Agenda: January 27, 1999 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: Adopt WAC 480-120-052 relating to Prepaid Calling Services and WAC 480-120-058 Protection of Customer Prepayment; repeal WAC 480-120-052 and WAC 480-120-058 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 to provide flexibility to the Commission’s rules related to protection of customer advanced payments. The second purpose in proposing the rule was to codify existing Commission policy and practice relating to debit card companies. On November 25, 1998, the Commission directed the Secretary to file a Notice of Proposed Rulemaking (CR-102) and Small Business Economic Impact Statement (SBEIS) with the Code Reviser. Since the CR-102 was filed, Staff has worked with interested parties through individual discussions and written comment to define how the proposed rules should be changed in order to provide flexibility, while ensuring that Washington state consumers are adequately protected when purchasing prepaid telecommunications services. Staff wishes to thank those who participated in the process. Their participation, thoughtful comments and considered suggestions allowed open and honest communications with all 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 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 requirement that if the company cannot resolve a dispute that it 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, if different; 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 to inform the user 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 sufficient to cover 100% of unused customer prepayments. 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 or 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 the company’ business needs. There are several areas, however, where participants and staff did not reach complete agreement. A summary of the more substantive disagreements follows. •Technical assistance number staffed 24 hours a day. Telecommunications Reseller Association (TRA) reiterated its position that because prepaid long distance service is a discretionary service unlike local service, 24-hour-a-day staffing for technical assistance is unnecessary. TRA does not believe that the fact that “historically” telecommunications companies have provide 24 hour staffing is a sound basis for imposing the requirement on competitive discretionary services. Staff continues to believe 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. •Call Detail reports. Staff received comments from MCIW, ITA, and Sprint on this issue. MCIW indicated that it could provide call detail for a given day but costly system modifications will be required to provide a cumulative report. Sprint indicated that other rule provisions in the proposed rules provide adequate protections. The company was also concerned about its liability if it provides call detail to someone other than the party that used the service. ITA indicated that companies should provide the information to the consumer verbally and then if the consumer requests a written record that they should be allowed to charge the customer. Staff understands Sprint’s liability concern and modified the language so that it is clear that companies may implement a verification procedures prior to releasing call detail information. Although staff modified the language so it is clear that a company can try to satisfy a customer’s request verbally, we retained the requirement that when requested by a consumer the companies must provide a written call detail report at no charge. The requirement for free call detail reports is not new. The Commission has been requiring this by order since the first “debit card” company was registered. Staff believes in the case of a billing dispute that consumers should be entitled the information necessar to appropriately resolve the dispute. •Point of sale documents. MCIW indicated that implementation of presale and point of sale documents would be difficult and costly to implement. Staff did not modify the previously proposed requirements. One of the primary reasons for proposing these rules was to provide adequate disclosure to consumers. Staff believes the proposed rules balance effective customer disclosure while addressing the economic concerns raised by the companies. •Requirement for refund of unused balances. ITA, AT&T, and Sprint all commented that a company should only be required to provide cash refunds when a company has failed to provide service as promised or fails to meet technical standards. MCIW indicated that it does not receive full retail value from retail locations and therefore should not be required or expected to provide a consumer a dollar for dollar refund. To address ITA, AT&T, and Sprint’s concerns staff modified the language to clarify that a company is only required to provide a cash refund in instances where a company fails to meet service standards. The language further clarifies that any request for refund that is not service related may be honored at the discretion of the company. Staff did not make any changes in the language to address MCIW’s comments. Staff does not believe a consumer who is entitled to a refund should be held responsible for a company’s marketing configuration. That consumer is required to pay a tariffed or price listed fee for the card and should be entitled to the full remaining tariffed/price listed value of the card. •Performance standards for Prepaid Calling Services. TRA reiterated its position that the Commission should not hold a reseller unilaterally responsible for substandard network performance as long as that reseller has made a good faith effort to resolve problems affecting service with its underlying carrier. As outlined at the November 25, 1998 open meeting, staff continues to believe that any company that holds itself out to provide service to the public should ultimately be responsible to its consumers for their service. •Compliance requirements for Prepaid Calling Services. ITA and MCI both indicated that 90 days was too short of a time frame for compliance with the new rules and would cause extraordinary costs due to the marketing structure of the prepaid calling card companies. Both suggested that the Commission adopt a nine month lead time similar to that adopted in California. This would allow prepaid calling card companies and their distributors to work through their existing stock. After discussions with the companies, staff acknowledges that a straight 90 days implementation requirement for the printed materials would be unrealistic. In order to reduce their costs many of the prepaid card providers have ordered and circulated large inventories of cards. Staff does not agree, however, that it is appropriate to establish a straight nine month implementation date for the proposed rules in their entirety. Many aspects of the rule are not impacted by the companies marketing and inventory structures and should be implemented in a timely fashion. Also new entrants in the state will not have the inventory issues that an existing company has and therefore should be expected to develop their written material in a manner than complies with the new rule. In order to address these issues, staff is proposing language which allows companies to use their existing written material for up to nine months. After that time all written materials must comply. (Further staff is proposing language which will require any written material printed 90 days after the effective date of this rule must comply with the new provisions.) The proposed language also carries a 90 day implementation date for all other rule provisions. •Reporting requirements for bonds. The commentors indicated that prepaid calling card companies typically do not have Washington specific sales information due to the nature of their distribution structure; therefore the proposed reporting requirements will lead to estimating. Thomas K. Crowe suggested that the language be modified so that companies report intrastate minutes utilized within Washington during the reporting period. Staff did not adopt this approach because the purpose of the bond is to protect the unused prepaid amounts. In order to determine what the unused amount is would require the retail sales amount for Washington. ITA suggested that staff use Delaware’s reporting requirements as a model. Staff did not adopt Delaware’s’s approach because we found it more restrictive for a new entrant. Under Delaware’s rule a company that collects prepayments must post a bond based on the greater of 150% of the projected balance of deposits and advances at the end of three years of operations or a $50,000 bond. Staff retained the language as proposed for several reasons. First, all the alternatives that we explored to identify unused prepayments for bond calculation would have still required a company to identify Washington specific numbers. Second, since approximately 1993, when the Commission first registered a prepaid calling card company, it has been requiring the same information through registration orders as that proposed under the rule. Companies have complied with the orders, and bond levels have been adjusted accordingly. Staff believes that the reporting requirements work effectively without causing undue barriers to entry. Staff recommends that the Commission amend and repeal the rules as proposed, and direct the Secretary to file an order of adoption of the proposed rule language with the Code Reviser.