Pacific Bell Cited for Abusive Marketing : PUC Aide Urges $16.5-Million Education Fund as Fine for Utility

A state Public Utilities Commission judge recommended that Pacific Bell be ordered to contribute $16.5 million to a consumer education fund as punishment for abusive marketing of telephone services, according to a decision released Thursday.

Lynn T. Carew, a PUC administrative law judge, or hearing officer, made the recommendation to the five commissioners, who will have the final say in the case, which was launched by the PUC in 1986 after its staff’s own investigation.

Under Carew’s proposal, Pacific Bell would contribute $16.5 million from company profits into a trust fund to be paid out for consumer education projects over the next five years.

“This is an historic opinion,” said Robert L. Gnaizda of Public Advocates, a legal-aid firm based in San Francisco that had urged the action in a series of hearings presided over by Carew.

Pacific Bell, while denying that any additional penalty should be assessed beyond necessary refunds, nonetheless saw “some real merit” in Carew’s consumer eduction proposal, said Michael A. Revelle, assistant vice president for operations-administration.

The PUC already has ordered Pacific Bell to offer refunds to customers who said they were unaware that they were paying extra for such enhanced telephone services as “call waiting,” “call forwarding” and “speed calling.” In ordering that refund, the commission criticized the company for devising unauthorized names for packages of these services. It also required the company to itemize each optional service to which its customers subscribe.

Pacific Bell said it has refunded $27.5 million so far at a cost of $11.3 million--a $38.8-million bill already paid for by its shareholders.

But Revelle called an estimate by the commission that as many as two-thirds of affected ratepayers have yet to apply for refunds “pure speculation.”

Firm Admits Abuses

He did not, however, rule out a further refund notification campaign, as recommended by Carew, saying that the company remains committed to “make sure our customers are made whole.”

Pacific Bell executives conceded at the original commission hearing in May, 1986, that marketing personnel did indulge in abusive practices--in most cases, it appeared, under pressure of meeting sales quotas set by supervisors.

In many cases, Pacific Bell sales agents never made clear to their customers that basic services could be obtained without extra-service options.

As a result, low-income customers--especially those unable to speak or clearly understand English--sometimes were unaware that they were paying more than necessary for phone service.

“Pacific Bell’s management was responsible for these policies,” Carew wrote in her decision, “and is accountable to shareholders for any costs associated with the downside of those policies.”

She added that Pacific Bell “painted an overly bleak picture” of the adverse impact on its shareholders for the $38.5-million cost of the refund program so far, which she said was not a penalty but an attempt merely “to restore the status quo prior to these problems.”

Public Advocates, whose proposed penalty Carew accepted, intervened in the hearings on behalf of the League of United Latin American Citizens, an organization for Latinos established in 1929, and Chinese for Affirmative Action, which represents low-income Asians in Northern California.

Also calling for a hefty penalty was TURN (Toward Utility Rate Normalization), which urged the commission to assess triple damages against the utility, based on Pacific Bell’s estimated $16.5-million cost of the salaries of the marketing personnel involved in the sales effort.

Separately, Carew urged the PUC to cut Pacific Bell’s revenue by $86.4 million in adjustments to a number of disputed cost areas stemming from the firm’s 1985 application for a rate increase.