8. Appeal

The decision of the presiding officer, ALJ Grau, was mailed on November 4, 2004. Pursuant to Rule 8.2 of the Commission's Rules of Practice and Procedure, SBC California filed an appeal of the Presiding Officer's Decision (POD) on December 6, 2004. Mpower filed a response on December 20, 2004. This section addresses the issues raised in the appeal.

We first consider assertions of legal error raised by SBC California. As a threshold matter, SBC California asserts the POD violates the Supremacy Clause of the United States Constitution in finding that the "New Connect Award" is an indirect rebate. We disagree. The Supremacy Clause does not preempt § 532. In establishing rules for mandated compensation for "non-sent paid" calls, the FCC did not preempt state regulation of tariffed charges for COPT service. Further, as noted by Mpower, federal rules similarly prohibit improper rebates of tariffed charges. (See 47 U.S.C. § 203(c).) We find the POD properly weighed applicable federal requirements in determining the "New Connect Award" was an indirect rebate.

Next, SBC California asserts the POD erroneously relied on the similarity between the tariffed installation charge and the "New Connect Award" in finding the "New Connect Award" was an indirect rebate. SBC California acknowledges the "new line added" component of the "New Connect Award" and the installation charge were identical, $112, but states the total payment package, not one component, is relevant. We find SBC California's argument unpersuasive. The total payment package is relevant if it is conclusively established that all components of the package are compensation and not rebates. The POD reached no such conclusion. Insofar as the "Fast Start Program" was a package offering, it is not necessary to decide whether each payment contained in the package was a rebate. Although Mpower alleged all "Fast Start Program" payments were rebates, the POD did not find enough evidence to support that allegation. The POD properly analyzed whether the three one-time payments and one monthly payment were permissible compensation or improper rebates in reaching its conclusion that the "new line added" payment was an indirect rebate. If one component is an indirect rebate, the package containing that rebate violates § 532. Thus the POD properly ordered that SBC California terminate the "Fast Start Program."

We next examine SBC California's allegations of factual error. First, SBC California asserts the POD relied on an incorrect fact-that the "New Connect Award" was directly credited on payphone service providers' bills. The record evidence indicates SBC California credited per-call compensation on payphone service providers' bills, at G-Five's direction. (RT 57:15-19.) The "Additional Compensation" agreement states SBC California will pay the one-time payments and will credit the monthly amount. (Exhibit 7, Attachment 1.) In its appeal, SBC California clarifies that all "Fast Start Program" payments were made by check to payphone service providers. The "new line added" payment was made within 30 days after the new connection was verified. (SBC California's Appeal, p. 8.) We have clarified the decision in that regard.

SBC California states the POD misunderstands the significance of the "contra revenue" treatment SBC California mistakenly made. That "contra revenue" treatment is handling "New Connect Award" payments as "contra revenue" against the COPT access line revenue account instead of against the non-sent paid revenue accounts. We clarify the decision on that issue.

Finally, SBC states the POD's reliance on the alleged factual errors negates the POD's conclusion that the "new line added" component of the "New Connect Award" is an indirect rebate. We disagree. The POD's balance test weighs numerous factors in reaching its result. The result is independent of the factual clarifications discussed above. Nonetheless, we have modified the POD to incorporate an analysis of the factual clarifications.

Findings of Fact

1. SBC California, pursuant to its intrastate tariffs, bills and collects from payphone service providers a non-recurring charge of $112 to establish a new COPT service line and a monthly service charge of $14.53.

2. Under the "Fast Start Program," offered during 90 days in 2002, SBC California pays payphone service providers a fixed amount and a payment per new line added as a "New Connect Award," payable within 30 days of verification of the new order, another amount payable at the end of the 12-month term of the promotion, and a monthly amount. Retained lines receive an upfront fixed amount, a monthly amount, and an amount payable at the end of the promotion.

3. The FCC requires carriers to compensate payphone service providers for "non-sent paid" calls.

4. Pub. Util. Code § 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.

5. The "New Connect Award" was the same amount as the installation charge, was directly paid to payphone service providers, and was accounted for as "contra revenue," a credit to the COPT access line tariffed charge.

6. SBC California could restructure a fixed payment comparable to the "New Connect Award" that would be consistent with FCC requirements and would not constitute a rebate.

7. SBC California's appeal has not shown the POD failed to make required findings or committed legal error. However, the POD has been modified as set forth herein.

Conclusions of Law

1. SBC California violated Pub. Util. Code § 532 by rebating the COPT line installation charge as a "New Connect Award" in the "Fast Start Program."

2. The "Fast Start Program" should be terminated.

3. Due to the confidential and proprietary nature of certain identified materials received into evidence and contained in the confidential versions of Mpower's opening belief and of Mpower's response to SBC California's appeal, it is reasonable that they remain under seal for two years unless a request made prior to the expiration of that time demonstrates a need for further protection.

4. Proposed modifications to the POD are adopted; otherwise, the appeal lacks merit and is denied.

5. It is reasonable to make this order effective today in order to resolve this complaint without further delay.

ORDER

IT IS ORDERED that:

1. The complaint of Mpower Communications Corp. (Mpower) is granted as set forth herein and is otherwise denied.

2. Pacific Bell Telephone Company (SBC California) shall terminate the "Fast Start Program" and shall not reinstate it.

3. Mpower's motions for a protective order for the confidential versions of its opening brief and its response to SBC California's appeal are granted. Mpower's confidential opening brief and confidential response to appeal of presiding officer's decision shall remain under seal and not be accessible or disclosed to persons other than Commission staff absent an order of the Commission, the assigned Commissioner or administrative law judge (ALJ) or the law and motion ALJ, for a period of two years. If protection beyond that date is required, Mpower shall file a motion prior to the expiration of that period, explaining why further protection is needed.

4. This proceeding is closed.

This order is effective today.

Dated February 10, 2005, at San Francisco, California.

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