III. DISCUSSION

1. Commission Jurisdiction Over Wireless Telephone Providers.

Wireless carriers are "telephone corporations" and therefore public utilities under PU Code § 216, 233 and 234.¹⁵ See, e.g., D.01-07-030, Appendix A, Interim Rules Governing Non-Communications-Related Charges on Telephone Bills, at 1, 6. At all times, this Commission has asserted its jurisdiction to protect consumers of wireless/cellular telephone services:

Finally, we reiterate that our primary focus in the regulation of the cellular industry is the provision of good service, reasonable rates, and customer convenience.

D.89-07-019, Re Regulation of Cellular Radiotelephone Utilities, 32 CPUC 2d 271, 281; see also D.01-07-030, supra; D.96-12-071, Investigation on the Commission's Own Motion into Mobile Telephone Service and Wireless Communications, 70 CPUC 2d 61, 72-73 ("we still remain concerned that the terms and conditions of service offered by each CMRS provider continue to provide adequate protection to consumers"¹⁶).

Before 1993, the Commission had plenary jurisdiction over wireless or CMRS carriers.¹⁷ In 1993, Congress passed the Omnibus Budget Reconciliation Act of 1993 (Budget Act), which amended Section 332(c)(3)(A) of the Communication Act as follows:

. . . no state or local government shall have any authority to regulate the entries of or the rates charged by any Commercial Mobile Service or any Private Mobile Service, except this paragraph shall not prohibit a state from regulating the other terms and conditions of Commercial Mobile Service.¹⁸

Shortly after passage of the Budget Act, the Commission instituted an investigation of the cellular industry in order "to develop a comprehensive regulatory framework consistent with the Federal Budget Act and our own statutory responsibilities." I.93-12-007, Investigation on the Commission's Own Motion into Mobile Telephone Service and Wireless Communications, 1993 Cal. PUC LEXIS 836. A year later the Commission adopted "interim procedures" (including a registration requirement for cellular carriers) to ensure that the Commission retained

the ability to provide a forum for the resolution of consumer problems when they may arise and continued regulation of other terms and conditions for all CMRS carriers.

D.94-10-031, in I.98-12-007, supra, 56 CPUC 2d 578, 579. In a 1996 decision, the Commission reiterated its intent to exercise its jurisdiction over "other terms and conditions" of cellular carriage:

Given the dynamic and changing nature of the CMRS market, we cannot anticipate all possible consumer issues or industry concerns that may arise over time, and the resulting scope of "terms and conditions" which we will actively supervise.

D. 96-12-070, supra, 70 CPUC 2d at 77 (Finding of Fact No. 21.)

The Commission has also asserted jurisdiction over the general "terms and conditions" by which bundled products are sold, i.e., wireless service when it is sold bundled with equipment. Early decisions in I.88-10-040, Re Regulation of Cellular Radiotelephone Utilities, prohibited bundling as disguised rate discrimination and as unfair to cellular equipment resellers not affiliated with the big carriers. See, e.g., D.89-07-019, supra, 32 CPUC 2d at 282; D.90-06-025, supra, 36 CPUC 2d at 517.¹⁹ In 1995, in the same docket, the Commission reversed course and declared that bundling was acceptable as long as cellular service

[p]roviders conform to all applicable California and federal consumer protection and below-cost pricing laws.

D.95-04-028, Ordering paragraph 1(5), 59 CPUC 2d 192, 214. Any sale of bundled wireless service and equipment that violated applicable consumer protection laws would thus violate the Commission's order in D.95-04-028.

A. Analysis

Staff's Report and accompanying declarations raise serious issues. They describe a system that appears fundamentally unfair to consumers. Consumers leave a retail outlet bearing all the risk as to whether the just-purchased service and equipment will actually work in their homes and businesses and on their commute routes. To what extent this risk is ameliorated by Cingular's proposed new 15-day cancellation policy is an issue that this Investigation should consider. To date, the risk does not appear to be adequately disclosed to consumers.

There is a natural imbalance in the knowledge available to Cingular on the one hand, and the knowledge available to the average consumer on the other hand. Cingular presumably has fairly precise information relating to its coverage area, the percent of calls which are terminated or "dropped-off" the system, and those calls that do not go through because of busy circuits or other system capacity issues. The utility needs this information to site its cellular/PCS antennae, among other things. The consumer also needs this information, in a form intelligible enough to allow her or him to make informed market choices. The availability of such information is crucial to the healthy functioning of the telecommunications marketplace.

Without this information, the customer cannot knowingly accept the ramifications of an ETF or a "no returns" policy. There does not appear to be any point in the chain of Cingular's advertising, marketing and sales that the limitations to coverage and capacity are clearly and conspicuously disclosed. Nor does there appear to be any point where the limitations to coverage area and system capacity are brought into proximity to, or context with, the provisions for an ETF, the historical "no return" policy, or other penalties for early contract termination.

Some of the issues raised by the conduct described in this OII may be addressed on a prospective basis in the pending customer protection rulemaking, R.00-02-004. Of course, neither this nor Cingular's new 15 day cancellation policy implicate the disposition of issues in this case, which arise from past behavior.

If proven, the practices reported to us by Staff could indicate that Cingular has operated in disregard of statutes, rules, regulations, and other laws applicable to telephone utilities in California, and to businesses generally, and that this pattern of conduct is adverse to the public interest. The Commission has a duty to protect the public from unfair, deceptive, or illegal activities by utilities, and a concomitant interest in protecting the integrity and vitality of the marketplace.

In particular, it appears that Cingular may have violated the following California statutes and orders of this Commission:

* P.U. Code § 451 by providing service in a way that was not "just and reasonable," by failing to disclose material facts to consumers, and by selling its products in violation of other laws and standards for fairness (see below);

* D.95-04-028, Ordering paragraph 1(5), which requires the sale of bundled wireless service and equipment to comply with all California (and Federal) consumer protection laws, which may include but are not limited to the following:

(a) The Song-Beverly Consumer Warranty Act (Civil Code §§ 1792-1792.4), which provides that a vendor cannot disclaim the implied warranty of merchantability or, where applicable, the implied warranty of fitness of goods sold unless a conspicuous writing is attached to the goods which clearly informs the buyer, prior to the sale, in simple and concise language of each of the following:

(1) The goods are being sold on an "as is" or "with all faults" basis; and

(2) The entire risk as to the quality and performance of the goods is with the buyer.

In the case of Cingular's sale of equipment and goods, the entire risk as to the quality and performance of the bundled goods and services was on the buyer, but there was no conspicuous warning of that fact;

(b) The Consumer Legal Remedies Act (Civil Code § 1770), which defines as illegal any sale of goods or services accompanied by the following conduct:

(5) Representing that goods or services have characteristics uses, benefits, or quantities which they do not have

(9) Advertising goods or services with intent not to sell them as advertised;

(10) Advertising goods or services with intent not to supply reasonably expectable demand, unless the advertisement discloses a limitation of quantity ...

(14) Representing that a transaction confers or involves rights, remedies, or obligations which it does not have or involve, or which are prohibited by law and

(19) Inserting an unconscionable provision in a contract.

Cingular's advertisements, marketing materials, and websites -- as well as oral representations made by individual sales agents for Cingular -- have represented at various times that coverage is complete and unbroken in all designated coverage areas, when this appears not to be the case. The non-returnability of wireless equipment and the imposition of the ETF, in conjunction with the only partially disclosed limitations to system coverage and capacity, may be unconscionable in that the wireless equipment and service contracts appear to be contracts of adhesion, and unexpectedly and unfairly allocate the risks of the bargain;²⁰ and

(c) the standards developed under California's Unfair Business Practices and False Advertising Statutes, Business & Professions Code §§ 17200 et seq. and 17500, et seq.; and

* Public Utilities Code Section 2896, which requires telephone companies to supply their customers with all information necessary to make an informed choice between services

Good cause appearing, therefore,

IT IS ORDERED that:

1. An Investigation on the Commission's own motion is instituted into the operations of Cingular, and all of its subsidiaries or affiliates responsible for the conduct described above (collectively, Respondents) to determine whether:

(a) Respondents violated P.U. Code § 451 by failing to provide adequate, efficient, just, and reasonable service as necessary to promote the safety and convenience of its customers and the public;

(b) Respondents violated P.U. Code § 451 by rules pertaining to its charges and service to the public, which rules are unjust and unreasonable, defeating the reasonable expectations of the consumer;

(c) Respondents violated P.U. Code § 451 by failing to comply with standards (described in previous Commission decisions and in P.U. Code Section 2896 inter alia) that require all relevant, available, and accurate information be provided to customers so that they can make an intelligent choice between similar services where such a choice exists;

(d) Respondents violated P.U. Code §§ 451 and 702 and Ordering Paragraph 5 of D.95-04-028 by marketing and selling bundled packages of services and goods in a way that was illegal, and therefore unjust and unreasonable, under the consumer protection laws of the State of California, including but not limited to the Song-Beverly Consumer Warranty Act (CC § § 1792-1792.4), the Consumer Legal Remedies Act (CC § 1770), and Sections 2314-2316 of the California Commercial Code;

(e) Respondents violated P.U. Code §§ 451 and 702 and Ordering Paragraph 5 of D.95-04-028 by structuring their marketing and consumer contracts for bundled cellular service in ways that violate fundamental rules of honesty and fair dealing, prevent true competition in the consumer marketplace, and thus violate the standards developed under Section 17200 et seq. and 17500 et seq. of the California Business & Professions Code and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45(a).

(f) Respondents violated P.U. Code § 2896 by failing to provide its customers with sufficient information upon which to make informed choices among wireless telecommunications services and providers, including but not limited to information regarding the provider's service options, pricing, and terms and conditions of service, and also by failing to provide reasonable statewide service quality standards.

2. In addition, the Investigation shall determine whether, pursuant to Sections 701, 734, and 1702 of the Public Utilities Code, institution of any or all of the following remedies are warranted:

a. Respondents should be enjoined from collecting the ETF and other penalties for early termination unless Respondents receive a full, written acknowledgment from the consumer that Cingular's coverage area and system capacity are limited;

b. Respondents should be required to conspicuously disclose, in all future advertising, marketing and contractual materials, limitations to their service coverage area and system capacity which may affect the service of some or all Californians;

c. Respondents should be ordered to pay reparations pursuant to P.U. Code § 734, i.e., refund the EFT, plus interest, to all customers who paid such fee upon terminating their service after discovering that the service was inadequate;

d. Respondents should be ordered to cease and desist from any unfair, unreasonable, unjust, deceptive, or unlawful operations and practices, and/or have conditions or restrictions imposed on their further operation in California; and whether

e. Respondents should be fined pursuant to P.U. Code §§ 2107 and 2108 for the above-described violations of the Public Utility Code and related Orders, Decisions, Rules, directions, demands and requirements of this Commission.

3. To facilitate the completion of this investigation, and consistent with the provisions of P.U. Code § 314, respondents are ordered to preserve until further order by the Commission all documents, regardless of age, which might relate to this action, including but not limited to correspondence with consumers and third parties, inter-office memoranda, current and historical coverage maps and studies, studies and analyses of system capacity, inter-office email, all websites and electronic archives of information from past company websites, consumer contracts, and complaints (i.e., all expressions of dissatisfaction) from California consumers.

4. Pacific Bell and its affiliates are ordered to cooperate with Staff in its investigation, and provide documents and witnesses as requested, during the pendency of this action.

5. The Staff shall continue to investigate the operations of Respondents. A full hearing on the allegations set forth in this OII, Staff's Declarations, and on any additional information which staff or respondents wish to advance that is material to the issues in the proceeding, shall be held on a date to be set at the Commission's hearing room, 505 Van Ness Avenue, San Francisco. The cutoff date for advancing evidence of additional violations, and for the exchange of testimony, shall be determined by the Assigned Commissioner or Assigned Administrative Law Judge.

6. Staff shall be subject only to discovery relating to the specific violations alleged in this order, or those added by subsequent motion.

7. Staff shall monitor consumer complaints made against Respondents. We expect Staff to bring additional evidence, if any, of any alleged harmful business practices by Respondents to our attention (e.g. new types of violations). Staff may propose to amend the OII to add additional affiliated respondents. Any such proposal shall be presented to the Assigned Commissioner or Assigned Administrative Law Judge in the form of a motion to amend the OII and shall be accompanied by a Staff declaration supporting the proposed amendments.

8. These ordering paragraphs suffice for the "preliminary scoping memo" required by Rule 6 (c) of the Commission's Rules of Practice and Procedure. This proceeding is categorized as an adjudicatory proceeding and will be set for evidentiary hearing. The issues of this proceeding are framed in the above order. A prehearing conference shall be scheduled for the purpose of setting a schedule for this proceeding including dates for the exchange of additional written testimony, determining which of the Staff's witnesses will need to testify, and addressing discovery issues. This order, as to categorization of this proceeding, can be appealed under the procedures in Rule 6.4. Any person filing a response to this order instituting investigation shall state in the response any objections to the order regarding the need for hearings, issues to be considered, or proposed schedule. However, objections must be confined to jurisdictional issues that could nullify any eventual Commission decision on the merits of the alleged violations, and not consist of factual assertions that are more properly the subject of evidentiary hearings.

9. Service of this order on Respondents will be effectuated by personally serving a copy of the order and Staff's declarations on the respondents' designated agent for service in California:

Pacific Bell Wireless, LLC (U-3060, 4314) Registered Agents in California:

Corporation Service Company

2730 Gateway Oaks Drive, Suite 100

Sacramento, CA 95833

Pacific Bell Mobile Services (U-4135) Registered Agent in California:

Samuel Novell

2150 Webster Street, Rm. 735A

Oakland, CA 94612

10. Staff's investigative Report contains Cingular's responses to Staff data requests, that Cingular has identified as confidential and/or proprietary pursuant to Public Utility Code section 583. The Commission finds that none of the information contained in the report is so trade sensitive as to outweigh the public interest in disclosure, and such disclosure is hereby authorized.

11. A copy of this order and Staff declarations will also be sent by certified mail directly to the PBW, Cingular, and Pacific Bell Mobile Services governmental affairs' addresses on record with the Commission.

This order is effective today.

Dated: June 6, 2002, in San Francisco, California.

LORETTA M. LYNCH

President

HENRY M. DUQUE

CARL W. WOOD

GEOFFREY F. BROWN

MICHAEL R. PEEVEY

Commissioners

I will file a written concurrence.

/s/ HENRY M. DUQUE

Commissioner

Commissioner Henry M. Duque concurring:

It is with serious reservations that I vote to open an investigation into the operations of Cingular Wireless. It is not that I believe the complaints are without merit or that Cingular is providing stellar service. To the contrary, Cingular's service can not be stellar in all places and at all times; but nor can any of Cingular's competitors'. In fact, as anyone that uses a wireless telephone would attest, the whole wireless industry suffers from a want of seamless coverage. So the foundation for singling out Cingular on allegations of poor service coverage or on that basis misleading advertisement is too thin and arbitrary.

The concerns of the Commission on coverage and its response to a large number of complaints are well intentioned. However, for wireless telephone consumers in general, the more responsive action is for this Commission to clearly delineate its authority on wireless service and establish industry-wide service quality standards, if warranted, and practical consumer protection rules for practices that market rivalry is not able to fix.

First, although the customer complaints against Cingular may have merit, there is comparable number of complaints about the services of other wireless companies.

Second, the alleged problems - gaps in service coverage - do exist, but they are not unique to Cingular. Coverage problems exist and are endemic to the industry. My understanding is that to resolve service gap problems companies have to invest more in their network. Does the commission want to engage in dictating capital expenditures in an industry largely seen as fiercely competitive. I am not convinced that an industry-wide problem could be resolved by singling out and focusing on one provider, no matter what example this will send to the industry.

The Commission's Consumers Services Division has gathered a seemingly high number of complaints that comprise of, among other things, billing disputes, contract disputes, and coverage complaint, many of which will have been resolved by the time this investigation is issued. These complaints are worrisome, but not especially unusual given the development of wireless service, its needs for capital investment, and the state of competition.

It is common knowledge to any wireless telephone user that wireless service providers including Cingular, do not provide a seamless coverage in all areas. That is evident in the disclaimer nearly every wireless provider writes in typically small scripts at the bottom of their advertisements. By any measure, Cingular's customers are not the only wireless telephone users frustrated by lack of coverage or call drop-off to one extent or another. Perhaps this case will help to highlight the general mood of customers' frustrations and help to send a signal to the industry. Still, I am concerned about the focus on one company when the problem is widespread. If the service conditions of Cingular warrant an action necessary for one provider, then similar conditions elsewhere would warrant an investigation of all other wireless service providers.

/s/ HENRY M. DUQUE

Henry M. Duque

Commissioner

June 6, 2002

San Francisco, California

It is the intent of the Committee that the State still will be able to regulate the terms and conditions of these services [CMRS]. By "terms and conditions" the Committee intends to include such matters as customer billing information and packaging and billing disputes and other such consumer protection matters; facility siting issues (e.g. zoning); transfers of control; bundling of services and equipment; and the requirement that carriers make capacity available on a wholesale basis and such other matters as fall within the State's lawful authority. This list is intended to be illustrative only and not meant to preclude other matters generally understood to fall under "terms and conditions."