V. Discussion
The application before us raises two major issues. First, assuming VSSI is permitted to withdraw from service, did it exercise proper measures in notifying customers and implementing the transfer of customers to other carriers? Secondly, should VSSI be authorized to withdraw from offering the OneSource bundled service over the vigorous objections of its customers?
1. The Customer Notice Process
We generally agree that the notice requirements of D.97-06-096 apply to proposed customers base transfers, such as this one. We conclude, however, that VSSI's notification process concerning its withdrawal of service in this particular case resulted in customers' being misled concerning their rights to continue receiving service from VSSI. Customers were led to believe that their local service from VSSI would be automatically terminated if they did not switch carriers by March 19, 2001. The series of written notices mailed to customers did not adequately disclose that customers were entitled to continue to receive service from VSSI beyond March 19, 2001 if the Commission had not approved the application by that date.
According to Commission GO 96-A Section XIV, "No public utility of a class specified herein shall, unless authority has been obtained from the Commission, either withdraw entirely from public service or withdraw from public service in any portion of the territory served." Thus, VSSI is required to continue to offer local exchange service to existing customers until or unless authorized to discontinue it by this Commission. Customers are entitled to be properly informed about their options in the event that a carrier seeks to exit from the local market. VSSI cannot stop serving customers unilaterally by a self-imposed deadline, but must continue to offer service until the Commission authorizes a deadline for service to be terminated. Customers whose service was terminated under misleading or false pretenses, therefore, should have recourse to be made whole for any excess charges incurred as a result of having their OneSource service terminated prematurely.
Although VSSI acknowledges the third letter in its customer notification series was "confusing," we find that the whole notification process from the beginning failed to provide complete information to customers concerning their options in view of the impending application to withdraw service. We understand the company's eagerness to discontinue OneSource service as soon as possible, but do not condone the methods used to unload its customer base prematurely before the Commission had even given any indication that its application would be approved by March 21, 2001.
The third in the series of letters sent to VSSI customers, in particular, was misleading. The third letter carried the boldface banner headline: "This is your third and final notification. You must act now to prevent service interruptions." (Emphasis added.) Yet contrary to its own banner headline in the customer notification letter, VSSI claims in its April 2, 2001 response that a fourth notification was always planned for California, and that an additional notice will be sent once Commission approval and a final withdrawal date have been established.
Customers should not have been told that their service would be interrupted if they did not switch service providers by the company-imposed March 19 deadline. The wording of the notification letters (particularly the third one) left a misimpression with customers that they would have to switch immediately even though the Commission had not yet acted on the application. As a result of VSSI's notification process, the original customer base of 200,000 (at the time the application was filed) had already shrunk to only 28,000 customers by April 2, 2001. Without waiting for Commission approval, VSSI's notification campaign prematurely deprived tens of thousands of customers of the benefits and savings of the OneSource bundled service by leaving the impression that their service would automatically be terminated by March 19, 2001.
It would not have been improper simply to inform customers that the company was seeking authority from the Commission to withdraw from service, and had proposed March 19, 2001 as the deadline. It was improper, however, for VSSI to unilaterally set March 19 as a mandatory deadline for customers to switch under the threat of having their service involuntarily cut off. While the VSSI written notices technically provided disclosure that the withdrawal from service was conditional on Commission approval, the letters also mistakenly left the impression that service would terminate on March 19, 2001, in any event. The letter improperly implied that Commission approval by March 19, 2001 was a foregone conclusion, and failed to advise customers that their service would continue until or unless the Commission granted the application and established a deadline for service withdrawal to occur.
VSSI should have stated more clearly that Commission authorization was required before the company could withdraw service, and that customers would continue to be served until or unless the Commission approved the application, and then only after a sufficient advance notice period to give customers time to find another carrier.
This Commission has rules prohibiting the practice of slamming, that is, the switching of customers from one carrier to another without the customer's permission. While the customers in this instance technically consented to being switched, it was under misleading pretenses, only after being warned their service would end by March 19, 2001. We adopt measures as laid out below to correct the previous misleading notifications and to provide restitution to any customers that were harmed by prematurely terminating their OneSource service based on such misleading information.
2. Commission Authorization to Withdraw
Local Bundled Service
We next consider whether VSSI should be authorized to withdraw from offering bundled local service at all, and if so, what date should be set for withdrawal. Various customers have asked the Commission to deny VSSI's application, and simply prohibit the company from withdrawing its OneSource bundled service. Various customers have asked the Commission to compel VSSI to continue offering its OneSource bundled service indefinitely. Customers complain that they were actively solicited by Verizon to change to this plan as recently as the spring of 2000, and then only a few months later were being told the service will terminate. Customers believe that the Commission should order Verizon to continue offering the service in order to honor the contract that it made with customers.
We sympathize with the frustration voiced by VSSI customers. It is disheartening to find CLECs looking for ways to exit the local service market rather than seeking to expand their customer bases. Over the past several years, we have worked toward developing a regulatory environment to promote the growth of competitive alternatives for consumers. It is unfortunate that carriers are filing applications intended to diminish, rather than increase, the competitive choices available to local customers. Based upon the letters received from customers, it appears that few, if any, alternatives are available to many VSSI customers other than to return to the incumbent provider.
The proposed withdrawal of VSSI from serving its customer base raises the issue of a public utility's continuing obligation to serve and the rights of customers to uninterrupted, reliable, and reasonably priced telephone service. Prior to the opening of local telecommunications markets to competitive entry, the obligation to serve was generally imposed on one monopoly provider of local exchange services within a service territory. The monopoly provider had a continuing obligation to provide service on a nondiscriminatory basis to all customers within its service territory. The monopoly provider did not realistically have the option of discontinuing service to customers in order to seek more profitable opportunities in other lines of business or to limit service only to market segments generating high profits. Customers were dependent upon the monopoly provider for continued local telephone service.
If VSSI were a monopoly provider, there would be no question of its obligation to continue to provide service to its local customers. Yet, in this instance, VSSI is not a monopoly provider, but is a separate carrier competing with the ILEC and any other CLECs that may be offering service in the same region. As such, we must evaluate VSSI's request to withdraw from service in the context of the rules and framework that have been adopted for competitive carriers.
With initiatives to open the local exchange market to competition beginning in 1995, a new framework had to be developed to accommodate the arrival of multiple local carriers where there had previously only been one monopoly provider. On the one hand, our rules were aimed at promoting market flexibility to encourage new carriers to enter the market and provide greater competitive choices for consumers. On the other hand, we could not guarantee that competitors would in fact enter every local market. Likewise, we could not guarantee that once a CLEC entered a local market that it would never change marketing strategy, or never choose to exit the market.
Commission rules permit greater regulatory flexibility to CLECs in contrast to incumbents in the interests of fostering a competitive market. The nature of a competitive market is that individual carriers may either enter or exit the market over time. At the present time, not every customer in every local service area in California can be assured of having a choice of local carriers. Instead, our rules aim to ensure that customers have access to reliable universal telephone service that would not be jeopardized even where competition does not exist.
In 1995, we opened the "Universal Service" proceeding (R.95-01-020/
I.95-01-021) to ensure that universal service goals . . .preserved as we moved from a monopoly environment into a competitive arena for telecommunications services. In D.95-07-050, we identified two principal goals with respective to universal service: (1) that a certain minimum level of telecommunications services be made available to everyone in the state, and (2) that the rate for such services remain affordable.
Related to the concept of universal service is the concept of "carrier of last resort" (COLR). As we stated in D.96-10-066: "The COLR is a regulatory concept rooted in the idea that by accepting the franchise obligation from the state to serve a particular area, the public utility is obligated to serve all the customers in the service area who request service. The COLR concept is important to universal service policy because it ensures that customers receive service."
Under the competitive framework developed in our Universal Service Rules adopted in D.96-10-066, we designated the incumbent local exchange carriers as the COLR in their respective territories. Under Universal Service Rules, only a COLR is eligible to draw from the designated Universal Service subsidy funds to offset the cost of serving customers in high cost areas. In contrast to the COLR, a CLEC is not bound by the same obligation to serve a given local market, but is free to tailor its marketing only to serve only certain segments, as long as there is no unfair discrimination. The market entry or exit of individual CLECs does not jeopardize the Commission's Universal Service goals as long as the COLR meets its obligation to serve customers, including those that may have been previously served by a CLEC that exited the market.
In this instance, the COLR in the service territories served by VSSI is the incumbent carrier. Even with the departure of VSSI from the local exchange market, its customers will continue to have uninterrupted service through their assured transfer to the COLR, assuming no other CLEC is available to offer better alternative service. As we have stated above, VSSI can only withdraw after providing customers proper advance notice to provide time to make arrangements with another carrier. Even though the rates and terms that the COLR (i.e., the ILEC) currently offers for a bundle of services may be higher than the OneSource bundled service offered by VSSI, the ILEC service still remains subject to price-cap and service quality regulations of the Commission. Thus, customers that are switched from VSSI to an ILEC still remain protected against unreasonably high rate increases for their telephone service as provided for under ILEC regulatory rules.
Until VSSI decided to file an application seeking to withdraw from local service, customers in the VSSI service territory benefited by having VSSI's OneSource bundled service as a competitive alternative to ILEC offerings. The ideal scenario would be for VSSI to continue to offer such service voluntarily based upon the competitive market incentives in place. Yet, just as our rules currently do not compel CLECs to enter into local exchange markets that they choose not to serve, neither can we obligate a CLEC, such as VSSI, to continue indefinitely to serve a market sector that it does not wish to serve. Likewise, our rules do not prohibit CLECs from changing the terms of existing tariffs, but require them to provide customers with 30 days' advance notice before changing the terms of tariff offerings. The OneSource service is offered by tariff, not by contract. Therefore, VSSI does not breach any contracts by withdrawing its OneSource tariff offering.
It would be improper to force VSSI to continue to serve the local market involuntarily as we have not required other CLECs to provide local service involuntarily where they are not a COLR. Such action would be unlawful because we are prohibited under the Telecommunication Act of 1996 from discriminating arbitrarily or unfairly in administering the rules governing to local carriers. (Sec. 253(b) 47 U.S.C.)
