II. Background
A. The Investigation
In 2002, the Commission's Consumer Protection and Safety Division (CPSD) began noticing a pattern of complaints to the Commission regarding MCI's practice of billing non-customers a minimum usage fee (MUF). After reviewing approximately 200 MUF complaints, interviewing 115 of these consumers, and obtaining 77 declarations from consumers documenting their experiences, CPSD brought its investigation to the full Commission for further action.
CPSD found that MCI billed consumers a monthly service charge after the consumers requested that MCI terminate their long distance service, and also in instances where the consumers were never MCI customers. CPSD alleged that MCI relied upon certain codes that it received from Local Exchange Carriers (LECs) to assess the charges. According to CPSD, the codes MCI relied upon were not the proper codes to indicate that a consumer intended to establish a new account. Nevertheless, CPSD alleged, MCI proceeded to establish accounts and bill non-customers for an MUF without: (1) first attempting to contact the customer to verify that the customer intended to subscribe to MCI; or (2) checking its own records to determine whether the individual was no longer a customer because he or she had previously terminated service with MCI.
The Commission initiated this investigation based on CPSD's allegations that the MCI's practice in connection with the foregoing certain MUFs constituted unlawful "slamming" and "cramming." Pub. Util. Code § 2889.5 requires a telephone company to obtain confirmation from a prospective customer that the customer intends to switch telephone companies; any change in service provider that is accomplished without complying with the steps described in § 2889.5 constitutes "slamming." CPSD asserts that MCI engaged in "slamming" by switching service providers or establishing a new account for a consumer without confirming the consumer's intent to switch to MCI or establish a new account with MCI.
Pub. Util. Code § 2890(a) states "A telephone bill may only contain charges for products or services, the purchase of which the subscriber has authorized." Including unauthorized charges is a practice commonly referred to as "cramming." CPSD asserts that MCI's engaged in "cramming" by placing MUFs on non-customers' phone bills, in violation of § 2890(a).
B. The Settlement
On October 3, 2005, CPSD and MCI filed a joint motion indicating that they had conducted extensive negotiations over the preceding several months, had arrived at a settlement,1 and desired Commission approval of their Settlement Agreement.
1. Monetary Payment
a. $1 Million, With Remainder (If Any) to State General Fund After September 30, 2007
In the Settlement Agreement, attached as Appendix A to this decision, MCI agrees to pay a total of $2.3 million in settlement proceeds, with $1 million of that amount set aside to give credits or refunds to persons who paid the improper MUFs. MCI will pay this $1 million for people seeking refunds during the period October 1, 2005 through May 31, 2007. The $1 million is supplemental to amounts MCI credited prior to October 1, 2005, which MCI estimates at more than $1 million.
If the $1 million allotted for October 1, 2005-May 31, 2007 is not all paid in refunds or credits, MCI will pay the remainder to the state General Fund. MCI will determine whether there is a remainder no later than September 30, 2007. At that time, it shall make an accounting to CPSD of any difference between $1 million and the amount it has credited. If this amount equals $1 million, MCI will not remit any of the $1 million credit amount to the state. If it is less than $1 million, MCI will remit the balance to the state General Fund.
b. Liberal Credit Policy
Pursuant to the Settlement Agreement, MCI will have a liberal MUF credit policy. MCI's customer service representatives (CSRs) will credit consumers who advise MCI that they have been charged an MUF without having authorized MCI to provide long distance service, unless there is evidence that the customer continues to utilize the service. MCI will also use good faith efforts to reach out and provide credits or refunds to consumers who have previously made complaints regarding the imposition of MUF fees, if they have not already received credits or refunds.
In the Agreement, MCI states that over 90% of those who have complained about the MUFs received credits during the period from the first quarter of 2003 through the second quarter of 2005; MCI commits to review, where sufficient records exist, the complaints of those remaining complainants who have not received credits. MCI will issue credits to any persons so entitled pursuant to MCI's liberal credit policy.
2. Immediate $1.3 Million Payment
to State General Fund
MCI will also pay $1.3 million to the state General Fund no more than 30 days after the Commission approves the Settlement Agreement. This amount is in addition to (1) the $1 million credit/refund amount for the October 1, 2005-May 31, 2007 period, (2) any remainder from that credit/refund as shown in MCI's accounting due no later than September 30, 2007, and (3) any credits MCI made before October 1, 2005, which MCI estimates total an additional $1 million.2
3. MCI's Acknowledgment of Problems and Commitment to Make Operational Improvements
MCI also acknowledges in the Settlement Agreement that its MUF practices were in error, and commits to make or retain already-implemented operational improvements to prevent the problems from recurring. MCI admits that the complaints of inappropriate MUF billings warranted investigation and action by the CPSD to ensure compliance with the law and to protect consumer welfare. Further, "MCI recognizes the need to . . . address the important concerns raised by California consumers and the CPSD's investigation," and has instituted and will maintain several changes to its practices, as described below.
We will require MCI-and Verizon California Inc. (Verizon), its successor in interest-to retain the operational changes.3
MCI has already implemented-and will continue to enforce under the Settlement Agreement-a new long distance cancellation process whereby its CSRs may cancel a consumer's long distance service upon the consumer's request. Consumers who request cancellation will not be billed an MUF following the billing period in which the cancellation is requested.
To ensure that consumers are aware of the implications of cancellation, MCI will provide such consumers with multiple notices advising them to select a new carrier and stating rates may increase if they fail to do so.
Under MCI's new policy, although CSRs will be allowed to cancel service on request, customers will receive three verbal notices and one written notice to ensure the cancellation is not itself a "slam," and explaining the effects of cancellation.4 As MCI notes,5 multiple notices are important because a customer who cancels long distance service with MCI may thereafter pay "random" long distance rates. Random rates may be much higher than the customer's prior plan rates, and may vary based on the destination of the call.
Thus, MCI will have a liberal cancellation policy to ensure that customers who do not desire MCI service are not charged MUFs, but will also use multiple notices to ensure the cancellation is not itself a "slam."
b. "LEC Recon[ciliation] List" and
Account Maintenance Installations
MCI receives account maintenance information from LECs, which includes consumer name changes (e.g., as a result of marriage) or address corrections. Historically, MCI created a new customer account if it received account maintenance information for a telephone number for which no account existed. This practice caused erroneous MUFs and complaints. MCI commits that it shall not create new accounts which include MUFs based upon account maintenance information received from LECs. MCI also agrees not to create new accounts, with associated MUF charges, based upon "reconciliation lists" received from major LECs. These steps will reduce erroneous MUFs.
Under the Settlement Agreement, MCI will also use good faith and commercially reasonable efforts to enhance its billing policies and procedures, particularly with regard to preventing unauthorized MUFs. MCI will also continue to use such efforts with respect to identifying and crediting consumers charged an MUF where MCI determines that it is appropriate to do so. We discuss this provision in more detail below.
1 At a June 29, 2005 prehearing conference in this case, the case was set for hearing on October 11-14, 2005. The motion we approve today was filed just before the hearing, and the hearing therefore did not occur.
2 In its October 13, 2005 Supplement to Joint Motion for Approval of Settlement Agreement (Supplement), MCI states that the total amount of MUF complaints during the time period January 1, 2003 through August 31, 2005 was 8,806, and that it issued credits in response to all but 313 of those complaints. MCI defines "complaints" as follows: "(a) any written correspondence from a California consumer seeking a credit or otherwise challenging MCI's long distance service that is either mailed directly to MCI or forwarded to MCI by a governmental agency or consumer service (i.e., the Better Business Bureau) that processes consumer complaints, or (b) a verbal demand for credit, or an unequivocal verbal inquiry regarding MCI's long distance service that is received by the Company's Executive Offices." MCI states that the total amount of MUF credits issued in response to "complaints" from January 1, 2003 through August 31, 2005 is $221,159. MCI also states that it has made refunds or issued credits related to MUF billings to consumers who did not make a complaint where MCI determined that the issuance of such credit or refund was appropriate.
3 As we discuss below, the Settlement Agreement is binding on MCI's successors in interest. In its Supplement, filed October 13, 2005 at 5, MCI states that the settlement "contains a provision [paragraph 33 of the Settlement Agreement, "Successors"] that . . . provides for the possibility of a merger [with Verizon], and it does not need to be amended." MCI states that the Verizon merger will not affect MCI's obligations under the Settlement Agreement. Supplement at 6.
4 First, the customer will receive a notice relating to the cancellation process and its potential effects verbally from MCI's CSR. Second, the customer will receive notice from a voice response unit. Third, MCI will give the consumer another verbal notice via a confirmation phone call within 48 hours of the original cancellation call. Finally, the customer will receive a confirmation notice in writing within 7-10 days of the original call to disconnect service. Supplement at 7.
5 Id.
