Pacific Bell Fined for Its Sales Tactics
State regulators fined Pacific Bell a record $25.5 million Thursday for using misleading and high-pressure tactics to sell customers services they didn’t want or need.
The five-member California Public Utilities Commission ordered the San Francisco-based phone company--which serves nearly 90% of California’s residential customers--to overhaul its sales practices.
The fine, the largest ever levied by the PUC, amounts to slightly more than one day’s profit earned by Pacific Bell’s parent, San Antonio-based SBC Communications Inc. The penalty is the latest in a string of regulatory actions involving Pacific Bell dating back to at least the mid-1980s. Since 1985, the company has been fined more than $30 million over its aggressive sales practices and other consumer abuses.
Michael Shames, executive director of San Diego consumer group Utility Consumers’ Action Network, said he had hoped for a larger fine and refunds, but he nonetheless applauded the ruling because it includes clear prohibitions against some of PacBell’s most aggressive sales methods.
“This decision slows SBC’s high-pressure, sales-over-service ethic that has subjected Californians to unconscionable and abusive sales practices,” Shames said. He called it a landmark ruling that will be scrutinized by phone companies nationwide.
A spokesman for PacBell said the company will appeal the decision. “We adamantly challenge and disagree with this decision, and we will fight to overturn it,” spokesman John Britton said. “It’s anti-consumer, it’s anti-labor, and it’s anti-business. It limits consumers’ ability to get the information they need to make decisions.”
As part of new marketing strategies begun shortly after SBC bought PacBell in 1997, customer service employees were urged to aggressively sell profitable add-on products such as caller ID, voicemail service and three-way calling.
As the program ramped up, PacBell began tracking revenue by the hour and directed service employees to offer packages of products on every call, starting with the most expensive and “falling back” to less expensive products.
PacBell employees were greeted almost daily with new sales goals and offers of prizes and cash incentives for top sellers. Eager supervisors, who were paid extra for higher sales, distributed fliers with slogans such as “Offer high, watch ‘em buy, offer low, nowhere to go.”
Consumer groups and a smaller PacBell labor union, the Telecommunications International Union, filed a complaint about the practices in April 1998.
The complaint charged that PacBell was confusing and misleading customers by selling a package called “the basics” that was packed with optional features.
In addition, the complaint accused PacBell of thwarting customers who wanted to block their phone numbers from being displayed on caller ID boxes. The high level of blocking in California was undermining sales of caller ID.
Service representatives got fliers that urged “unblock, unblock, unblock” and were rewarded with prizes for unblocking large numbers of lines.
Some longtime service representatives began complaining and at one point sent a petition to the PUC asking it to rein in the sales campaign. Two employees ultimately testified about the practices in the case.
PacBell and its largest labor union, the Communications Workers of America, testified that the company was following the rules and had a right to educate customers about its products.
In September 1999, three California district attorneys filed a civil lawsuit against PacBell with similar complaints. The case is on hold pending resolution of jurisdictional matters.
In ruling on the complaint Thursday, the PUC came to grips with a case that divided and paralyzed the commission. It also was the subject of intense lobbying of the governor’s office by top executives of SBC, a big political donor.
The PUC voted 3 to 2 on the $25.5-million fine, rejecting a range of alternatives that would have required PacBell to pay penalties of as little as $10 million or as much as $49 million plus millions of dollars in customer refunds.
State regulators also imposed a limit on sales incentives to no more than 5% of total compensation. According to Janet Spector, one of the employees who spoke out against the sales pressure, some employees were making as much as $5,000 in monthly bonuses.
PUC Commissioner Carl Wood, who had proposed refunds and $43.8 million in penalties, said he is very pleased with Thursday’s final decision. “I think it makes a very powerful statement that this commission will safeguard consumer rights,” Wood said. “We’re not going to be satisfied with rhetorical statements that the market will take care of the consumer.”
Wood and fellow Commissioner Geoffrey Brown harshly criticized PacBell for its marketing tactics and accused the company of committing violations only slightly different from those at the heart of a PacBell sales case in 1986.
In that case, PacBell was found guilty of marketing abuses and ordered to pay a fine of $16.5 million. Although the fine was smaller in that case, PacBell also was ordered to pay refunds to customers totaling $63 million. It also included a prohibition on sales commissions and a list of marketing restrictions that were to remain in place for three years.
PUC Commissioners Henry Duque and Richard Bilas, both appointed by a Republican governor, opposed Thursday’s action. Duque said the complaint case was generally unfounded, and maintained there was “no criminal activity and no relapse” by PacBell.
In addition to the penalties, the PUC ordered PacBell to contact affected customers and offer them the chance to revise their service packages.
The company also must change its marketing approach to eliminate the practice of offering the most expensive options first and must stop trying to sell products if the customer says “no.”
SBC shares rose 61 cents to $45.90 on the New York Stock Exchange.
