2. Procedural History
On September 20, 2001, the Commission issued Decision (D.) 01-09-058 (Rule 12 Decision), which imposed a significant monetary penalty of $25.55 million and remedial measures on Pacific Bell Telephone Company (Pacific) for marketing abuses.2 The Commission concluded in D.01-09-058, as later modified by D.02-02-027, that Pacific had violated various statutes, decisional law, and its own Tariff Rule 12 by, among other things, failing to adequately disclose information to consumers, and by selling optional services sequentially starting with the highest priced packages, as well as deceptively labeling some of its packages.3 The Commission further found in that decision that Pacific had reinstated certain abusive marketing practices that we had enjoined in 1986, and ordered remedial measures (to be embodied in advice letters) that included a clear separation between Pacific's service and sales activities, and disclosure of the lowest price option for requested services, and for such remedial measures to remain in effect as long as Pacific served "60% or more of residential access lines" within its service territory.4
On November 26, 2001, pursuant to D.01-09-058, Pacific filed AL 22435. The Telecommunications Division (now Communications Division) reviewed AL 22435 and informed Pacific that the revised Tariff Rule 12, as shown on AL 22435 did not comply with the directives described in Section 9.35 and Ordering Paragraph 7 of D.01-09-058.6 On or after December 17, 2001, Office of Ratepayer Advocates (Division of Ratepayer Advocates' (DRA) predecessor in interest) and two telecommunications entities filed protests, complaining similarly that Pacific's filings did not comport with the letter or intent of D.01-09-058.
On February 7, 2002, the Commission issued D.02-02-027, amending some sections of D.01-09-058, but leaving intact the Rule 12 provisions discussed in Section 9.3 and Ordering Paragraph 7.
On March 12, 2002, Pacific filed the last of four revisions to AL 22435. Telecommunications Division staff took the position that these revisions failed to comply with D.01-09-058.7
On May 2, 2002, the Commission issued Resolution T-16650 which accepted some parts of the AL 22435 Tariff, as amended, but found that Pacific still had not fully complied with D.01-09-058, and in particular with Ordering Paragraph 13 which required the company to propound new "internal corporate rules and practices that would prohibit unfair, misleading, and predatory sales practices."
On May 7, 2002, Pacific submitted further AL 22908, subsequently amended by AL 22908A, filed on July 2, 2002.
Attached to AL 22908A were new "Sales Integrity Guidelines" for Pacific's Consumer Markets Group, in which Pacific agreed that its employees would:
3. Not engage in unfair, misleading, and predatory sales practices such as but not limited to the following:
Failure to describe requested service beginning with least expensive option.
Failure to describe three options available for inside wire.
Failure to describe Selective and Complete Caller ID Blocking options.
Failure to include prices in all descriptions of optional services.
Failure to resolve customer's request prior to offering additional services.
Failure to gain customer's permission before offering additional services.
Use of unlawful, unfair, or misleading names of products or services.
Also attached to AL 22908A was 6th Revised [Tariff] Sheet 84.1 that repeated the Integrity Guidelines as Tariff Rule 12.8
In 2003, without objection from Commission staff, Pacific submitted further refinements to the advice letters, in the form of ALs 23471, 23471A, 24390, and 24390A. Although these advice letters slightly modified Tariff Rule 12, they left its core provisions intact.
On April 7, 2005, the Commission instituted Rulemaking 05-04-005 (Order Instituting Rulemaking (OIR) on the Commission's Own Motion to Assess and Revise the Regulation of Telecommunications Utilities) to review whether to revise the regulatory framework for large and mid-sized incumbent local exchange carriers (ILECs) in California. The primary purpose of the proceeding was to develop a Uniform Regulatory Framework ("URF") to replace the New Regulatory Framework ("NRF") that had previously applied to the ILECs. See, e.g., D.06-08-030 at p. 13.
On August 24, 2006, the Commission unanimously issued D.06-08-030 in this docket, which found that ILECs lack market power for voice telecommunications services and, therefore, ILECs should be permitted increased pricing flexibility in many areas, with exceptions relating to basic rates and rates subsidized by certain public policy programs. The Commission noted that over the last 18 years, dramatic changes have occurred in the voice communications marketplace, with far more competition from multiple wireless carriers, competitive local exchange carriers, cable television companies adding Voice over Internet Protocol products, and pure-play VoIP providers that will add a voice connection over any broadband connection.9 One of the broad goals of D.06-08-030 was to place the incumbent telephone companies on a more level playing field with their new competitors, and to adopt more technologically and competitively neutral approaches to regulation.10 Ordering Paragraph 21 of D.06-08-030 further stated:
21. With the exception of conditions relating to basic residential rates, all asymmetric requirements concerning marketing, disclosure, or administrative processes shall be eliminated.
On September 11, 2006, AT&T filed AL 28800, which modified Tariff Rule 12 by deleting most of the Sales Integrity Guidelines previously incorporated in the tariff, based on Ordering Paragraph 21. Because these marketing requirements are not imposed on competitors of AT&T, AT&T sought to remove them pursuant to Ordering Paragraph 21 by means of a one day advice letter.
On September 29, 2006, DRA and The Utility Reform Network (TURN) (jointly) and Disability Rights Advocates filed Applications for Rehearing of D.06-08-030. Among the issues that DRA and TURN raised in their Joint Application was an allegation that Ordering Paragraph 21 was "unlawfully vague."11
On October 2, 2006 DRA and TURN (jointly), UCAN, Latino Issues Forum and Centro La Familia Advocacy Services, Inc. filed timely protests to AT&T's AL 28800. DRA and TURN argued that AT&T's AL 28800 is an improper procedural attempt to modify the Commission's underlying decision D.01-09-058; and that the advice letter substantively should be rejected as it poses a real threat to consumers who depend on AT&T for basic telephone service.12 Latino Issues Forum protested AL 28800 similarly on the grounds that the changes to AT&T's Tariff Rule 12 cannot be effectuated through the advice letter process and that AT&T should seek to modify the tariff through an application.13 Centro La Familia Advocacy Services, Inc. protested the proposed advice letter, asserting that the Commission should not permit elimination of "rules designed to protect consumers against deceptive marketing tactics" particularly where the rules were put in place because Pacific was previously found by the Commission to have used "aggressive, misleading marketing tactics."14
On October 23, 2006, AT&T filed AL 28982, which added back some but not all the disclosure language to Rule 12 removed by AL 28800.15 ALs 28800 and 28892 are hereafter referred to as the "Rule 12 Advice Letters."
On November 3, 2006, DRA and TURN filed timely Protests to AL 28982. DRA and TURN argued that even though AL 28982 added back disclosure language, "large portions of Rule 12" are still missing from the tariff. DRA and TURN reiterate the same arguments that this second advice letter also is defective procedurally (as it modifies an underlying decision) and substantively, as certain disclosures are no longer in the tariff.
On November 30, 2006, the Commission issued Resolution L-339 which directed that the Protests of ALs 28800 and 28892 should be addressed in the URF proceeding and left both advice letters in effect pending action in the URF docket. On December 14, 2006, the Commission issued D.06-12-044 which, among other things, granted limited rehearing as to Ordering Paragraph 21, and the elimination of asymmetric marketing, disclosure, and administrative requirements. In addition, the Commission prospectively suspended Ordering Paragraph 21 of D.06-08-030, pending the outcome of rehearing on Ordering Paragraph 21 in Phase II.
On December 21, 2006, the assigned Commissioner issued a Ruling and Revised Scoping Memo that sought comment from parties on various issues tentatively scheduled to be considered in Phase II of the above captioned docket, including the issues raised in the Rule 12 Advice Letter Protests.
On August 6, 2007, the assigned Commissioner issued a Ruling on Hearings Regarding AT&T Advice Letters and Ex Parte Ban (Ruling on Hearings), scheduling evidentiary hearings on AT&T's unilateral modifications of the Rule 12 marketing restrictions. The Ruling noted that it would examine in this proceeding whether the modifications made through the Rule 12 Advice Letters should be approved. The Ruling also placed an ex parte ban on communications with regard to the issues raised by the AT&T Rule 12 Advice Letters and the protests to the advice letters.
On September 6, 2007, in D.07-09-018, the Commission stated that Ordering Paragraph 21 was never intended to apply to "requirements imposed as a result of an enforcement or complaint case."16 The Commission clarified in that decision that on a prospective basis, carriers may not remove such asymmetric requirements through an advice letter filing and must file a petition to modify the underlying decision that imposed such condition or requirement. The Commission further recognized that, prior to this clarification, there may have been some confusion as to the scope of the Ordering Paragraph 21, and indicated that it would resolve issues pertaining to the protests to the AT&T Rule 12 Advice Letters in the next phase of this URF proceeding.
On September 11, 2007, the assigned Commissioner and Administrative Law Judge (ALJ) issued a final Ruling on the scope of this proceeding. The September 11 Ruling characterized the Tariff Rule 12 Advice Letters as substantially equivalent to a Petition to Modify D.01-09-058 and imposed on AT&T the burden of proving that the marketing restrictions imposed on it by that decision were no longer necessary.
On November 19 and 20, 2007, evidentiary hearings were held and attended by the ALJ and the presiding assigned Commissioner, and previously served testimony was admitted into the record.
On January 10, 2008 AT&T and DRA/TURN filed post-hearing opening briefs on these issues and on January 31, 2008 AT&T and DRA/TURN filed reply briefs.
2 The lead action, UCAN v. Pacific Bell, C.98-04-004, was consolidated with three other complaints and one Commission-initiated investigation: Telecommunications Union, California Local 103, International Federation of Professional and Technical Engineers, AFL-CIO (TIU) v. Pacific Bell, C.98-06-049 (action brought by Pacific's own employees); Greenlining Institute and Latino Issues Forum v. Pacific Bell, C.98-06-003 (action brought on behalf of low-income and language minority customers who had been allegedly victimized by Pacific's conduct); Office of Ratepayer Advocates v. Pacific Bell, C.98-06-027; and Investigation on the Commission's own Motion into the Establishment of a Forum to Consider Rates, Rules, Practices, and Policies of Pacific Bell and GTE, California, Inc., I.90-02-047.
3 See D.01-09-058, Slip Op. at 70-75. The Commission also found Pacific failed to provide adequate information to low-income market segments with regard to "basic service."
4 Ordering Paragraph 7, referencing Section 9.3, required that Pacific "create a clear distinction between [its] customer service and [its] sales or marketing efforts."
Ordering Paragraph 8 provided more elaboration: "[S]ervice representatives ... must first fully address and resolve the customer's request. The service representative must describe the lowest-priced option for purchasing the requested service."
5 Section 9.3 of D.01-09-058 provided, in relevant part:
At the core of our objections to Pacific Bell's offer on every call policy, incentive compensation, and sequential sales methods is the commingling of marketing of optional services with Pacific Bell's customer service obligations that arise from its role as essentially the sole provider of basic residential service. To provide customers protection where warranted, while also allowing Pacific Bell to participate in the marketplace, we find that a clearer distinction is needed between Pacific Bell's customer service function and its marketing opportunities. This distinction will allow customers to receive the protections inherent in §§ 451 and 2896 for customer service, but will allow Pacific Bell the appropriate latitude when engaging in conventional marketing.
... To ensure that Pacific Bell provides customer service as a priority, we direct Pacific Bell to address customer service requests prior to engaging in marketing efforts. We establish the four essential components to this directive below. Pacific Bell shall modify Tariff Rule 12 to fully implement each of these components:
a. Resolve Customer's Request First
On incoming calls to a residential customer service center, Pacific Bell must first provide the service requested by the customer. In addition, Pacific Bell shall describe options for purchasing any requested service beginning with the least-expensive option. This ensures that the needs of the customer are first addressed by the utility prior to their being subjected to a sales pitch.
After completely addressing all the customer's requests, the service representative shall summarize the customer's order including itemized prices.
b. Indicate to Customer that Requested Order is Complete
After summarizing the order, Pacific Bell shall inform the customer that the requested order is finished, and allow the customer an opportunity to terminate the call.
c. Seek Permission to Present Marketing Information on Other Services
Having completed the customer's request, and so informing the customer, Pacific Bell may then seek the customer's permission to offer information about additional services. Should the customer decline to grant such permission, Pacific Bell must cease offering such services and conclude the call.
d. If Customer Agrees, Present Marketing Information
If the customer desires to receive marketing information, then Pacific Bell may present marketing information to the customer. Such information need not be presented in any particular order but must include the prices for each service offered. For packages of services, Pacific Bell must inform the customer that the components are available separately. This requirement (d) shall apply to outbound marketing calls as well as inbound.
6 These and other facts related to AL 22435 and its amendments are recited in Commission Resolution T-16550.
7 Id.
8 Sheet 84.1 was originally promulgated as part of AL 23435D (see above).
9 D.06-08-030, pp. 4-5.
10 See, for example, discussion of leveling the playing field with regard to geographically deaveraged pricing (D.06-08-030, at pp. 139-140), and as to tariff filings (Id. at p. 183).
11 Joint Application of DRA and TURN for Rehearing of D.08-06-030, pp. 35-40.
12 Protest of DRA and TURN to AL 28800, p. 2.
13 Protest of Latino Issues Forum to AL 28800, p. 2.
14 Protest of Centro La Familia to AL 28800, p. 1.
15 As further discussed below, AT&T added back disclosure language in its Tariff Rule 12. This advice letter specifically clarified that AT&T would: (i) respond to customer's request first (before beginning any sales offerings); (ii) seek permission from the customer before accessing customer proprietary network information (CPNI); (iii) disclose to customers who identify themselves as tenants that the landlord is responsible for inside wire repair and maintenance for one jack per residence; (iv) inform customers of Caller ID selective and complete blocking options; and (v) provide customers with a confirmation letter describing the services ordered and recurring and non-recurring rates within 10 business days after taking a completed order for new business or residence service or moves, changes, or additions to existing service.
16 D.07-09-018, p. 56 (footnote omitted).
