20030228Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: LISA NORDSTROM

DATE: FEBRUARY 28, 2003

RE: IN THE MATTER OF THE APPLICATION OF EXCEL TELECOMMUNICATIONS, INC. FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE LOCAL EXCHANGE TELECOMMUNICATIONS SERVICES. CASE NO. EXC-T-02-1.

On January 28, 2002, Excel Telecommunications, Inc. (Excel, Company) filed an Application for a Certificate of Public Convenience and Necessity to provide competitive local exchange service within the State of Idaho. Excel proposed to initially provide residential customers a full range of telecommunications and data services including local service, private line, data transmission service and Internet service via UNE-Ps and resold services. If future economic conditions permit, it may offer services to business customers as well. Excel’s Application stated that the Company is not requesting authority to provide service in areas that fall within the scope of rural exemptions.
In the Notice of Application and Modified Procedure issued February 4, 2003, the Commission solicited comments regarding Excel’s Application. Order No. 29190. No comments were received other than those submitted by Commission Staff.
STAFF COMMENTS
Case No. EXC-T-97-1. Excel previously applied for a Certificate of Public Convenience and Necessity in Case No. EXC-T-97-1. Staff opposed that 1997 Application based on the Company’s record of operations as an interexchange carrier and numerous complaints from Excel’s customers regarding billing problems, rates and policies, carrier selection and slamming, and other miscellaneous issues. Staff noted that Excel had been sanctioned by the Federal Communications Commission (FCC) for slamming and forging letters of agency. The Commission also received 21 comments expressing support for Excel’s Application. Excel subsequently requested permission to withdraw its Application without prejudice until its business plans permitted it to concentrate on obtaining certification and providing high quality cost-efficient services in Idaho. The Commission granted this request on October 17, 1997 and dismissed the case without prejudice. Order No. 27159.
Recent Developments. Since 1997, the number of complaints against Excel from Idaho customers has significantly decreased. However, Staff was concerned when the Commission received five complaints in a five-month period in 2002. Of these complaints, four customers complained of slamming but only two provided Staff with enough information to pursue investigations. In both cases, Excel was found to have slammed its customers. In one instance, Excel reported that the customer’s service was changed by a relative who was not a resident of the household but presented herself as an authorized decision maker. Excel reimbursed the customer for all charges incurred in this process. In the second instance, Excel failed to respond to the Commission’s correspondence. According to the Commission’s Customer Relations Rules, failure to respond to a slamming allegation within 21 days will result in a determination by Staff that the customer was slammed. IDAPA 31.41.01.703.02. Excel apologized and reimbursed the customer for the charges incurred and subsequently fired the representative who failed to respond.
In response to Staff’s concerns, Excel explained to Staff in February 2003 that its business profile has undergone significant changes since 1997. This privately-held corporation sold more than $750 million of communications services in 2002 and was purchased by VarTec in April 2002. Excel has taken the following steps to address and correct the concerns Staff expressed in 1997:
(1) Excel utilizes a nationwide third party verification (TPV) system to confirm residential primary interexchange carrier changes;

(2) The Company has developed a specialized group within the Customer Service Department whose sole function is to investigate and resolve slamming allegations and other related issues. This group ensures that consumers’ concerns are fully addressed and any appropriate credits and adjustments are made;

(3) Excel’s Independent Representatives (IRs) are encouraged to build ongoing relationships with their customers to ensure continued satisfaction with Excel’s products and services; and

(4) Excel has adopted a strict “zero tolerance policy” and business code of ethics. Excel will promptly terminate its relationship with any IR who is found to have engaged in illegal or improper conduct, specifically with regards to slamming.

The Company stated in a letter to Staff dated February 21, 2002, “Excel has the utmost commitment to ensuring that the potential for slams is avoided. . . . The Company believes that it has proven itself as a quality provider of interexchange telecommunications services and eager to expand its service offerings to the competitive residential local telephone market.” In recent years several state Commissions and the FCC have noted the extraordinary steps that Excel has implemented to advance the accuracy of the customer order provisioning process and to devise complaint resolution safeguards ─ effectively setting an industry standard.
Excel submitted unaudited Income Statements, Balance Sheets and Cash Flow statements for 1999, 2000 and eleven months of 2001 with its Application. These documents reflect financial events prior to VarTec’s purchase of Excel and showed declining revenue accompanied by reduced expenses. The Company’s total profit margin was up slightly in 2001 from 2000, and its net operating income was slightly less negative in 2001 than in 2000. In response to Staff’s concerns, Excel submitted an Affidavit from VarTec dated July 25, 2002 wherein VarTec guarantees the financial support of Excel.
The Company’s illustrative tariff includes a deposit requirement that reflects the Commission rules. Excel has agreed to correct a few points in its final tariff to address Staff’s other concerns. The Company further agrees to comply with all applicable Commission rules but requests the Commission waive the requirement for an escrow account to cover customer deposits due to VarTec’s written guarantee of financial support.
Staff Recommendation. Excel has submitted the necessary documents and met the Commission’s requirements for a Certificate of Public Convenience and Necessity. While its customer relations history has not been stellar, Staff noted that Excel has made considerable improvements in recent years and promises to continue to improve. Although Excel’s financial history would normally lead Staff to recommend some form of surety, VarTec’s affidavit guaranteeing financial support of Excel appeared to relieve this concern.
Staff recommended that the Commission grant Excel’s Application for a Certificate of Public Convenience and Necessary to provide statewide service in Idaho (excluding service in areas that fall within the scope of rural exemptions). Staff also recommended the Commission accept VarTec’s guarantee of financial support in lieu of a surety bond for Excel.
COMMISSION DECISION
Does the Commission wish to approve Excel’s Application for a Certificate of Public Convenience and Necessity and waive the requirement for an escrow account to cover customer deposits?

Lisa Nordstrom

M: EXCT0201_ln

DECISION MEMORANDUM 1