Pacific Bell's Appeal of POD

In its appeal of the POD, Pacific Bell states that the POD "commits legal error" by ordering Pacific Bell to alter its tariffs to preclude the practice of diluting unacceptably high refund rates, and to provide a copy of the decision to all its billing and collection customers. Pacific Bell contends that such actions exceed the scope of the OII and the scoping memo because the OII and scoping memo are directed only at USP&C, not Pacific Bell's generally applicable billing and collection practices. Pacific Bell concludes that the Commission may not take such actions because Pacific Bell had no notice such actions might be taken.

When, in the course of an adjudication, the Commission discovers a novel act of wrong-doing, the Commission is not powerless to prohibit such acts. Here, UDP&C admitted to a plan to conceal its actual customer refund rate by diluting it with additional billings that had a lower rate, rather than correcting the underlying problem. The record in this proceeding is more than ample to support the conclusion that "dilution" of refund rates is contrary to the public interest. Pacific Bell provides billing and collection services pursuant to Commission-approved tariffs. A minor alteration to those tariffs to foreclose a newly uncovered means of circumventing the tariff requirements is not a significant burden to Pacific Bell. In fact, Pacific Bell should have come forward with this modification upon learning of the "dilution" technique as such dilution undermines the purpose of the refund rate limitation in the tariff.

The record similarly does not support Pacific Bell's contention that it lacked notice that the Commission might order it to take additional steps. When adopting the OII, the Commission indicated its intention to consider imposing requirements on "all California billing telephone companies" in this proceeding.15 Ordering Paragraph 1.d. states that the Commission will determine whether to order "all California billing telephone companies to cease providing billing and collection services to USP&C or take other action such as establishing reporting requirements for USP&C." (emphasis added.) The scoping memo carried through this issue and stated that, other than the issue identified in Ordering Paragraph 1.a., all other issues set out in that Ordering Paragraph would be addressed in this proceeding.

Thus, the Commission has the authority to order Pacific Bell to modify its billing and collection tariffs to preclude dilution of refund rates, and to provide copies of this decision to all its billing and collection customers. The Commission gave Pacific Bell and all other billing telephone companies notice that it was considering ordering them to take "other actions" as part of this OII. In short, the Commission properly ordered Pacific Bell to modify its tariffs and distribute copies of this decision.

Findings of Fact

1. USP&C is an aggregator of billings for telecommunications-related services, USP&C serves as a billing agent between these service providers and the LEC, who actually bills the subscriber.

2. Pacific Bell's tariff Schedule Cal. P.U.C. No. 175-T requires that each billing and collection customer submit only accurate billings that are consistent with the service requested by and provided to the end-user.

3. The Agreement for the Provision of Billing and Collection Services between Pacific Bell and USP&C, Inc, dated August 11, 1998, provides that the agreement may be terminated if Pacific Bell receives more than one complaint per 30,000 bills rendered, or the USP&C's refund rate to customers exceeds 15% of the total amount billed.

4. USP&C's refund rate for Pacific Bell billings ranged from 36.5% to 69.02%, with an average of 52% for the period January 1998 to July 1999.

5. USP&C's refund rate for GTE billings averaged 48% for the period December 1998 to November 1999.

6. Pacific Bell approves all sub-CICs and requires, among other things, that the entity submit proof that all fictitious business name statements are registered and filed with the applicable jurisdiction.

7. The companies to which USP&C provided billing services obtained sub-CICs using different names for the same service provider and the same service.

8. The names used to obtain sub-CICs were not the names of natural persons, corporations, or corporate subsidiaries of the corporations to whom USP&C provides billing services, nor were these names registered fictitious business names.

9. USP&C used what it calls "service brand names" as the basis for the description it provided to California LECs for billing on subscribers' local telephone bills.

10. USP&C's "service brand names" are meaningless to customers that had not reviewed the service provider's advertising materials.

11. The entities for which USP&C bills are not attempting to create a unique name for their services "to identify and distinguish the services of one person . . . from the services of others."

12. The term "service brand name" has no relation to service marks and the product identification function service marks are intended to achieve.

13. As used by USP&C, "service brand names" do not provide customers with a clear and concise description of the service charged on the local telephone bill.

14. A billing agent, such as USP&C, is not the "party responsible for generating the charge," but may be responsible for resolving disputes regarding the charge.

15. Despite repeated warnings by Pacific Bell, USP&C was either unable or unwilling to take the steps necessary to reduce its customer refund rate to an acceptable level.

16. USP&C either knew or should have known that the billings it was presenting to Pacific Bell failed to comply with § 2890(b).

17. The Federal Communications Commission's Truth in Billing regulations do not address multiple trade names and multiple service names for the same provider and the same service.

18. USP&C is a going concern with significant financial resources.

19. USP&C has demonstrated that it cannot conform itself to the requirements for billing agents imposed by Pacific Bell's tariffs and by the Public Utilities Code.

20. A customer refund rate of 52% with Pacific Bell and 48% with GTE is substantial evidence of widespread violations of § 2890(b).

Conclusions of Law

1. Neither Black's Law Dictionary (7th edition), nor Merriam Webster's Collegiate Dictionary (10th edition) define "service brand name."

2. Black's Law Dictionary defines a "servicemark" as "a name, phrase, or other device used to identify and distinguish the services of a certain provider."

3. The Lanham Act, 47 U.S.C. § 1027, defines "service mark" as "any word, name, symbol, or device used . . . to identify and distinguish the services of one person . . . from the services of others . . .."

4. Black's Law Dictionary (7th edition) defines "description" as an account setting forth the subject's characteristics or quantities.

5. Section 2890(e)(2)(A) requires that a telephone bill include an explanation of each charge which sets forth the characteristics or qualities of the product or service for which the charge has been imposed.

6. In 1999, § 2890(e)(2)(B) required that the bill identify "the name of the party responsible for generating the charge" and provide a "description of the manner in which a dispute regarding the charge may be addressed."

7. Where the sub-CIC name is (1) not the name of a natural person or partnership, (2) not a corporate name, and (3) not registered as a fictitious business name pursuant to Business and Professions Code § 17900 et. seq., the sub-CIC name fails to meet the requirements of § 2890(e)(2)(B).

8. The settlement agreement between CSD and USP&C is reasonable in light of the whole record, is consistent with the law, and is in the public interest.

9. The settlement agreement should be approved.

10. The public interest requires that all billing agents respond to any and all staff requests for information within 10 business days of receiving the request.

11. The Commission is authorized to order California LECs to cease to provide billing and collection services, and to require billing agents to pay a fine to the State of California.

12. Safeguarding the rights of customers and enforcing the provisions of §§ 2889.9 and 2890 requires that we order all California LECs permanently to cease providing billing and collection services to USP&C, its corporate affiliates, and any billing agents with which USP&C has common corporate officers or owners of 10% or more of outstanding stock.

13. USP&C should be fined for each day it was out of compliance with the Public Utilities Code.

14. The totality of the circumstances includes a long-standing customer refund rate of over 52%, which supports imposing a substantial fine.

15. In consideration of the severity of the offense, the number of violations, and the conduct of the utility, the public interest requires that we impose a fine of $1,750,000.

16. All California LECs should be ordered to cease permanently providing billing and collections services to USP&C, its affiliates, and any billing agents with whom USP&C has common corporate officers or owners of 10% or more of outstanding shares.

17. USP&C should show cause why it should not be required to disgorge all funds obtained from California customers and retained by USP&C for reserves, in payment of fees, or for any other purpose.

18. USP&C should show cause why it should not fined for presenting billings to a California LEC that failed to comply with § 2890(b).

19. Probable cause exists to believe that Benchmark Communications, Inc., Messenger Com, Inc., Voice Delivery Systems, and Spring Telcom, Inc. have violated § 2890(b).

20. Benchmark Communications, Inc., Messenger Com, Inc., Voice Delivery Systems, and Spring Telcom, Inc. should be named as respondents to this proceeding, and should be ordered to appear and show cause why they should not be required to disgorge all funds obtained from California customers in violation of § 2890(b), and retained for reserves, in payment of fees, or for any other purpose; and fined for violating § 2890(b) by presenting billings with unauthorized charges to California LECs.

21. The public interest requires that Pacific Bell and all California LECs that provide billing and collections services enforce their billing and collection services tariffs to the letter and in a timely manner to afford customers the level of protection mandated by those tariffs.

22. The public interest requires that LECs revise their tariffs to disallow "dilution" of customer refund rates as described in this decision.

ORDER

IT IS ORDERED that:

1. The settlement agreement affixed hereto as Attachment A and made a part hereof is approved, and the parties are directed to comply with the terms set forth in the settlement agreement.

2. No later than 60 days after the effective date of this order, USP&C, Inc. (USP&C) shall pay to the State of California, General Fund, the amount of $1,750,000. USP&C shall file and serve documentation of such payment on the day payment is made.

3. All California local exchange carriers (LECs) should shall permanently cease providing billing and collections services to USP&C, its affiliates, and any billing agents with whom USP&C has common corporate officers or owners of 10% or more of outstanding shares;

4. At a hearing to be scheduled by the assigned Administrative Law Judge, USP&C shall appear and show cause why:

a. It should not be required to disgorge all funds obtained from California customers and retained by USP&C for reserves, in payment of fees, or for any other purpose; and

b. A fine should not be imposed for presenting billings to a California LEC that failed to comply with § 2890(b).

5. Benchmark Communications, Inc., Messenger Com, Inc., Voice Delivery Systems, and Spring Telcom are named as respondents to this proceeding.

6. At a hearing to be scheduled by the assigned Administrative Law Judge, Benchmark Communications, Inc., Messenger Com, Inc., Voice Delivery Systems, and Spring Telcom shall appear and show cause why they should not be:

a. Required to disgorge all funds obtained from California customers in violation of § 2890(b) and retained for reserves, in payment of fees, or for any other purpose; and

b. Fined for violating § 2890(b) by presenting billings with unauthorized charges to California LECs.

c. Required to demonstrate that they have obtained all required operating authority and are otherwise in compliance with all applicable portions of the Public Utilities Code.

7. The Executive Director shall cause the final decision to be served on Benchmark Communications, Inc., Messenger Com, Inc., Voice Delivery Systems, and Spring Telcom.

8. All billing agents shall respond to any and all staff requests for information within 10 business days of receiving the request unless otherwise stated by staff in writing. Should any billing agent fail to comply with such a request within the time allotted, we direct our Consumer Services Division staff to prepare a resolution for inclusion on the next Commission meeting agenda ordering California LECs to cease to provide billing and collection services to that billing agent pursuant to § 2889.9(f).

9. USP&C's Motion to Dismiss and Consumer Services Division's Motion for Summary Adjudication are denied.

10. The Executive Director shall cause the final decision to be served on all LECs. Each LEC that provides billing and collection services to third parties shall comply with this decision and shall notify its billing and collection customers of their need to comply with the decision.

11. No later than 90 days after the effective date of this order, Pacific Bell shall make all advice letter filings necessary to revise its tariffs to preclude the practice of diluting unacceptably high customer refund rates, as described in this decision.

This order is effective today.

Dated April 19, 2001, at San Francisco, California.

LORETTA M. LYNCH

President

RICHARD A. BILAS

CARL W. WOOD

GEOFFREY F. BROWN

Commissioners

ATTACHMENT A

SETTLEMENT AGREEMENT

BETWEEN

USP&C AND CONSUMER SERVICES DIVISION

This SETTLEMENT AGREEMENT ("Agreement") is the final and complete expression of the agreement entered into this 6th day of January, 2000, by and between the Consumer Services Division ("CSD") of the California Public Utilities Commission ("Commission") and USP&C and its shareholders, directors, officers, employees, mangers, agents, predecessors, and/or successors-in-interest (collectively, "USP&C" or "Respondents"), which hereinafter are collectively referred to as the "Parties" to this Agreement.

WHEREAS, the Commission has before it a proceeding entitled "Investigation of USP&C to determine whether it has violated Public Utilities Code Section 2889.9 by failing to provide Commission staff with requested information and whether the Commission should order California telephone companies to cease providing billing and collection services to USP&C, Investigation No. 99-10-024" ("I.99-10-024");

WHEREAS, the Parties each desire to resolve amicably the disputes among them and to settle and forever dispose of as expeditiously as possible the issues raised by Ordering Paragraph No. 1(a) of I.99-10-024 ("Phase I") related to the provision of requested information to the Commission staff;

WHEREAS, the Parties do not intend by this agreement to settle any of the issues raised by Ordering Paragraph No. 1 (b-e) of this proceeding;

WHEREAS, nothing in this Agreement shall be deemed an admission of liability or wrongdoing by any Party;

WHEREAS, the Parties agree that this Agreement does not constitute evidence, or an admission by any Party with respect to any issue of fact or law arising from or related to Phase I;

WHEREAS, the Parties dispute their respective rights and liabilities arising out of or relating to Phase I, and now mutually desire to reach a full and final compromise of all claims regarding the above controversy and all other potential controversies related in any way to Phase I, and further wish to avoid the delay, expense and uncertainty and inconvenience of protracted litigation of these claims;

WHEREFORE, in consideration of the mutual covenants, promises and warranties set forth herein. The Parties agree and contract as follows:

SECTION 1: $114,000 FINE

The Parties agree that USP&C will pay a fine to the Commission for remittance to the General Fund of the State of California in the amount of $114,000, of which $71,000 will stand suspended. USP&C shall pay the amount not suspended ($43,000) within ten business days of the effective date of the Commission's order adopting of this Agreement. The Parties further agree that the suspended portion of the fine may be imposed on USP&C under the conditions set forth in Section 2.

SECTION 2: USP&C RESPONSES TO CSD DATA REQUESTS

USP&C shall promptly respond to all reasonable data requests submitted by CSD to USP&C. Any dispute regarding the reasonableness of a CSD data request, including, and without limitation, the date upon which a response to a data request is due, shall be submitted to the Commission's Law & Motion Administrative Law Judge ("LMALJ") for resolution pursuant to the Commission's Law & Motion Procedures set forth in Resolution ALJ-164.

In the event USP&C fails to respond to a CSD data request by the date the response is due and has not been granted an extension of time from CSD to respond or has not disputed the reasonableness of the data request pursuant to the procedures set forth above, CSD may request that the balance of the fine be

imposed. CSD shall make such request by a formal motion to the LMALJ. If ordered to do so by the LMALJ in response to the CSD motion, USP&C shall pay the fine within ten business days of the issuance of the LMALJ's ruling. The parties agree that any ruling by the MLALJ in response to such a motion may not be appealed to the Commission and that the order of the MLALJ need not be ratified by any further order of the full Commission.

The procedures set forth in this paragraph shall not apply to data requests submitted by CSD to USP&C regarding the balance of I.99-10-024. Any disputed data requests submitted in any subsequent phase of I.99-10-024 shall be resolved by the administrative law judge assigned to I.99-10-024 or by procedures agreed to by the Parties in a separate agreement.

SECTION 3: NON-SEVERABILITY

No individual terms of this agreement is assented to by any Party except in consideration of another party's assent to all other terms. The terms of this Agreement are non-severable. Thus, the Agreement is indivisible, and each part is interdependent on each and all other parts. If this Settlement Agreement is adopted by the Commission with modifications, the modifications must be consented to by all Parties to this Settlement Agreement. Any Party may withdraw from this Agreement if the Commission modifies, deletes from, or adds to the disposition of the matters agreed to herein.

SECTION 4: APPLICABLE LAW

This agreement is to be governed and construed in accordance with the laws of the state of California applicable to settlement agreements either entered into or to be performed in the State of California.

SECTION 5: NO ADMISSION

The giving of consideration specified herein effects the settlement of Phase I of I.99-10-024. Neither the giving of said consideration nor anything contained herein shall be construed as an admission by USP&C, its employees, officers, directors, stockholders, agents, principals, representative, successors, and attorneys of the validity of the claims of CSD and the Commission.

SECTION 6: FURTHER ASSURANCES AND COOPERATION

The Parties shall cooperate with one another to prepare appropriate documentation to memorialize and effectuate the terms of this Agreement. The Parties shall employ their best efforts to secure Commission approval of this settlement. The Parties shall execute all such further and additional documents as may be reasonably necessary or appropriate to carry out the provisions of this Agreement.

SECTION 7: NOTICES AND DEMANDS

All notices, requests or demands herein provided to be given or made, or which may be given or made by either Party to the other, shall be given or made only in writing and shall be deemed to have been duly given: (a) when delivered personally to any Party to this Agreement; (b) forty-eight hours after the time the same is deposited in the United States mail within the State of California, regular, certified or registered mail, properly addressed, and postage thereon prepaid; or (c) when sent by facsimile transmission to any party using the facsimile number for such party set forth below in this section. The proper address to which notices, requests or demands may be given or made by either Party shall be the address for either party set forth as follows:

Such address and facsimile numbers may be changes by written notice given by such Party to the other pursuant to this section.

SECTION 8: ENTIRE AGREEMENT

This written Agreement constitutes the entire agreement between the Parties pertaining to the subject matter contained in it. This Agreement supersedes all prior and contemporaneous representations and understandings of the Parties. No supplement, modification, or amendment of this Settlement agreement shall be binding unless executed in a writing signed by the Parties hereto expressly stating that the modification is intended.

SECTION 9: CONSTRUCTION

This Agreement is a negotiated agreement. Each party has cooperated in the drafting of this Agreement. If any construction is to be made of any provision of this agreement, it shall not be construed against any Party on the grounds that such Party was the drafted of the agreement or a particular Provision.

SECTION 10: INTERPRETATION

Section titles in this Agreement are for convenience and do not define, limit or extend any provision of this Agreement.

SECTION 11: COUNTERPARTS

This Agreement may be executed in any number of separate counterparts, each of which shall constitute an original, and all of which, when taken together, shall constitute one single agreement.

IN WITNESS WHEREOF, each Party has executed this Settlement Agreement as of the date first shown above.

CONSUMER SERVICES DIVISION

By____________________________

Williams Schulte, Director

USP&C

By____________________________

Approved as to form:

CONSUMER SERVICES DIVISION

By____________________________

USP&C

By____________________________

C:\WINDOWS\TEMP\DRAFT SETTLEMENT AGREEMENT.DOC

(END OF ATTACHMENT A)

ATTACHMENT B

(SEE CPUC FORMAL FILES FOR ATTACHMENT B)

15 Pacific Bell is a billing telephone company. See § 2890.

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