4. Detariffing Services Other than Basic Service
4.1. Positions of the Parties
Today's decision on detariffing has considered, and combines, elements of comments and reply comments from many parties. We summarize the parties' positions below.
Verizon submitted its detariffing proposal50 on September 25, 2006, in the form of initial comments in response to our request for briefs on detariffing in the URF Phase I decision. Verizon's proposal contains four elements:
1. Permissive detariffing over an 18-month period using the one-day effective advice letter process adopted in the URF Phase I decision .51
2. Use of any binding agreement permissible under applicable law to replace tariffs.
3. Elimination of the contract filing requirement.
4. Public disclosure of generally available terms and conditions by any method permissible under applicable law.
Verizon urges us to permit detariffing of all services in this fashion except for basic residential service.
Pacific Bell's initial proposal52 resembles Verizon's except that Pacific Bell also urges us to exempt 911 services from the permissive detariffing regime. On the other hand, Pacific Bell urges us to include tariffed third-party billing and collection services in the list of services that could be detariffed by the filing of an advice letter.
Sprint Nextel makes a single observation:53
"[I]f the Commission should elect to provide for the detariffing of retail telecommunications services, other than `basic exchange service,' it should take care to specify that it is not ordering the detariffing of wholesale services, for which all existing tariff filing requirements should be retained."
Like Verizon and Pacific Bell, Cox states that the Commission should allow carriers to detariff services voluntarily, and that Pub. Util. Code Section 495.7 does not authorize mandatory detariffing.54 Cox also questions whether the competition findings in Phase I of this proceeding meet the statutory standard. Cox points out that, while the statute requires the Commission to consider market share in a competition analysis, the URF Phase I decision disapproves of and disclaims reliance on market share in its competition analysis.55 Cox adds that "the URF decision could not possibly serve as the basis for the findings required by Section 495.7(b), since the issue of detariffing was not addressed in detail in that decision."56 Cox also argues that the "limitation of liability" exclusion contained in Section 495.7(g) should be interpreted only to eliminate the limitations of liability as found in filed tariffs. Limitations of liability contained in contracts that replace tariffs should not be proscribed by the language of Section 495.7(g).57 Finally, Cox urges the Commission to adopt specific standardized terms and conditions that carriers could incorporate in contracts with their customers in place of tariffs.58
Like the other large ILECs, SureWest endorsed permissive detariffing,59 adding that the Commission should recommend to the Legislature that Section 495.7 be amended to permit full detariffing of all services including basic service,60 and that the Commission should do away with the requirement that contracts be filed with the Commission.61 SureWest proposes an 18-month transition period if the Commission chose to order detariffing.62
Frontier's comments63 mirror those of SureWest, supporting permissive detariffing and the elimination of filed contracts.
Time Warner also supports permissive detariffing.64
In its opening brief,65 after discussing the relationship among tariffs, the filed rate doctrine and the limitation of carrier's liability conferred by filing tariffs, DRA concludes that the Commission lacks statutory authority to order mandatory detariffing and that the Commission should not eliminate tariffs without providing for a replacement source of reliable information about carriers' rates and services.66 DRA also argues that the detariffing briefs called for in the URF Phase I decision are not evidence and cannot form the basis of a reasoned decision regarding detariffing.67 Although DRA questions the due process given parties on this issue, DRA "acknowledges that the time is ripe to consider whether traditional tariffs are the best vehicle to serve consumer and Commission interests under the newly adopted regulatory regime."68
DRA points out that the plain language of Section 495.7 contemplates a permissive process whereby carriers apply to detariff specific services rather than a mandatory detariffing order by the Commission.69 DRA also argues that the URF Phase I decision improperly conflates "basic service" with "basic residential service."70 While recognizing that detariffing may benefit consumers by eliminating the liability shield provided by the filed rate doctrine, DRA argues that consumers will lack adequate information on which to base telephone service decisions unless the Commission couples detariffing with improved consumer access to information about carriers' prices, terms, and conditions of service.71 In particular, DRA recommends that we follow the lead of Colorado Public Utilities Commission and require that all carriers post on their web sites "the rates, terms and conditions associated with all California intrastate telecommunications services and service bundles that they offer, regardless of whether those services are tariffed or detariffed."72 In addition, DRA asserts that carriers should be required to provide the Communications Division and DRA with one-day notice of any changes in prices, terms, and conditions for all California services and service bundles and maintain for a period of at least two years an archive of their service offerings at a public Internet site.73 DRA also recommends that carriers notify their customers 30 days in advance of any price increases or price-affecting changes to terms and conditions.74
TURN's opening brief states that the statute does not allow for mandatory detariffing but instead allows for permissive detariffing. TURN argues in general that if the Commission were to permit detariffing, it must eliminate old rules that insulate carriers from liability and adopt new rules that ensure consumers receive adequate information about prices and services and have meaningful recourse for complaints in a post-tariff world.75 TURN also objects to using the advice letter procedure adopted in the URF Phase I decision as a vehicle to accomplish detariffing on the grounds that the decision is unclear about the manner in which advice letters will be protested and reviewed.
TURN makes the following specific recommendations:
1. The Commission needs to make the specific findings outlined in Pub. Util. Code Section 495.7 before ordering detariffing of any services. The market power findings of the URF Phase I decision are inadequate for this purpose.76
2. Any carrier that is allowed to detariff a service should lose the protections of the filed rate doctrine and the limitation of liability for that service.77
3. The Commission should review the effect of its detariffing order within two years of implementation.78
4. The Commission should require carriers to file and post price lists for all services.79
5. The Commission should require carriers to provide customers with advance notice of rate changes, changes in terms or conditions of service, and ownership changes.80
6. The Commission should adopt new rules to prohibit deceptive or abusive marketing practices.81
7. The Commission should prohibit carriers from making unilateral changes in consumer contracts and incorporating tariff terms and conditions in them by reference.82
8. Carriers should have the burden of proof to show that rates, terms and conditions are just and reasonable and non-discriminatory in any complaint proceeding.83
9. The Commission should not order mandatory detariffing but instead consider requests to detariff on a case-by-case basis and should not detariff certain services, such as E911.84
4.2. The Criteria of Section 495.7 Have Been Met
Pub. Util. Code Section 495.7 permits us to establish procedures to allow URF Carriers to detariff services, if certain requirements have been met. We explain below that Pub. Util. Code Section 495.7 requirements have been met. Moreover, as a policy matter, detariffing procedures will allow carriers flexibility in offering various rates, terms, and conditions for services. Indeed, the consumer advocates have pointed out that, in light of the Phase 1 decision and the advice letter process, tariffs may "no longer serve the same consumer protections as they have in the past."85 These parties have acknowledged that detariffing has its place in a deregulatory environment - if accomplished with sufficient safeguards.86 As we discuss further below, tariffs afford carriers protection under the filed rate doctrine and limitation of liability provisions, and in fact, are often cumbersome, legalistic and unwieldy documents that are difficult for most consumers to read or understand. We conclude that we should establish detariffing procedures for URF carriers as discussed below and believe that our existing safeguards provide adequate protection for consumers.87
Although we believe that the requirements of Section 495.7 are satisfied by our existing statutes and rules, we adopt additional new safeguards in this decision to protect consumers who purchase detariffed services. For example, we will require that a carrier provide 30-day notice to its customers of any increase to rates, or more restrictive terms or conditions for detariffed services. Further, carriers shall provide such 30-day notice before they unilaterally raise rates, or impose more restrictive terms and conditions to detariffed services in a term contract, and permit the customer an opportunity to opt out of the contract without any penalty. We will also require a carrier to publish on its website and make available without charge via a toll free number the rates, terms, and conditions for its tariffed (to the extent required by GO 96-B) and detariffed retail services and to comply with certain notice requirements for increases to rates and more restrictive terms and conditions. An archive of a carrier's retail rates, terms and conditions (both tariffed to the extent required by GO 96-B and detariffed) must be made available on the web for three years, with dates of effectiveness and geographic applicability clearly delineated.
4.2.1. The Commission Has Found that the AT&T, Verizon, SureWest and Frontier Lack Significant Market Power (Section 495.7(b)(1) is Satisfied)
Pub. Util. Code Section 495.7 outlines the conditions under which the Commission may establish procedures for carriers to apply to exempt services from tariffing requirements:
(a) The commission may, by rule or order, establish procedures to allow telephone or telegraph companies to apply for the exemption of certain telecommunications services from the tariffing requirements of Sections 3454, 489, 491, and 495.
(b) The commission may, by rule or order, partially or completely exempt certain telecommunications services, except basic exchange services offered by telephone or telegraph corporations, from the tariffing requirements of Sections 454, 489, 491, and 495 if either of the following conditions is met:
(1) The commission finds that the telephone corporation lacks significant market power in the market for that service for which an exemption from Sections 454, 489, 491, and 495 is being requested. Criteria to determine market power shall include, but not be limited to, the following: company size, market share, and the type of service for which exemption is being requested. The commission shall promulgate rules for determining market power based on these and other criteria.
(2) The commission finds that a telephone corporation is offering a service in a given market for which competitive alternatives are available to most consumers, and the commission has determined that sufficient consumer protections exist in the form of rules and enforcement mechanisms to minimize the risk to consumers and competition from unfair competition or anticompetitive behavior in the market for the competitive telecommunications service for which a provider is requesting an exemption from Sections 454, 489, 491, and 495. 88
Thus, the Commission has the legal authority under Section 495.7 to establish permissive detariffing procedures when certain requirements have been met. The detariffing policies we announce today rest securely on the recently concluded fact-finding and rule-making in URF Phase I. We reject the argument of some parties that there is an insufficient record to support our decision to establish detariffing procedures. In fact, in Phase I of the URF rulemaking, we found that the record was sufficient to permit us to make market power findings of the kind required by Public Utilities Code § 495.7(b)(1).89 In making these findings, we relied on evidence supplied by the four large incumbent local exchange carriers (ILECs) regarding the state of the market for voice communications in California. This evidence included proof of: (a) rapid decline in the number of traditional land lines operated by the ILECs, (b) rapid growth in the number of wireless phones and (c) near-substitutability of wireless, cable and Internet-based voice communications for traditional land lines.
The decline in land lines and the growth in wireless access lines were documented in the FCC's 2004 Local Competition Report, "Local Telephone Competition: Status as of June 30, 2004," Federal Communications Commission, Industry Analysis and Technology Division Wireline Competition Bureau, December 2004).90
The near-substitutability of the VoIP and cable telephony for traditional land lines was documented in the FCC's 2004 Broadband Report, "High-Speed Services for Internet Access: Status as of June 30, 2004," FCC Industry Analysis and Technology Division - Wireline Competition Bureau, December 2004.91
Additional evidence for the competitive nature of the market for voice communications in the service territories of the four large ILECs was drawn from the FCC's Form 477 data. As summarized by Verizon expert witness Aron at paragraph 58 of her Opening Declaration, these data demonstrate that competitive local exchange carriers presently offer service in Zip Codes that together encompass 90% of Verizon's service territory.92
In our discussion of market power in Phase I, we considered criteria such as those listed in Section 495.7(b)(1) and concluded that one of the criteria, market share, was not the only controlling factor in a market power analysis. Indeed, the statutory language requires that the Commission consider the criteria of company size, market share, type of service but does not limit the Commission's consideration to only those factors in coming to its determination.93 In analyzing the relationship of market share to market power, we followed the reasoning of the FCC in its 1996 AT&T detariffing order:
[I]t is well-established that market share, by itself, is not the sole determining factor of whether a firm possesses market power...Other factors, such as demand and supply elasticities, conditions of entry and other market conditions, must be examined to determine whether aparticular firm exercises market power in the relevant market. 94
Applying this reasoning to the record, we concluded that the relevant market cannot be limited to a specific type of telecommunications service and instead should be defined broadly to encompass a variety of services and service providers, including CLECs, cable companies, VoIP, and wireless service providers.95 We found that the four large ILECs had provided compelling evidence that they faced sufficient competition from CLECs and from non-traditional providers of voice communications services such as wireless companies, cable companies and VOIP services to prevent them from unilaterally raising prices for any of their voice communications services.96
Regarding Verizon's evidence, we said:
In summary, Verizon has developed a record in this proceeding that demonstrates that policy, technology, and market developments prevent it from exercising market power in its California service territories. The extensive presence of competitors in Verizon's service territory and the ease of expanding service by both wireless and VOIP carriers makes it clear that Verizon could not limit the supply of telecommunications services provided in any part of its California service territories and thereby cannot sustain above- market prices. 97
Regarding AT&T's evidence, we said,
While AT&T does not follow Verizon's lead in showing the ubiquitous presence of competitors throughout its service territory, AT&T nonetheless has convincingly demonstrated that competitive forces limit its market power.98
We reached similar conclusions regarding the markets for voice communications in the service territories of Frontier and SureWest. Our market power findings were limited to the state's four large ILECs, and exclude the small fraction served by rural local exchange carriers who are still subject to traditional rate-of-return regulation and have their rates set through general rate cases (GRC-LECs).
Consistent with this reading of the record, we rejected the evidence of TURN and DRA regarding market share and entity size that sought to demonstrate that the relevant markets were not competitive:
From an economic standpoint, the market share analysis provided by TURN and DRA is not particularly useful or probative for evaluating market power in the voice communications market. Market share tests are inherently backward looking and not good predictors of future developments, particularly in a rapidly changing industry like telecommunications. For example, U.S. VoIP subscribership had reached 2.7 million in mid-2005-a six-fold increase from the prior year-and is expected to continue to grow rapidly. [Citation omitted.] In addition, wireless carriers now compete in offering voice communications services. [Citation omitted.] DRA's and TURN's market share analyses do not reflect these developments. Indeed, their HHI figures completely exclude any consideration of competition from wireless or VoIP providers. Thus both the rapid changing technological environment and the overly narrow market definition combine to make the HHI figures calculated by TURN and DRA meaningless for our analysis of the market situation.99
While our recent Telecommunications Consumer Bill of Rights decision, D.06-03-013, adopted the kinds of rules and consumer protection mechanisms required by § 495.7(b)(2),100 we choose to rely solely on the extensive market power findings of the URF Phase I decision to support the conclusions reached in this phase of the proceeding regarding detariffing. Therefore, we believe that Section 495.7(b) has been satisfied.
4.2.2. The Requirements of Sections 495.7(c) and (d) Have Also Been Met
Some parties noted that the requirements of Sections 495.7(c) and (d) must be met before the Commission establishes detariffing procedures.101 We believe that these requirements are met by existing statutory and regulatory requirements, along with our adoption of additional safeguards in this decision.
Pub. Util. Code Section 495.7(c) requires that the Commission establish consumer protection rules for detariffed services in order to satisfy various requirements. Pub. Util. Code Section 495.7(c)(1) specifically requires that there are rules regarding availability of rates, terms, and conditions of service to consumers; and Section 495.7(c)(2) requires that the Commission establish rules regarding notices to consumers of rate increases and decreases, changes in terms and conditions of service, and change of ownership.102
The requirements of Sections 495.7(c)(1) and (2) are already addressed by existing statutes, including Pub. Util. Code Section 2896. The statute requires carriers to provide customers with sufficient information on which to make informed choices among telecommunications services and providers.103 To fulfill these statutory conditions further, however, we adopt new requirements for carriers seeking to detariff (which will be established in Telecommunications Industry Rules 5.2 and 5.3 in GO 96-B in our companion decision being adopted today). These new industry rules require carriers that detariff their services to make available at no cost to the consumer information substantially equivalent to the information previously contained in their tariffs by posting the information (rates, terms, and conditions for services) on their websites and providing a toll-free number for consumers to call to obtain a copy of rates, terms, and conditions. We also require that carriers who have detariffed services must archive this information for a period of three years.
With regard to Section 495.7(c)(2), today we also establish new rules that are being reflected in GO 96-B that require the URF Carriers that have detariffed services to provide 30 days notice to customers prior to any rate increase, or more restrictive changes in terms and conditions.104 We also will require an URF Carrier that offers detariffed services in a term contract to provide customers 30-day notice and offer the customer an opportunity to opt out of the contract before unilaterally changing any rates, terms, or conditions to such term contract. Moreover, this Commission already requires carriers to obtain approval prior to transferring the carrier's customer base in whole or in part to another entity and included in its requirements for all carriers is notice to customers of the transaction.105 Given the findings in the Phase I decision regarding the state of competition, we do not believe that notice of rate decreases to consumers is necessary. Indeed, even TURN acknowledges that advance notice of rate decreases or change of ownership may be unnecessary if the change does not affect services.106 Thus, we believe that these safeguards meet Section 495.7(c)(2)'s requirements.
Section 495.7(c)(3)-(6) require rules to identify and eliminate unacceptable marketing practices including fraudulent practices; to assure that aggrieved customers have access to low-cost, effective, and efficient avenues for relief; to ensure customers that they have privacy for services; to assure a telephone corporation will cooperate with Commission investigations of complaints. The Commission already has in place numerous rules and safeguards to satisfy Section 495.7(c)(3), particularly against slamming and cramming. As part of our telecommunications Consumer Protection Initiative, the Commission also adopted enhanced investigation and enforcement capability via an eight person Telecommunications Fraud Unit, and a consumer fraud toll-free hotline.107 Further, we have published in thirteen languages consumer brochures on slamming, cramming, complaint procedures, how to understand your phone bill, and tips on purchasing wireless services.108 These safeguards fully satisfy the additional requirements of Section 495.7(c)(3)-(5).109 Further, several provisions of the Pub. Util. Code require that telephone corporations cooperate with the Commission in its investigations and there is no need for further rules or requirements emphasizing the Commission's authority in this regard.110
We reject TURN's argument that we have not made findings sufficient to satisfy the requirements of Section 495.7(d). In finding that the URF ILECs lack market power throughout their service territories,111 we have found they lack the ability to engage in the kind of anti-competitive pricing behavior referenced in the statute. We have also frozen the price of basic service in areas where carriers receive High Cost Fund B subsidies pending further review in R.06-06-028 and capped the price for basic service in all other areas until January 2009. In addition, we find that because URF carriers will still be required to post rates, terms, and conditions for their services on their websites and provide a toll-free number for consumers to obtain a copy of such information, they cannot engage in anti-competitive pricing without detection. Further, by deregulating the pricing of all but basic residential services, we have eliminated the financial incentive for a licensed carrier to engage in cross-subsidization with an unlicensed affiliate.
Accordingly, given these findings, we believe that the requirements of Section 495.7 have been met.
4.3. Permissive Detariffing Procedure
In our discussion of detariffing in the URF Phase I decision, we indicated that our preference was to issue an order detariffing nearly all telecommunications services within a certain time period.112 However, it is not clear that that the Public Utilities Code authorizes us to take such a sweeping step. Several parties assert that the Commission does not have authority to mandate detariffing. Section 495.7 speaks of granting carrier requests to detariff particular services. It does not explicitly authorize us to enter a blanket order mandating detariffing. On the other hand, the statute was enacted at a time when the market for telecommunications services was not competitive and all telephone services were obtained from a single monopoly provider. Having found that all markets in which the state's largest ILECs offer services are now competitive, we could conclude that requiring individual applications for detariffing (other than from a GRC-LEC) is no longer in the public interest because all such applications should be granted.
This was the position taken by the FCC in 1996 when it decided to mandate, rather than permit, the detariffing of all telecommunications services offered by non-dominant interexchange carriers. In its detariffing order, the FCC held that under the Federal Communications Act of 1934, as amended by the Telecommunications Act of 1996 "complete detariffing of interstate, domestic, interexchange services offered by nondominant interexchange carriers is in the public interest, and that permissive detariffing of such services is not in the public interest."113
We recognize that the state and federal statutes are different, but the public policy issues we face are quite similar to those the FCC faced in 1996. While mandatory detariffing automatically places all carriers on a level playing field and eliminates the need for further Commission involvement in the selection and pricing of services, permissive detariffing may lead to the opposite result to the extent that carriers are able to preserve those elements of the old model that are beneficial to them, such as the filed rate doctrine and the limitation of liability,114 but avoid the restrictions that tariffs otherwise would impose. To guard against this possibility, any permissive detariffing regime would have to bar carriers from retaining tariff protections when cancelling tariffs.
However, given that mandatory detariffing may not be authorized under the statute, we will instead permit carriers to apply to cancel tariffs by filing Tier 2 advice letters (as defined in revised GO 96-B with the Telecommunications Industry Rules). After a service has been detariffed, we will not require the URF carrier to file an individual case basis (ICB) contract.
Having concluded that the requirements of Section 495.7 have been met, we direct staff to approve a request to detariff filed as a Tier 2 advice letter provided that the advice letter is otherwise in compliance with GO 96-B and our rules and does not propose to cancel:
1. A tariff for basic service;115
2. A tariff that includes a requirement or condition imposed in an enforcement/complaint or merger proceeding;
3. A tariff for 911 or other emergency services;
4. A tariff relating to customer direct access to an interexchange carrier or customer choice of an interexchange carrier; or
5. A tariff for a service that was not granted full pricing flexibility in D.06-08-030.
6. A tariff that contains obligations pursuant to Carrier of Last Resort obligations, or state or federal law, or Commission orders and decisions.
If a tariff does not fall within the above exceptions, the URF carrier may seek to cancel it by filing a Tier 2 advice letter.116 Although staff will be under a general instruction to approve an advice letter if it complies on its face with the requirements we adopt in this decision, staff review is necessary to determine if the advice letter seeks to detariff a service in the above categories for which we do not allow detariffing.
We do not think that, at least as an initial matter, carriers should be permitted to self-certify such compliance. Pursuant to our newly-revised GO 96-B, if no protest is filed within 20 days of the filing and staff takes no action, the advice letter is deemed approved at the end of the 30-day period. If the advice letter is protested, pursuant to GO 96, staff is required to review and investigate the protest and, if at the end of the 30-day period, staff needs more time to investigate, it will notify the carrier that it needs to extend the period of time to review the advice letter.117 See GO 96-B General Rule 7.6.1. During staff's review, the advice letter is suspended and only becomes effective upon staff's written approval or Commission resolution approving it. See General Rule 7.3.4.
Once a service is detariffed, the carrier need not file anything further with the Commission regarding the detariffed service, including advice letters or contracts. However, the carrier must notify customers of increased rates, or more restrictive terms and conditions and further must post all available information on its website.
An URF Carrier may not detariff existing services/promotional offerings/bundles 18 months after the effective date of this decision. If an URF Carrier seeks to offer on a detariffed basis a "new service," the carrier shall file a Tier 2 advice letter describing the new service that it intends to offer as detariffed as long as the new service does not fall into the categories of services for which we prohibit detariffing, as discussed further below, and the new service does not fall into a category of services that the carrier has already detariffed. We are requiring a Tier 2 advice letter for the detariffing of such new services that fall into categories of services that an URF Carrier has not already detariffed, to be consistent with our detariffing process and Section 495.7.
Although we have established an 18 month implementation period for carriers to request detariffing of their existing services, we do not apply the 18-month implementation period to "new services," as technological innovations will continue to result in new services that carriers are not currently aware of or are offering at this time, and which should not be subject to traditional regulation. We intend by establishing an 18-month implementation period to give URF Carriers a strong incentive to broadly detariff their existing services within the 18-month period, within the limits that we have established. As we also discuss in our accompanying GO 96-B decision, if a carrier does not detariff during that 18-month period, we assume that the carrier does not believe detariffing services is useful for its business and thus that carrier should not have the ability to detariff New Services.
If the carrier seeks to offer the "new service" on a tariffed basis under Tier 1, the carrier may do so.
We now discuss the categories of services and/or tariffs that may not be detariffed below.
4.4. Services That May Not be Detariffed Under Tier 2 Advice Letter
Phase I of this proceeding preserved basic residential service as a tariffed service and we do not modify that determination in this phase.118 However, we clarify that by "basic residential service," we meant "basic service" as defined in D.96-10-066. DRA questions whether the terms "basic residential service" and "basic exchange service" are co-extensive and, if not, how they relate to one another.119 We find that the term "basic residential service" means "basic exchange service," or "basic service" as defined in D.96-10-066.
We believe that the phrase "basic exchange service" is equivalent to "basic service;" in D.96-10-066, we used the phrase "basic service or basic exchange service" as interchangeable terms.120 We further defined "basic service" in D.96-10-066 to mean the service elements that a provider of local exchange service must offer to each residential customer who requests service from the provider.121 Because "basic service" is limited to a form of residential service, the phrase "basic residential service" that we initially proposed as the exception to detariffing in the Phase I decision is unnecessary. Instead, we use the defined term "basic service" to describe the statutory exception to detariffing. We reflect this definition in our modified GO 96-B.
4.4.2. Exception: Asymmetric Obligations/Tariffs incorporating penalties or merger conditions
As discussed above, we deferred to this Phase II the issue of how to address in the detariffing context those tariffs that incorporate requirements imposed by the Commission in an enforcement or complaint proceeding. Although these tariffs may result in "asymmetric" requirements of the kind that we eliminated in Phase I, we clarify that it was not our intention in adopting that decision to permit a carrier to use a one-day effective advice letter to lift a condition or requirement that we imposed in an enforcement or complaint case simply because it created an apparent regulatory asymmetry. On the contrary, we impose a penalty or requirement when a carrier violates one of our rules, i.e., when the carrier deliberately creates an asymmetry between its situation and that of other carriers by its own conduct. The purpose of our proceeding in such a case, including the imposition of the penalty, is to restore the symmetry that the carrier's conduct has set askew. Accordingly, to the extent that Ordering Paragraph 21 of the URF Phase I decision could be read as authorizing carriers to use advice letters to cancel tariffs that include penalties or conditions imposed for prior misconduct, we reject that reading.
We recognize that, based on its plain language, some parties may have inadvertently misinterpreted Ordering Paragraph 21 of the Phase 1 decision. Consistent with the uniform regulatory framework that we established, Ordering Paragraph 21 was intended only to eliminate regulatory asymmetry among carriers with regard to marketing, disclosure or administrative processes that are contained within their tariffs, with the exception of conditions relating to basic service rates, or conditions or requirements imposed as a result of an enforcement or complaint case.122 We also clarify that we also did not intend in Ordering Paragraph 21 to relieve URF carriers of specific conditions or requirements imposed on them through merger proceedings, or from other existing state and federal statutes (such as the requirements under the Telecommunications Act of 1996 as they pertain to ILECs).
Our consistent practice has been that a penalty or condition/requirement imposed in a Commission decision may only be lifted by demonstrating compliance with its terms -- for example, by paying a fine or complying with certain conditions or requirements -- or by a subsequent Commission decision. Before lifting such an obligation or requirement, the Commission must consider whether conditions have changed such that the requirement is no longer necessary (e.g., that the carrier has complied with its terms or that there is no longer a reason to continue the penalty or requirement in force). Moreover, in considering whether to lift a requirement imposed through an enforcement or complaint case, parties such as consumer representatives, including the Division of Ratepayer Advocates, and the carrier, may want to have the opportunity to address the issues implicated in modifying such a requirement or prior Commission decision. An advice letter, even one filed under Tier 3, which purports to cancel a tariff that includes a penalty or requirement imposed through an enforcement or complaint case is an inadequate means of guaranteeing full review of the carrier's post-penalty conduct. Accordingly, we conclude that a carrier required to file tariffs to comply with certain obligations or conditions imposed as a result of an enforcement/complaint case must file a petition to modify the underlying decision that imposes such penalty, requirements, or conditions. As discussed, a carrier similarly may not file an advice letter to remove obligations or conditions contained in its tariffs that were imposed by a merger case.
On a going forward basis, we put parties on notice that we prohibit the use of advice letters as a means of removing or reducing obligations imposed on carriers as a result of complaint or enforcement actions. Such obligations may be removed only by filing petitions to modify the original decisions. With regard to tariffs incorporating merger conditions, parties seeking to modify them should file separate applications or petitions to do so.
Different considerations lead us to conclude that the requirement to provide emergency service via 9-1-1 may not be modified or cancelled by filing an advice letter. The 9-1-1 system is a public safety necessity that must be equally available to all phone customers regardless of who provides their service. Permitting cancellation or modification of a 9-1-1 tariff by advice letter would undermine public safety and not be in the public interest. Any modifications to the 9-1-1 system should be adopted only as the result of a rulemaking that applies to all carriers and is incorporated in a subsequent Commission decision.
The exception for access to or change of an interexchange carrier recognizes the unique circumstance that a customer will necessarily use the services of such a carrier before forming a contractual relationship with it. For example, a customer dialing a number to access an interexchange carrier directly through its local exchange line will not form a contract with that carrier. Because they are ill-adapted to a contractual model, these services should also remain tariffed.
Finally, services that were not considered within the scope of this proceeding, such as wholesale tariffs and those matters we referred to our service quality and Universal Service Public Policy Proceeding (Lifeline) rulemakings, or other services for which we did not grant full pricing flexibility, cannot be cancelled by the advice letter procedure authorized in this proceeding. In addition, a carrier may not detariff any provisions pertaining to Carrier of Last Resort obligations. We consider AT&T's request for detariffing of billing and collection services provided to other carriers to be outside the scope of this proceeding and therefore deny its request.
We also clarify (discussed in further detail below), that URF ILECs may not detariff resale service tariffs at this time. We have not fully considered the market for resale services, and therefore, even if an URF ILEC detariffs the retail service, the URF ILEC must continue to file resale tariffs for that retail service that comply with the Commission's requirements governing resale service and federal or state law.
4.5. Additional Comments on Discrete Detariffing Issues Not Subject to Page Limitations
In Ordering Paragraph 10 of D.06-08-030, we sought comment from parties as to the "legal and implementation issues" regarding detariffing. We stated in the URF Phase I decision that we would consider these comments in determining whether to detariff services.123 As discussed, the record reflects that parties addressed legal, implementation, and policy issues, including whether the Commission should establish detariffing procedures.124 However, in the interest of ensuring that parties are aware that they should comment on all issues surrounding detariffing (including policy issues), we gave parties an additional opportunity, to the extent that they had not already, to address any policy issues that they would like to bring to the Commission's attention in comments on the proposed decision. If a party had not previously commented on this issue and wished to do so, we waived the page and content limitation under Rule 14.3 for comments on this specific issue on the proposed decision.
We intend for these detariffing procedures to apply for all URF Carriers, including the four major ILECs, CLECs, and IXCs. However, because there was some confusion as to whether these detariffing procedures would apply to IXCs,125 we noted that parties could also take this opportunity in commenting on the PD to address whether the detariffing procedures established here should apply to IXCs and supersede existing procedures adopted by the Commission. For purposes of commenting on this specific issue, we also waived the page and content limitations for comments on proposed decisions (Rule 14.3).
4.6. Responses to Specific Comments
The four ILECs and all others who commented on the issue agree that Section 495.7 may not permit mandatory detariffing. We concur and for that reason have adopted a permissive detariffing regime as discussed above.
DRA and TURN also urge us to clarify that carriers will no longer enjoy the protection of the filed rate doctrine126 or the limitation of liability for services that they have detariffed. We agree that carriers offering detariffed services cannot use the filed rate doctrine or any tariffed limitation of liability as a defense in any action involving the detariffed services. In short, two significant changes in carriers' potential liability will separate tariffed from detariffed services. In competitive markets, the risk of liability operates to discipline the behavior of market participants. In particular, since carriers will no longer be required to file rates, there is no logical reason to continue to afford them the protection of the filed rate doctrine as to such detariffed rates. As for the limitation of liability, Section 596.7(g) explicitly notes that a carrier's detariffed services will not be subject to the tariffed limitations of liability.
TURN and DRA urge us to mandate certain disclosures in contracts entered into between carriers and customers as a replacement for tariffs while Cox urges us to rule that carriers may limit their liability in such contracts notwithstanding the language of Section 495.7(g). We decline to adopt any content regulation for contracts.127 In a competitive market, carriers compete on both price and non-prices terms. By offering different contract terms and conditions, carriers seek to differentiate themselves from their competitors.
With respect to DRA's and TURN's proposals for new rules requiring carriers to disclose rates, terms and conditions of service and to publish such information on their web sites, we note that are requiring URF carriers that seek to detariff to publish on their websites their rates, charges, terms and conditions of service and to offer a toll-free number for consumers to obtain a copy of such information. We also add some clarifying requirements for website publishing, discussed below and in our accompanying GO 96-B decision in response to parties' comments on this Proposed Decision.
We reject TURN's proposal that in any complaint proceeding we require carriers to prove that their rates, terms and conditions are just, reasonable and non-discriminatory. In a competitive market, where contracts have succeeded tariffs, complaints by customers are likely to allege either that a carrier is in breach of its contract or of its statutory obligation to provide sufficient information for a consumer to make informed choices. The allocation of the burden of proof on these and similar issues is a matter for the judge hearing the case to decide.
We agree with Sprint Nextel that nothing in this decision applies to wholesale or resale tariffs. Wholesale/resale rates are to remain tariffed by URF carriers. We will address requests for reform of retail and resale special access in the next decision in this phase.
50 Opening Brief of Verizon California Inc. (U 1002 C) and its Certificated California Affiliates on Legal and Implementational Issues Associated with Detariffing (September 25, 2006).
51 Verizon proposes that carriers be permitted to detariff on a service-by-service basis during an 18-month transition period.
52 Comments of Pacific Bell Telephone Company (U 1001 C)Addressing Legal and Implementation Issues Related to Detariffing Telecommunications Services (September 25, 2006).
53 Opening Brief of Sprint Nextel on Detariffing Issues Identified in D.06-08-030 (September 25, 2006).
54 Opening Comments of Cox California Telecom, LLC (U 5684 C)Regarding Detariffing (September 25, 2006).
55 Id., at 5.
56 Id., FN 3, at 5.
57 Id., at 7-8.
58 Id., at 12.
59 Comments of SureWest Telephone (U 1015 C) on Detariffing Issues in Response to Paragraph 10 of D.06-08-030 (September 25, 2006).
60 Id., at 3.
61 Id.
62 Id., at 5.
63 Comments of Citizens Telecommunications Company of California Inc. (U 1024 C)d/b/a Frontier Communications of California on Decision 06-08-030 Regarding Detariffing (September 25, 2006).
64 Opening Brief of Time Warner Cable Information Services (California), LLC (U 6874 C) Concerning Detariffing of Telecommunications Services (September 25, 2006).
65 Brief of the Division of Ratepayer Advocates on Detariffing Issues (September 29, 2006) ("DRA Brief").
66 Id., at 3.
67 Id., at 4-5 and see FN 6, above.
68 Amended Brief of DRA and Disability Rights Advocates on Detariffing Issues (October 3, 2006) ("Amended DRA/Disability Rights Advocates Brief") at 2.
69 DRA Brief, at 5-7.
70 Id., at 9-10.
71 Id., at 12-14.
72 Id., at 16.
73 Id., at 16.
74 Id., at 17.
75 Opening Brief of The Utility Reform Network Regarding Detariffing (September 29, 2006)
76 Id., at 10-11.
77 Id., at 18-19.
78 Id., at 19-20.
79 Id., at 13-14.
80 Id., at 14-15.
81 Id., at 15-17.
82 Id., at 20-21.
83 Id., at 22-23.
84 Id., at 23-24.
85 See TURN Brief at 5; Amended Brief of DRA and Disability Rights Advocates at 3 (noting that a "properly implemented detariffing plan could alleviate certain consumer harms of the current tariffing regime").
86 See, e.g., DRA and Disability Rights Advocates Brief at 3-4 (noting that tariffs are "not even sufficient to provide consumers and the Commission with truly useful and timely information about service rates, terms, and conditions" but that detariffing can only provide meaningful customer protections against market power abuse if the Commission "completely eradicates all of the benefits conferred on telecommunications carriers by today's tariff regime - including not only the protections of the `filed rate' doctrine, but also the limitations on liability.") As discussed below, in the absence of tariffs, carriers cannot assert the filed rate doctrine. Further, any limitations of liability that are approved in tariffs would not apply.
87 Although the record reflects that parties have addressed policy issues concerning detariffing, we are permitting parties, to the extent that they have not done so already, an opportunity to address in their comments on this proposed decision all policy issues that they believe should be considered in establishing detariffing for carriers.
88 Pub. Util. Code Section 495.7 (emphasis added).
89 Findings of Fact 50 and 51 from D. 06-08-030 states:
50. Review of the extensive record in this proceeding shows that Verizon, AT&T, SureWest, and Frontier lack the ability to limit the supply of telecommunications services in the voice communications market, and therefore lack the market power needed to sustain prices above the levels that a competitive market would produce.
51. This lack of market power pertains throughout the service territories of Verizon, AT&T, SureWest, and Frontier, and pertains to both business and residential services.
90 See D.06-08-030 at 92, FN. 359 (citing FCC 2004 Local Competition Report).
91 D.06-08-030 at 76.
92 See D.06-08-030 at 119 (citing Verizon evidence).
93 We considered factors such as 1) the relevant voice communications market; 2) the extent to which entry or the threat of entry by competitors is sufficiently real to prevent the exercise of market power by the incumbents; 3) the extent to which competing communications technologies can check the market power of the wireline incumbents; and 4) the extent to which the presence of competitors in the service territories of ILECs already offers an alternative supply of telecommunications services and thereby provides a check on market power. D.06-08-030 at 52-53. These factors address criteria similar to those listed in Section 495.7(b)(1) such as type of service, relevant market, and other important criteria such as the extent to which competitors may check the incumbents' exercise of market power.
94 D.06-08-030, p. 127.
95 D.06-08-030 at 74.
96 D.06-08-030 at 92, see also Finding of Fact Para. 50. Specifically Verizon submitted evidence that wireless migration accounted for "approximately half of ILEC primary residential wireline losses," with increasing customers willing to "cut the cord." D.06-08-030 at 119, citing Verizon Opening Brief (citing Aron Reply Declaration at ¶ 72). AT&T also provided evidence that from the years 2000-2004, "SBC California lost almost 19 percent of its residential switched access lines, including a loss of over 21 percent of its non-lifeline primary residential switched access lines... [and] 23 percent of its business switched access lines." D.06-08-030 at 122, citing Pacific Bell Opening Brief at 61.
97 Id., at 118.
98 Id., at 120.
99 Id., at 128.
100 Id., at 185. The rules adopted in D.06-03-013 enumerating consumer rights vis-à-vis telephone and telegraph corporations and specific prohibitions against billing consumers for unauthorized services, were codified in GO 168.
101 See, e.g., TURN Brief at 12, 18, Amended Brief of DRA and Disability Rights Advocates at 6, 7.
102 See Pub. Util. Code Section 495.7(c): Before implementing procedures to allow telephone corporations to apply for the exemption of certain telecommunications services from the tariffing requirements of Sections 454, 489, 491, and 495...the commission shall establish consumer protection rules for those exempted services that include, but are not limited to:
(1) Rules regarding the availability of rates, terms, and conditions of service to consumers.
(2) Rules regarding notices to consumers of rate increases and decreases, changes in terms and conditions of service, and change of ownership.
103 See, e.g., Pub. Util. Code Section 2896(a):
2896. The Commission shall require telephone corporations to provide customer service to telephone customers that includes, but is not limited to, all the following:
(a) Sufficient information upon which to make informed choices among telecommunications services and providers. This includes, but is not limited to, information regarding the provider's identity, service options, pricing, and terms and conditions of service.
104 See GO 96-B, Telecommunications Industry Rules 5.1 and 5.2. Carriers with tariffed services are already subject to such notice requirements.
105 Pub. Util. Code Sections 851-854. See also D.06-10-021, D.04-10-038, D.02-01-038, D.97-06-096.
106 TURN Brief at 14-15.
107 D.06-08-030.
108 The Commission makes this consumer information available both in www.CalPhoneInfo.com and in brochure form to consumers. The information is available in consumer friendly "plain English", at the third grade reading level.
109 Section 495.7(c)(3)-(6) require:
(3) Rules to identify and eliminate unacceptable marketing practices including, but not limited to, fraudulent marketing practices.
(4) Rules to assure that aggrieved customers have speedy, low-cost and effective avenues available to seek relief in a reasonable time.
(5) Rules to assure customers that [sic] their right to informational privacy for services over which the commission has oversight.
(6) Rules to assure a telephone corporation's cooperation with the commission investigations of customer complaints.
In Appendix D to D. 06-03-013, our decision adopting revised consumer protection rules, we identified more than 160 existing Federal and state statutes, regulations or Commission decisions that establish consumer protections for the benefit of telecommunications customers. For example, Pub. Util. Code Section 2889.9 prohibits parties from misrepresenting affiliation with carrier when soliciting or implementing customer agreement to purchase services. Pub. Util. Code Sections 2891 and 2893 also prohibit carriers from releasing certain personal information of subscribers to residential service and require carriers to block Caller ID information for consumers at no charge. The Commission has also established in the Consumer Bill of Rights that consumers have the right to participate in public policy proceedings, to be informed of their rights and to have effective recourse if their rights are violated.
110 See, e.g., Pub. Util. Code Sections 581 and 582.
111 D.06-08-030 at 183.
112 "We preliminarily propose ordering carriers to cancel tariffs during a certain time period, either by replacement, supplement or expiration." D.06-08-030, at 180.
113 11 FCC Rcd 20730, 20768 (1996) (emphasis added).
114 Section 495.7(g) removes the protection of limited liability from any detariffed service.
115 Section 495.7 addresses the detariffing of all services except "basic exchange service." In Phase I of this decision, we proposed to consider detariffing of all services except "basic residential service." We discuss below our decision to refer to the term "basic service," as defined in D.96-10-066, as opposed to "basic residential service."
116 See Telecommunications Industry Rules, Rule 7.2(3) in Appendix C to GO 96-B.
117 If there is a protest, the advice letter may be suspended if necessary for staff to complete review of the issues raised by the protest. Pursuant to General Rule 7.6, staff may approve the advice letter if the protest is not made on proper grounds; the protest may be rejected on a technical basis if the protest is clearly erroneous. Pursuant to General Rule 7.4.2., the grounds for protest are narrow; for example, a party could protest that an advice letter is seeking to detariff a service that falls within the exceptions (e.g., basic service), and staff would need to review that allegation.
118 Ordering Para. 21 of D. 06-08-030: "With the exception of conditions relating to basic residential rates, all asymmetric requirements concerning marketing, disclosure or administrative processes shall be eliminated." The phrase "basic residential rates" might more accurately have been replaced with "basic service rates."
119 DRA Opening Brief at 9-10 (noting that the Commission has identified no language in the statute that defines "basic exchange service" as "residential service" only).
120 D.96-10-066, 1996 Cal. PUC LEXIS 1046, *26.
121 D.96-10-066 (Appendix D, Part 4).
122 We note that Conclusion of Law Paragraph 53 in the Phase 1 decision stated that "[p]arties should be able to modify their tariffs to eliminate asymmetric or company-specific restrictions on marketing practices, disclosure requirements or administrative processes." D.06-08-030 at Conclusion of Law Para. 53 (emphasis added).
123 D.06-08-030 at 186.
124 In D.06-12-066, we clarified that "we did not make the determination to detariff in this [Phase I] Decision, nor did we make any findings pursuant to section 495.7," and that we "merely articulated our intention to further consider the issue." Accordingly, we requested that parties address legal and implementation issues pertaining to detariffing. We did not explicitly include "policy issues" in the notice for comment, but intended for parties to address all such issues.
125 See, e.g., Verizon Opening Brief at 3. The Commission has previously established procedures for detariffing IXCs. See, e.g., D.96-09-098, D.98-08-031.
126 The filed rate doctrine consists of several elements: a carrier cannot charge any price for a service other than the price contained in its tariff; the price in the tariff is per se reasonable; the carrier must offer the same price to all customers; and parties who deal with the carrier are deemed to have knowledge of the price in the tariff. The filed rate doctrine is a double-edged sword. On the one hand, it limits what a carrier can charge for a service and mandates that the carrier charge the same rate for that service to all customers; on the other hand, it provides a defense to the carrier in lawsuits that allege the rate is unreasonable or discriminatory. Louisville & Nashville R.R. Co. v. Maxwell, 237 U.S. 94 (1915)
127 In D.98-08-031, we established consumer protection rules for detariffing of interexchange carriers. In that decision, we concluded that Section 495.7 does not prohibit carriers offering detariffed services from imposing a limitation of liability provision in their contracts, but we interpreted Section 495.7 as "precluding a carrier offering detariffed services from enjoying the benefits that a Commission-sanctioned tariffed limitation of liability provision confers on a carrier." See D.98-08-031, 1998 Cal. PUC LEXIS 592, 600 (1998).
