5. Statutory and Decisional Standards Applicable to Pacific Bell's Duty to Inform Customers

Specific statutory and decisional standards apply to Pacific Bell's various marketing activities. The most pertinent series of decisions were issued in 1986 and arose from Pacific Bell marketing programs then in place. We discuss that series of decisions in some detail. We then discuss, in the following order, Pacific Bell's marketing of specific services, its marketing programs and tactics, and finally its marketing to certain customer groups. Each issue is evaluated against the statutory and decisional standards.

5.1. General Standard

Section 451 requires that all charges imposed by a public utility, such as Pacific Bell, be just and reasonable. Similarly, that section requires that all rules that pertain to or affect a utility's charges or service to the public be just and reasonable.

The Commission has previously determined that § 451 requires Pacific Bell to disclose to its business customers all service options that may meet the customers' needs:

"In the complex field of communications, no layman can be expected to understand the innumerable offerings under defendant's filed tariffs. When defendant sends out one of its communications consultants to a customer's place of business for the explicit purpose of discussing telephone service, the consultant should point out all the alternative communications systems available to meet the customer's needs. This is duty owed by defendant to its customers." (First Financial Network v. Pacific Bell, D.98-06-014, June 4, 1998, quoting H.V. Welker v. P.T.&T Co., (1969) 69 CPUC 579).

The general standard has also been supplemented by the Legislature and interpreted by the Commission to give Pacific Bell, and other public utilities, more specific guidance on the types of charges and rules that are permissible. We now turn to this specific guidance.

5.2. Sufficient Information to Make Informed Choices

With regard to providing customers information about different telecommunications services, § 2896 mandates that Pacific Bell (or any other telecommunications corporation) provide its customers: "Sufficient information upon which to make informed choices among telecommunications services and providers. This includes, but is not limited to, information regarding the provider's identity, service options, pricing, and terms and conditions of service."

The Legislature passed this statute in 1993. The legislative history reveals a general intention to ensure that telecommunications corporations provide basic information to consumers:

"Assembly Bill 726 [codified as § 2896] sets forth minimum customer service standards for telecommunications corporations. These standards are very basic, including requiring the provision of information to consumers so that they may wisely shop among competing telecommunications providers."

Letter from Assembly Majority Whip Gwen Moore to Governor Pete Wilson (September 8, 1993) (noting that the bill has passed the Legislature and urging the governor to sign it, which he did).

The reports from Senate and Assembly hearings similarly reflect an intention to protect consumers by requiring telecommunications corporations to provide consumers with a minimum level of information:

"The author believes that the customer service practices discussed in this bill - many of which are currently required by the PUC - should be codified because they represent basic consumer protection policies of the state and should not be subject to change by regulation. Both ongoing and future regulatory changes have and will inevitably continue to cause additional customer confusion. This bill is intended to address information requirements to alleviate such regulatory and marketplace confusion. Further, these policies are intended to help establish a level playing field among competing telecommunications providers."

Senate Committee on Energy and Public Utilities, Hearing Report on AB 726 (Moore), June 22, 1993; see also Assembly Committee on Utilities and Commerce, Hearing Report on AB 726 (Moore), April 19, 1993.) The Legislature thus made permanent the Commission's existing regulations for information disclosure.

The standard to be derived from § 2896 is a general directive to telecommunications corporations to provide consumers with information to allow them to make knowledgeable choices among services and service providers. The standard is based on both traditional regulatory concerns for consumer protection and emerging concerns for fair competition. We next discuss disclosure standards, developed by the Commission and Pacific Bell itself, that apply specifically to the marketing of optional services.

5.3. Tariff Rule 12 and Information Regarding "Packages"

Pacific Bell's Tariff Rule 12 governs the offering of optional services to a customer. It states that Pacific Bell may call a customer's attention to the fact that optional services are available, and that the customer may designate which services are desired. Tariff Rule 12 also requires that Pacific Bell disclose all applicable recurring rates and nonrecurring charges:

"Where there are additional residence optional services (other than exchange access service) available, the Utility, or its authorized employees, may call applicant's attention, at the time application is made, to the availability of such optional services and the customer may designate which optional services they desire. The Utility shall provide a quotation of the applicable recurring rates and non recurring charges applicable to each service designated by the customer. The quotation of applicable rates and charges shall be stated separately for each optional service designated by the customer."

Rule No. 12 - Disclosure of Rates and Charges and Information to be Provided to the Public, effective May 15, 1995.

5.3.1. Basis of Tariff Rule 12

The Commission's GO 96-A, originally adopted in 1962, requires among other things, that each public utility's tariffs contain rules covering certain subjects. These subjects are enumerated in Section II. C. (4) of GO 96-A, and one of the subjects, "Optional Rates and Information to be Provided to the Public," is the basis of Tariff Rule 12. We must construe Tariff Rule 12 in light of this antecedent. A duty of the utility, according to directions given in GO 96-A, is "to promptly advise customers of new, revised, or optional rates applicable to their service." Also included under this subject are directions requiring that "customers [are] to exercise option," and that the public may inspect "information regarding service." Taken together, these directions impose on each utility a duty to be reflected in the utility's own tariffs to (1) provide customers with up-to-date information regarding the utility's service, and (2) allow customers to choose from among any service options available to them.

5.3.2. Application of Tariff Rule 12 to Service "Packages"

The Commission has previously addressed the requirements of Tariff Rule 12, and other marketing issues, in a series of decisions stemming from Pacific Bell's general rate case filed in 1985 (Application (A.) 85-01-034). As part of the rate case investigation, Commission staff members uncovered a number of marketing actions which staff believed violated provisions of the Public Utilities Code and Pacific Bell's tariffs. Staff reported these potential violations to the Commission. After a hearing, the Commission issued a decision directing Pacific Bell to cease and desist from: conducting an unauthorized trial program for enhanced services, engaging in "package selling abuses," violating Tariff Rule 6 in establishing credit, renaming basic service, and improperly administering the Universal Service Program. The Commission also ordered Pacific Bell to refrain from any cold selling telemarketing and from implementing any sales quota systems. (D. 86-05-072, 21 CPUC2d 182.) In a series of decisions issued over several years, the Commission subsequently ordered Pacific Bell to refund over $62 million to customers (as of November 1988) and to contribute $16.5 million to the Ratepayer Education Trust Fund. Pacific Bell's marketing practices were also placed under the guidance of the Customer Marketing Oversight Committee. (D.90-02-043, 35 CPUC2d 488, 500.) The entire series of decisions is known colloquially as the "Pacific Bell marketing abuse case" or the "cease and desist order." To distinguish this earlier proceeding from the current one, we will refer to the entire matter as the 1986 marketing case, although the decisions spanned a period of time well after 1986. When referring to a specific decision, we will provide a citation.

The decisions in the 1986 marketing case discussed Tariff Rule 12's requirement to disclose all recurring rates and nonrecurring charges in the context of selling packages of services. In the "cease and desist" decision (D.86-05-072, 21 CPUC2d 182, 188), the Commission found that Pacific Bell's "package selling abuses" had violated Tariff Rule 12 in two respects. First, basic local exchange service was packaged with expensive optional services in such a way as to "mask[] the basic rate, thereby causing ratepayers to unwittingly pay more for telephone service than they otherwise would, or worse, to go without such service at all." (Id.) The Commission staff witness described this as "representing to applicants for service that a loaded service is the basic service." (Affidavit of Karen Miller in Support of Order to Show Cause, May 7, 1986.)

Second, the Commission found that "in its `package selling' efforts, Pacific Bell violated Tariff Rule 12 which requires a quotation and full itemization of recurring and nonrecurring charges applicable to the service and equipment a customer seeks." (Id. at 190.) Underpinning this finding was evidence that Pacific Bell at that time was misrepresenting to its customers that local service could only be purchased as part of a package that included every available optional service Pacific Bell then offered. These packages increased the price of measured local service from $4.45/month to $28.15/month. (See Exhibit 511, A.85-01-034.) The Commission found that Tariff Rule 12 required Pacific Bell to disclose the option to purchase services separately and to itemize the price for each service in the package.

At the hearing which led to the 1986 "cease and desist" decision, Pacific Bell acknowledged its obligations to disclose and itemize the prices for component parts of its tariffed packages of services:

"Q. (by Pacific Bell attorney)




In addition, I want to be clear that yes, we do have tariffed packages, but also elements of those packages can be acquired individually. Do you consider it, since you have responsibility for developing and ensuring compliance, that the customer must understand that when we're talking about a package, to the extent that individual parts can be obtained individually at different rates, that the customer must, we must do what we can to ensure that the customer understands them?




"A. (by Pacific Bell witness Haight) Yes."

Transcript of May 16, 1986 hearing, 7949:19-7950:1.

The Commission subsequently ordered Pacific Bell to make revisions to its Tariff Rule 12 (D.87-12-067, 27 CPUC2d 1, 52.) The objective of those revisions was to provide "full explanation of residence optional services requested by the customer and a quotation of the associated tariffed rates and charges." (Id.)

Currently applicable Tariff Rule 12 requires that Pacific Bell provide a quotation of all "recurring rates and nonrecurring charges" which apply to each service a customer selects. The quotation must be "stated separately for each optional service designated by the customer." (Emphasis added).

Thus, Tariff Rule 12 and the Commission decisions require that when offering packages of services, Pacific Bell must (1) offer basic exchange service apart from packages of optional services, (2) disclose that package components can be purchased separately, and (3) itemize each price on a stand alone basis. Unfortunately, as we discuss later in today's decision, Pacific Bell's practices at issue in this proceeding do not satisfy these requirements.

5.4. Information Regarding Caller ID Blocking

Section 2893 applies to providing Caller ID "blocking," i.e., withholding the display of the caller's telephone number. That section requires Pacific Bell to comply with the Commission's rules on blocking services which the Commission adopted in conjunction with its authorization of Caller ID service. Consistent with § 2893, the Commission directed that a caller have the capability to withhold display of the caller's telephone number, on an individual basis, from the telephone instrument of the called party. The Commission explained the linkage between Caller ID and blocking services in terms of the right to privacy of telephone subscribers:

"Our goal must be to ensure, to the greatest extent possible, that the decision to allow a calling party's number to be displayed is the result of informed consent and a knowing and intelligent waiver of the right to privacy. To this end, we will seek to maximize the ease and freedom with which a caller may choose not to disclose the telephone number from which he or she is calling."

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"So long as telephone subscribers are fully informed of the nature of the service and the nature of their blocking options, disclosure will be consensual and will manifest a waiver of the calling party's privacy rights."

(D.92-06-065, 44 CPUC2d 694, 713-4.)

To inform customers of these new services, and the privacy consequences, the Commission directed Pacific Bell to undertake a substantial customer education effort, under the supervision of the Commission's staff, prior to offering the services. The details of that effort, the Consumer Notification and Education Plan, were approved by the Commission in Resolution No. T-15827 (December 20, 1995.) Although Pacific Bell has completed the customer education effort, neither privacy concerns nor the informed consent standard were subject to an expiration date, and they remain in effect, as does § 2893.⁶

Therefore, in providing Caller ID and blocking services, Pacific Bell has the duty, under statute and Commission order, to inform each customer of the opportunity to withhold display of his or her telephone number. Having duly informed the customer, Pacific Bell then would ensure that the display of the telephone number represents a knowing and intelligent waiver of the right to privacy.