BILL ANALYSIS                                                                                                                                                                                                              1

                                 ALEX PADILLA, CHAIR

          AB 1315 -  Fuentes                           Hearing Date:  June  
          29, 2010              A
          As Amended:         June 16, 2010                 FISCAL       B


           Current federal law  requires local exchange carriers (LECs) to  
          provide access to unbundled network elements necessary for  
          competitive carriers to offer local telephone service to end  
          users and allows the Federal Communications Commission (FCC) to  
          forbear from enforcing these unbundling requirements if it  
          determines that they are not needed to ensure just and  
          reasonable rates or protect consumers and if forbearance is in  
          the public interest.

           Current federal law  authorizes a LEC to petition the FCC to  
          forbear from enforcing unbundling requirements in individual  
          Metropolitan Statistical Areas (MSAs), allows interested parties  
          to comment on a petition, requires the FCC to act on a petition  
          within 12 months, and provides that a petition is deemed granted  
          if the FCC fails to act within that time.

           A current FCC decision  approving AT&T's merger with Bell South  
          prohibits AT&T from petitioning the FCC for forbearance from  
          unbundling requirements until after June 29, 2010.

           This bill  requires the California Public Utilities Commission  
          (CPUC) to respond to any forbearance petition filed in  
          connection with a California MSA by reviewing the petition's  
          compliance with applicable standards, consulting with the  
          Division of Ratepayer Advocates (DRA) to independently determine  
          the truth of the facts in the petition, and filing with the FCC  
          a motion for summary denial or comments that identify how the  
          petition potentially impacts the state's policies promoting  


          local competition.

           This bill  requires the CPUC to require telephone corporations to  
          report comprehensive and detailed data sufficient to analyze the  
          level of retail competitive options available to residential and  
          business customers in each MSA and the level of wholesale  
          competitive options available to carriers for last-mile loops  
          and transport circuits in each MSA at the wire center level.
          The Telecommunications Act of 1996 (1996 Act) establishes a  
          pro-competitive, deregulatory national policy for  
          telecommunications and allows competition in the local exchange  
          market.  The market for local service had historically been a  
          monopoly because it is prohibitively expensive for more than one  
          provider to replicate last-mile connections - the copper wire  
          loops and transport facilities to each customer's residence or  
          business.  The 1996 Act requires LECs to share their networks  
          and allow competitive local exchange carriers (CLECs) to lease  
          unbundled last-mile loops and transport elements that they can  
          combine with their own facilities to offer service to end users.  
           The Act recognizes that these unbundling requirements were  
          essential to development of local competition.  

          The Act authorizes the FCC to forbear from enforcing these  
          unbundling requirements if it finds that (1) enforcement is not  
          necessary to ensure that rates are just, reasonable and  
          nondiscriminatory, (2) enforcement is not necessary to protect  
          consumers, and (3) forbearance is in the public interest, which  
          requires an analysis of whether forbearance will promote  
          competitive market conditions.  A LEC can seek forbearance from  
          unbundling requirements in distinct markets by filing a  
          forbearance petition for individual MSAs.  

          As a condition of FCC approval of its merger with Bell South,  
          AT&T voluntarily agreed in 2006 to not seek forbearance from  
          loop and transport unbundling requirements until after June 29,  
          2010.  After that date, AT&T is eligible to file a forbearance  
          petition for one or more of the 26 California MSAs.  So far, 11  
          Forbearance Petitions have been filed nationwide, including  
          petitions by Qwest for Phoenix, Seattle, Denver, and  
          Minneapolis-St. Paul, and by Verizon for Boston, New York,  


          Philadelphia, Pittsburgh, Virginia Beach, and Providence.  State  
          public utilities commissions participated in those proceedings  
          and provided data on the level of local competition.  No  
          petitions have been filed for any California MSA.  AT&T  
          indicates that it currently has no plans to file a forbearance  
          petition in California in the near future.

          On June 22, 2010, the FCC issued a decision denying Qwest's  
          forbearance petition for Phoenix and establishing a new  
          analytical framework and data-driven standard for what a  
          petitioner must establish to show that local competition is  
          sufficient to justify forbearance (Phoenix Decision).  The  
          Phoenix Decision requires a petitioning LEC to show that it does  
          not have "market power," which includes the ability to raise  
          rates without losing customers to competitors.  The new  
          framework requires a separate evaluation of the level of  
          competition for distinct retail services for residential and  
          small, medium, and large business customers and for wholesale  
          services such as loops and transport that CLECs can lease to  
          provide service.  The petitioner's burden can be met with data  
          showing the market share for each product that is served by  
          competitors such as cable telephone service, Voice over Internet  
          Protocol, and possibly wireless services.  Many view the new  
          standard established in the Phoenix Decision as setting a very  
          high bar for forbearance petitioners to meet.

          CALTEL, the sponsor of the bill, claims that CLECs rely on  
          either unbundled network elements to serve the vast majority of  
          their customers, especially to small business customers.  CALTEL  
          claims that, if a forbearance petition is granted for a  
          California MSA, CLECs will be forced to exit the market because  
          the cost of alternative facilities is prohibitive.  For example,  
          a CLEC that now leases for $9.48 a month one or more unbundled  
          loops to provide high-speed Internet service to a small business  
          customer would instead have to pay the regular tariffed special  
          access rate of at least $260 a month to provide that customer  
          comparable Internet speed.  The result would be less local  
          exchange competition in California and fewer service options for  

              1)   Author's Purpose  .  According to the author, this bill  


               will ensure that the CPUC fully participates in the FCC's  
               proceeding when a forbearance petition is filed for a  
               California MSA and provides the FCC with thorough and  
               impartial data on the level of competition in that MSA.  

              2)   Pro-competition Policy  .  Consistent with the 1996 Act,  
               California has adopted policies to promote competition in  
               the local exchange and other telecommunications markets.   
               The FCC's disposition of a forbearance petition will have a  
               direct impact on the availability of network elements  
               deemed essential to local exchange competition and  
               providing choice, especially for business customers.  Thus,  
               this bill, by requiring the CPUC to collect and provide the  
               FCC with the best data possible on the level of  
               competition, will further the state's pro-competition  
               policies for the benefit of all customers.  
              3)   CPUC Duties  .  This bill appropriately recognizes the  
               CPUC's critical role in connection with a forbearance  
               petition filed with the FCC for a California MSA, but it is  
               overly prescriptive. The bill requires the CPUC to  
               determine whether the petition meets all applicable federal  
               regulations and, if it fails to meet any, to file a motion  
               for summary denial of the petition "identifying and  
               supporting each deficiency identified."  It also requires  
               the CPUC to determine whether the petition meets the  
               three-part forbearance test, "determine the truth and  
               completeness of the facts" in the petition, consult with  
               the DRA, and file comments and reply comments discussing  
               specified matters.  This level of prescription may reduce  
               the CPUC's ability to tailor its response to the facts and  
               circumstances of individual petitions and to respond to any  
               future changes in standards governing these petitions.  In  
               order to preserve the CPUC's flexibility to respond to  
               forbearance petitions on a case-by-case basis, the author  
               and committee may wish to consider amending the bill to  
               delete the prescriptive language and instead require the  
               CPUC to review any forbearance petition filed for a  
               California MSA and actively engage in the FCC's proceeding  
               on that petition in a manner that advances California's  
               pro-competition policies.

              4)   Data collection  .  This bill appropriately recognizes  
               that the CPUC is in the best position to impartially  


               collect and analyze data on local competition in California  
               and provide it to the FCC in a forbearance proceeding.    
               Although a petitioning LEC has the burden of presenting  
               data that demonstrates sufficient competition to justify  
               forbearance, additional data and analysis from the CPUC  
               will help the FCC make the most informed decision possible.  
                Indeed, the FCC has relied on data from other state public  
               utilities commissions in determining the outcome of  
               forbearance petitions.  However, this bill requires more  
               than this task demands.  It requires the CPUC to require  
               each telephone corporation providing service in any of  
               California's 26 MSAs to report comprehensive and detailed  
               information on competitive options for residential and  
               business customers and wholesale competitive options for  
               last-mile loops and transport circuits at the wire center  
               level.  It requires this data collection at an unspecified  
               date prior to any forbearance petition ever being filed.   
               Thus, the CPUC and telephone corporations will incur the  
               expense of this effort but likely end up with data about  
               MSAs for which no forbearance petition is ever filed and  
               that is too stale by the time a petition is filed, if ever.  
                Moreover, the specified data does not match entirely what  
               the Phoenix Decision requires, including, most  
               significantly, data from cable companies that offer voice  
               service in competition with LECs.  In order to achieve the  
               goal of this bill in a less costly and more efficient  
               manner, the author and committee may wish to consider  
               amending the bill to require the CPUC to develop a process  
               and sample data request to collect the data required under  
               the Phoenix Decision in a timely manner if a petition is  
               filed, authorize the CPUC to collect data from any provider  
               of local telephone service, including cable companies,  
               require that data be collected only for a MSA for which a  
               LEC seeks forbearance, and require the CPUC to submit it to  
               the FCC in that forbearance proceeding.

                                    ASSEMBLY VOTES
          Assembly Utilities and Commerce Committee                         
          Assembly Appropriations Committee    11-4
          Assembly Floor                     43-27


           California Association of Competitive Telecommunications  
          Companies (CALTEL)

          Small Business California
          The Utility Reform Network (TURN)

           None on file.

          Jackie Kinney
          AB 1315 Analysis
          Hearing Date:  June 29, 2010