Risk of Deterioration of Service

Pacific's witnesses testified that the consolidation of support services in SBC Services will be largely transparent to customers. For example, although billing support functions are transferred from Pacific, there will be no change in Pacific's bills and no change in the way customers resolve billing issues. Pacific's service representatives, who are not transferring to SBC Services, will continue to serve as a point of contact for residence customers with questions about their bills. Customers who experience fraud in their accounts will continue to contact the California fraud center of the Pacific business office. The only difference, according to the witnesses, is that if additional records or support is required, Pacific's representatives would get it from the consolidated support affiliate rather than from other Pacific employees.

Pacific's witness Webb introduced the General Services Agreement between Pacific and SBC Services in which SBC Services commits that services to Pacific "shall be performed by qualified personnel promptly and with diligence and in a professional manner."¹² The contract states that the support services "shall be equal to or exceed that of like services, which Buyer [Pacific] provided to itself immediately prior to the effective date of this Agreement."¹³

However, ORA's witnesses testified that the fact that Pacific now will have to compete with its sister companies for support services it previously provided in-house portends a deterioration in consumer service. Dale Piiru, an ORA regulatory analyst, testified that, since the 1997 merger with SBC, Pacific's service quality had deteriorated in two important areas affecting ratepayers. Citing FCC reports filed by Pacific, he testified that since the merger, the average time consumers wait for installation of new service has increased by at least 16%, while the average wait for residential repairs has increased by more than 70%. Piiru said that the ORA is unable to audit Pacific's service in these two areas because Pacific does not maintain installation records, and its service quality reports (filed pursuant to G.O. 133-B) do not provide detailed information.

Regina Costa, telecommunications research director for TURN, testified that Pacific's service representatives and technicians rely on the information technology function for the systems and programs that direct provisioning service, including service installations and repairs. If Pacific must compete with other SBC companies for this transferred service, or if it is obliged to accept applications standardized for generic use by SBC companies, Costa contends that service may be compromised. TURN's brief joins ORA in urging that we apply conditions that will permit the Commission to effectively monitor the effects of the transfer on the provisioning and repair of service.

ORA witnesses also criticized the General Services Agreement upon which Pacific states it relies to guarantee quality service from SBC Services. In direct testimony and cross-examination, ORA showed that, under the agreement, SBC Services will be the one that decides if it has provided satisfactory service. Damages to Pacific are limited to the amount that Pacific paid for the service, and SBC Services would pay no part of any penalty levied against Pacific by this Commission for service deficiencies. TURN on brief argues that "it is ludicrous to expect one subsidiary of SBC to take action against another subsidiary of SBC to enforce obligations under a contract between the two subsidiaries."¹⁴

Under Pub. Util. Code § 851, the Commission's duty is to ensure that the lease or transfer of property is in the public interest. That responsibility includes the obligation to attach such conditions on the lease or transfer as the public interest may require.¹⁵ Among considerations the Commission typically has examined in such applications is whether the proposed transaction will benefit customers or leave them indifferent to the change.¹⁶ As in all application proceedings, the applicant, Pacific, bears the burden of proving that its request is consistent with the public interest.

In filing this application, Pacific asserted that it "anticipated" no effect on service quality and that the transfer "could have" a positive effect on customer service.¹⁷ Yet Pacific does not contest ORA's showing that installation and repair intervals have deteriorated since the SBC merger, nor does Pacific propose any measures to assure us that a massive transfer of support services to an SBC subsidiary will not further affect service quality. We are not convinced that transferring support resources now devoted exclusively to Pacific to an unregulated company supporting SBC companies in eight states will maintain or improve service to Pacific. In this respect, at least, Pacific has failed to meet its burden of showing that so bold a transfer is consistent with the public interest in California.

Accordingly, our decision today conditions our approval of the application on the two conditions recommended by ORA-more detailed recordkeeping and reporting on service quality for residential and small business installations and repairs, and adoption of service performance guarantees similar to those applicable to GTE California, Inc.(GTEC).¹⁸ We believe that these two provisions provide a measure of assurance of service quality that is lacking in Pacific's application. Performance tracking like the kind ordered here is already performed in five of the seven states with SBC local exchange carriers, so the burden on Pacific should be minimal. On the other hand, if over time this tracking shows a deterioration in service to California consumers, we would expect on our own motion to reconsider whether in-house resources of Pacific should be restored. The service quality guarantees that we require will have no impact if, as represented, Pacific maintains or improves the quality of service now offered.

Preliminarily, our ordering paragraphs as to these conditions track language suggested by TURN and by ORA, but we invite Pacific and other parties in their comments to the proposed decision to suggest changes that will ease administrative burden without diminishing the effectiveness of these provisions.

On brief, Pacific notes, correctly, that this Commission declined to impose stricter service quality standards on any telephone utility in a rulemaking culminating in D.00-03-052,¹⁹ and it argues that it is inappropriate to adopt service quality standards in this proceeding when the same or similar standards were not adopted in D.00-03-052. The short answer to that is that the rulemaking did not address a transfer of 10% of Pacific's employees and nearly $1 billion worth of its resources. The issue here is how to protect Pacific's customers from the increased risk of service quality degradation posed by the transfer of support operations from Pacific to SBC Services. The fact that we did not choose to impose such rules generically on all telecommunications carriers is irrelevant to this company-specific application.

In addition to conditions dealing with installation and repair services, TURN urges that we condition our approval of this application on the establishment of tracking programs for billing complaints and fraud investigation. Here, however, we have no record of current shortcomings, nor are we shown how new tracking requirements will improve or supplement those that Pacific already has in place. The evidence shows that the manner in which Pacific customers report billing errors or fraud, and the Pacific personnel with whom they deal, will be unchanged following the consolidation of support services. A Pacific service representative will continue to pull up a customer's detailed records on a computer screen and deal directly with the customer's problem. On this record, we are unable to conclude that additional monitoring requirements for these functions are necessary.

¹² Exhibit 19, p. 1 of 6.

¹³ Id.

¹⁴ TURN Reply Brief, at 5.

¹⁵ Re Pacific Bell, D.98-07-006, slip op. at 5.

¹⁶ D.98-07-006, slip op. at 5-6.

¹⁷ Exhibit 25, p. DGP-9.

¹⁸ See GTEC Tariff Rules No. 18 and No. 19, Advice No. 5521.

¹⁹ Re Order Instituting Rulemaking on the Commission's Own Motion into the Service Quality Standards for All Telecommunications Carriers and Revisions to General Order 133-B, R.98-06-029.