Agenda: November 25, 1998 Item: Docket: UT-971469 Rulemaking for Prepaid Calling Services Staff: Mary Taylor, Consumer Program Specialist Vicki Elliott, Consumer Affairs Manager Fred Ottavelli, Regulatory Consultant Mary Tennyson, Assistant Attorney General Bob Wallis, Review Judge Tony Cooke, Utilities Rate Research Specialist Recommendation: Direct the Secretary to file the attached Notice of Proposed Rulemaking (CR-102) and Small Business Economic Impact Statement (SBEIS) with the Code Reviser to begin the process of adopting provisions in WAC 480-120 regarding prepaid calling services and protection of customer prepayments. Discussion: On February 19, 1998, the Commission filed a preproposal statement of inquiry (CR-101) with the Office of the Code Reviser to explore the need to update its rules relating to protection of customer advances and to develop rules related to prepaid telecommunication services. This rulemaking came as a result of two concerns. The first was that under existing Commission rules, all companies that collect for services in advance were required to post a bond or establish an escrow or trust account. Staff recognized that the rule should be modified to provide flexibility for companies that could demonstrate that they were viable companies and therefore the bonding/escrow requirements were unnecessary to protect consumers’ advanced payments. The second purpose in proposing the rule was to codify existing Commission policy and practice relating to debit card companies. Since that time, Staff has worked with industry, consumer interests and independently to define how current rules should be changed to in order to provide flexibility, while ensuring that Washington state consumers are adequately protected when purchasing prepaid telecommunications services. Our process included a stakeholders meeting, two rounds of written comments, and a number of individual discussions. Staff wishes to thank those who participated in the process. Their participation, thoughtful comments and considered suggestions allowed open and honest communications with all Docket UT-971469 November 25, 1998 Page 1 parties. The discussions enabled the development of rules that appropriately protect consumers without undue regulatory burden on the companies involved. The process also allowed staff to explore the industry's concerns about different possible approaches to prepaid calling service protections. Briefly, the proposed rules (attached) would require companies that collect prepayments to do the following: •Provide appropriate consumer disclosure in a presale document and in the case of debit cards, on the cards themselves. These disclosures include, explanation of rate structure and surcharges; the method used to resolve a dispute, the requirement that if the company can not resolve a dispute that they must provide the WUTC toll-free number for dispute resolution; the name of the prepaid service provider; both the business office number and technical assistance number for the service provider; expiration date if applicable; and recharge policy, if applicable. •Provide appropriate verbal disclosure to a consumer. Companies must provide an announcement at the beginning of a call of the time remaining on the prepaid account; and an announcement at least one minute before an account will be depleted. •Establish network standards for prepaid calling services. •Establish business office and technical assistance standards for prepaid calling services. •Establish procedures for notification to both the Commission and consumers when a company intends to cease operations in Washington. •Eliminate the mandatory requirement that all companies that collect prepayments post a bond or establish a trust account. Companies that can demonstrate that they are viable will not be required to post a bond or trust account. Under the proposed rules, a company may avoid a bond or trust account if it can demonstrate a corporate debt rating in Standard & Poor’s of BBB or higher, or according to Moody’s of BAA of higher. •The proposed rule also allows companies to petition for waiver of the bond or trust account requirement. The company must demonstrate to the commission’s satisfaction that it qualifies for waiver of the bond or trust account requirement by demonstrating its commitment to provision of quality service and its ability to provide refunds. •Establish specific criteria for reporting on the bond and calculation of the appropriate bond or trust amount. Staff believes the proposed rules represent a balance between consumer protection and regulatory requirements. There are several areas, however, where participants and staff did not reach complete agreement. A summary of the more substantive disagreements follows. The additional comment period afforded by the CR-102 process will allow stakeholders and staff to continue to work on the issues before final adoption of the rules. •Technical assistance number staffed 24 hours a day. Telecommunications Reseller Association (TRA) indicated that because prepaid long distance service is a discretionary service unlike local service, 24-hour-a-day staffing for technical assistance is unnecessary. TRA believes consumers have other alternatives for placing calls. Staff does not agree. Historically, telecommunications companies have provided “repair” service to consumers 24 hours a day. We believe that it is an overstatement that consumers have alternative access. The users of prepaid calling service vary greatly (travelers, consumers without local phone service, students, etc.). There is no guarantee that these consumers have an alternate means to place a call. Consumers have paid for a service and should reasonably expect the service to work when they want to use it. If the service does not work, they should have a means to contact someone for assistance. •Verbal notification at the beginning of a call. TRA commented that this is a difficult, if not impossible requirement for some service providers. Staff believes that this is an important requirement. Under the definition of the rule, prepaid calling services are accounts that are depleted as a consumer uses the service. In other words, when a consumer’s account is depleted they no longer have access to that particular telecommunications service. Consumers are entitled to know how much credit or time they have available before they place the call so that they can weigh priorities, can know when to recharge the card or buy another, and so they can take steps to ensure that their calls will not be interrupted. •Responsibility of prepaid calling providers. TRA commented that because many prepaid service providers are non-facilities based resellers, they should not be held responsible for underlying carrier completion failures or other causes beyond their control. Staff believes that any company that holds itself out to provide service to the public should ultimately be responsible to its consumers for their service. If a reseller’s service to it consumers is being affected by an underlying company, the reseller should work with the underlying carrier to resolve the problem. •Economic impact of the rules. In its response to the Small Business Economic Impact Statement inquiry, AT&T noted that some requirements of the proposed rule would pose a significant impact. In response, staff has made some changes to the proposed rule, which are reflected in the attached rules, which will help mitigate that impact. Specifically, AT&T noted the following provisions which would have a significant impact: 1) Maintaining call data for three years, which was staff’s original proposal. AT&T stated their company presently keeps such data for thirty months and lengthening that time to three years would be problematic. In response, staff has changed the length of time to maintain call data to thirty months. 2) Refund of unused balances, at the request of the customer. AT&T preferred that any unused balances be satisfied with equal credit in services. Staff revised the rules to reflect that unused balanced may be satisfied either by refund or equal credit, at the customer’s option. 3) Performance standards of 99% completion rate for calls. AT&T noted this exceeds their national standard and thus would be unique to the state of Washington, resulting in significant cost to the company. In response, staff has changed this standard to 98%. In its telecommunications industry rules for local exchange companies, the commission holds those companies to a 98% completion rate. Staff does not believe prepaid service providers should be held to any less of a standard than local exchange companies. 4) Presale of point of sale document disclosures. AT&T argues that the disclosure requirements would be burdensome, since they would be unique to the state of Washington. Staff does not agree. Staff has proposed language that would not be inconsistent with information provided in any state. Changing current disclosures to meet the requirements of the proposed rules could be accomplished on a national basis, and would not require any information that is Washington state-specific. Therefore, staff recommends that the Commission direct the Secretary to file a Notice of Proposed Rulemaking (CR-102) and Small Business Economic Impact Statement with the Office of the Code Reviser, pursuant to RCW 34.05.320 and RCW 19.85.030, to establish new subsections in of WAC 480-120 relating to protection of customer prepayments and prepaid calling services.