4. Discussion
In Phase 1 of this proceeding, we determined that the market for voice communications services in California is now competitive. We reviewed the various provider choices for voice services that consumers today enjoy, including ILECs, cable companies, competitive local exchange carriers (CLECs), wireless, and Voice over Internet Protocol (VoIP), and concluded that these competitive options mean that ILECs lack market power to sustain prices above the level that a competitive market would produce.72 In keeping with that determination, the need for regulation of the telecommunications market for competitive services is reduced, but not eliminated. This Commission is still charged under the Public Utilities Code with protecting consumers against fraudulent behavior such as cramming and slamming, and against market failures, i.e., circumstances in which the existence of a competitive market alone is not sufficient to insure that consumers will receive the protection to which they are entitled under state law.
In Phase 2 of this proceeding, we clarified that it was not our intention in making the competition finding of Phase 1 and in Ordering Paragraph 21 of D.06-08-030 to permit a previously disciplined utility to rid itself unilaterally through an advice letter of requirements imposed in a prior enforcement or complaint case to correct past instances of abusive behavior. However, we did find that AT&T relied on a good-faith interpretation of Ordering Paragraph 21 in filing the Rule 12 Advice Letters, and thus we allowed the Rule 12 Advice Letters to remain in effect while we considered whether or not to reject them. At the same time, we treated the Rule 12 Advice Letters as, in substance, equivalent to a petition to modify D.01-09-058 and clarified that future modifications to Commission-imposed sanctions could only be accomplished through petitions to modify the prior decisions imposing the sanctions.
Consistent with this approach, we placed on AT&T the burden of proving that the marketing controls imposed on AT&T in the Rule 12 Decision were no longer necessary. In keeping with long-standing Commission practice, the standard of proof that AT&T must meet in order to carry its burden is a "preponderance of the evidence."73 In short, AT&T must show that the evidence supporting its modification of the marketing restrictions imposed in the Rule 12 Decision outweighs the evidence against maintaining all the restrictions in the Rule 12 Decision.
The evidence presented by AT&T in support of its de facto petition for modification consists of two basic sorts: an affirmation of our conclusion that the market for voice communications in California is competitive and a detailed description of how AT&T's Consumer Service Representatives deal with service inquiries from new or existing customers. DRA and TURN, on the other hand, assert that there has not been a substantial change in the relationship between AT&T and its customers and that the market has not changed in a material way to support the modifications; that AT&T has reverted back to its old marketing practices; and that consumers are confused by AT&T's marketing script. Although DRA and TURN acknowledge that D.01-09-058 may be modified some to reflect changes in the marketplace,74 they recommend that AT&T should make specific modifications to its Tariff Rule 12, two of which were previously included in AT&T's prior version of Rule 12: (i) resolve a consumer's complaint or reason for call prior to marketing services; and (ii) disclose the least-cost options for basic service and any service about which the customer seeks information; and several new requirements, including a requirement that AT&T disclose basic service rates on its website.75
We address the evidence and the arguments presented by the parties below.
4.1. The Competitive Marketplace
AT&T has not provided evidence that it has less than 60% of residential access lines, as required by D.01-09-058, as a condition for removing the Rule 12 marketing restrictions in that decision. However, as noted in Section 3 above, AT&T has argued that our competition finding in Phase 1 of this proceeding justifies the elimination of the marketing constraints imposed in the Rule 12 Decision. AT&T asserts that competition will deter abusive marketing practices, and ensure that it will "satisfy new, existing, and potential customers."76 AT&T argues, therefore, that "[i]f circumstances have sufficiently changed then the 60% requirement... should no longer be applied."77 We agree with AT&T that the competition findings in Phase 1 justify considering modifications to the Rule 12 marketing restrictions imposed on AT&T;78 as discussed below, however, we are not convinced by AT&T that the URF Phase 1 competition findings alone justify complete elimination of the Rule 12 disclosure requirements.
Public Utilities Code Section 2896 requires all telephone corporations to "provide customer service to telecommunication 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 requirement includes information regarding the provider's identity, service options, pricing, and terms and conditions of service. Therefore, all telephone corporations operating in California - even those voice carriers beyond AT&T - are required to provide adequate information and disclosure of their products and services in marketing their offerings to California consumers.
AT&T argues that the competitive market has eliminated the need for specific disclosure requirements in its Rule 12 tariff and particularly for asymmetric marketing conditions. We agree that the much more competitive telecommunications landscape supports our consideration in this proceeding of whether to relax some of the marketing restrictions that were imposed on AT&T in D.01-09-058. Although the Commission held that the marketing restrictions in D.01-09-058 should remain so long as AT&T retains 60% or more of residential access lines,79 the Commission also recognized in that decision that AT&T should have flexibility to market services where there is competition.80 We recently concluded in Phase 1 that market share is not the only factor for finding market power or competition in a market. We also found that there are many competitive options for consumers seeking telecommunications services. Given our findings in Phase 1 that there are many competitive telecommunications options and our earlier recognition that AT&T should be allowed to market on a level playing field with competitors where there is competition, we find that it is appropriate to consider whether to modify the Rule 12 marketing restrictions. Because we are considering whether to modify, and not eliminate all of AT&T's Tariff Rule 12 restrictions, we do not need to address as an initial matter whether AT&T satisfied the 60% benchmark in this proceeding. Our discussion below with regard to the AT&T Rule 12 Letters therefore rests on analysis of whether the modifications are justified.
However, we find that our reliance on factors other than market share for finding that there is competition in Phase 1 also provide support for modifying the 60% benchmark requirement in the Rule 12 Decision. Accordingly, it is appropriate to modify here the relevant sections of D.01-09-058 and Ordering Paragraph 7 with regard to the strict 60% benchmark. Consistent with the competition findings in URF Phase 1, we modify Ordering Paragraph 7 so that the relevant sentence now reads: "This rule shall remain in effect so long as [AT&T] serves 60% or more of residential access lines, or demonstrates through other relevant facts or law that the requirements are no longer necessary." We will not prescribe further at this time the scope of such relevant evidence, but in the future, if AT&T believes that facts or circumstances have changed, it may petition this Commission to remove the marketing restriction in its entirety.
We reiterate that consumer protection by this Commission remains appropriate and necessary, particularly in areas of fraud and abuse. This Commission will continue to enforce Section 2896 vigorously, particularly where it appears that individual companies require further reminders of the directives of this statute. As we discuss in the next section below, our review of AT&T's current marketing practices does require a determination as to whether AT&T's current marketing disclosures fully comply with Section 2896. Merely citing our previous conclusion that the market for voice communications services is competitive is insufficient on its own to meet the burden of proof for AT&T to sustain all its modifications in its Rule 12 Advice Letters.
4.2. AT&T's Business Practices
In the Rule 12 Decision, we found that AT&T engaged in marketing practices that could influence customers into purchasing telephone service bundled with other services and features81 in place of stand-alone basic service, even if stand-alone basic service is the better option for certain consumer segments.82 Among the findings in the Rule 12 Decision was a finding that AT&T had labeled some of its bundled service offerings with names that were confusing and potentially misleading. Accordingly, the Rule 12 Decision required AT&T to disclose to consumers certain information about its service offerings and required AT&T to delineate when it was making sales offers to consumers. AT&T contends that its marketing practices today are intended to provide consumers with the information that they need to make informed choices.
Specifically, in the years since the original Rule 12 Decision, AT&T asserts that it has refined its marketing methods and added computerized tools that make it possible for a Customer Sales Representative to quickly create an offer of bundled services and features that takes into account the customer's location, the services and features he currently subscribes to or has been offered by another carrier and the customer's willingness to pay for other services and features in addition to telephone service. Nevertheless, the evidence presented by AT&T in the form of marketing and customer service scripts, service manuals, and descriptions of desktop applications available to CSRs demonstrates that after filing the Rule 12 Advice Letters, AT&T may have resumed some marketing practices that were found objectionable in the Rule 12 Decision.
4.3. Disclosure of Stand-Alone Basic Service Offerings
AT&T argues that the combination of an evolving competitive market for voice communications and the customer service protocols and relationship management software it has adopted since the Rule 12 Decision results in guarantees that the company will not abuse its relationship with its customers (actual and potential). AT&T argues that throughout all but a very small portion of its service territory there is at least one competitor, either a CLEC or a cable company, providing voice and other services that compete directly with the services offered by AT&T and that a dissatisfied customer may "vote with his feet" at any time. The existence of actual and potential competitors acts as brake on AT&T's conduct such that, even if it wanted to engage in undesired high-pressure sales tactics, the market would quickly punish it for doing so.
We agree that the presence of competitors will provide a disciplining force on AT&T's marketing practices. A consumer who does not feel that his or her service or billing request is being resolved adequately will be a disgruntled consumer who may look for other options in telecommunications services. However, there may be certain segments of the population that are not as easily able to sign up service with a competitor. For example, certain consumers may desire only to purchase basic service and may need to get adequate information about the basic service offerings before he or she can make an informed choice. Further, those consumers who desire only to purchase stand-alone basic service may not have a comparable basic service option offered by VOIP, wireless, or cable providers. Therefore, we believe that certain disclosures by AT&T are necessary for these types of consumers. Based on the evidence in this proceeding, we believe that we should continue to require AT&T to make certain disclosures concerning basic service in furtherance of the goals of Pub. Util. Code § 2896.
Specifically, we find that some of the language that AT&T CSRs use in marketing to new customers is not clear. We are not persuaded that it is in the interest of a customer to be required to listen to a sales pitch for bundled services before being told the difference between flat rate and measured rate (which are the two stand-alone basic service offerings), and the monthly cost for basic service telephone service. The script currently used by the AT&T CSR to inform a customer ordering new service that the company offers flat and measured rate service reads as follows:
We offer Flat and Measured Rate service, separately and in bundles. I can provide you individual pricing for those services, but I recommend our discounted bundles with Flat Rate service. Which would you like to hear more about?83
This script's presentation of the options may influence the customer to choose a bundle without first being given an explanation of the difference between flat rate and measured rate service or being told the monthly cost of either form of basic service. The current script also may prevent a customer from obtaining "sufficient information upon which to make informed choices among telecommunications services" as required by the Pub. Util. Code § 2896. Thus, this script appears to be at odds with a fundamental finding of the Rule 12 Decision, that pursuant to § 2896 it is the carrier's obligation to provide a certain amount of information to the customer so that she or he may be able to make an informed choice among services, not the customer's obligation to request it from the carrier.84 Although AT&T has made many positive changes to its marketing practices, it is still inconsistent with Public Utilities Code Section 2896 to place the burden on customers to ask for such basic information as the monthly cost of stand alone basic service and the difference between flat rate and measured rate service, especially when being prompted to ask about bundles after a "recommendation" by the CSR to buy a discounted bundle.
Accordingly, we will require as a condition of permitting the Rule 12 Advice Letters to remain in effect, that AT&T file a further advice letter within 120 days85 adopting the requirement that a CSR must explain the difference between flat rate and measured rate service, and state the price for each, before offering or recommending a bundle to a customer requesting new service.
We have also considered DRA and TURN's recommendation that the prices for flat rate and measured rate service be posted on AT&T's webpage. Although this requirement was not originally in AT&T's Tariff Rule 12, we agree that that recommendation is consistent with our goals to ensure that consumers are provided with adequate information to make informed choices, particularly given the increased use of the Internet among consumers. Therefore, AT&T shall further modify its Tariff Rule 12 to require it to publish the rates for basic flat rate and measured rate service on its website. The information shall be posted on the same webpage as information regarding the cost and composition of bundles and shall be no less prominently displayed. With the exception of this requirement, we reject DRA and TURN's other suggestions for modifying AT&T's Tariff Rule 12 with new requirements.86 Those suggestions go beyond what we find necessary for providing adequate information to AT&T's consumers and the scope of this proceeding.
4.4. AL 28982 Remaining Modifications
We specifically approve the remainder of modifications made by AL 28982 to AT&T's Tariff 12. A&T has demonstrated that the customer relationship management tools it has developed in recent years provide it with greatly improved means to respond to customer inquiries and market to customers in non-abusive ways. We find that, with AT&T's modified customer relationship tools and today's competitive environment, the following Rule 12 restrictions of requiring customer call resolution first; providing a "recap and bridge," and obtaining customer permission prior to making offers, are not necessary.
Although DRA and TURN asserted that there were some consumer complaints regarding AT&T's modified marketing practices, we find that these complaints were generally unrelated to the removed Rule 12 requirements and do not establish that the original Rule 12 restrictions should remain in place.87 For example, complaints about the length of time that AT&T customer service representatives took in responding to calls are beyond the scope of this proceeding and are not related to Rule 12 requirements. DRA and TURN also point to AT&T's marketing practices as disproportionately affecting the low-income and LEP community on the grounds that they lack the ability to understand the marketing "jargon" that they encounter on calls to AT&T. DRA and TURN also argue that consumers appeared confused by some of the terms that customer service representatives used.88 We do not believe that the record establishes that AT&T's marketing practices result in a disproportionate impact on the LEP community. Moreover, issues pertaining to the LEP community are beyond the scope of this proceeding.89 To the extent that DRA and TURN assert that consumers could not easily obtain relevant information about basic service options under AT&T's current practice, we agree that AT&T's marketing script should be modified to address this concern. We have already addressed this issue above with the requirement that AT&T proactively provide its consumers with information about its basic service flat and measured rate services.
Currently, AT&T's model script requires the CSR to "address" the customer problem first before marketing other services to the customer. Although the script does not specify that the CSR must "resolve" a customer's request or problem first, AT&T asserts in its Opening Brief90 that it does, as matter of practice, require CSRs to resolve the problem before the CSR may proceed to market services.91 The call monitoring reports and other evidence produced by AT&T support the claim that customer problems are, as a matter of practice, generally resolved before an additional service offering is made, even though the new tariff does not require such an outcome.
For this reason, we do not believe that it is necessary to require AT&T to separate its response to a customer call from its marketing offers, engage in a structured "recap and bridge" or request explicit permission from consumers to make sales offers. We find that such structured requirements could inhibit the natural flow of a customer service call, and that, in some cases, a bundled service offering may in fact provide the best package for a particular customer's needs. Prohibiting AT&T's CSRs from making bundle offers as part of the process of resolving the customer's request for new service is not necessarily in the customer's best interest. Therefore, we do not believe that it is necessary to require AT&T to modify its tariff to require resolution of the customer's call strictly prior to marketing services in every instance.92 Similarly, we find that it is not necessary to require AT&T to indicate to a customer that a requested order is complete, to do a "recap and bridge," or to obtain the customer's permission prior to making further marketing offers. We believe that a customer has the ability to terminate a call once the customer has had his or her concerns addressed and these additional steps are superfluous. Finally, given evidence that AT&T is generally resolving its customers' requests before making any additional sales offers, we find that these requirements do not need to be added back to the tariff.93
We caution AT&T that we will be alert to complaints that the CSRs are deviating from the marketing scripts and the requirements of the tariffs as amended. In particular, we want to make sure CSRs are informing customers of the costs and types of stand alone basic rate service prior to marketing bundles. Should it come to our attention that AT&T has reverted to the kinds of sales tactics prohibited in the Rule 12 Decision, we will not hesitate to suspend the operation of the Advice Letters and open a new proceeding to deal with such tactics.
72 D.06-08-030, FOF Para. 50.
73 See, e.g., D.97-06-079 (denying petition for modification because petitioner failed to justify modification by preponderance of the evidence.) See also Pub. Util. Code § 1702 (standard of proof for complaint case is "preponderance of the evidence).
74 Joint Post-Hearing Brief of DRA and TURN, p. 4. DRA and TURN's other recommendations include requiring AT&T to: (i) offer consumers the right to cancel service within 30 days of the first invoice without early termination fees; (ii) acknowledge the Commission staff's right to inspect and monitor AT&T customer service performance; (iii) disclose that if a customer cancels part of a bundle, pricing may revert to a la carte prices; (iv) disclose possible early termination fees; (v) provide an estimate of the full bill amount for all orders that include basic service flat or measured rate service; and (vi) disclose basic service rates on AT&T's website.
75 Id., pp. 84-92.
76 AT&T Opening Brief, p. 3.
77 AT&T Opening Brief, p. 19.
78 In Phase 1 of this proceeding, we relied on evidence of market power (i.e., the unilateral ability to raise prices or reduce services without losing customers to competitors) rather than market share as the touchstone for our finding that the voice communications market in California is competitive. See D.06-08-030, pp. 127-133. In Phase I of this proceeding, we also found that market share was not itself a sole determining factor in whether a company possesses market power. D.06-08-030, p. 127.
79 D.01-09-058 specifically required with regard to the Tariff Rule 12 restrictions that: "[t]his rule shall remain in effect so long as [AT&T] serves 60% or more of residential access lines."
80 D.01-09-058, p. 80.
81 By "services" we refer to other communication services apart from voice communication including such things as Internet service and video programming. "Services" also includes Directory Assistance which is automatically provided as part of stand-alone telephone service but separately billed on the basis of usage. By "features" we refer to enhancements of stand-alone telephone service such as caller ID, anonymous call rejection, three-way calling, call forwarding and the like that add functionality to the telephone.
82 See D.01-09-058, Conclusion of Law 35 ("Package sales tactics that result in a quotation of rates for individual services only if customers persistently refuse the packages violates Tariff Rule 12 because information necessary to allow customers `to designate which optional services they desire' is withheld."), and Conclusion of Law 51 ("public interest requires that Pacific Bell provider to ULTS customers who also subscribe to optional services a specific explanation of the price for ULTS service as clearly distinguished from optional services").
83 AT&T Reply Brief, p. 35. This language was filed under seal but pursuant to an order of the assigned ALJ it was admitted into the public record. See ALJ Ruling dated February 11, 2008. Anyone calling for new connect service hears this message, so the argument that it is confidential lacks merit.
84 Rule 12 Decision Section 5.2, pp. 15-17 and COL 6, p. 100.
85 We have ordered this Advice Letter to be filed after 120 days in order to give AT&T time to train its thousands of CSRs and to update its website with the required information in a manner consistent with this order. The existing Tariff 12 Advice Letters may stay in effect in the interim.
86 See, e.g., Joint Opening Post-Hearing Brief of DRA and TURN, pp. 86-92.
87 DRA and TURN provided some evidence that there were consumers who had complained about certain marketing practices of AT&T since its modification of Tariff Rule 12. However, the evidence provided on this point did not establish that there were significant problems with these practices to require adding back these requirements of Tariff Rule 12. The specific problems cited by Testimony of Michael Shames, for example, included complaints about "extensive delays in reaching a live CSR," the inability of customers to find alternative options for telephone service, the transfer of "old" AT&T customers to the "new" AT&T, and some low income consumers who were sold services that they "didn't want or didn't need." Testimony of Michael Shames on Behalf of TURN, pp. 14-15.
88 See Supplemental Testimony of Dale G. Piiru on Behalf of DRA, pp. 7-8.
89 This Commission has another proceeding in place to address LEP issues. See R.07-01-021.
90 Ibid., pp. 25-29.
92 We note that in some cases, it is not possible for the customer service representative to resolve the reason for a customer's call immediately. For example, in some cases, the customer service representative sometimes must research records before there is a full resolution of some complaints. AT&T's current tariff, however, requires it to respond to and address the reason for the customer's call first. Further, AT&T's training tools urge AT&T customer service representatives to obtain resolution of the complaint on the first call. See Advice Letter 28982 and infra, Section III.A. (Issue 3). Moreover, the marketing scripts indicated that AT&T customer service representatives do address and resolve the customer's request before making further sales offers. Taken together, we believe that this is adequate to ensure that customer's have the reason for their call addressed, before being "pitched" for additional services. We wish to make clear that AT&T should resolve any billing questions or service questions prior to making sales offers. If, in the future, there is evidence that AT&T is not responding to and resolving to the extent practical customer's requests on calls prior to making marketing offers, particularly with regard to service or billing questions, we will investigate and consider whether additional marketing restrictions should be imposed.
93 AT&T should have the flexibility to make offers to a customer during a call where the consumer is seeking information about a service, but is not aware that there is another offering that may better suit the customer's needs.
