PUC Kicks Phone Firm Out of State

A telephone company that illegally switched the long-distance service of thousands of customers in Orange and Los Angeles counties has been ordered to stop doing business in California, state regulators said Thursday.

The California Public Utilities Commission hit the Texas company, Total World Telecom, with a 40-month suspension--an action that will cost the company millions of dollars in lost revenue--and ordered it to refund at least $20 to each of 32,000 state consumers who complained.

The company switched the carriers of 200,000 people in the state, targeting Asians and Latinos who suddenly began receiving telephone bills at rates that were two to five times higher than those of companies such as AT&T; and MCI.

In most cases, people had filled out raffle coupons in restaurants and stores to win a new car and unwittingly had their phone service switched to the Houston-based company, which operated in California as Total National Communications Inc. and Heartline Communications Inc.

Under the order, the company must make additional refunds to those overcharged more than $20 who file claims for their losses, and it must notify customers to find a new long-distance provider.

The agency also referred the case to the Orange County district attorney’s office for possible criminal prosecution.

The drastic penalty is intended to curb an abuse known in industry parlance as “slamming”--switching people to other long-distance carriers without their authorization and often without their knowledge.

“This was a very aggravated case full of hundreds of victim horror stories that just shocked the commission,” said Larry McNeely, chief of the PUC’s special investigations section.

“Many of the victims were Vietnamese and Latinos who had no idea what happened to them,” McNeely said, adding that the agency received hundreds of complaints from Orange County residents in Westminster and Garden Grove.

It was the second such case involving California customers this year.

In September, the PUC banned Illinois-based Cherry Communications Inc. from doing business in California for 24 months and ordered it to make refunds of at least $20. Some 7,000 Californians, including 700 to 800 in Orange County and more than 2,000 in Los Angeles County, complained that they had been slammed by Cherry.

To deal with an estimated 400,000 complaints this year spawned by deregulation of the telecommunications industry, the agency combined its enforcement and consumer complaint staff to address the increased volume, and began taking a harder line in enforcement actions.

But a consumer group that had intervened in the case criticized the penalty as too lax.

“This decision is an open invitation to telephone slamming,” said Robert Gnaizda, general counsel and policy director of the Greenlining Institute, a multiethnic public policy and advocacy organization in San Francisco.

“It just says to unscrupulous companies, ‘You have to be a little careful and pay a little penalty if you get caught.’ ”

Gnaizda said Total World Telecom should have been required to pay refunds to all 200,000 customers slammed in California, not just those who complained.

“Nobody voluntarily agrees to switch to a company in order to pay two to five times what AT&T; charges,” he said.

The Houston-based company never obtained a license to operate in the state, said PUC investigator Mark Clairmont. Instead, it leased the operating authority of another Texas company last year for $250 a month and then illegally began signing people up through the contests, Clairmont said.

Known in the trade as “the box program,” the controversial practice involved placing brightly colored boxes with the contest announcements and a pad of entry forms near cash registers in stores.

“In many instances, the victims were out shopping with their children who filled out the contest form to win a new Jeep, never thinking it would switch their parents’ phone company,” McNeely said.

After reviewing tens of thousands of complaints, McNeely said, “we have not located a single person who ever won anything.”

W. Donald Booth, president of the company, which operates in 40 other states and has annual revenue of about $50 million, said he never intended to defraud anyone and blamed the problem on independent marketing companies.

“It just got out of control,” Booth said of the box program run by those agents. “It’s hard to control the activities of other corporations.”