III. CONCLUSION

For the reasons discussed above, we find that the applications for rehearing of D.04-05-057 do not demonstrate legal error in the Decision, and we accordingly deny rehearing.

Therefore, IT IS ORDERED that:

1. Decision 04-05-057 shall be modified as follows:

a. The word "Quotations" in the last sentence of the last paragraph on page 38 (continuing to page 39) of the decision shall be changed to "Statements."

b. The following phrase shall be deleted from the last sentence of the last paragraph of page 38: "The term `solicitation' as used in this Rule and elsewhere is now defined as an `offer' with the intent to sell . . . ." That sentence shall now read: "However, the term "telecommunications" is absent because of the need to address occurrences of bundling non-telecommunications services with telecommunications services."

c. The following sentence shall be added at the end of Rule 8(b) and Rule 1(h) in Part 1: "This provision does not prohibit carriers from collecting the actual amount of any increase in mandated government charges that carriers are authorized to collect from subscribers for the following federal programs: Universal Service Fund (47 C.F.R. § 54.712(a)), Enhanced 911 service (47 C.F.R. § 20.18(d)-(j)), Number Pooling (47 C.F.R. § 52.20), Local Number Portability (47 C.F.R. § 52.31), Telecommunications Relay Service (47 C.F.R. § 64.603), and North American Numbering Plan Administration (47 C.F.R. § 52.17)."

2. The Applications for Rehearing of D.04-05-057 filed by Joint Wireless Carriers, Nextel of California, Inc., and The Wireline Group are denied.

This Order is effective today.

Dated October 7, 2004, at San Francisco, California.

CARL W. WOOD

LORETTA M. LYNCH

GEOFFREY F. BROWN

Commissioners

I reserve the right to file a dissent.

/s/ SUSAN P. KENNEDY

Commissioner

I reserve the right to join Commissioner Kennedy's dissent.

/s/ MICHAEL R. PEEVEY

President

R.00-02-004

D.04-10-013

Commissioners Susan P. Kennedy and Michael R. Peevey, dissenting:

Both legal and policy reasons compel us to dissent from the opinion of today's majority.

First, today's order proposes for California a massive expansion in the scope of authority over the regulation of wireless carriers, in clear contravention of Federal law and regulation. Second, today's order lets stand the confusing, vague and contradictory rules adopted in D.04-05-057, and thus fails to correct the legal errors of D.04-05-057. Third, today's order renders meaninglessness those state statutes that require the CPUC to consider the economic consequences of its actions. Moreover, the failure to conduct such an analysis helps the CPUC to ignore the fact that the proposed regulations are so pervasive as to undermine the federal scheme for regulating wireless carriers. Fourth, today's order fails to reverse the arbitrary and capricious implementation schedule adopted in the underlying order, thereby ensuring that carriers will be unable to comply with its requirements.

As a result, today's order and the underlying D.04-05-057 constitute an unlawful expansion of the CPUC's authority to regulate wireless carriers in defiance of Federal law and regulation, a willful and unlawful decision to ignore the constraints of state law, and an arbitrary and capricious disregard for the administrative burdens that the CPUC imposes on those telecommunications utilities subject to its requirements. For these reasons, both today's order and D.04-05-057 warrant judicial reversal.

The legal errors in today's order and D.04-05-057 are extensive and it is not possible to address them all within the customary limits of a formal dissent. For that reason, this dissent focuses on only the most egregious violations of law.

Section 332(c)(3)(A) of the Federal Communications Act explicitly prohibits state regulation of "the rates charged by any commercial mobile service." 47 U.S.C. § 332(c)(3)(A). As a result, a state may not regulate wireless carriers' rates unless it petitions the FCC and receives authority to engage in such regulation. The CPUC previously petitioned the FCC for such regulatory authority on behalf of California, and the FCC denied the petition. In re Petition of the People of the State of California and the Public Utilities Commission of the State of California to Retain Regulatory Authority over Intrastate Cellular Service Rates ("CPUC Preemption Order), 10 F.C.C.R. 7486 (1995). By imposing rules on the wireless industry clearly aimed at regulating the rates charged by those carriers, the CPUC is now ignoring both Federal law and administrative rulings.

The examples of D.04-05-057's imposition of rate regulation are numerous; however, given the time constraints of filing this statement, this dissent will focus on only a few:

1. Rule 1(h) provides that if formulae are used to "establish a rate in a term contract, that rate shall not change during the duration of the contract." This absolute prohibition on "rate" changes impermissibly intrudes on carriers' decisions about rates, directly violating the CPUC Preemption Order and other statutes and regulations placing rate regulation of wireless carriers in the hands of the FCC.

2. Rule 3(f) regulates the rates charged by wireless carriers by limiting the enforceability of termination fees that most carriers include as part of their rate structures. The use of an early termination fee is a component of carriers' term-contract rate structure, and this is therefore unquestionably a "rate" under section 332(c)(3)(A) of the Telecommunications Act. See In re Southwestern Bell Mobile Systems, Inc., 14 F.C.C.R 19898 ¶¶ 20, 23). In a July 2002 opinion in Consumer Justice Foundation v. Pacific Bell Wireless (Case #BC 214544) the California Superior Court for the County of Los Angeles held that "the early termination charge is a critical component of the overall rate structure" of a wireless carrier for federal preemption analysis. The effect of Rule 3(f) is to force wireless carrier to recoup costs of acquiring new customers, including handset subsidies, through another rate element - as some carriers do, for example, by offering month-to-month service or no handset subsidy. Thus, Rule 3(f) would directly affect wireless carriers' rate structures. Once again, this constitutes impermissible rate regulation of wireless carriers under 47 U.S.C. § 332.

3. Rule 7(a) prohibits the imposition of late payment charges if payment is received within 22 days after the date the bill was mailed, and restricts the amount of late payment charges to 1.5% per month on the overdue balance. The Commission clearly lacks authority to regulate wireless carriers' late payment charges under section 332 of the Telecommunications Act. See Ball v. GTE Mobilnet of California, 81 Cal. App. 4^th 529, 538 (2000). The CPUC itself recognized that a late fee is part of a carriers' rate structure in Toward Utility Rate Normalization v. Pacific Bell, D,93-05-062, (1993) (late payment charges are "part and parcel" of the rates charged for telephone services"). Thus, the express cap on the amount of late fees that can be charged constitutes direct rate regulation, while the limitation on the time period controls rates by limiting the amount of late fees that could be collected. Once again, this constitutes rate regulation of wireless carriers.

4. Rule 7(b) regulates the rates charged by CMRS carriers by prohibiting wireless carriers from charging subscribers for (i) "intrastate service" furnished more than three months before the charge is billed; (ii) roaming services furnished on a system other than the subscriber's home system more than four months before the charge is billed; and (iii) collect, third-party and calling card calls completed more than five months before the charge is billed. The rule thus prescribes a rate of zero under these circumstances. Once again, this constitutes rate regulation of wireless carriers.

5. Rule 7(d) states that delays in billing must not result in higher total charges. This rule would prohibit wireless carriers from applying roaming minutes in a month after the call is made if the delay would cause the subscriber to pay at a higher rate. Once again, this constitutes rate regulation of wireless carriers.

6. Rule 8(b), although now amended to permit wireless carriers to pass through federally mandated increases, still forbids any other increases in term contract rates for the duration of the contract term and prohibits the imposition of an early termination fee if a subscriber chooses to terminate the contract in response to a carrier-initiated charge. Not only is this provision a solution in search of a problem, is also another example of regulation that due to its sweep and inflexibility constitutes rate regulation. Existing California law already requires that, in the event a party modifies the terms of its contracts, it do so reasonably and consistent with the implied covenant of good faith and fair dealing. In fact, it is a well-established common practice among carriers that in the event that any material change is made to the terms of an agreement, the customer will be notified in advance and may cancel the service within a specified time period with no termination fee. To prevent a carrier from collecting an early termination fee when a customer cancels service for reasons other than a material change in the agreement, as defined under existing laws and good faith practices, directly controls the carriers rate structure and thus constitutes impermissible rate regulation of wireless carriers.

D.04-05-057 clearly imposes rate regulation on the wireless industry in contravention of federal regulations. Today's order attempts to disguise this fact with verbal gymnastics arguing that a rate is not really a rate and that the CPUC does not mean what it says. D.04-05-057 clearly defines "rate" as "Any amounts requested to be paid by the user of a telecommunications service by whatever name, including charges, surcharges and fees, over which a carrier has discretion to charge." In today's order, the CPUC now claims that "The meaning of `rates charged' for preemption purposes is not based on a state's definition of rates, but on how the term has been interpreted under the Act." Apparently, our regulations count as rate regulation for state purposes, but not for federal purposes. This redefinition of the term "rate" is a transparent attempt to avoid the federal prohibition on rate regulation. Yet, the fact remains that a rate is a rate and D.04-05-057 clearly warrants reversal by the reviewing court.

The order also errs when it finds that "none of these rules purport to directly and explicitly regulate rates, and therefore are not preempted." Once again, this finding suffers from poor reasoning and legal error. From a legal perspective, it is error to rely on what the rules "purport" to do instead of what they actually do. The rules directly control rates - and the intention of the CPUC does not matter. Furthermore, it is disingenuous to even suggest that the rules purport to affect only "terms and conditions" rather than rates. Over and over, the rules make it clear that the intention is to regulate "charges, surcharges and fees, over which a carrier has discretion to charge." For example, Rule 3(f) states:

Subscribers may cancel without termination fees or penalties any new tariffed service or any new contract for service within 30 days after the new service is initiated. This Rule does not relieve the subscriber from payment for per use and normal recurring charges applicable to the service incurred before canceling, or for the reasonable cost of work done on the customer's premises (such as wiring or equipment installation) before the subscriber canceled. [emphasis added]

Thus, today's order is wrong when it claims that the rules do not regulate rates and wrong again when it finds that the rules do not "purport" to regulate rates.

Turning to the second legal concern - despite the reasoning in today's order, the rules adopted in D.04-05-057 are so vague as to be unworkable and unconstitutional. Rule 1(b), for example, requires that carriers include "key rates, terms, and conditions" of their offerings on their internet site, and Rule 3(e) requires such terms to be highlighted in contracts. The quoted phrase is defined in the rules as "[a]ny provision imposed by a carrier to which a subscriber is bound (through, e.g., the carrier's tariffs, service agreements, contracts, operating practices, billing practices, system limitations, etc.) that may result in or increase a charge on a subscriber's bill or limit a subscriber's use of the product or service." (emphasis added).

It is difficult to think of any provision of a contract that does not have the potential to increase a charge or limit the subscriber's use. Consistent with this observation, the General Order's definition provides a long list of terms and conditions that it would consider key, but provides no example of any condition that it would not consider key. The use of sweeping terms such as "any" and "may" in the underlying decision, despite voluminous warnings by carriers and fellow commissioners, is a conscious effort on the part of the majority to eliminate any safe harbor from litigation or from consumer complaint as a result of these rules. This deliberate vagueness is most onerous in light of the express intent of the rules to construe any ambiguities against the carriers. Rule 3(d) and (e) specifically spell out for carriers the consequences of guessing wrong as to which terms and conditions a customer might find "key" in making their decision with the following warning: "Ambiguities in any agreement will be construed against the carrier."

Today's opinion finds that the given "examples are sufficiently specific so as to put the Carriers on notices as to what constitutes `key rates, terms, and conditions.'" However, merely providing examples of what the definition covers explains nothing, and provides no legitimate notice to any carrier.

In summary, the rules are so vague as to constitute legal error in D.04-05-057. The examples of vagueness provided by those petitioning for rehearing are too numerous to list, and are not restricted to the wireless carriers. The failure to correct these problems in today's order constitutes further legal error.

Turning to the third area - today's order directly contravenes state law because it fails to comport with Section 321.1 of the Public Utilities code, which requires that the CPUC "assess the economic effects or consequences of its decisions as part of each ratemaking, rulemaking, or other proceeding." The rules adopted in D.04-05-057 were published in their current form only two weeks before adoption, and the CPUC did not receive any economic studies concerning the costs or benefits of implementing these rules. Moreover, the rules were modified so significantly from earlier draft rules that the failure of the Commission to provide parties with a meaningful opportunity to submit economic data on these particular rules not only violated Section 321.1, but also violated the carriers' due process rights.

This violation of the due process rights of carriers is well illustrated in the CPUC's decision to reject the request of the wireless carriers for evidentiary hearings on the scope and costs of the rules. Despite the fact that this proceeding lasted over four years, the CPUC found no time to hold such hearings. This is a sharp departure from standard practices of the CPUC and is legally indefensible.

Today's opinion argues that the CPUC "fully considered" the costs and benefits of its regulations. In reaching this conclusion, it can only cite assertions in D.04-05-057 that the CPUC had done so. It cannot demonstrate from the record that the CPUC provided the opportunity for affected parties to present evidence on this matter or to show that the CPUC seriously considered real costs and real benefits.

Moreover, had today's decision ordered the CPUC to consider costs and benefits, such a consideration would expose the underlying legal error of the CPUC's effort to expand regulation to the wireless industry. First, a consideration of the costs and benefits of wireless regulations adopted in D.04-05-057 would have found that in today's competitive wireless market, these regulations do not prevent marketing abuses, but merely add costs to those providing wireless telecommunications services. As a result, they produce no consumer benefits, only costs.

Second, an analysis of these regulations would show that, although vague as to scope, they are so detailed as to requirements that they undermine the functioning of the national competitive market for wireless services that has grown over the period consumed by this proceeding. Indeed, an examination would show that many regulations are so detailed and inflexible that they disrupt the federal regulatory scheme for the wireless industry and hamper competition by creating barriers to entry for small carriers. For example, consider Rule 1(e)(2), which states:

Timeliness in providing responses is particularly important for responses to be useful. Under most circumstances, carriers must be able to provide real-time responses with Rule 1(c)(2), Rule 1(c)(3), and Rule 1(d)(3) information, and send within three business days responses for Rule 1(c)(1) inquiries relating to pending bills, and Rule 1(d)(1), Rule 1(d)(2), and Rule 1(d)(4) information.

It is important to note that these requirements for timely response apply to all public inquiries, not just those by subscribers of a particular company. These regulations constitute a burden and an unlawful barrier to entry that California alone imposes on wireless carriers. Considerations like this would have led inevitably to the conclusion that California's rules conflict with, and are therefore preempted by, the comprehensive federal regulatory scheme and policies for wireless telecommunications that seek to establish an open and competitive national market.

The fourth and last argument⁵ that the order is unlawful arises from the unreasonable implementation schedule of the rules of D.04-05-057. The implementation schedule provided to the carriers is so unreasonable that its adoption constitutes arbitrary and capricious action by the CPUC and should overturned. The record is clear on this matter. Part 2 of General Order No. 168 contains 13 separate rules with more than 75 subparts, yet D.04-05-057 provides only 180 days to implement these complex rules. Such a timetable is without precedent in Commission history. Parties pointed out the impossibility of this timetable at many times throughout this proceeding.

Perhaps because D.04-05-057 understood that under normal circumstances the CPUC would grant waivers and extensions of the implementation process under the normal Rule 48(b) process, the decision took unprecedented steps to constrain this normal process for giving reasonable waivers to implement our rules. In particular, D.04-05-057 states:

Should it be necessary, our Rules of Practice and Procedure provide a procedure in Rule 48(b) for parties to seek an extension of time to comply with a Commission order by sending a letter to the Executive Director, with copies to all other parties. We would expect any such extensions to be granted only where the carrier has demonstrated that the delay was unavoidable, has tailored the request as narrowly as possible to encompass only that part of the order and general order for which it is truly needed, has submitted a reasonable plan and timetable for achieving compliance within the requested time extension, has taken all feasible steps to lessen the effects on customers of the requested delay, and is able to demonstrate good faith compliance with all other parts of the order and general order. The Executive Director is specifically instructed to use his audit powers if he suspects that requests for extension are not proffered in good faith.

We are also concerned that the Rule 48 exemptions could result in great variation in applicability of rules among carriers. If several carriers request an extension of time to implement the same rule, the Commission shall consider consolidating and treating these extension requests as a petition to modify this decision, and require a Commission vote before the requests may be approved in full or in part. [emphasis added]

Today's order and the underlying decision both fail to explain what justifies the departures from CPUC practices on this important matter emphasized in the section above. After all, it is not outside the administrative competence of the executive director to assure uniformity in the grant of extensions.

Moreover, the consideration of requests for an extension through a petition, as advised in D.04-05-057, requires a lengthy review that would render the request for an extension moot. Thus, this requirement is clearly arbitrary and capricious. Today's order appears to concede this point, noting that "if an urgent request were presented, there is no requirement that it must be converted to a petition." Today's order fails to justify the arbitrary and exceptional restrictions on Rule 48(b) procedures; instead, it simply notes that the traditional procedure is still possible, albeit now limited. This argument is not a justification, it is simply a diversion.

Given the serious legal issues raised in this rehearing, the decision to deny a stay of these rules (D.04-08-056) in combination with the

unprecedented provisions of D.04-05-057 restricting the use of Rule 48(b) constitute arbitrary action and legal error. The failure of today's order to address this issue in a serious matter or to justify the departure from standard CPUC practice underlines the fact that the implementation schedule is arbitrary and capricious, unlawful, and indefensible.

In summary, today's order, D.04-05-057 and D.04-08-056 suffer from serious legal errors. This dissent is only a partial recitation of the most egregious errors. Nevertheless, it provides the reasons why we must respectfully dissent from the opinion of today's majority. We look for reversal or stay of these unlawful orders by a court of competent jurisdiction.

_/s/ SUSAN P. KENNEDY _/s/ MICHAEL R. PEEVEY

Susan P. Kennedy Michael R. Peevey

Commissioner Commissioner