WASHINGTON-The California Public Utilities Commission, unable to reach a settlement with the nation’s No. 2 mobile-phone operator, last week affirmed a record $12 million fine against Cingular Wireless L.L.C. for breaking state laws governing telecom carriers.
The CPUC vote was 4 to 1, with Commissioner Susan Kennedy dissenting and withdrawing at the last minute an alternate proposal that would have reduced the Cingular fine to around $1 million. Kennedy had argued Cingular Wireless’ behavior was not as egregious as that found in Administrative Law Judge Jean Vieth’s decision last year.
The actual cost to Cingular Wireless, according to one source, could climb to $20 million because of early termination fees Cingular must refund to consumers as a result of last Thurday’s ruling.
“This decision serves as wake-up call to the industry that its use of adhesion contracts and obscure clauses to justify mistreatment of customers may not go over well anymore,” said Michael Shames, executive director of San Diego-based Utility Consumers’ Network.
UCAN was a party to the CPUC’s investigation of Cingular between January 2000 and April 2002.
“The wireless industry has grown up into a mass market service and it must fight the temptation to treat its customers like numbers,” said Shames. “If it doesn’t, more states will likely begin to call the carriers to the carpet, as California did to Cingular in this decision.”
The CPUC fine comes at a time when the wireless carrier is awaiting word from the Justice Department and Federal Communications Commission on its bid to acquire AT&T Wireless Services Inc. for $41 billion.
“Cingular Wireless is extremely disappointed by the commission’s decision to adopt the administrative law judge’s proposed decision in its investigation against Cingular. For the commissioners to ignore the facts in this two-year case and issue the same result is hard to comprehend,” the No. 2 cellular carrier said in a statement.
Cingular added: “This type of unreasonable, out-of-touch regulation makes doing business in California and meeting the needs of our customers far more difficult than virtually any other state. Cingular will continue to ensure that there is a full and fair consideration of the facts in this case from four years ago and an appropriate, truthful application of the law. Cingular will vigorously pursue all options available, once again highlighting the legal and factual errors in the decision approved today.”
In September 2003, following a three-year investigation, Vieth proposed a $12.14 million fine against Cingular for charging early termination fees and prohibiting refunds during a period when the mobile-phone carrier aggressively marketed service without disclosing network problems to customers.
Several commissioners said the fine was fair, reasonable and backed by voluminous documentation in the record. Cingular and Kennedy disagreed. “The quality of evidence in the record is poor,” said Kennedy.
Commissioners Carl Wood and Loretta Lynch said the fine was arguably too light and that those consumers with service problems who remained with Cingular Wireless to avoid paying hefty early termination fees to the carrier and its agents-totaling as high as $550-should have been compensated.
“It is an unfortunate fact that there is not an appropriate legal remedy for every abuse suffered by consumers,” said Wood, author of the California bill of rights for telecom consumers. “The [administrative law judge’s] decision demonstrates why our Consumer Service and Protection Division needs to maintain a vigorous enforcement program. These abuses happened in a market that many experts argue is competitive. Clearly, competition and choice do not always protect consumers, especially when a consumer’s choice is limited by a contract or a set term.”
Lynch said the ruling sends “a strong message that in the future such anti-consumer practices will be met with significant sanctions.” GOP Gov. Arnold Schwarzenegger is expected to replace term-ending Wood and Lynch next year.
The CPUC was set to vote Sept. 2 on Kennedy’s plan to lower the fine, but the all-Democratic, five-member agency decided to postpone action after Cingular told state regulators at the 11th hour it wanted to re-open settlement talks.
Cingular’s desire to return to the bargaining table, according to sources, was likely influenced by signs that Kennedy’s alternate did not have the votes to pass while Vieth’s decision did. But the CPUC-Cingular negotiations did not bear fruit.
Commissioner Geoffrey Brown was seen as the swing vote in the Cingular matter, just as he had been in the bill-of-rights brawl. In the end, Brown and CPUC President Michael Peevey joined Wood and Lynch in approving the $12 million fine.
Brown underscored a Feb. 9, 2001, memo from a Cingular engineer to marketers stating, “We have no excess capacity.” Brown said Cingular went ahead anyway with a promotion of unlimited nights and weekends, with the greatest number of blocked calls coming on Saturdays.
