II. Background

It has been over four years since the Commission last considered changes to existing service quality measures, and more than ten years since the Commission significantly modified its service quality measures and standards. Important developments have occurred in the decade since the Commission last made significant changes to General Order (G.O.) 133-B service quality measures and standards. We believe the technological and regulatory changes that have occurred in the telecommunications industry compel the Commission, consistent with California's telecommunications policies³ and goals⁴, to now focus attention on the questions of what constitutes good service quality and how that service quality should be measured, monitored and enforced.

In the past decade, much of the Commission's focus has been on promoting competition in telecommunications markets. One of the goals of the policy of increased competition was to ensure high quality service. We are concerned that competition may not be sufficient in all markets to foster high quality service for all consumers. We are also concerned that, even in markets where competition is robust, competition alone may not ensure high quality service. The Commission is responsible for ensuring that carriers have "reasonable statewide service quality standards, including, but not limited to, standards regarding network technical quality, customer service, installation, repair, and billing"⁵, and we conclude that now is the appropriate time to review our service quality rules.

By initiating this rulemaking, we are fulfilling our responsibilities under the Public Utilities Code.⁶ In particular, we are addressing important aspects of telephone service not previously addressed when the Commission was making major changes to its regulation of telecommunications carriers.

This rulemaking proposes significant changes to existing measures and standards and proposes new measures, standards and quality assurance mechanisms. We do not intend to apply all proposed measures, standards and quality assurance mechanisms to each and every telecommunications service.⁷ We seek comment on whether the proposed changes to telecommunications service quality rules are adequate and appropriate. We also encourage parties to comment on service quality issues not addressed by our proposal.

A. Commission Regulation of Service Quality

The Commission first developed industry-wide service quality rules over thirty years ago. From time to time, the Commission has strengthened the original standards or has added new measures and standards. We want to ensure that California keeps pace with current conditions and today's prevailing standards. This means, in some cases, existing standards may need to be raised or that new measures and standards need to be established. We also want to ensure that our rules adequately address the needs of California telecommunications consumers. Therefore, we plan to address measures and standards in addition to those that deal with network performance by establishing service quality measures and reporting requirements that will complement our consumer protection rules.

The Commission first promulgated industry- wide telecommunications service quality rules in 1970. The Commission ordered staff to organize a review committee to formulate standard telephone service indices for all telephone carriers,⁸ resulting in the establishment of G.O. 133.⁹

Incremental changes were made to G.O. 133 in 1983, resulting in G.O. 133-A.¹⁰ Although changes in the competitive landscape were acknowledged at that time, few substantial changes were made to the service quality rules. For example, the measure "Installation Commitments" was changed to "Installation-Line Energizing Commitments", recognizing the deregulation of customer premises equipment (CPE).¹¹ Other incremental changes were made to raise minimum standards for the "commitments met" measure. Because the telecommunications industry was in the process of transitioning the type of plant being used, the Commission did not adopt the Commission staff's proposal to establish a twenty-four hour repair interval because, as the Commission found that utilities were not "fully equipped with electronic switches and fully dedicated outside plant."¹²

The Commission again made incremental changes to G.O. 133-A in 1992, resulting in G.O. 133-B.¹³ Among the most significant changes were inclusion of a measure for "Business Office Answering Time" (BOAT) to reflect advancing technology, and deletion of the measure for "Held Regrade Service Orders" because most customers had single party service. AT&T protested the proposed service quality rules, asserting the rules "had not been `substantially modified' since 1972", and that the rules were "hopelessly outdated" because they treated interexchange carriers (IECs) as if IECs were monopoly local exchange carriers.¹⁴

The Commission rejected AT&T's protest, accepting commenters' contention that the proposed rules recognized the then-current competitive environment. The Commission also expressed concern that, although the rules applied to all telephone utilities, AT&T was the only IEC complying with the service quality reporting requirements.

B. Case-By-Case Service Quality Actions

The Commission has also addressed service quality concerns on a case-by-case basis in proceedings apart from its proceedings on service quality measures and standards. For example, in 1976, the Commission ordered Pacific to upgrade its service to curtail and reduce an increasing backlog of held service orders.¹⁵ The Commission also penalized Pacific, by reducing its rate of return, for held orders that were unreasonably deferred, citing "...Pacific's announced intention to safeguard earnings at the expense of service considerations..."¹⁶

In 1980, the Commission found that GTE California (now "Verizon") failed to meet G.O. 133 service quality standards, and reduced its return on equity by 0.5% until it met standards.¹⁷ The Commission also required Verizon to, among other things, report G.O. 133 and additional service quality measures on a quarterly basis.

In 1994, as part of its triennial NRF review for Pacific and Verizon, the Commission examined the quality of telephone service under the NRF. In that proceeding, the Commission approved settlements between the Office of Ratepayer Advocates (ORA) and Verizon and between ORA and Pacific.¹⁸ The ORA/Verizon settlement established a Service Assurance Guarantee Program that provided, among other things, refunds to Verizon's ratepayers if certain service quality standards were not met. The ORA/Pacific settlement required Pacific to make software changes to correct problems affecting cancellation of calling cards, and to periodically meet with Commission personnel to review installation and maintenance complaints, major service interruptions and other service quality results, and to discuss corrective measures.

The Commission also examined Citizens Utilities Company of California's (CUCC's) telephone service quality when it established CUCC's NRF. ¹⁹ The Commission fined CUCC for substandard service and for failing to report service quality problems as required. The Commission imposed a penalty reducing CUCC's authorized rate of return, and adopted a Service Quality Assurance Program (SQAP) to ensure CUCC improved its service quality. The SQAP included a Service Quality Assurance Mechanism (SQAM) containing automatic penalties and customer refunds for failure to meet specified standards or reporting requirements.

The Commission has also considered service quality issues during its review of the merger applications of SBC Communications, Inc. and Pacific Telesis Group 1996 (SBC/Pacific Merger)²⁰ and the GTE Corporation and Bell Atlantic Corporation (GTE/Bell Atlantic Merger) ,²¹ respectively. The Commission's decision in the SBC/Pacific Merger noted "undisputed evidence that Pacific is and has been out of compliance with G.O. 133-B, apparently for some time."²² The Commission also found that "Pacific's service quality has declined", even though D.94-06-011 found that Pacific would change procedures to improve its service quality.²³

However, the Commission declined to adopt recommendations for changes to service quality standards, in part because it was not convinced that the SBC/Pacific Merger proceeding was "...the appropriate forum to revise existing standards even if some rule revisions may ultimately be in order."²⁴ The Commission also declined to impose penalties, and instead imposed conditions requiring Pacific to "maintain or improve its service quality over the five years following the merger."²⁵ In response to a complaint filed by the ORA in 2000, the Commission found that "Pacific's increase between 1996 and 2000 in the mean time to restore service to residential customers violates Ordering Paragraph (OP) 2 of Decision (D.) 97-03-067", that "residential customers are not receiving repair service that is `adequate, efficient, just, and reasonable'", and that "Pacific's failure to expressly notify customers when they call its 611 repair service of the availability of a four-hour appointment window violates § 451 in that it does not `promote the safety, health, comfort and convenience of its patrons...and the public.'"²⁶

In the GTE/Bell Atlantic Merger decision, the Commission stated that it had no reason to believe Verizon's service quality would deteriorate. As with R.98-06-029, the Commission relied on market forces to improve service quality, concluding that "increasing competitive pressures will make providing quality service a business imperative."²⁷ Nevertheless, the Commission imposed additional service quality reporting requirements for a period of four years.²⁸ Those reporting requirements are the same as many of those addressed in this instant proceeding. Importantly, the reporting obligations under D.00-03-021 will expire in 2004.²⁹

C. The 1998 Service Quality Proceeding

While some of the Commission's present service quality measures and standards address functions performed by IECs, most of the existing service quality measures focus on activities related to local exchange services. This was one reason why the Commission considered revisions to G.O. 133-B in R.98-06-029, just two years after competition was authorized in the local exchange market. At that time, the Commission noted that "customers' perception that the quality of telephone service provided by local exchange carriers has declined over the last few years", citing significant increases in complaints related to service quality.³⁰

The Commission recognized that local exchange competition was still in its infancy, and believed that a competitive marketplace would guarantee high quality telephone service. Nevertheless, the Commission also wanted to ensure that during the transition to a fully competitive local exchange market customers could be assured of certain minimal service quality standards from all carriers. ³¹ R.98-06-029 culminated in the issuance of D.00-03-052.

Not surprisingly, most carriers filing comments in R.98-06-029 recommended that, because of competition no service quality rules were needed, but if the Commission was not inclined to eliminate all service quality rules, then the existing rules were sufficient. In contrast, consumer representatives asserted that there was not enough competition or that competition alone was insufficient to justify eliminating service quality rules, and stronger rules were actually warranted.³²

It has now been over four years since we issued R.98-06-029 and nearly seven years since local exchange competition was authorized. We have concerns that our policies in pursuit of increased competitioin are insufficient to ensure high quality telephone service for all telephone subscribers, and especially for residential and small business customers.

In 1998, the Commission noted an increase in consumer complaints regarding telecommunications , including many relating to service quality. As can be seen in the chart below, the trend of increased complaints is continuing. During 2001, the Commission received over 35,000 complaints about telecommunications carriers. This represents an increase of 42% over the number of complaints received by the Commission during 1998, suggesting an increasing level of consumer dissatisfaction regarding telecommunications service.³³

Even where more vigorous competition has developed in intraLATA and interLATA toll markets, unacceptable practices like slamming (the unauthorized transfer of a customer to another carrier) and cramming (unauthorized billing) have emerged, requiring Legislative and Commission intervention.³⁴ The quality of telephone service can decline under competition when adequate service quality or consumer protection rules are absent, and utility management focuses too narrowly on cost-cutting or revenue enhancement. For instance, there have been numerous occasions in recent years when the Commission has been called upon to address situations where opportunistic carriers have violated our rules or broken the law.³⁵

Importantly, where vigorous local exchange competition does exist, that competition is dependent on the interconnection of incumbent and competitive carrier networks. Moreover, a large proportion of the existing local exchange competition is provided by carriers reselling another carrier's "bundled" service or using unbundled network elements (UNEs) from incumbent carriers to provide service to end users.

The Commission recognizes the complication this adds to a carrier's ability to provide high quality telephone service to end users or even to measure the quality of that telephone service, when a carrier's service depends to varying degrees on its interconnection with, or acquisition of service or UNEs from another carrier. Therefore, the Commission believes it is also necessary at this time to address situations where underlying incumbent wholesale carriers or interconnecting carriers refuse to provide to end user carriers the service quality information that only the underlying wholesale or interconnecting carrier possesses or is able to produce.

D. Developing Service Quality Rules to Support Consumer Protection Rules

Finally, the Commission has for some time recognized that it must find new ways to protect consumers, and we have taken significant steps toward establishing effective consumer protection measures.³⁶ The Commission has established certain consumer protection rules through recent decisions, and a decision on a consumer bill of rights is pending in a separate proceeding. This proceeding is not intended to replace those rules. Rather, we intend here to establish service quality measures and reporting requirements which complement our consumer protection rules by permitting us to monitor carrier performance and compliance.

E. Changes in Technology Affecting Service Quality

The technology used to provide telephone services, and the business practices and processes supporting telephone service, have changed dramatically since we first established our service quality rules. The use of fiber optics and digital technology has become widespread throughout telecommunications networks. These technologies have generally served to improve efficiency and reliability of telephone service. However, the use of digital technology has also led to important changes in the business processes supporting the telephone business that may have resulted in sometimes negative changes in the quality of service experienced by telephone customers.

For example, the increasingly widespread use of Automated Response Units (ARUs) and automatic call distributors (ACDs) have resulted in important changes in the way some telephone carriers handle customer calls for repair and installation requests or billing inquiries. The use of ARUs in particular have had a significant impact on the quality of customers' experience when calling the business or repair offices because customers no longer immediately reach a "live" person.³⁷

Today, most customers seeking to speak to a telephone company representative will likely spend several minutes listening and responding to recorded messages, navigating a series of menus, and selecting options from those menus or providing other information before reaching a live representative. In many cases, customers never speak to a live representative, but instead serve themselves through these automated systems. In some cases, customers' calls may be terminated by an ARU without ever reaching a live representative, requiring customers to make repeated calls for service.

Existing G.O. 133-B measures for determining Business Office Answering Time (BOAT) and Trouble Report Service Answering Time (TRSAT) do not anticipate the use of ARUs, and are therefore not meaningful when ARU's are used. For example, G.O. 133-B describes BOAT as "a measurement of time for the business office representative to answer business office calls"³⁸, and TRSAT as "a measurement of time for the trouble report service attendant to answer trouble report calls."³⁹ However, the average residential customer may actually spend several minutes navigating ARUs and waiting on hold to speak to a business or repair office representative. Also, calls may be terminated if a customer responds incorrectly, requiring the customer to call back and try again.

Importantly, when the Commission addressed Pacific's use of a recorded message played before callers are connected to a Directory Assistance (DA) operator, it noted that G.O. 133 "did not contemplate the use of a recording which would delay a directory assistance response by at least 14 seconds in addition to the normal delay which would be encountered without it."⁴⁰ We believe that the same is true for the use of ARUs interposed between the placement of a call to business or repair offices and the time the call enters an ACD waiting queue.

The Commission found in D.85487 that the additional 14-second delay associated with the use of the DA recording violated G.O. 133, but granted Pacific an exception permitting its continued use. However, we find no Commission action authorizing Pacific⁴¹, Verizon⁴² or any other carrier to use ARUs or to otherwise deviate from TRSAT or BOAT standards. We reach no conclusions at this time as to whether any carrier is in violation of G.O. 133-B answer time standards by using ARUs that consistently prevent business office representatives or trouble report service attendants from answering calls at the rates specified in G.O. 133-B.

However, we do conclude that existing measures and standards need revision, and new measures and standards need to be established that account for the technology and practices used by carriers to handle customer calls in today's business environment. Therefore, we propose to revise our rules to address the use of ARUs and to address other changes in technology and business practices affecting service quality.

Rulemaking 98-06-029 began this Commission's most recent effort to reflect current technology in its service quality standards, but that proceeding resulted in only minimal revisions to G.O. 133-B. On March 16, 2000, the Commission issued Decision (D.) 00-03-052, retaining the pre-existing G.O. 133-B measures with two exceptions. The only changes adopted in D.00-03-052 were the deletion of Rules 3.4 (Dial Tone Speed) and 3.5 (Dial Service). The Commission recognized that digital switching equipment now in widespread use made Rules 3.4 and 3.5 obsolete in a digital switching environment.

The investigation and rulemaking we initiate today continues the Commission's progress toward establishing meaningful service quality measures and standards reflecting today's technology, business practices, industry structure and regulatory environment.