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DECISION MEMORANDUM TO: COMMISSIONER KJELLANDER COMMISSIONER SMITH COMMISSIONER HANSEN JEAN JEWELL RON LAW LYNN ANDERSON LOU ANN WESTERFIELD DON HOWELL RANDY LOBB JOE CUSICK BIRDELLE BROWN BEVERLY BARKER TONYA CLARK GENE FADNESS WORKING FILE FROM: LISA NORDSTROM DATE: MAY 6, 2002 RE: IN THE MATTER OF THE APPLICATION OF VARTEC TELECOM, INC. FOR A CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY TO PROVIDE LOCAL EXCHANGE TELECOMMUNICATIONS SERVICES. CASE NO. GNR-T-01-20. On August 31, 2001, VarTec Telecom, Inc. ("VarTec") filed an Application for a Certificate of Public Convenience and Necessity to provide facilities-based and resold local exchange service within the State of Idaho. Headquartered in Texas, VarTec has provided interexchange telecommunications services in Idaho since 1993. In the Notice of Application and Modified Procedure issued on February 20, 2002, the Commission solicited comments regarding VarTec's Application. Order No. 28952. No comments were received other than those submitted by Commission Staff. At its March 20, 2002 decision meeting, the Commission postponed making a decision on the Application until Staff received additional information on VarTec's billing practices. THE APPLICATION VarTec initially intends to provide local exchange service primarily to residential customers. Application at 2. VarTec anticipates providing services that will include, but are not limited to: (1) basic residential and business local exchange services (exchange access service, flat rate service, measured rate service, operator access, etc.); (2) residential and business customer and class features (call waiting, Caller ID, call forwarding, etc.); (3) residential and business ancillary services (911, directory assistance, etc.); (4) private line services; and (5) data transmission services. Id. The Application states that VarTec will continue to offer interexchange telecommunications services to Idaho business and residential customers. Id. VarTec also proposes to offer "bundled" telecommunication service packages which include local exchange service, long distance and call management services (e.g., call waiting, caller identification). Id. VarTec plans to provide service using a combination of facilities-based and resold services. According to its Application, VarTec intends to provide facilities-based services utilizing the unbundled network elements platform (UNE-P) of the incumbent exchange carriers and as such, does not intend to construct any new facilities at this time. Id. at 1-2. Although VarTec will initially offer service only in areas where Qwest Corporation is the incumbent local exchange carrier, VarTec expects to expand its local exchange service offering to the State of Idaho during the second quarter of 2002. Id. at 1. VarTec does not plan to provide local exchange service in the service areas of Idaho incumbent local exchange carriers that qualify for the rural exemption pursuant to § 251 of the federal Telecommunications Act of 1996. Id. at 6. STAFF COMMENTS VarTec Telecom, Inc. is a privately held corporation that was issued a Certificate of Existence issued by the Idaho Secretary of State on November 10, 1999. Comments at 1. Its majority shareholder (80%) is a Mississippi corporation, CommuniGroup, Inc., which is wholly owned by Telephone Electronics Corporation. Id. According to VarTec, CommuniGroup is not involved in VarTec's daily operations nor does it provide any type of influence on VarTec's business planning. Id. at 2. VarTec claims extensive technical and managerial experience and has submitted biographical information to demonstrate its technical ability to provide local exchange services. Id. It currently provides long distance service in the entire continental United States and Hawaii, and has provided intrastate long distance services in Idaho since 1993. Id. Staff noted that VarTec is authorized to provide local services in eight states and has applications pending in eight more. Id. According to Staff, VarTec claims to be financially qualified to provide local and long distance services within Idaho, saying that it has access to the necessary financing and capital. Id. Its unaudited financial statements for each of the last three years, which were submitted as proprietary information, show a positive income after taxes and cash flow. Id. VarTec has announced its intention to purchase all of the authorized capital stock of Excel Communications, Inc., giving it indirect control of Excel, eMeritus, and Long Distance Wholesale Club long distance companies. All of these companies have price lists on file with the Commission. Id. Staff comments note that the Company stated in its Application and in its illustrative tariff that it will comply with all state and federal rules and regulations, including advance deposits, anti-slamming regulations and marketing practices. Id. at 3. Staff also indicated that VarTec has not yet negotiated its interconnection agreement with Qwest and will not initially require deposits or advance payments. Id. at 2. Billing Disputes VarTec has been providing toll service in Idaho for over eight years. From January 1, 2000 to March 11, 2002, the Commission's Consumer Assistance Staff has received 17 complaints regarding VarTec, the majority of which were billing disputes. Id. at 3. Staff's review of customer complaints revealed allegations that VarTec bills customers for unanswered phone calls. Id. One customer indicated that VarTec was reluctant to provide credit for unanswered calls. Id. Prior to filing comments, Staff discussed this issue with the Company and was awaiting a written response. Id. Both billing for unanswered phone calls and failure to give credit for disputed calls are violations of the Commission's Telephone Customer Relations Rule 205. Id. Although billing for unanswered calls would not be an issue for customers with flat rate service, Staff noted that it could become an issue for measured service customers. Id. Staff was reluctant to recommend approval of VarTec's Application in this case until it reviewed the Company's response and received assurances that the Company will fully comply with the Commission's Telephone Customer Relations Rules and other applicable requirements, both as a toll and local service provider. Id. On March 28, 2002, VarTec timely responded to Staff's Production requests. VarTec assures Staff that "it is not VarTec's policy or intent to bill any customer for uncompleted or unanswered telephone calls." Answer to Staff's First Production Request at 1. VarTec admitted the possibility that a customer could be billed if a call was connected by some type of automatic answering or call forwarding device programming, e.g., answering machines, voice mail systems, fax machines, modems, or PBX switchboard facilities. For example, the failure of two modems to communicate may lead the customer to terminate a call before completing an electronic transaction; however, the two telephone lines involved did connect prior to the attempted modem communication, and that connection would register as a completed call. In some circumstances, a customer may be billed for what appears to be an unanswered call due to simultaneous or near simultaneous connection and disconnection. Finally, VarTec states that telephone companies with antiquated telephone equipment have the potential to send "false answering responses" to long distance carriers due to incompatibility with modern telephone equipment such as that used by VarTec. To minimize the chance that excessive ringing or busy signals will signal a connection, VarTec states that it often instructs customers to hang up quickly. This instruction may have been misinterpreted by some customers as indicative of a technical problem in VarTec's facilities and undermined the customers' trust in VarTec's billing system. However, VarTec maintains that its overall accuracy rate for billed calls using its "Hardware Supervision" technology is "greater than 99.999%." Response to Staff's First Production Request at 2. In the event that a customer unintentionally is billed for an unanswered call, VarTec states that it will issue an adjustment for that call. Staff intends to monitor closely VarTec's performance with respect to customer relations. As required by the Commission's rules, any customer complaints must be resolved in a timely and satisfactory manner. Staff Recommendation Staff recommends that VarTec's Application be approved. COMMISSION DECISION Does the Commission wish to approve VarTec's Application for a Certificate of Public Convenience and Necessity? Lisa Nordstrom Staff: Birdelle Brown Beverly Barker M:GNRT0120_.ln2