WASHINGTON-Cingular Wireless L.L.C., steadfast in its claim that it did not deceive California consumers, has initiated negotiations with the California Public Utilities Commission to settle a proposed record $12 million fine against the No. 2 mobile-phone carrier for business practices that the agency said broke state laws.
Cingular Wireless’ request for settlement talks came to light during the CPUC public meeting in San Francisco last Thursday. The CPUC was set to vote that day on a proposal by Commissioner Susan Kennedy to substantially lower the fine to just under $1 million plus refunds of early termination fees to customers who paid such fees within 14 days of entering into contracts between Jan. 1, 2000, and May 1, 2002.
Instead, CPUC General Counsel Randolph Wu asked that the vote be put on hold because of Cingular Wireless’ 11th-hour entreaty to enter settlement talks with state regulators. The CPUC has postponed votes on the Cingular matter six times since February. The $12.4 million fine was first publicly assessed in September 2003. The fine would have become final in March, but Cingular’s challenge forced the five-member agency to make a final decision.
While no CPUC member explicitly objected to Wu, commissioners Carl Wood and Geoffrey Brown said they were prepared to take action on the Kennedy alternative, without giving away which way they would vote. Brown, the swing vote on Kennedy’s proposal to dramatically slash the proposed Cingular fine, ultimately agreed to delay a vote on the item until the Sept. 23 meeting.
Cingular declined to confirm whether it was trying to strike a deal with the CPUC, reiterating earlier pronouncements that it is innocent of any wrongdoing.
Michael Shames, president of the Utility Consumers’ Action Network, did not reply to a request for comment. UCAN is a major player in the Cingular investigation.
There are indications Cingular, anxious to win government approval to acquire No. 3 AT&T Wireless Services Inc. for $41 billion this year, only recently approached CPUC lawyers about settlement talks when it suspected Kennedy’s alternate decision did not have the votes to pass. Had Kennedy’s proposal been rejected, Cingular would have faced the prospect of seeing the initially assessed $12 million fine affirmed by CPUC.
But sources close to the case said they believe money is not the issue for Cingular, 60-percent owned by SBC Communications Inc. and 40-percent by BellSouth Corp. They said they believe Cingular’s real concern is the negative publicity that would come if the original $12 million fine was affirmed by the CPUC at a time when the mobile-phone operator is trying persuade the Federal Communications Commission, Justice Department and others that its proposed merger with AT&T Wireless would benefit consumers.
Some consumer groups oppose the blockbuster merger, while organized labor and others support it. Up to now, the conventional wisdom is the Cingular-AT&T Wireless merger will be approved subject to certain conditions and divestitures.
GOP Gov. Arnold Schwarzenegger’s press office did not immediately respond to whether he or his staff has weighed in on the Cingular investigation. Schwarzenegger and his advisers actively lobbied the CPUC to turn back a bill of rights for telecom consumers. The CPUC passed a bill of rights in May, prompting a critical statement by Schwarzenegger.
Last September, following a three-year investigation, a CPUC administrative law judge levied a $12.4 million fine against Cingular for charging early termination fees and prohibiting refunds during a period when the mobile-phone carrier aggressively marketed service without disclosing network problems to its customers.
Commissioner Wood, a staunch consumer advocate and author of the original bill of rights for telecom consumers, said settling with Cingular would be not be appropriate and would send the wrong message.
“I do not believe in settlements like this that do not include an admission of guilt,” said Wood.
According to Wood and others, Cingular wants to negotiate on the issue of culpability as well as the amount of the fine and level of restitution for Cingular subscribers.
“When someone violates the Public Utilities Act, it should be said,” said Wood. Wood said Cingular has had plenty of time to seek a settlement of the case, which was prompted by Cingular consumer complaints about the lack of a signal in their service areas, blocked calls, dropped calls and early termination fees that ranged between $150 and $550.
Wood said the original $12 million fine levied against Cingular was too lenient in part because it did not compensate consumers who chose not to break their contracts with Cingular despite frustration with service quality.
Any settlement would be subject to public comment. Whether a settlement would set a legal precedent is unclear.
Kennedy maintains Cingular’s actions were not as egregious as portrayed by Administrative Law Judge Jean Vieth and the CPUC’s Consumer Protection and Safety Division.
“We conclude that while Cingular’s ETF [early termination fee] disclosures could have been clearer, they do not violate existing law,” stated Kennedy’s proposal.
“The contracts contained sufficiently detailed disclosures, and customers had the opportunity to decline to execute the contracts. We reiterate our opinion that Cingular’s legal culpability stems from imposing the ETF (and permitting its agents to impose an ETF) from day one of the contract period-that is, without providing any trial period. Likewise, we are not persuaded that the coverage implications in newspaper advertising or other marketing brochures introduced in the record support a finding that Cingular and its agents engaged in systematic deceptive marketing and advertising practices,” the proposal said.
