4. Position of Consumer Services Division

CSD contends that Telmatch's customer solicitation methods violate the Pub. Util. Code. CSD notes that under § 451, all charges by a public utility must be just and reasonable, and CSD believes that it is neither just nor reasonable to charge consumers for services that they have not knowingly ordered.

4.1 Solicitation - The Sweepstakes Method

CSD states that Telmatch marketed a long distance calling card in California from 1997 to January 1998 using the name Benefits Plus. All solicitation of consumers allegedly was done through a "sweepstakes method." The sweepstakes method entails deploying entry boxes, set up at locations such as fairgrounds, where consumers are enticed to fill out a sweepstakes entry form by an invitation to enter to win $25,000 cash or a new car. CSD states that Telmatch uses the information it solicits on sweepstakes entry forms to charge consumers, through billing agents, a recurring charge of $4.33¹ for a calling card. The recurring charge generally appears on a separate page on consumers' LEC telephone bill. We observe that no clear reference to a calling card appears on consumers' phone bill.

4.2 Entry Form and Consent

Although the reverse side of the contest entry form contains small print saying that a person signing the form consents to receiving a calling card, CSD believes that this practice does not secure consent to take telecommunications service from Telmatch. CSD states that the entry form's visual emphasis is on a prize, whereas the terms and conditions regarding the calling card appear in small print on the back of the entry form. CSD also points out that the entry form is most clearly marked as an entry to win cash or a car, not a request for a calling card.

Further, CSD states that Telmatch does not provide the consumer with a copy of the terms contained on the entry form. A person merely fills out the front of the entry form and drops it into a contest entry box. The contest entry box contains a message on it in large print that states: "No Purchase Necessary."

CSD also argues that consumers did not understand the nature and extent of charges associated with Telmatch's calling card. CSD contends that the majority of consumers who were billed by Telmatch and who have not complained to any agency most likely do not know that their telephone bill contains a recurring monthly charge imposed by Telmatch. CSD interviewed several types of consumers: consumers identified by Telmatch as its customers, ² consumers who complained to Pacific Bell, and consumers that complained to the Commission.

In interviewing consumers identified by Telmatch as its "customers," CSD investigators asked consumers to review their telephone bills. CSD generally found that these consumers were unaware that Telmatch was billing them. For instance, CSD investigator Linda Soriano testified that she interviewed 24 consumers identified by Telmatch. Of these, 22 persons stated that they did not know that they were being billed by Telmatch, Benefits Plus or Consumer Access. (Soriano's declaration, Exhibit 11, summarizes her interviews.) Soriano stated that consumers expressed surprise and anger when they discovered on their telephone bill the charges imposed by Telmatch.

CSD investigator Steven Northrop interviewed a sampling of consumers who had complained to Pacific Bell about unauthorized charges attributable to Telmatch. Northrop testified that the majority of consumers said they did not know why they were being billed. (Northrop's declarations, Exhibits 13 and 14, summarize his interviews.)

In addition, Northrop interviewed consumers who had complained to the Commission. The majority of the consumers interviewed stated that their telephone bills similarly contained unauthorized charges. (Northrop declaration, Exhibit 15.)

4.3 Pub. Util. Code § 2890

CSD believes that Telmatch has violated § 2890(b)³ by imposing unauthorized charges on the telephone bills of consumers. CSD argues that Telmatch has violated § 2890(b) with each bill sent out since January 1, 1999, for consumers that have not authorized the services and charges associated with Telmatch's calling card.

Additionally, CSD contends that Telmatch violated § 2890(a)⁴ by billing for a "benefit" along with the calling card that is not "communications-related." Under § 2890(a), a telephone bill may not contain charges for noncommunications-related goods and services unless specifically permitted by the Commission. At the evidentiary hearing, a Telmatch witness (Dahl) testified that Telmatch's calling card included benefits such as golf discounts and lawyer referral services. CSD argues that these "benefits" are not communications-related goods and services, and as such these charges may not be included in a telephone bill unless permitted by the Commission. The Commission has not granted permission under § 2890(a), either generically or specifically to Telmatch, for subscribers billing envelopes to include charges for "noncommunications-related goods and services."

4.4 Restitution and Fines

CSD estimates that the amount Telmatch owes to Californians is at least $5.5 million. CSD contends that there are almost 60,000 current remaining California consumers being billed for the Telmatch calling card. Further, Telmatch solicited all of these consumers prior to January 1998, and thus Telmatch has charged these consumers for at least 20 months. CSD calculates that 60,000 consumers times $4.33/month times 20 months equals about $5.2 million. To this figure, CSD adds $300,000, based on the one-time activation fee ($4.96) paid by the consumer. CSD contends that the entire $5.5 million billed to Californians is the result of invalid "authorizations," and thus any revenues realized from the unlawful billings must be returned.⁵

"A telephone bill, and a bill for noncommunications-related goods and services that is included in the same envelope as a telephone bill, may only contain charges for products or services, the purchase of which the subscriber has authorized." (Emphasis added.)

"A telephone bill may only contain charges for communications-related goods and services, ... [however] The Commission may permit a billing telephone company to include in the same envelope as a subscriber's telephone bill, a separate bill for noncommunications-related goods and services. ..."