II. SUMMARY OF STAFF ALLEGATIONS

Staff has prepared a report documenting its investigation to date, including declarations from victims documenting their experiences with MCI and documents obtained from MCI. The report is released today and shall be placed in the Commission's public formal file for this proceeding. The following is a summary of Staff's allegations to date.

A. MCI's Minimum Usage Fee Program

Beginning in June 2002 and continuing to date, MCI began a policy of imposing a type of monthly service charge, which MCI refers to as an MUF, on previously inactive or closed accounts. Staff has determined that MCI's harvests information from two sources in order to identify inactive accounts and start billing. One method of harvesting inactive account information is when MCI regularly engages in an activity referred to as the "LEC Reconciliation Process". In this process, MCI first determines the identity of telephone numbers that are still assigned to MCI in the LEC's system, and then identifies those that it is not actively billing. Once MCI identifies the inactive telephone numbers, it creates a new account for these telephone numbers and begins billing an MUF.

A second method of harvesting inactive account billing information is when MCI obtains information regarding which telephone numbers are assigned to MCI through the transmittal of "Transaction Code Status Indicators" (TCSIs). TCSIs are electronic codes that telecommunications carriers routinely use to transmit subscriber assignment information to each other. In some cases, the codes inaccurately indicate that a customer has designated MCI as their long distance provider. Staff has determined that MCI knowingly takes advantage of these "coding errors" by billing inactive or closed accounts for an MUF, despite the fact that the LECs provide the TCSI codes "for information only" and do not intend that the codes be used to establish a new subscriber account for that particular customer³. Staff believes that MCI is knowingly misusing the TCSI codes to inappropriately establish new accounts.

Through either the LEC Reconciliation Process or through TCSI codes, MCI creates a new account (which it calls the Basic Dial-1 plan⁴) and imposes the MUF without first contacting the customer to verify the customer's intent to switch, or first checking its records to determine if the customer previously cancelled the account with MCI. Essentially, MCI is acting on the subscriber information (TCSI codes) it receives from other carriers without checking to make sure that the subscriber has actually chosen MCI to be its long distance provider, and despite the fact that the TCSI code used by MCI is designated as "for information only" and is not the correct TCSI code to establish a new subscriber account.

MCI reports that between June 2002 and June 2004, approximately 500,000 California consumers have been billed a MUF pursuant to the Basic Dial-1 default calling plan. Prior to June 2002, consumers did not complain because MCI did not have an MUF associated with the default calling plan.

Staff has found that the process of calling MCI, removing the charges, and canceling the account often takes several months. Consumers who are billed an MUF typically call MCI repeatedly over several months, experience difficulty getting through to an MCI customer service representative and experience difficulty in having the charges reversed. Consumers complain that MCI refused to honor the initial request for cancellation and forced the consumers to go to great lengths to have the charges reversed, even though the charges were improper to begin with. Consumers state that MCI did in fact (eventually) cancel the account and discontinue billing, but some consumers express outrage because MCI sent the consumer's unpaid charges to a collection agency. The sections below describe different situations in which MCI billed consumers for an MUF.

B. Some Customers Switched From MCI To Another Long Distance Carrier, Yet MCI Billed an MUF to This Non-Customer

In some cases, Staff's investigation reveals that MCI imposed MUFs on MCI customers who switched away from MCI to another long distance carrier. Consumers complain that after switching away from MCI the former MCI customer receives a bill (in many cases after several years have passed) from MCI for an MUF. MCI imposed this charge even though the consumer used a different long distance carrier and no longer had any contractual relationship with MCI.

MCI refuses to change its behavior in these sorts of circumstances. MCI alleges that it imposes these charges because the consumer's new carrier fails to notify MCI of the switch. However, Staff believes that the consumer should not be held responsible because MCI refuses to honor the request for cancellation directly from the consumer, which means that the consumer has no control over whether MCI is notified of the switch request.⁵ Staff believes it is MCI's responsibility to take the steps necessary to ensure that it is not sending out bills to customers who have chosen another carrier.

C. Some Customers Cancelled Their MCI Service With No New Carrier Selection, Yet Are Billed By MCI For An MUF

Consumers in California have many different options for making long distance calls, such as the Internet, cellular phones, dial-around, calling cards, etc. Increasingly, consumers are choosing to cancel their long distance carrier and are using one of these other methods to make long distance calls. In the past, MCI did not bill consumers for an MUF when the consumer cancelled his or her long distance service with MCI.

Beginning on June 1, 2002, customers who had cancelled their MCI service, sometimes years ago, began to receive MCI bills for the MUF. If MCI had checked its internal records prior to billing these customers, MCI's records would show that these former customers cancelled their long distance service with MCI. However, as described above, even though MCI is aware that that there may be a need to check on the accuracy of industry records MCI chooses not to check its existing customer records prior to creating a new account and imposing an MUF on the former customer.

Former MCI customers also complain that MCI bills an MUF when the customer cancels service because they are moving to a new home, a different area, out-of-state, etc. In those cases, MCI did not receive a switch notification for that account because the customer was not switching, but was simply canceling their service. In some cases, MCI alleges that it has failed to receive (or perhaps acknowledge) the notification code from the LEC. However, Staff believes that consumers are not at fault for any discrepancies that might occur as a result of infirmities in the providers' notification systems which MCI is aware of and which MCI is capable of mitigating. Staff believes that consumers should not be required to pay an MUF to a provider when the consumer has cancelled its subscription for that service.

D. Some Consumers Never Had MCI Service on a Primary or Secondary Telephone Line, Yet Are Billed By MCI for an MUF

Consumers often have a second line dedicated to a fax machine, Internet service, etc. On initiating service, they do not select a long distance carrier for the second line because they do not plan on making any long distance calls on that line. The consumers' primary line is used for making long distance calls, while their secondary line is used for fax or Internet service. These consumers have the option to select no long distance company on the secondary line.

In cases reviewed by Staff, consumers report that MCI began billing the secondary line for an MUF, even though MCI was never the long distance carrier on that line. The consumer never requested MCI's service on the secondary line and made no long distance calls, nonetheless, MCI billed these consumers an MUF.

In some cases, consumers report that they had never selected MCI on their primary line, yet were billed by MCI for an MUF on the secondary line. Staff believes these are clearly violations of the law that should not occur.

E. Directive to Cease and Desist

On March 3, 2004 Staff informed MCI that its practice of imposing monthly charges on non-customers, whether they were inactive accounts or customers who had not affirmatively selected MCI as their provider, is unlawful. Staff ordered MCI to cease and desist. Staff informed MCI that the practice results in charges being imposed for products or services that were never authorized or requested by the consumer, in violation of Public Utilities Code section 2890. On September 15, 2004, Staff met with MCI to direct the company to discontinue its practice of imposing MUFs, to discuss mitigating the harm to consumers caused by this practice and to discuss other technical issues related to how the MUFs are imposed. Staff believes that, to date, MCI has not stopped or modified its practice.