5. Discussion

Resolution of this complaint requires interpretation of the nature of payments between payphone service providers and SBC California under state and federal law. California law precludes a carrier from rebating tariffed charges. Federal law requires carriers to pay compensation to payphone service providers for "non-sent paid" calls. The issue presented here is whether payments made to G-Five under the promotional "Fast Start Program" are rebates or compensation. After weighing the evidence before us, we find the "New Connect Award" is an indirect rebate. Below, we discuss the basis for our determination.

5.1 SBC California Improperly Rebated Tariffed Charges

Under state law, rebates of tariffed charges are unlawful. Section 532 provides that no public utility shall charge other than its tariffed rates. It further provides that no public utility shall refund or remit directly or indirectly any portion of its tariffed rates and charges unless such refund is on file and in effect at that time.⁶ We address whether the payments are direct or indirect rebates, both of which are prohibited. (Empire West v. Southern California Gas Co. (1974) 12 Cal. 3d 805, 809.) SBC California continued to charge its tariffed rates to payphone service providers for non-recurring and monthly charges. Thus, there was no direct rebate of tariffed charges. We next analyze whether the payments were indirect rebates.

To determine whether the payments to G-Five are impermissible rebates or required compensation, we must look at the circumstances surrounding the payments. On the one hand, SBC California made payments designated for G-Five, including two "New Connect Award" payments, directly to payphone service providers at G-Five's direction. (Exhibit C-8, p. 6.) The "New Connect Award" includes two fixed payments; one of those payments mirrors the tariffed installation charge and there is another upfront payment. Another payment comprises almost half of the monthly line charge; the "Additional Compensation" agreement states SBC California will credit that amount monthly. (Exhibit C-7, Attachment 1.) In addition, there is an end-of-term payment. SBC California also temporarily accounted for the payments identical to the installation charge as "contra revenue," a credit of the COPT access line tariffed charge. Finally, platform call revenues from new lines may not have equaled "commission" payments to payphone providers who switched to SBC California.

On the other hand, the "Fast Start Program" is not a new offering, the payments were characterized as compensation in the agreement with G-Five, G-Five at its discretion could have obtained the payments from SBC California and distributed them to payphone service providers, and G-Five received some portion of the compensation. SBC California's original compensation agreement with G-Five included a less generous version of the "Fast Start Program," which contained two lump-sum payments.

Two of the above-referenced circumstances argue in favor of finding that the payments were rebates rather than compensation. First, SBC California directly sent payments to payphone service providers at G-Five's direction and agreed to credit the monthly payments. Even though SBC California's agreement was with G-Five, that agreement permitted direct payments, and those payments were made by SBC California to payphone service providers. A connection between the tariffed charge and the alleged rebate is a criterion in determining whether there has been a violation of § 532. The circumstances here establish such a connection. The installation charge is a non-recurring charge due after COPT service is established. The "new line added" payment, the identical amount, was made within 30 days after the new connection was verified. Retained lines did not receive this payment. However, both new and retained lines received another upfront payment, supporting the connection between the installation charge and the "new line added" component of the "New Connect Award." SBC California's denominating the payments "commissions" is insufficient to determine the nature of the payments.

Second, SBC California, at least initially, accounted for one type of payment as a credit ("contra revenues") to tariffed charges by booking the "New Connect" (installation) expense to the COPT access line non-recurring revenue account at the end of 2002. When SBC California makes refunds of or credits to customers' payments for regulated service, it must account for them as deductions to the revenue accounts to which the customers' payments were booked. SBC California initially accounted for the "New Connect" expense as a deduction to the revenue account for a regulated service. SBC California's actions lend support to a conclusion that the payments were rebates of tariffed charges.

SBC California's claim that this "contra revenue" treatment was based on an SBC California employee's mistaken belief the procedure was proper is unpersuasive. SBC California's internal e-mail communications during the four months prior to the end of 2002 noted the entire "New Connect" (installation) revenues would be moved as "contra revenues." In addition, SBC California also considered similar "contra revenue" treatment for another payment. One e-mail states that the "monthly line credit" expense would be moved to "contra revenue"; however, that move did not occur.

The two circumstances favoring SBC California's position are the FCC's endorsement of fixed compensation and the existence of an earlier "Fast Start Program." Use of per call and fixed compensation payments is consistent with FCC directives. The FCC gives broad discretion to carriers in establishing compensation to payphone service providers, including the ability to negotiate the amount and form of compensation. (First Payphone Order, 11 FCCR at 20, 578-79, ¶ 73; Third Report and Order, 14 FCCR 2245, 2597, ¶ 115.) Thus there is no rule precluding SBC California from making fixed compensation payments. Further, SBC California issued a payment for fixed "commissions" under the earlier "Fast Start Program," but there is no allegation that payment was a rebate of tariffed charges.

On balance, we determine that SBC California indirectly rebated tariffed charges by virtue of its "New Connect Award." Paying a "commission" payment identical to a tariffed charge directly to the payphone service provider within 30 days after the new line is verified, combined with accounting for part of that payment as a credit against a tariffed charge, belies SBC California's claim that it was paying compensation pursuant to FCC rules. We determine the "New Connect Award" is an indirect rebate, because it is identical to a tariffed charge and SBC California accounted for it as a credit of a tariffed charge. The evidence is insufficient to find the other payments are indirect rebates.

5.2 Relief

In discussing what relief and/or fines will remedy this violation of our rules and regulations, we consider whether we should terminate SBC California's indirect rebate of the installation cost, order SBC California to rebill payphone service providers for the installation costs, fine SBC California, or grant such other relief as may be appropriate.

The "Fast Start Program," offered during 90 days in 2002, contained fixed payments and an indirect rebate of tariffed charges. Fixed compensation payments violate § 532 when they indirectly rebate a tariffed charge. Thus, we order SBC California to terminate the "Fast Start Program" that is the subject of this complaint. We understand the program is currently terminated, but we further order SBC California not to reinstate it.

SBC California must charge its tariffed rates or seek and receive authority from us for an exception, as provided in the last sentence of § 532. We may by rule or order establish exceptions for a particular utility to the statute's prohibition against rebates of tariffed charges, if to do so is just and reasonable. See Cal. Western Railroad & Nav. Co. (1913) 2 CRC 584; Re Regulation of Cellular Radiotelephone Utilities, Decision (D.) 95-04-028, 59 CPUC 2d 192, 199, 201, 212-213, D.97-02-053, 71 CPUC 2d 162, 173.

We decline to order SBC California to rebill payphone service providers for the indirect rebates. We note SBC California's per-call compensation was significantly lower than other carriers' compensation. We further acknowledge SBC California may be able to restructure its fixed payments to qualify as compensation under the FCC rules. Thus, ordering SBC California to rebill payphone service providers for the "New Connect Award" might actually produce a windfall for SBC California but not accomplish the desired goal of ensuring that SBC California complies with statutes and Commission orders.

Pursuant to § 2107, we may impose fines for violations of our rules. We examine numerous factors, including severity of the offense, Commission precedent in comparable cases, the conduct of the utility in mitigating the offense, and the financial resources of the utility. (See D.03-01-070, 2003 Cal PUC LEXIS 45 *126; D.98-12-075, Appendix B.)

On the one hand, this violation of our rules was of limited duration. SBC California acted to avoid a direct rebate. However, Mpower was harmed. Indeed, it lost payphone service providers to SBC California as a result of the "Fast Start Program," although Mpower's client states it would have moved to SBC California anyway for better service. The generosity of the "Fast Start Program" was at least responsible for the timing of the switch. Still, the violations demonstrated in this complaint are not as severe as violations raised in other complaints for which we ordered fines. (See D.03-01-070.) Thus, we determine fines are not warranted for this violation of § 532.

Having found a violation of § 532, we decline to address Mpower's additional allegation that the "Fast Start Program" violates our price floor rules. Should SBC California seek an exception to § 532's rebate of tariffed charges prohibition, SBC California should address whether granting such an exception is consistent with our price floor rules.