9. Remedies

Our first remedial objective is to ensure that customers are receiving the services that they choose, and that they receive refunds for any charges paid for unwanted services. This is consistent with our approach in the 1986 marketing case. (D.86-05-072, 21 CPUC2d 182, 191.)

Pacific Bell's violations implicate marketing of certain services as well as specific marketing programs and tactics. Our remedy plan addresses each violation.

9.1. Caller ID Blocking

Our objective is to ensure that all customers are fully informed of their service options and the privacy consequences of each option so that customers who choose to transmit their telephone number to called parties are knowingly waiving their privacy rights. On a prospective basis, we instruct Pacific Bell to comply with this decision, and our previous decisions, in making the required explanations.

On a retrospective basis, Pacific Bell's actions have called into question customers' transfers from Complete Blocking to Selective Blocking beginning with the implementation of practices discussed in this decision. The evidence does not clearly show when these practices began but the Residence Caller ID Plan seems to contemplate changes occurring in 1998. Therefore, we will use January 1, 1998, as the date on which the violations began.

The next question is how to best inform customers of their options and to allow them to make any needed changes. Our guide to the answer is found in Pacific Bell's reaction to the BRI incident. There, Pacific Bell first attempted to contact by telephone each customer who had switched from Complete Blocking to Selective Blocking. (Out of the 260,000 customers contacted by BRI, 107,000 switched from Complete to Selective Blocking, according to Pacific Bell witness Gilley.) As Pacific Bell stated in its investigation report, Hearing Exhibit 102, approximately 70% of the customers who switched were reached through this method.³³ The remaining customers received a letter which contained an explanation as well as a dedicated 800 number to call with additional questions or to change blocking options. Thus, Pacific Bell employees directly contacted as many customers as possible and only used mailings after several failed personal attempts.

We direct Pacific Bell to use a similar plan to contact customers who were switched to Selective Blocking since January 1, 1998, excluding those customers whose choice has already been confirmed through the BRI remedial effort. Pacific Bell is directed to switch all customers that so request back to Complete Blocking without charge.

To provide customers regular reminders of their blocking status, we also require Pacific Bell to note on each bill the blocking status of the line. Currently only lines that have Complete Blocking are so noted. Pacific Bell shall also include on the bill (front or back) a brief description of the two blocking options and the codes used to block or unblock the number.

Because the choice of Complete Blocking or Selective Blocking has no financial impact (there is no charge for either service), we need not consider the issue of financial reparations.

9.2. Inside Wire,³⁴ Packages Offered Sequentially, The Basics, and ULTS

Remedying Pacific Bell's actions on these issues will require a process similar to that we have just described: (1) customer notification, (2) implementing customer choice and, if needed, (3) refunding improperly charged amounts.

We first direct Pacific Bell to return to customers the amounts that Pacific Bell has wrongfully obtained. The record does not include a specific proposal for identifying and notifying the customers that overpaid, and for making refunds. The Commission has previously addressed this type of task by convening workshops and developing proposals. (D.86-05-072, 21 CPUC2d 182, 189-91.) As this process worked well in the past, we will adopt the same general framework for use in developing the restitution program to be used in this proceeding. To initiate this process, we direct the Telecommunications Division to schedule a workshop no later than 30 days after the effective date of this order.

The restitution plan should provide for customer notification of the current service selections and associated prices, and confirm that the customer sought these services and wishes to continue purchasing these services. ULTS customers shall receive a specific explanation of the cost for ULTS service as clearly distinguished from optional services. Customers who indicate that they did not seek these services shall have such services discontinued and shall be accorded a full refund, with interest.

The final restitution plan shall be in the form of a resolution which shall be placed on the Commission's agenda no later than 180 days after the effective date of this order.

9.3. Sales Incentives to Service Representatives

In response to the marketing abuses identified in the 1986 proceeding, this Commission imposed a moratorium on "cold selling telemarketing" and "sales quotas." (D.86-05-072, 21 CPUC2d 182, 191.) The Commission later clarified that "sales quota" included all incentive compensation programs for service representatives. (D.88-09-062, 29 CPUC2d 405 (headnote only).) The Commission assigned the task of determining the proper role for "business and residence incentive plans for salaried and nonsalaried employees" to the Customer Marketing Oversight Committee (Committee) that was then overseeing all Pacific Bell marketing activities. Based on a report which found that Pacific Bell's "practices and incentives used in residential marketing have changed from sales quotas, packaged selling and bonus/rewards based on sales volume to evaluation of individual performance based primarily on customer service," the Committee recommended that the Commission lift the prohibition, which the Commission did in 1990. (D.90-02-043, 35 CPUC2d 488.)

The Committee devoted several years of effort to addressing this and many other issues. As set out in this decision, Pacific Bell has reinstated the disapproved incentive policy (quotas, packaged selling, and sales volume incentives). This history amply demonstrates that corporate policies are ephemeral. Accordingly, we will opt for a different course this time.

As discussed previously in this decision, we impose an indefinite limitation on Pacific Bell's authority to offer sales incentive compensation to its service representatives and their immediate supervisors. Incentive compensation, whether in the form of monetary amounts or goods and services, shall not exceed 5% of the service representative's monthly compensation.

9.4. Fine

The Commission may impose fines payable to the State of California pursuant to § 2107. Such fines must be between $500 and $20,000 per offense. Each day of a continuing offense constitutes a separate and distinct offense.

( § 2108.)

Deterrence of further wrongdoing by the current perpetrator and by others is the primary purpose of fines. Fines, therefore, should be set at a level within the range permitted by § 2107 that is sufficient to achieve the objective of deterrence without being excessive in light of the offending utility's financial resources. We consider the severity of the offense, aggravating and mitigating circumstances, and the level of fines previously imposed in comparable cases. (See D.00-11-017; D.98-12-075, Appendix B.)

The practices by Pacific Bell that gave rise to this proceeding are very similar to its past actions. Indeed, we are struck by what appears to be a disturbing pattern of compliance during periods of special oversight, only to be followed by noncompliance in furtherance of Pacific Bell's revenue goals when the special oversight ends. The history of Pacific Bell's use of incentive compensation and of its marketing of inside wire repair and Caller ID-blocking services make this only too plain.

We hoped that the sanctions imposed in the 1986 marketing case would permanently deter abusive marketing practices. Apparently, the sanctions imposed were insufficient to achieve deterrence. We consider these offenses to be extremely serious. The conduct we sanction today affected millions of customers, many of who can ill afford to pay any more than necessary for phone service. Some of them are even entitled to Lifeline service. Pacific Bell's marketing abuses cost customers time as well as money. The revenue Pacific Bell expected to gain as a result of its improper marketing tactics are substantial: $312.9 million (net present value of $1.2 billion over a 10-year period) for increased sales of vertical services.³⁵

Pacific Bell's conduct is not only serious, it is also recidivist. This is a major aggravating factor. In mitigation, Pacific Bell detected and rectified the violations made by BRI, and it has been cooperative and forthcoming in these proceedings.

We also consider the financial resources of the offending utility in determining the appropriate fine level. Pacific Bell is a very large corporation. Its 1998 report filed with the Commission shows total California revenue of $ 9.4 billion.³⁶ Thus, a fine of substantial proportions is necessary to achieve deterrence. The most comparable precedent is the 1986 Pacific Bell penalty of $16.5 million,³⁷ discussed previously. In 1998, GTE California Incorporated paid $13 million in settlement of marketing abuse allegations (See D.98-12-084.) Both cases involved widespread marketing abuses and charges for unauthorized services. We note that the GTE California Incorporated payment is a much larger proportion of its operating revenue. GTE California Incorporated's 1997 operating revenue was $3.3 billion as stated in its FCC Report 43-02, at p. 40. Pacific Bell's 1998 revenue, as noted above, was $9.4 billion.

Having considered all of these factors and the totality of the circumstances, particularly the scope and repeat nature of Pacific Bell's marketing abuses, we conclude that the fine should be set at the high end of the range permitted by § 2107. While it is clear from the record that millions of improper acts were committed, for purposes of calculating the fine, we will treat Pacific Bell's improper marketing in each of three areas as a distinct offense: (1) Caller ID blocking; (2) Inside wire repair services; and (3) use of the name "The Basics" in marketing packages of optional services. Although we determined that Pacific Bell's "Offer On Every Call" strategy violates disclosure and customer service standards contained in § 451, § 2896, and Tariff Rule 12, we are not imposing a fine for this offense, in part because we articulate for the first time in this decision our understanding of the disclosure and service standards set by § 2896.

The offenses for which we do impose a fine occurred over at least a two-year period. Thus, we will impose a fine of $43.8 million ($20,000 per day for each of three offenses for a total of $60,000 per day, over a period of two years (730 days)).

Thus, Pacific Bell shall pay $ 43.8million to the State General Fund within 180 days of the effective date of this order.

Findings of Fact

1. On October 30, 1998, the parties filed a statement of undisputed facts that addressed some, but not all, facts in issue.

2. At the hearing which led to D.86-05-072, Pacific Bell acknowledged its obligations to disclose and itemize the prices for component parts of its tariffed packages of services.

3. Pacific Bell sells the Caller ID service as a tariffed service. This service provides the name and telephone number on a special box, screen phone, or audio box, that announces the caller. Offered in California since July 1996, this service costs $6.50/month for residences and $7.50/month for businesses when purchased separately. Approximately 1 million residential and 51,000 business customers subscribe to the Caller ID service.

4. The Commission required Pacific Bell to enable callers to block the display of their name and telephone number. Pacific Bell has two Caller ID blocking options: Complete Blocking and Selective Blocking. Complete Blocking prevents a caller's name and number from appearing on the receiving party's Caller ID display unless the caller chooses to unblock the number on a per call basis by dialing *82. Selective Blocking displays the caller's name and number to the receiving party unless the caller chooses to block the number on a per call basis by dialing *67. Every telephone line has either Complete Blocking or Selective Blocking, and both options are free of charge. If a customer does not choose Complete Blocking, the default is Selective Blocking. If a customer has elected Complete Blocking, it is so indicated on the monthly telephone bill. The default, Selective Blocking, is not indicated on the customer's bill.

5. In D.92-06-065, the Commission ordered all California local exchange carriers to implement a ratepayer-funded Customer Notification and Education Plan to ensure that all Californians were aware of the Caller ID services and their implications, including understanding their options for maintaining their privacy as a calling party. The plan included individual letters to each customer; TV, newspaper, and radio advertisements; and community outreach to over 500 organizations. Pacific Bell's campaign cost over $30 million and concluded in mid-1998.

6. In October 1997, SBC developed a new Residence Caller ID Marketing Plan for Pacific Bell. In that plan, SBC stated that among the means for increasing the value of Caller ID to customers was to reduce the number of lines that have Complete Blocking so that more numbers would be displayed. The specific plan to accomplish this included attempting to convert customers to Selective Blocking on all customer contacts associated with Caller ID, implementing a sales incentive program to reward net increases in Selective Blocking, training service representatives to provide customers a balanced perspective of Complete Blocking and a bias towards Selective Blocking. Pacific Bell implemented this plan in 1998.

7. Pacific Bell provided its service representatives with the following suggested language to use when talking with customers about Caller ID Complete Blocking:

· "I noticed that you have Caller ID Complete Blocking. What are you using it for? I find that Selective Call Blocking gives me greater control over my privacy. Since it's free, shall I go ahead and change that for you?"

· "I see you have complete blocking for Caller ID. Do you know what that is? I'm concerned that your calls may go unanswered. Many of our customers don't answer calls that are marked private and may even block them from coming through. I recommend switching to Selective Blocking. Then you can just dial *67 when you really need to block your calls. Can I go ahead and take care of this for you? There is no charge."

10. Pacific Bell changed customers' blocking option from Complete Blocking to Selective Blocking based on the representations set out in Finding of Fact 9; no other information was provided to the customer at the time the change was made.

11. Pacific Bell contracted with BRI to do outbound telemarketing to "downgrade nearly 2 million customers from Complete Call Blocking to Selective Call Blocking," and BRI stated that it "understands the urgency involved in removing Complete Call Blocking from as many lines as possible during the fourth quarter of 1998 and the first quarter of 1999."

12. Pacific Bell compensated BRI on an hourly basis, with incentive compensation to be considered after a test period.

13. Pursuant to the contract, Pacific Bell supplied BRI with a list of customers whose telephone numbers were published and who had Complete Blocking. Using Pacific Bell approved scripts, BRI's telemarketers called the customers and informed them of new services like Anonymous Call Rejection which could interfere with their calls being completed and recommend switching to Selective Blocking.

14. A Pacific Bell manager trained BRI's agents and observed live calls in St. Louis on the first day of calling during which all observed agents used the approved scripts. BRI conducted its own subsequent monitoring.

15. In response to customer complaints, Pacific Bell suspended its contract with BRI, initiated an investigation, and determined that BRI had used unapproved scripts in its calls which used the word "upgrade" several times and included other unapproved information as well.

16. Pacific Bell determined that BRI had contacted 278,010 customers and that approximately 107,000 customers had been switched from Complete to Select Blocking as a result of those calls. Pacific Bell contacted each switched customer to confirm the choice.

17. Pacific Bell should have done more than one day of monitoring to ensure that BRI's contacts with Pacific Bell customers included the requisite disclosures.

18. Pacific Bell took prompt action to terminate BRI's contract when it became clear that BRI was not adhering to the approved scripts, and subsequently contacted consumers to confirm their blocking choice.

19. Pacific Bell corrected the lack of disclosures and misstatements of fact by BRI.

20. Anonymous Call Rejection allows called parties to refuse to receive calls from telephones that have the number blocked by terminating such calls at the central office so that no toll charge is assessed. The rejected caller instead hears a recording stating that the called party does not accept anonymous calls, and if the caller wishes to complete the call, the caller's line must first be unblocked by using the *82 code, and then redialing the number.

21. Greenlining's witness testified that the purpose of this product was to "punish consumers who have chosen to keep their numbers private - whether they use Selective or Complete Blocking," and that it invades rather than protects the caller's privacy.

22. Greenlining contends that Anonymous Call Rejection violates § 2893, which requires that no charge be imposed for withholding a number. To complete a call where the called party subscribes to Anonymous Call Rejection, the caller must incur the cost of calling from a pay phone to withhold the telephone number, thus incurring a charge to withhold the number.

23. Intervenor Roberts states that he has found Anonymous Call Rejection to be invaluable in protecting and enhancing his and his family's privacy.

24. Pacific Bell offers two types of inside wire maintenance plans. For 60 cents/month, Wire Pro covers the repair of phone wiring and jacks on the customer's side of the demarcation point. For $2.25/month, Wire Pro Plus adds a 60-day use of a loaner telephone to the services covered by Wire Pro.

25. Pacific Bell instructs its service representatives to offer Wire Pro Plus, and to explain Wire Pro only if the customer is not interested Wire Pro Plus.

26. Pacific Bell does not proactively inform apartment dwellers of the landlord's statutory duty to maintain inside wire and one jack.

27. The fact that some other entity may be responsible for providing a service that a customer is considering purchasing from Pacific Bell is necessary to make an informed decision on a Pacific Bell offer.

28. The Commission has approved Pacific Bell's tariff for Saver Packs of optional services. The names of the different Saver Packs are: Classic, Caller ID, Essentials, the Basics, and the Works. Pacific Bell began marketing "The Basics" and "The Essentials" in 1998.

29. Pacific Bell service representatives first offer customers the Works Saver Pack or Works Plus and, if rejected, offer the Basics Saver Pack.

30. Pacific Bell served copies of its tariff filings on complainants UCAN and Greenlining. No complainant, nor any other entity, protested the filings.

31. Pacific Bell's market research showed that focus group participants found the name "The Basics" to imply plain old telephone service ("a phone that works") and that the name is misleading because it contained too many optional services to be "The Basics."

32. In D.96-10-066, the Commission adopted rules that govern the provision of universal service to California telecommunications users and which require that all carriers provide all the 17 elements of basic service, including: access to single party local exchange service, ability to place calls, one directory listing, free white pages telephone book, and access to operator services.

33. "Basic" is commonly associated with local exchange service and, at least in the context of universal service, is a term of art meaning local exchange service.

34. There is no relationship between local exchange service or "basic" telephone service and "The Basics Saver Pack," a group of optional features.

35. The translation of "The Basics" to other languages carried through and in some cases accentuated the erroneous impressions created by the name.

36. "Essential" is virtually a synonym for "basic" and the services included in "The Essentials Saver Pack" are not at all essential for telephone service.

37. Pacific Bell offered customers a package of services named "The Basics Plus Saver Pack" which included The Basics Saver Pack and The Message Center. The Message Center is a voice mail service provided by Pacific Bell Information Services (PBIS), a Pacific Bell affiliate, but the service is tariffed with the Commission by Pacific Bell.

38. In 1997, Pacific Bell instituted a policy of promoting optional services, such as Call Waiting, Saver Packs, and Caller ID, on all customer contacts other than when a customer is disconnecting service or is temporarily disconnected for non-payment.

39. When promoting optional services, Pacific Bell's sales representatives are trained to offer first The Works Saver Pack, with nine custom calling features at a cost of $16.95/month, or The Works Plus Saver Pack at $24.95/month. If the customer is not interested in these packages, the service representative is trained to offer the Basics Saver Pack, which costs $14.95/month with four custom calling features or $12.95 with three custom calling features.

40. The sequence in which Pacific Bell has chosen to present customers with information on the multitude of custom calling services and packages is the sequence that most encourages sales.

41. Pacific Bell's 1986 script, which was part of the package selling abuses in the 1986 case, (1) made service recommendations to customers which reflected Pacific Bell's objective to increase sales, not provide service recommendations to the customer tailored to meet the customer's needs, (2) had fallback positions which attempted to sell as many services as possible to the customer, again without regard to the customer's needs, and (3) did not offer optional services on an individual basis.

42. Pacific Bell's 1998 script entitled "Selling to Success with the New Connect Model Contacts!!!" instructs the service representative to ask the customer a few questions about household composition, frequency of use of the phone, and whether the customer ever works at home or telecommutes. Regardless of the customer's response, the service representative is directed to recommend Basics Saver Pack to the customer. If the customer refuses, a fallback package of fewer services is offered. If the fallback package is rejected the service representative is to attempt to sell individual services.

43. In both the 1986 and the 1998 scripts, the service representative is instructed to feign an interest in how the customer actually uses the telephone and to make a pre-determined "recommendation" ostensibly based on the customer's information. The recommendation, in both scripts, is one of Pacific Bell's most expensive packages of optional features. Should the customer refuse to purchase the package, both scripts require the service representative to offer a fallback package that has fewer features and is less expensive.

44. In 1998, Pacific Bell began paying service representatives up to $150/month for meeting their sales revenue targets, and a 25% commission on all sales above the target, with no upper bound to the amount of the commission.

45. Pacific Bell's sales strategy that emerged following our 1986 decision was focused on customer service and full and accurate disclosure of service information as demonstrated by its 1992 Sales Quota Policy.

46. Pacific Bell's 1992 Business Office Sales Policy and Guidelines stated that service representatives are to engage in "consultative selling" by responding to verbal cues from the customer and to cues from the customer records in order to make personalized product and service recommendations in all appropriate contacts.

47. In contrast to the 1992 policies, Pacific Bell's current sales strategies, as reflected in evidentiary record, rely on sales quotas, packaged selling and bonus/rewards based on sales volumes.

48. Pacific Bell has essentially changed course from its 1992 policies and reinstated certain abusive marketing practices that we enjoined in 1986.

49. Pacific Bell hires outside vendors and uses its corporate affiliates to handle both inbound and outbound customer contacts. Pacific Bell provides the vendors and/or affiliates access to customer information, including services purchases and financial information.

50. Complainants have not alleged that the information disclosed to agents or corporate affiliates was used for any purpose other than marketing Pacific Bell's products, or that the agents or affiliates failed to keep the information secure.

51. Over 20% of Pacific Bell's service representatives handle calls at its foreign language centers. These representatives speak Spanish, Cantonese, Mandarin, Japanese, Korean, Vietnamese and Tagalog.

52. Pacific Bell engages in marketing efforts to build awareness of its products and services by using print advertising, newsletters, other media, and telemarketing, in addition to customer initiated contacts with service representatives, to explain the benefits of its products and services to these markets. Pacific Bell retains experts in each of the languages to translate and review marketing and service representative scripts, and it also works closely with groups that represent these customers.

53. Complainant Greenlining contends that immigrant and language minority groups are particularly vulnerable to high-pressure sales tactics and are less likely than other consumers to report abuse.

54. Field Research Corporation market research shows the following percentage interest levels for Caller ID: White, 23%; Hispanic, 39%; African-Americans, 37%; Asians, 42%.

55. All local exchange carriers charge ULTS qualified residential low-income customers a discounted installation charge of $10, and a monthly fee of $5.62 for flat rate service or $3.00 for measured service.

56. For each ULTS customer served, the local exchange carriers are reimbursed from the ULTS Fund for the difference between the ULTS rate and the respective local exchange carrier's usual rate for residential basic service. The ULTS program is currently funded by a 3.2% charge on all end users' bills.

57. UCAN provided a Pacific Bell document which stated: "when regrading a customer to Universal Lifeline, offer Caller ID and advise the customer that they will be paying roughly the same dollar amount they were paying before but enjoying the benefits of Caller ID."

58. Pacific Bell's Caller ID scripts have called into question customers' transfers from Complete Blocking to Select Blocking from January 1, 1998, to the present.

59. Remedying Pacific Bell's actions on Inside Wire, Packages Offered Sequentially, "The Basics," and ULTS requires (1) customer notification, (2) implementing customer choice and, if needed, (3) refunding improperly charged amounts.

60. In D.86-05-072, the Commission ordered Pacific Bell to cease and desist from: conducting an unauthorized trial program for enhanced services, engaging in "package selling abuses," violating 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 implementing any sales quota systems.

61. In response to the marketing abuses found in D.86-05-072, the Commission 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.

62. In D.86-05-072, the Commission found that Pacific Bell had violated Tariff Rule 12 by packaging basic local exchange service 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," and by failing to disclose the option to purchase services separately with the price for each component part of package of services.

61. To remedy Pacific Bell's 1986 marketing abuses, the Commission established the Customer Marketing Oversight Committee which oversaw Pacific Bell's adoption of sales policies that were consistent with the law and regulatory policy. Pacific Bell has since abandoned those policies.

62. Pacific Bell has exhibited a pattern of regulatory compliance during periods of special oversight, only to be followed by noncompliance in furtherance of Pacific Bell's revenue goals when the special oversight ends.

63. Pacific Bell forecasted that it would gain $312.9 million in revenues (net present value of $1.2 billion over a 10-year period) for increased sales of vertical services.

64. Pacific Bell's Tracking Report # P.D.-01-27, Cumulative Through December 1998, line 7, shows annual revenue of $9.4 billion.

65.

Conclusions of Law

1. Neither Robert nor TIU presented sufficient justification to set aside submission.

2. Section 451 requires that all charges imposed by a public utility be just and reasonable and that all utilities' rules pertaining to or affecting a utility's charges or service to the public be just and reasonable.

3. Charges obtained by means of misleading or confusing sales tactics are unjust and unreasonable.

4. Pacific Bell has a duty, pursuant to § 451, to provide adequate, efficient, just and reasonable customer service to its customers.

5. Section 2896 requires utilities offering telephone services in California to meet reasonable standards of customer service.

6. Section 2896 mandates that every 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." This provision sets a minimum disclosure standard for utilities offering telecommunications services in California.

7. 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, that the customer may designate which services are desired, and that Pacific Bell must disclose all applicable recurring rates and nonrecurring charges for those services.

8. Tariff Rule 12 is required by the Commission's GO 96-A, which requires that each utility provide customers with up-to-date information regarding their service, and allow customers to choose from among any service options available to them.

9. Implicit in the language of Tariff Rule 12 is the premise that a utility will not insist on giving customers information about optional services when customers do not wish to listen to such information.

10. Tariff Rule 12 and Commission decisions require that when offering packages of services, a telecommunications utility 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.

11. Section 2893 requires that every telephone corporation that provides Caller ID comply with the Commission's rules on blocking services, which require them to provide each caller with a means of withholding display of the caller's telephone number from the telephone instrument of the called party.

12. The Commission has determined that, to the greatest extent possible, a customer's decision to allow a calling party's number to be displayed must be the result of informed consent and a knowing and intelligent waiver of the right to privacy.

13. Pacific Bell's Caller ID scripts as set out in Finding of Fact 8 were deficient in that customers were neither fully informed of the two options nor allowed to choose between them on that basis.

14. Pacific Bell changed customers' Caller ID blocking choice in violation of § 2893 and the Commission decisions authorizing the sale of Caller ID services.

15. Pacific Bell may determine that it is financially advantageous to Pacific Bell that customers use Selective Blocking rather than Complete Blocking, and may raise the issue of blocking options with its customers that have Complete Blocking. When presenting the options to customers, however, Pacific Bell must give customers sufficient non-misleading information to enable customers to make an informed decision.

16. BRI's calls were deceitful and dishonest.

17. BRI's script violated the disclosure requirements because customers were not presented information upon which to make a knowing waiver of the right to privacy, and customers also received misrepresentations of fact.

18. The Commission has previously determined that the called party has every right not to answer the phone, and to secure services from Pacific Bell to prevent certain calls from being presented to the phone.

19. Section 2893 places no burden on called parties to receive anonymous calls; it only requires that telephone corporations provide a blocking service at no charge to the caller.

20. Anonymous Call Rejection does not violate the requirements of § 2893.

21. By offering Wire Pro Plus first and only discussing the alternative of Wire Pro upon the customer's rejection of Wire Pro Plus, Pacific Bell effectively "masks" the lower-priced alternative of Wire Pro and may cause customers unwittingly to pay more for inside wire service than they otherwise would have.

22. Pacific Bell has violated Tariff Rule 12 by failing to state that components of the Wire Pro Plus package may be purchased separately at a lower price.

23. In D.99-06-053, we noted that Pacific Bell's service representatives only present customers with the option of Wire Pro as a fallback when the customer rejects Wire Pro Plus, found that this sequence "may be misleading to residential customers," and ordered Pacific Bell to clearly explain both options to residential customers.

24. The Commission previously required Pacific Bell to disclose the landlord's responsibility for inside wire, by stating in bold and underlined (when in writing) "You should be aware that, under state law, landlords, and not tenants, are responsible for repairs to and maintenance of inside telephone wire." This disclosure requirement expired on September 1, 1994.

25. In marketing inside wire repair service to renters, Pacific Bell has an affirmative duty, pursuant to § 451 and § 2896, to disclose to customers all facts needed to make informed decisions about inside wire repair options, including the fact that landlords are responsible for inside wire repair.

26. In D.99-09-036, we ordered Pacific Bell's service representatives to clearly explain to its residential customers that they have four options for the repair and maintenance of inside wire: (1) Pacific's Wire Pro plan which covers repair of the customer's inside wire and jacks, (2) Pacific's Wire Pro Plus plan that covers the use of a loaner telephone instrument for up to 60 days, (3) outside vendors to perform inside wire repair maintenance, and (4) making the repairs themselves.

27. D.99-09-036 fully addressed the issue that complainants have raised regarding disclosure of alternative vendors for inside wire repair and the record shows no reason to disturb our previous decision.

28. In D.86-06-072, the Commission found that creating an association between local exchange service and packages of optional services violated Tariff Rule 12.

29. Pacific Bell knew or should have known that transplanting the term "basic" from local service to what could be the most expensive group of optional services available created a potential for customer confusion.

30. The name "The Basics Saver Pack" creates an association between local exchange service and optional services in violation of Tariff Rule 12. In its marketing efforts, Pacific Bell used this name in a manner that was misleading and confusing, and that undermines our universal service goals.

31. The package named "The Essentials" suffers from a potential to mislead customers in a manner similar to "The Basics."

32. Pacific Bell's "offer on every call" strategy violates §§ 451 and 2896 and Tariff Rule 12 because it interferes with providing customers with information to which they are entitled.

33. Pacific Bell used sales tactics likely to mislead customers by creating the often unfounded impression that the representatives were recommending that a customer purchase additional products or services based on an analysis of that particular customer's usage patterns.

34. Package sales tactics that result in a quotation of rates for individual services only if the customer persistently refuses the packages violates Tariff Rule 12 because information necessary to allow them "to designate which optional services they desire" is withheld.

35. Pacific Bell may offer optional services on incoming calls, but in doing so, it must comply with the disclosure standards and informed choice requirements of §§ 451 and 2896 and Tariff Rule 12, and must provide customer service of reasonable quality.

36. Pacific Bell's current incentive compensation programs closely resemble the marketing programs that violated statutes, orders, and tariffs, and led to the Commission's prohibition on cold selling telemarketing and sales quotas in D.86-05-072.

37. The public interest requires permanent limitations upon Pacific Bell's incentive compensation programs.

38. The public interest requires that Pacific Bell's service representative compensation based on sales volume be limited to five percent of monthly pay affected by sales volume.

39. Under the Total Service Approach adopted by the FCC, the determination of whether a telecommunications corporation may share customer information among its corporate family turns on the scope of the service provided not the corporate structure.

40. Section 2891 prohibits all California telephone corporations from making available to "any other person or corporation" various types of customer information, including customer calling patterns and financial information.

41. As used in § 2891, "any other person or corporation" does not include the telephone corporation's employees or agents (including affiliates acting in that capacity). Such sharing of information must be within the scope of the employment or agency relationship, subject to the supervision of the telephone corporation, and for the purpose of conducting the telephone corporation's business.

42. UCAN has failed to state a claim under either 47 U.S.C. § 222 or Public Utilities Code §2891.

43. The statutory standards applicable to Pacific Bell's marketing to ethnic minority customers are the same standards applicable to its other customers.

44. ULTS is designed to promote the use of affordable, statewide, basic telephone service among low income households by providing a subsidy to low income customers funded by a surcharge on all end-users' bills.

45. The purpose of the ULTS subsidy program is to provide affordable service to low income consumers, not to provide Pacific Bell a cross-marketing sales opportunity. Attempting to undo the lower-priced service offering undermines the Legislature's, and this Commission's, universal service goals.

46. The public interest requires that Pacific Bell confirm that all customers who have switched from Complete Caller ID Blocking to Selective Blocking since January 1, 1998, understood the privacy consequences of the switch and intended to make the change.

47. The public interest requires that Pacific Bell notify customers who, since January 1, 1998, have purchased Wire Pro Plus or a discounted package of custom calling services of the full range of choices for Inside Wire service and discounted packages of custom calling services, including the option to decline to subscribe to any of these services.

48. The public interest requires that Pacific Bell determine which, if any, of the inside wire options and discounted packages of custom calling services customer wish to purchase, and immediately implement the customer's choice.

49. The public interest requires that Pacific Bell refund all amounts charged since January 1, 1998, for a more expensive level of inside wire service or discounted packaged of custom calling services where the customer indicates that he or she desired a lower cost option.

50. The public interest requires that Pacific Bell provide to ULTS customers who also subscribe to optional services a specific explanation of the price for ULTS service as clearly distinguished from optional services, and that Pacific Bell provide such customers who indicate that they did not seek these additional services with a full refund.

51. Pacific Bell's history with voluntary sales incentive policies requires that the Commission impose permanent limitations on Pacific Bell's sales incentive compensation plans.

52. The Commission may impose fines of between $500 and $20,000 per offense payable to the State of California pursuant to § 2107. Each day of a continuing offense constitutes a separate and distinct offense per § 2108.

53. In setting fines, the Commission considers the severity of the offense, the utility's conduct, the financial resources of the utility, the totality of circumstances in light of the public interest, and the role of precedent.

54. The violations identified in this proceeding are serious offenses. A major aggravating factor is the fact that Pacific Bell's conduct is recidivist.

55. The fact that Pacific Bell took action to halt abuses by BRI, and its cooperation in these proceedings are mitigating factors.

56. In light of Pacific Bell's size and 1998 revenues, a substantial fine is necessary to achieve deterrence.

57. The most comparable fine precedents are the Pacific Bell penalty of $16.5 million imposed in the 1986 case and the payment of $13 million in settlement of marketing abuse allegations against GTE California Incorporated approved by the Commission in D.98-12-025.

58. The public interest requires that Pacific Bell pay a fine of $43.8 million to the General Fund of the State of California. This fine is for three distinct continuing violations committed over a period of at least two years beginning in 1998 : improper marketing of Caller ID and blocking options; improper marketing of f wire repair service; and misleading use of the name "The Basics" in marketing packages of optional services. The fine is set at the maximum level due to the seriousness and recidivist nature of the misconduct. Pacific Bell's ability to pay a fine of this size has also been considered.

59. To remedy the results of improper marketing by Pacific Bell without further delay, and to reform those practices as soon as possible, this decision should be made effective immediately.

60. ORA's and Pacific Bell's requests for official notice meet the requirements of Rule 73 and Evidence Code § 452 and should be granted.

61. The population data set out in Attachment A from the California Department of Finance, Demographic Research Unit, meet the requirements of Rule 73 and Evidence Code § 452 and are subject to official notice.

FINAL ORDER

IT IS ORDERED that:

1. Pacific Bell shall comply with this decision, all previous decisions, and other applicable law in making the required disclosures about Caller ID blocking options.

2. No later than 60 days after the effective date of this order, Pacific Bell shall begin including on every bill the Caller ID blocking status of each telephone line. The bill shall also contain (either on the front or back) a brief description of the two options and code required to block or unblock the number.

3. Pacific Bell shall contact all customers that have been switched from Complete Caller ID Blocking to Selective Blocking since January 1, 1998. Pacific Bell shall follow the same process that it followed when contacting the customers contacted by BRI.

4. Pacific Bell shall confirm that all customers who have switched from Complete Caller ID Blocking to Selective Blocking since January 1, 1998, understood the privacy consequences of the switch and intended to make the change.

5. Pacific Bell shall notify customers who, since January 1, 1998, have purchased Wire Pro Plus or a discounted package of custom calling services of the full range of choices for Inside Wire service and discounted packages of custom calling services, including the option to decline to subscribe to any of these services.

6. Pacific Bell shall determine which, if any, of the inside wire options and discounted packages of custom calling services the customer wishes to purchase, and immediately implement the customer's choice.

7. Pacific Bell shall refund the difference between amounts charged since January 1, 1998, for a more expensive level of service where the customer indicates that he or she desired a lower cost option.

8. Pacific Bell shall provide to Universal Lifeline Telephone Service (ULTS) customers who also subscribe to optional services a specific explanation of the price for ULTS service as clearly distinguished from optional services. Pacific Bell shall also provide such customers who indicate that they did not seek these additional services with a full refund.

9. The Telecommunications Division shall convene a workshop within 30 days of the effective date of this order to establish a plan for Pacific Bell to follow in implementing Ordering Paragraphs 3 through 7. The Telecommunications Division shall file a final plan and status report within 180 days of the effective date of this order. The report shall contain date-specific milestones for significant events and follow-up reports to the Commission, as well as recommendations for calculating refunds and interest on refunds. The final plan shall be in the form of a Commission resolution and shall be placed on the Commission's agenda.

10. Pacific Bell sales-volume-based incentive compensation to service representatives and their immediate supervisors shall not exceed five percent of the service representatives' or supervisors' monthly compensation.

11. Within 180 days of the effective date of this order Pacific Bell shall pay a fine of $43.8 million to the General Fund of the State of California

12. Greenlining's request that Anonymous Call Rejection be prohibited is denied.

13. Greenlining's request for special disclosure requirements for ethnic minorities, recent immigrants, and customers that prefer to use a language other than English is denied.

14. Complainants have failed to meet the burden of proving that Pacific Bell has violated state or federal laws covering the use of Customer Proprietary Network Information.

15. Case (C.) 98-04-004, C.98-06-003, C.98-06-027, and C.98-06-049 are closed.

This order is effective today.

Dated , at San Francisco, California.

Computation of Future Values

YEAR	% CHANGE	AMOUNT
	CA CPI	$
		16,500	Assumed BOY value
1988	4.6	17,259	EOY value
1989	5	18,122
1990	5.5	19,119
1991	4.2	19,922
1992	3.5	20,619
1993	2.6	21,155
1994	1.4	21,451
1995	1.7	21,816
1996	2	22,252
1997	2.2	22,742
1998	2	23,197
1999	2.7	23,823

State of California Population Change¹

Date	Population	Percent Change
January 1, 1987	27,388,000
July 1, 1998	33,494,000
		22%

Escalation of Future Value to Reflect Population Increase

$24 million (rounded future value) x 1.22 = $29.28 million

¹State of California, Department of Finance, Population Estimates of California Cities and Counties, January 1, 1981, to January 1, 1990, and County Population Estimates and Components of Change, 1998-1999, with Historical Estimates, 1990-1998. Pursuant to Rule 73, we take official notice of these data.

(End of Attachment A)