Discussion

In the joint motion seeking approval of the March 16 settlement agreement, the moving parties state:

"In reviewing settlements in telecommunications enforcement proceedings, the Commission has been concerned primarily with protecting the public from unscrupulous practices by telecommunications carriers, obtaining refunds for customers where customers have suffered harm as a result of violations of applicable rules and regulations, and encouraging a robust telecommunications market free from unfair competition. The Settlement Agreement serves each of these objectives." (March 16 Joint Motion, p. 3.)

We agree. When the terms of the March 16 and June 30 settlement agreements are considered together, they achieve each of these objectives.

With respect to eliminating unscrupulous practices, it is evident that the proposed settlements -- especially the June 30 agreement with QAI - contain real teeth. As noted above, the OII alleged that third-party verifiers provided by QAI seriously misled consumers with respect to the nature of the services these consumers were ordering. The June 30 settlement deals with this problem by requiring verifiers hired by (or working on behalf of) QAI to ask a stand-alone question about whether the consumer means to authorize a change in his or her long distance (or toll service) provider. Second, the June 30 agreement requires QAI to begin marketing its services on some basis other than the combined billing service that proved so attractive to QAI's (and CEI's ) past customers. See D.00-06-037, mimeo. at 17-18, n. 13 (quoting verification tape). These undertakings, when coupled with the "Welcome Package" that "will fully disclose all the fees and charges that QAI or its certificated resellers will assess" (App. B ¶ 13), appear to go a long way toward ensuring that consumers are not misled about the nature of the services they are buying.¹¹

We are also satisfied that when taken together, the March 16 and June 30 settlement agreements provide for adequate restitution to consumers. First, as pointed out in the joint motion for approval of the June 30 settlement, the total restitution fund of $245,000 will provide about $25 for each affected customer. This is somewhat more than the $20 we have found to be an adequate starting point for restitution in several other cases of slamming. Investigation of Heartline Communications, Inc., D.96-12-031, 69 CPUC2d 584, 591 (1996); Investigation of L.D. Services, Inc., D.97-11-079, mimeo. at 2-3; Investigation of Brittan Communications International Corp., D.98-04-024, mimeo. at 5.

While it is true that the settlements approved in Heartline, L.D. Services and Brittan allowed consumers who claimed more than $20 in damages to seek additional compensation through mediation and arbitration processes, the absence of such a provision in the settlement agreements here should not lead to their rejection. First, as the ALJ pointed out at the January 12 PHC, CEI has already been the subject of disciplinary proceedings in several other states as well as at the FCC. Thus, the amount that CEI would have available for restitution to its California customers has seemed limited from the start. Second, as noted in the March 16 joint motion, CSD is satisfied that it has obtained the maximum amount of restitution from CEI and Mr. Coleman that is possible:

"CSD believes that CEI should be required to provide restitution to California consumers. CSD is concerned, however, that CEI may not have sufficient resources to provide restitution which may be ordered after full evidentiary hearings in this proceeding. CEI and Daniel Coleman have represented that they have limited financial resources and that substantial refunds, fines or penalties could result in the bankruptcy of either or both of them. CEI and Daniel Coleman have both provided CSD with confidential financial statements [to this effect] . . ." (March 16 Joint Motion, p. 4.)¹²

After pointing out the substantial amount that CEI and Mr. Coleman agreed to make available for restitution in this case, the March 16 joint motion concluded that "the Settlement would ensure that customers receive refunds in an amount which almost certainly would not be possible absent approval of the Settlement." (Id.) The June 30 settlement agreement with QAI ensures that a substantially larger sum -- $245,000 -- will now be available for restitution than was envisioned when the March 16 settlement agreement was signed. In view of this substantial amount, and our doubts about whether any greater sum could be obtained after full hearings (and appeals) in this case, we conclude that a flat restitution payment of approximately $25 for each customer is reasonable.

Finally, we agree with CSD and the respondents that when taken together, the March 16 and June 30 settlements will help to encourage a "robust telecommunications market free from unfair competition." The March 16 agreement requires CEI to surrender its CPCN to operate in California, and bars CEI and any of its principal officers from applying for new operating authority in this state for a period of five years. The June 30 settlement agreement not only provides a substantial sum for restitution and the hiring of an experienced legal claims administrator, but also requires QAI to reform its contracts with resellers so that the misleading marketing and verification practices alleged in the OII will be eliminated.¹³ Taken together, these provisions will help to ensure that long distance and toll service are marketed in California in a more informative and even-handed manner.

In view of all these factors, and the lack of opposition to either settlement, we have no difficulty in concluding that, when considered together, the March 16 and June 30 settlement agreements are reasonable in light of the whole record, consistent with law, and in the public interest. Thus, the two agreements satisfy the standards for approval of settlement agreements set forth in Rule 51.1(e) of our Rules of Practice and Procedure.