BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 3| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 3 Page 2 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 SB 3 Page 3 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 SB 3 Page 4 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 SB 3 Page 5 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 SB 3 Page 6 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 **** END ****