BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                     SB 3|
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                                 THIRD READING


          Bill No:  SB 3
          Author:   Padilla (D)
          Amended:  5/31/11
          Vote:     27 - Urgency

           
          PRIOR VOTES NOT RELEVANT 


           SUBJECT  :    Telecommunications: universal service

           SOURCE  :     Author


           DIGEST  :    This bill extends the sunset date of the 
          California High Cost Fund B program to January 1, 2014, and 
          requires the commission to require contributions from 
          intrastate revenues of interconnected Voice over Internet 
          Protocol service to support the universal services programs 
          as specified.  

           ANALYSIS :   

          Existing law:

          1.Requires the California Public Utilities Commission 
            (CPUC) to establish and maintain universal service 
            programs to ensure that affordable telephone service is 
            available in rural, high-cost areas of the state, 
            including the California High Cost Fund B program, which 
            sunsets on January 1, 2012.

          2.Requires that all providers of telecommunications 
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            services contribute to universal service programs.

          3.Requires that state universal service programs not be 
            inconsistent with federal universal service law and 
            regulations of the Federal Communications Commission 
            (FCC).

           This bill  

          1.Extends the sunset date of the California High Cost Fund 
            B program to January 1, 2014.

          2.Requires the CPUC to require providers of 
            telecommunications service using Voice over Internet 
            Protocol (VoIP) service to contribute to state universal 
            service programs and would add an urgency clause so that 
            statutory authority is in effect prior to CPUC action in 
            a pending VoIP proceeding.

           Comments

           According to the author's office, this bill ensures that 
          California continues programs that help every Californian 
          get connected to the telecommunications network at 
          affordable rates in order to increase the value of the 
          network for all subscribers and to ensure that these 
          programs are appropriately modified to reflect changes in 
          technology and the telecommunications marketplace.   
           
           Universal service is a long-standing state and federal 
          policy


           Universal service ensures the availability of high quality, 
          affordable telephone service for all Americans -- has been 
          a bedrock principle of telecommunications policy nationwide 
          since enactment of the Communications Act of 1934.  But 
          methods of achieving universal service have evolved over 
          time with changes in the marketplace and technology.  The 
          challenge is how to keep rates affordable in rural, 
          sparsely populated areas with rough terrain where the cost 
          of providing service is high.  Historically, when the old 
          AT&T ("Ma Bell") provided both local and long distance 
          service, rates for customers in high-cost areas were kept 







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          affordable in part with revenue from above-cost long 
          distance charges.  In addition, telephone companies 
          traditionally have set local service rates based on the 
          average cost of providing service across their service 
          areas, effectively a subsidy from densely populated urban 
          areas to enable lower rates in high-cost rural areas.

          Competition in long distance markets and the breakup of 
          AT&T in 1984, followed by local service competition with 
          the Telecommunications Act of 1996, led to federal and 
          state universal service programs funded by explicit 
          customer charges rather than embedded subsidies.  
          California has two programs to promote universal service in 
          rural, high-cost areas: (1) California High Cost Fund A, 
          which provides direct support to the 14 small rural 
          telephone companies that are under rate-of-return 
          regulation; and (2) California High Cost Fund B, which 
          provides support for large local exchange carriers (AT&T, 
          Verizon, Frontier, and SureWest) for the high-cost areas of 
          their service territories where the cost of providing basic 
          service exceeds $36 per month.  The CPUC establishes the 
          surcharge rate for each fund in an annual resolution based 
          on carrier claims and balance in the funds.  The B Fund 
          surcharge currently is 0.45% of intrastate services, and 
          the A Fund surcharge is 0.0% of intrastate services.

           Universal service support evolving with technologies  

          State and federal universal service programs are structured 
          to support landline voice telephone service.  However, the 
          FCC has several pending proceedings that propose 
          significant transformation of federal universal service 
          programs to provide efficient, targeted support for 
          broadband  and  voice service, rather than just voice 
          service, as outlined in the FCC's National Broadband Plan 
          released in March 2010.  According to the FCC, broadband 
          has transformed virtually every aspect of modern life - the 
          workplace, commerce, education, health care, government 
          services, and public safety, making universal access to 
          broadband a necessity in today's 21st century digital 
          economy.  Therefore, the FCC's proposals would modify 
          universal service policies to promote investment in 
          broadband facilities capable of providing video, data and 
          high-speed Internet access, as well as voice service and 







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          would make changes as to how the recipient of federal 
          universal service support for serving high cost areas is 
          determined.

          At the state level, the CPUC has taken initial steps to 
          update California's universal service programs.  In 
          November 2010, the CPUC opened the door for wireless, VoIP, 
          and other non-traditional carriers to offer service to 
          customers eligible for the low-income program.  The CPUC 
          also is considering how to expand the definition of "basic 
          service" to include more than landline voice service for 
          purposes of the B Fund program. In January 2011, the CPUC 
          opened a proceeding that responds to a recent FCC ruling 
          that interconnected VoIP providers must contribute to the 
          federal programs and that states may require VoIP 
          contribution to state universal service programs.  The FCC 
          recognized that as an ever-growing number of customers get 
          voice service from VoIP rather than landline providers, the 
          funding for universal service programs diminishes.  The 
          CPUC has proposed requiring interconnected VoIP providers 
          to contribute to state universal service programs, although 
          there is a significant question whether the CPUC has 
          sufficient authority under state law to require this.  

          Prior legislation

          SB 379 (Fuller)  amends statement of telecommunications 
          policy to express support for continuation of universal 
          service support for the small telephone companies that draw 
          from the California High Cost Fund A. 

           AB 841 (Buchanan)  is a spot bill the author intends to 
          amend to require the CPUC to require VoIP contribution to 
          state universal service programs.  
           
           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  Yes

          According to the Senate Appropriations Committee: 

                                          Fiscal Impact (in 
          thousands)

           Major Provisions         2011-12    2012-13    2013-14      Fund  







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          Revenues from extending the     ($25,000)           
          ($51,000)              ($25,000)         Special *
          High Cost Fund B program

          Expenditures from the High      $25,000  $51,000    
          $25,000Special *
          Cost Fund B program 

          New revenues from VoIP          Unknown additional 
          revenuesVarious **
          providers 

          Participations in FCC                    $175       Special 
             ***
          proceedings

          *  California High-Cost Fund-B Administrative Committee 
             Fund
          ** Several universal service funds administered by the CPUC
          ***Public Utilities Commission Utilities Reimbursement 
             Account

           SUPPORT  :   (5/26/11)

          AT&T 
          California Communications Association
          California Independent Telecommunications Companies
          California State Association of Counties
          Frontier Communications

          Regional Council of Rural Counties

           OPPOSITION  :    (5/26/11)

          The Utility Reform Network (unless amended)


           ARGUMENTS IN SUPPORT  :    AT&T states: "The California High 
          Cost Fund-B program, which is funded by a surcharge on 
          customer's bills, allows phone subscribers in high-cost and 
          hard to serve rural areas to obtain phone service at 
          reasonable rates.  The program is scheduled to sunset 
          January 1, 2012.  We support continuation of the program, 
          which has been an effective means for ensuring universal 







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          telephone access in these communities."  AT&T also states, 
          "SB 3 will not result in any new costs to the state.  The 
          bill simply extends an existing program - the California 
          High Cost Fund-B program, and it will not require a new 
          rulemaking by the CPUC to extend the universal surcharges 
          to VoIP.  The CPUC already has a rulemaking in progress, 
          commenced in January of this year.  The California State 
          Association of Counties (CSAC) states: "On behalf of CSAC, 
          I write in support of your SB 3, which would extend to 
          2014, authority for the CPUC to use the California 
          High-Cost Fund-B to support telephone and broadband 
          services in high-cost service areas, primary rural.  It 
          would also explicitly require contributions to the fund 
          from users of Voice over Internet Protocol. 

           ARGUMENTS IN OPPOSITION  :    The Utility Reform Network 
          states it "opposes SB 3 unless amended to accomplish the 
          stated goal in a more consumer friendly manner.  This bill 
          will unduly limit the commission's jurisdiction over 
          alternative providers of voice communication services.  As 
          consumers increasingly rely on these alternative providers 
          such as Voice Over Internet Protocol ("VoIP") and 
          broadband, for "basic" voice services, it is imperative 
          that the California Public Utilities Commission have clear 
          authority to protect California consumers through means of 
          reasonable service quality standards, registration 
          requirements, and consumer protection rules among other 
          regulatory mechanisms.  While this bill attempts to 
          accomplish laudable goals, it does so in such a way as to 
          potentially and unnecessarily restrict the Commission's 
          authority in this area."   

           

          RM:rm  5/31/2011   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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