD misconstrues evidence on the status of Cingular's network in 2001, and that the record contains little comparative information on the performance of Cingular's wireless competitors during 2001. On the basis of these assertions, they conclude that the POD's analysis is fatally flawed.
These assertions ignore the fact that the record clearly illustrates the kinds of coverage information customers need and undisputedly establishes that Cingular chose not to provide that information (see Sections 5.2.1 and 5.4); instead Cingular pursued customer growth that its network often could not accommodate.
UCAN succinctly notes:
Cingular's voluminous appeal obscures one key fact about the POD: Each and every violation found in the POD is fundamentally based on Cingular's own admissions about the limited information it provides to customers, its own admission about the state of its network, and it own admission about specific choices Cingular made about treating customers in California. (UCAN Response to Cingular Appeal, p. 1.)
The contention that the POD should have identified specific disclosure requirements is not well taken, given the pendency of the two, generic rulemakings to which the POD properly defers, R.00-02-004 (the Consumer Bill of Rights and Consumer Protection Rules proceeding) and R.02-12-004 (the Telecommunications Service Quality Rulemaking).
With respect to network problems during 2001, Cingular attempts to discount its own admission that it failed to meet internal measurement standards for dropped calls, etc. during part of that year, and argues such evidence cannot support a penalty. However, Cingular's arguments are misplaced, since the POD does not base the penalty on that evidence, alone. A more comprehensive review of the record identifies numerous examples of network problems, derived from multiple, credible sources. While Cingular's network problems spanned the entire review period (see, for example, Appendix 3), the record as a whole demonstrates that these problems spiked in 2001. We agree, however, that Finding of Fact 3 could better summarize this evidence, which includes witness testimony, customer complaints, market research prepared for Cingular, internal communications between Cingular employees, and Cingular's admitted inability to meet its own internal measurement targets during parts of 2001. We have revised the finding to avoid any inference that the penalty is based primarily on failure to meet internal measurement standards.
Cingular faults the evidentiary record for a lack of comparative data. Cingular's contention misses two critical points, however. First, the Commission issued this OII to examine Cingular operations, practices and conduct based on probable cause that Cingular's activities were not in compliance with law. The activities of other wireless carriers, whether lawful or unlawful, are not determinative of this OII. Second, Cingular was not barred from offering comparative evidence in its defense during the hearings. In fact, when Cingular introduced copies of competitors' newspaper advertisements during its cross-examination of CPSD's witness Pratkanis, the ALJ overruled objections to use of these documents and subsequently received them in evidence as Ex. 509, Ex. 510 and Ex. 511.
8.3 Miscellaneous Corrections
We have corrected several clerical errors identified by CPSD and have revised the text of the POD in several places to make the text clearer and more complete. In response to UCAN's request, we have revised the reparations discussion and associated ordering paragraph, etc., to make the language more precise. We decline to reweigh the evidentiary record as CPSD and UCAN request.
1. From January 1, 2000 through April 30, 2002, Cingular's official corporate policy in California prohibited refunds or returns after execution of a contract for service and imposed an ETF of $150 for early contract cancellation; some of Cingular's agents imposed an additional ETF of as much as $400, which increased the total ETF to as much as $550.
2. Cingular concedes that the best way for a customer to assess whether wireless service meets that customer's needs is to use the phone.
3. Cingular's customer growth and an increase in minutes of use per customer between January 2000 and the end of 2001 led to ongoing network coverage and capacity problems during that period and into 2002. The record as a whole demonstrates that these problems were greatest during 2001.
4. In spite of known network problems, in 2001 Cingular advertised and marketed its services heavily without disclosing its network problems to customers and without modifying its official no return/no refund/ETF policy.
5. At the point of sale, customers cannot obtain detailed coverage and capacity information, including the likelihood of outdoor, in-vehicle or in-building coverage at a given location or within a larger area, since Cingular's sales agents do not have such information and Cingular's maps show rate areas, not coverage areas.
6. Cingular's customer service representatives do not have ready access to detailed coverage and capacity information, including the likelihood of outdoor, in-vehicle or in-building coverage but must contact radio frequency engineers to obtain it, which takes a day or two at a minimum.
7. Cingular's capital investment in its California infrastructure between 2000 and 2002 continued to lag behind infrastructure needs. Cingular invested $1.9 billion, but only 20% was spent in 2000, 30% in 2001 and the final 50%, in 2002.
8. Cingular promotes a consistent image for its exclusive agents so that all such agents' stores or kiosks have the same "look and feel." Cingular permits agents and dealers to use its "Cingular Jack" logo and other brand identification in advertising and marketing materials.
9. Once Cingular determined to implement its new ETF policy, effective May 1, 2002, it required agents and dealers to execute an "Amendment to Agency Agreement Re Phone Return Policy," which requires such entities to honor the new policy as of that date.
10. Cingular concedes that the law of agency applies to its relationships with its sales agents.
11. Caceres and the customer witnesses provide firsthand, verified statements and sworn testimony about problems with Cingular's service. These witnesses' stories are not equally specific nor do they relate equally egregious facts, but they are largely credible.
12. Cingular's evidence lends credibility to and, in some cases, validates, portions of other, albeit unverified, data sources offered by CPSD and UCAN to document customer dissatisfaction with Cingular.
13. Cingular waived part or all of its ETF (which did not include its agents' ETF) for an undetermined number of customers who happened to attempt to cancel their contracts within the first 15 days, but the record includes little persuasive evidence that most eligible customers benefited from this policy.
14. The record includes no persuasive evidence that Cingular and its agents sold ineffective or defective wireless equipment.
15. Reparation of ETF payments to customers who can be identified will help to make them whole and will limit Cingular's unjust enrichment from ETF receipts.
16. Wireless service cannot be guaranteed, given the physics of radio energy, but Cingular (like all wireless carriers) has detailed engineering information that can predict the likelihood of outdoor, in-vehicle and in-building coverage, typically with 95% accuracy.
17. This record does not supply a comprehensive assessment of the range of methods for disseminating useful coverage and capacity information, the comparative utility costs and the associated timelines. These issues should be considered R.02-12-004, the Telecommunications Service Quality rulemaking.
18. Some customers were confused by the disclosures in Cingular's advertising and marketing. D.04-05-057, the recent interim decision in R.00-02-004, the Consumer Bill of Rights and Consumer Protection Rules proceeding, requires that certain documentation use a minimum of 10-point type.
19. A 15-day ETF policy, such as Cingular's present policy, may not provide sufficient time for many consumers to reasonably test a provider's service, particularly considering the lack of information about coverage and capacity available to consumers. D.04-05-057, the recent interim decision in R.00-02-004, the Consumer Bill of Rights and Consumer Protection Rules proceeding, requires that wireless providers (and other telecommunications carriers) permit subscribers to cancel service without termination fees or penalties within 30 days after the service is initiated.
1. The record establishes, by a preponderance of the evidence, that Cingular has committed the violations described in Conclusions of Law 2 and 3.
2. From January 1, 2000 to April 30, 2002, Cingular's official no return/no refund/ETF policy constituted an unfair rule resulting in a corporate pattern and practice that failed to provide adequate, just, and reasonable service to customers, in violation of § 451 and D.95-04-028.
3. During 2001, Cingular's corporate pattern and practice of failing to disclose known network problems to customers resulted in a failure to provide adequate, just, and reasonable service, in violation of § 451, 702, 2896 and D.95-04-028.
4. Pursuant to §§ 2107 and 2108 and Commission precedent, for the violations of law for the period January 1, 2000 to April 30, 2002 (849 days), Cingular should pay a penalty of $10,000 per day, or $8,490,000.
5. Pursuant to §§ 2107 and 2108 and Commission precedent, for the violations of law for the period January 1, 2001 to December 31, 2001 (365 days), Cingular should pay a penalty of $10,000 per day, or $3,650,000.
6. Under the law of agency, Cingular is legally responsible for ETFs charged by its agents between January 1, 2000 and April 30, 2002.
7. In order to avoid unjust enrichment to Cingular and provide reasonable reparation to as many deserving customers as possible, Cingular should be required to reimburse, with interest, those customers who paid Cingular or its agents partial or full ETFs for early cancellations of contracts entered into between January 1, 2000 and April 30, 2002. Cingular also should be required to reimburse, with interest, any customers who paid Cingular or its agents partial or full ETFs after April 30, 2002 for early contract cancellations that occurred between day 1 and day 15 of the contract period. Cingular should prepare and file a refund plan in conformance with today's decision.
8. Binding judicial precedent holds that the Commission lacks jurisdiction to adjudicate the UCL in the Business and Professions Code; accordingly, the Commission lacks jurisdiction to order remedies under the UCL.
9. Because the Song-Beverly Consumer Warranty Act and the Consumer Legal Remedies Act, both codified in the Civil Code, require aggrieved persons to bring actions in the courts for redress, we lack jurisdiction to adjudicate them or order remedies under them.
10. Since the record does not establish that Cingular or its agents sold faulty wireless equipment, we need not resolve whether the Commission has jurisdiction to adjudicate the implied warranty provisions in Com. Code § 2314-2316.
11. Since the record does not establish that Cingular or its agents sold faulty wireless equipment, and since we can assess Cingular's culpability for imposing an unjust and unreasonable ETF and for disclosure failures under §§ 451 and 2896, we do not need to inform our decision making by considering the Song-Beverly Consumer Warranty Act, the Consumer Legal Remedies Act or the UCL. Our decision not to consider those acts does not violate Northern California Power Agency v PUC, 5 Cal.3d 370 (1971).
12. Since the OII's Ordering Paragraphs cannot reasonably be interpreted to provide notice to Cingular of charges under Bus. and Prof. Code 17026.1(b) or Civ. Code § 1671, we disregard these arguments in the parties' briefs.
13. In order to protect customers, provide certainty to the parties and promote an efficient use of the resources of the parties and of the Commission, this decision should be effective immediately.
IT IS ORDERED that:
1. For the two violations of law found herein, Cingular Wireless (Cingular) shall pay a penalty of $12,140,000 to the State of California General Fund within 45 days after the date this decision is mailed to the service list. Proof of payment shall be filed and served on the service list and shall be provided to the Executive Director of the California Public Utilities Commission (Commission) within 5 days of payment.
2. Within 75 days of date the date this decision is mailed to the service list, Cingular shall file a refund plan for accomplishing customer reparations, as further described in Ordering Paragraph 3. The refund plan shall estimate the total refunds due and shall describe the methodology for locating all customers (including prior customers) eligible for reparations. The refund plan shall be served on the service list for this proceeding and a copy shall be provided to the Director of the Commission's Telecommunications Division so that the Division may monitor implementation of the plan.
3. The goal of the refund plan described in Ordering Paragraph 2 shall be to:
(a) return, with interest, any sums received for early cancellation of contracts entered into between January 1, 2000 and April 30, 2002, to the customers who paid those sums to Cingular or to Cingular's sales agents;
(b) review early termination fee (ETF) receipts for contract cancellations beginning May 1, 2002, and determine if any sums were paid for contract cancellations within day 1 and day 15 of the contract period. If so, such sums shall be reimbursed, with interest, to the customers who paid them to Cingular or to Cingular's sales agents; and
(c) Interest due shall be calculated at the rate of prime, three-month commercial paper, as reported in Federal Reserve Statistical Release G.13.
4. Any unpaid reparations shall escheat to the State of California General Fund.
5. Rulemaking (R.) 02-12-004, the Commission's review of service quality standards for all telecommunications carriers, including wireless providers, shall examine options to provide wireless consumers with the kinds of coverage and capacity information sufficient to enable them to make informed choices among wireless providers.
6. Cingular shall revise its corporate policies and practices in California regarding marketing, advertising and, service initiation and change, to conform
to the rules adopted in R.00-02-004, the Commission's consumer bill of rights and consumer protection rules proceeding.
7. This proceeding is closed.
This order is effective today.
Dated September 23, 2004, at San Francisco, California.
MICHAEL R. PEEVEY
President
CARL W. WOOD
LORETTA M. LYNCH
GEOFFREY F. BROWN
Commissioners
I will file a concurrence.
/s/ GEOFFREY F. BROWN
Commissioner
I will file a dissent.
/s/ SUSAN P. KENNEDY
Commissioner
Commissioner Geoffrey F. Brown, Concurring:
Introduction
Let's start at the beginning. Cingular had all of the bargaining power here. They wrote an inflexible standard contract in small pale type that the customer couldn't negotiate. If the customer wanted a phone, he signed. As a result, most customers don't read the contracts. It was a waste of their time.
Contracts of Adhesion
Standard form contracts presented to the customer in "take it or leave it" fashion are called contracts of adhesion. The law knows that they are not real contracts in the sense that there is a meeting of the minds of the parties. Commercial necessity and efficiency require that such "take it or leave it" contracts be accepted as if there were a real agreement.
The law is uncomfortable with the fiction that a contract of adhesion is a real agreement. As a consequence, it requires that such contracts be fair, or at least not unconscionable. Although the law permits businesses to force "take it or leave it" contracts on customers, it requires that such agreements not be unconscionable. Unconscionable means "not guided by conscience," or "excessive, unreasonable" or "unscrupulous."
Was Cingular's Contract Unconscionable?
We have to decide today whether Cingular, by its practices, rendered its adhesion contract unconscionable. Administrative Law Judge Jean Vieth, although she does not use these words, says in her opinion that it does. In the oral argument on this case, Commissioner Kennedy similarly said that Cingular's policy was "unreasonable and unjust."40
What did Cingular do that was unconscionable? It sold phones on a one or two year contract without letting customers determine whether they worked. Because of deficiencies in cellular technology generally and specifically in Cingular's network development, some phones didn't work at times that mattered to a customer. All phones didn't work some of the time. Knowing this, Cingular required that the customer pay a substantial early termination fee to get out of the contract, irrespective of whether the telephone functioned adequately. Cingular knew with a fairly high degree of precision (about 95%) whether the phone would work at a customer's workplace and home. If it didn't know in a particular instance, it could have let the customer try it out with a loaner phone. It did not do so.
Cingular's Essential Argument
Cingular's position, in a nutshell, is this. The customer should sign up for a contract with a hefty penalty for early termination. The customer should receive a new phone that is absolutely useless on any other system but Cingular's. The customer should assume that rate coverage maps are the same as radio coverage, when they aren't. If the customer discovers that the system doesn't work for him, he should cheerfully pay the ETF and go on to another carrier and consider the $150 to $450 ETF he paid an expensive lesson in the folly of assuming that the implied warranty of merchantability that applies to virtually all other consumer products applies to Cingular.
Cingular's position is, in essence, yes, we know that x % of our customers will be dissatisfied. Customers will be unhappy for structural reasons inherent in the technology or because of excess demands on the system that we generally can foresee. The only way to find out whether the failings of the system apply to an individual customer is for that customer to risk paying an early termination fee of $150 - $450.
Cingular believes that it should have a right to shift the risks of inadequate service, even though it generally knows what they are, to the customer, even though he generally doesn't know those risks. AND, Cingular believes it can make him pay a hefty fee when he discovers too late that the system doesn't work for him.
Further, it is Cingular's position that for the PUC to proceed only against Cingular is unfair discrimination: "Sure, we were speeding, but so was everyone else. You have no right to go against us until you go against everyone." In addition, it is Cingular's position that because many, perhaps most, of those who vociferously complained had part or all of the ETF waived, the PUC shouldn't be so concerned about those meek souls who quietly paid the ETF without complaint. Similarly, Cingular believes that those who did not pay the ETF but thereafter deactivated were really happy consumers. In oral argument, Cingular's attorneys came close to asserting that customers somehow should have known that the ETF contract provisions would be waived by conscience-stricken sales' people. I suspect that Cingular felt this way because in many other states that Cingular served, it did not impose a no trial rule. Cingular gave some other states (and cities therein) trial periods varying from 10 to 30 days. California apparently got special treatment.
The Early Termination Fee as Liquidated Damages
The ETF is effectively a "liquidated damages" provision. The law looks with disfavor on liquidated damages. They encourage the party to whom they accrue to take unfair advantage. Cingular, which generally espouses the advantages of free and open competition, utilized the ETF to avoid what it referred to as the "killer churn." Churn (cancellations or deactivations) is a manifestation of competitive dissatisfaction. Early Termination Fees are a way of restricting churn and competition. Such restrictions are fine if the both parties agree. In fact, ETFs are essential if the price of the phone is amortized over the life of the contract. But there must be agreement. Here, only one party really "agreed." The law requires that contracts of adhesion, in the absence of agreement, must be fair.
Was the combination of an ETF and no trial period by Cingular unconscionable? Was it a violation of Public Utilities Code §451's provision requiring "just and reasonable" service? I conclude that Judge Vieth and Commissioner Kennedy were correct. Cingular's ETF with no trial period was unconscionable and unreasonable.
Discriminatory Enforcement
It was once my opinion that because the ETF combined with the no trial period was so common in the cell phone industry that it would be preferable to address this matter in a rulemaking going forward because of claims that enforcement against one carrier amounted to discrimination in favor of unprosecuted carriers guilty of the same practice. I voted to undertake this investigation with great reluctance. Before this OII issued, the Consumer Protection and Safety Division told me that they lacked the resources to take on more than one major carrier at a time. Having reviewed the evidence in this case, how difficult it was to obtain, and how contentious it was, I now understand their reluctance.
I suppose that in a perfect world, there would be more lawyers to pursue other carriers for the same offense at the same time. But then again, how could a perfect world have more lawyers? There are too many as it is. In any event, I have, since reviewing the evidence in this case, come to the conclusion that my concerns about discriminatory enforcement may have placed too much emphasis on industry practice and not enough on fairness and unconscionability. Clearly, industry practice, even if uniform, is not dispositive of whether that practice is fair.
What Evidence Supports the Penalty for Failure to Disclose Service Problems?
The other major question that this case raises is whether the second penalty count, Cingular's failure to provide adequate information about its service during calendar 2001, is subsumed in the first. In other words, are we punishing twice for the same conduct? This is a more difficult issue and one about which I have spent a great deal of time.
Some of the evidence that Cingular had failed to disclose service problems to its customers is, essentially, as follows:
1. Advertising and market materials provided very little information about coverage and capacity and, to the extent they did, could be seen as possibly misleading;
2. Disclaimers were not informative;
3. Rate coverage maps were used in such a way as to lead all but the extremely sophisticated to the conclusion that they were service coverage maps, or that rate coverage and service coverage were the same;
4. Cingular provided sales personnel or agents with neither training nor updated information about coverage;
5. Cingular's radio engineers were essentially not accessible to sales personnel at the point of sale;
6. A February 9, 2001 memo response to a marketing proposal that "we have NO excess capacity...Increasing sales would simply make an existing problem worse" did not deter a "Spring Promotion" offering unlimited nights and weekend calling when the current highest blocking was on Saturdays;
7. E-mails between Cingular radio engineer James Jacot and others as late as March 2002 described call blocking and other statistics far in excess of Cingular's internal goals (Exhibit 401, p. 17, 21, attachment 7);
8. Between 2000-2001, average minutes per customer more than doubled and the number of California customers doubled (use increased by 323%, while coverage miles increase only by 55%);
9. During 2000-2001, 37,000 Cingular customers cancelled within the first 15 days of their contracts;
10. 74 people complained to UCAN;
11. 12 people complained to the Attorney General;
12. 144,400 complained to Cingular about service (dropped calls, no service, continuous busy signal) to Cingular in early 2000;
13. 1,049 complained to the PUC's Consumer Affairs Branch;
14. 4,953 petitioned an internet site against Cingular's service;
15. During September 2002, there were 487 dead zones in the San Diego area, about 200 more than the second ranked carrier
16. By Mr. Jacot's testimony, Cingular only achieved its internal network goals as of July 2002.
Much of the evidence came in by way of expert testimony about coverage holes, dropped calls, interference, and busy signals and what was needed to correct it. The Judge heard nine days of testimony. She heard in excruciating detail competing experts' testimony about the significance of, for example, a pattern of 5% blocked calls and 2% dropped calls. It was as a result of this process that she concluded that the problems, in conjunction with the no trial period and the high ETF, compelled some meaningful disclosure of service problems by Cingular to its potential customers.
The Judge did not contend that Cingular's service was inadequate, although the evidence is overwhelming that service was less than stellar, even given the technological impediments in this nascent technology. Rather, she concluded that Cingular bore an obligation to inform its customers, in light of the ETF and the absence of any trial period, that problems were present. Specifically, she relied on earlier decisions of this commission to the effect that carriers have an obligation to inform consumers of elemental facts about service. It was her opinion that the reasonableness guarantee of the second paragraph of §451 was a separate and distinct obligation that Cingular, bore as a public utility. This is a reasonable conclusion.
Is Cingular Being Punished Twice for the Same Conduct?
It is easy to argue that Cingular was being punished twice for the same behavior because the conjoined ETF and the no trial period constitute a condition precedent to the failure to disclose system problems. The fact is that the duty to disclose came about precisely because the ETF/no trial period scheme created a greater obligation than if the consumer could have found out on his own.
The nature of the second penalty count is fact specific. Its condition precedent was the lethal combination of an excessive Early Termination Fee and no trial period. Thereafter, a system that was rife with problems that weren't disclosed placed customers at a remarkable disadvantage. The duty to disclose inherent in the reasonable service requirement of §451 is, by its nature, an imperfect common sense type standard. Under these circumstances of an inordinately strained system undergoing exponential growth, it is my belief that Cingular's potential customers should have been told, in a meaningful way, the following:
1. Your phone may not work in your home or workplace and in many common places where you go;
2. Even if your phone does work, sometimes you can't get through to telephone someone; and
3. We are experiencing some growth problems.
This constitutes an affirmative obligation to provide minimal, rudimentary information to the consumer. The obligation derives from a series of decisions of this commission going back to 1969, from the Legislature's concern (evidenced in §2896) that consumers be told sufficient information in order to make informed choices, and §451's second paragraph, obligating utilities to "furnish...adequate, efficient, just and reasonable service."
I think it is fair to say that the record is devoid of evidence that Cingular afforded even a scintilla of meaningful disclosure to its potential customers that there were potential service problems that might render the service of limited use to many of them.
At core, it was Judge Vieth's opinion that under these particular circumstances, Cingular did not comply with its obligation. She came to that conclusion, one that the consumer advocates refer to as unduly conservative, through the cumulative accretion of evidence. She did not get to her conclusion as the result of a "smoking gun" (although some of the internal e-mail messages and tables are pretty amazing) but through the slow process of having concerns raised and not satisfactorily rebutted. This evidence is complicated and arcane.
Parenthetically, I might add that the administrative law judge whose opinion is at issue is even-tempered, patient, careful, and temperamentally conservative in her approach and demeanor.
It is easy for an outsider, already predisposed to disbelieve, to look cursorily through the boxes of evidence and conclude, there is simply not enough. The selective retrieval of evidence by superficial, ideological critics is the bane of judges' and trial lawyers' existence.
Formalities Required in Adjudicatory Alternates (§1701.2)
The Legislature recognized the tendency of policy-driven commissioners to reconfigure adjudicatory cases ex post hoc by cherry-picking evidence and by dismissing the painstaking analysis of nuance and interplay in an alternate that fails to recognize the warp and the woof of a long excruciating trial. Adjudication, after all, is this commission's most judicial function and its integrity is, and should be, taken seriously by most commission personnel. To that end, the Legislature enacted §1701.2 which requires that "A decision different from that of the assigned commissioner or the administrative law judge shall be accompanied by a written explanations of the changes to the decision." This law essentially requires a red-lined version of the POD or MOD-POD be created so that evidence found credible by the hearing officer cannot be swept under the rug.
Unfortunately, Commissioner Kennedy's long-awaited alternate decision, which has been through three drafts of which my office is aware,41 failed to comply with this statute. I believe that comments by parties have uncovered most, perhaps all, of the departures that her analysis took from that of the hearing officer. Nonetheless, a red-lined version would have made manifest the areas of difference and would have permitted one to see whether the altered conclusions were supported by the evidence adduced. My office has been in consultation with Commissioner Kennedy for many months while it pondered this important case. The reasons for the lack of compliance with §1701.2 were inadvertent and done without malicious intent. Because of the inordinate delays and the confusion in this case, I now see the wisdom of the statute and see how easy it is to lose sight of the painstaking attention to detail an ALJ has exhibited simply by deleting a key sentence or paragraph.
What the Alternate Omitted
As CPSD observes in its comments on Commissioner Kennedy's alternate, there were many things omitted:
1. At page 13, the Alternate omits testimony of Cingular's head engineer James Jacot regarding failure to meet internal performance targets;
2. At page 19, the Alternate omits mention of market research on the importance of "network quality;"
3. At page 39, the Alternate omits citation to the Cingular memo emphasizing that its "no return" policy was to "make the sale final and reduce churn;"
4. At page 48, the Alternate deletes the decision's finding that "in pursuit of market share, Cingular's prior official policy effectively trapped customers into contracts for service;"
5. At page 49, the Alternate removes the decision's findings of scienter (or intent) that "Cingular knowingly created and pursued advertising, marketing and sales strategy that sought to secure market share by building Cingular's customer base and encouraging increase in minutes of use regardless of the ability of Cingular's expanding GSM system to deliver service" (These findings are particularly relevant to assessing the level, if any, of a fine);
6. At page 61, the Alternate omits a lengthy discussion of what might constitute "useful service disclosures."
In addition to omitting conclusions to produce a more benign view of Cingular's behavior, Commissioner Kennedy's Alternate changes the standard for finding a violation. The Alternate (at p. 48) seems to require that complaints be "representative of Cingular's customer base as a whole during the period covered by the investigation." This is not, nor can it be, the standard. If it were, it would permit a utilitarian injury of the few for the ostensible benefit of the many.
Statistical Sampling
Public Utilities Code §2107 does not talk in terms of proportions or percentages or sampling. It speaks of violations and offenses. Penalties here have been imposed on continuing violations on a daily basis, not on the basis of proportions.
The duty of utilities is to serve individuals fairly without discrimination. The Alternate contains interesting footnotes on statistical sampling which use a treatise without taking official notice thereof, and without affording parties an opportunity to comment. Additionally, and significantly, Cingular did not raise sampling issues in its case in chief. That an Alternate decision should cite a treatise, without input from the parties, and without taking official notice of the treatise's reliability and applicability, is highly irregular.
Substantively, my quarrel is not with the source cited but with its applicability to the facts and law at bar. Had the decision claimed that x % of Cingular's customers were injured, issues about appropriate statistical sampling might well be in order. The decision did not do so. The sampling concern is inapposite. If the extraordinary investigative expense of statistically reliable sampling is something that commissioners seek in order to fine tune our penalty process, I would hope that such requests for augmented enforcement would be made by those commissioners at budget time. There have been Commission penalty cases, upheld on appeal, in which I strongly wish statistically rigorous sampling had taken place in order to validate the basis of the penalty. This is not one of them.
Is the Penalty Fair?
Lastly, we must deal with the appropriateness of the penalty. Simply stated, the judge chose the mid-range of the penalty range for both counts. The judge, in my opinion, may have been a bit conservative (by a number of months) in choosing the period in which the second count applied. Line-drawing is always difficult. Accordingly, I will not second guess her for the simple reason that she sat through the entirety of the arcane, detailed, and complicated evidence. While I carefully have reviewed it, I did not live with it for nine days of hearings and months of non-evidentiary hearings, research and writing.
The Alternate declines to impose a penalty on the initial count. That was the 28 months of violation of §451, predicated on the lethal combination of the ETF and the no trial period. It declines to do so, on the dubious premise that Cingular customers "voted with their feet" and thereby punished Cingular. As such, the Alternate misses the point; Cingular's customers were prohibited from "voting with their feet." To interpose the rationale of competitive discipline in a regime predicated on precisely the contrary is to countenance, encourage, and give license to a manifestly non-competitive scheme. The reason Cingular embraced the ETF/no trial period scheme was precisely to avoid competition. That they should now avoid punishment under the rubric of "they've been punished enough" is a most interesting interpretation of both marketplace and regulatory discipline. It is not an interpretation I can accept.
The decision imposes restitution of the ETF for all who paid it during the subject period, in order to avoid unjust enrichment of Cingular. While I agree with this remedy, it hardly addresses the unjust enrichment that the carrier derived from the imposition of the ETF. Cingular was enriched unjustly from each individual who signed an ETF contract without a trial period, irrespective of whether the ETF was paid and irrespective of whether the customer wanted out. The ETF had the effect of keeping Cingular's customers, dissatisfied or not, out of the marketplace and, as such, artificially decreasing competition.
The Alternate imposes restitution only on those who paid the ETF within 14 days of signing a contract. Those customers who hated their service from the get-go but held on in hopes that it would improve get no restitution for the ETF they paid when the finally could not stand it any longer.
The decision also imposes a midrange penalty for failure to disclose system problems for the full year 2001. The Alternate, based on what I believe to be a misreading of a single chart, imposes such a penalty for three months of 2001; given that Commissioner Kennedy has told me that she does not believe Cingular bore any obligation to inform customers of service problems and, given that she places great emphasis on the fact that we have set no service standards on cell phones, I do not understand the justification for the Alternate's imposition of any penalty on the second count.
40 Reporter's Transcript, p. 1449, line 28, to p. 1450, line 6. 41 DOC #177920, DOC#178331, and DOC # 162722
