BILL ANALYSIS                                                                                                                                                                                                    ”

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          SB 3 (Padilla)
          As Amended  June 20, 2011
          2/3 vote.  Urgency 

           SENATE VOTE  :39-0  
           UTILITIES & COMMERCE            15-0                
          APPROPRIATIONS      17-0        
          |Ayes:|Bradford, Fletcher,       |Ayes:|Fuentes, Harkey,          |
          |     |Buchanan, Fong, Fuentes,  |     |Blumenfield, Bradford,    |
          |     |Furutani, Beth Gaines,    |     |Charles Calderon, Campos, |
          |     |Roger HernŠndez,          |     |Davis, Donnelly, Gatto,   |
          |     |Williams, Knight, Ma,     |     |Hall, Hill, Lara,         |
          |     |Nestande, Skinner,        |     |Mitchell, Nielsen, Norby, |
          |     |Swanson, Valadao          |     |Solorio, Wagner           |
          |     |                          |     |                          |
           SUMMARY  :   Extends the sunset date for the California High Cost 
          Fund A (CHCF-A) and California High Cost Fund B (CHCF-B) 
          collections, and requires voice over Internet protocol (VoIP) 
          service providers to collect and remit surcharges to state 
          universal service programs.  Specifically,  this bill  :  

          1)Extends the sunset date for CHCF-A from January 1, 2013, to 
            January 1, 2015.

          2)Extends the sunset date for CHCF-B from January 1, 2012, to 
            January 1, 2015.

          3)Requires the California Public Utilities Commission (PUC) to 
            require interconnected VoIP service providers to collect and 
            remit surcharges on their California intrastate revenues in 
            support of the universal service funds.  

          4)Makes finding on the Federal Communications Commission's (FCC) 
            proposal to reform the federal universal service program to 
            support voice and broadband and on the requirement in federal 
            law that state universal service programs not be inconsistent 
            with the federal program.

          5)Contains an urgency clause, allowing this bill to take effect 


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            immediately upon enactment.

           FISCAL EFFECT  :   According to the Assembly Appropriations 
          Committee, extension of CHCF-A revenue collections and 
          expenditures for two years, potentially in the range of $20 
          million annually.  Extension of CHCF-B revenue collections and 
          expenditures for three years, in the range of $50 million 
          annually.  Unknown additional revenues to several universal 
          service funds from VoiP service providers.  No additional state 
          administrative costs regarding VoiP, as the PUC has recently 
          opened a proceeding on this issue.

           COMMENTS  :   According to the author, the purpose of this bill is 
          to ensure 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 market place.

           Background  :  Universal service has been an important public 
          policy objective on both the 
          federal and state level.  The United States Congress first made 
          universal service a basic goal of telecommunications policy with 
          the passage of the Communications Act of 1934.  In 1983, the 
          California Legislature enacted the Moore Universal Telephone 
          Service Act to ensure that consumers have access to basic voice 
          service that is both affordable and ubiquitously available.  

          To achieve this legislative goal, PUC created various public 
          programs such as the:  1) California High-Cost Fund A, which 
          provides direct support to the 14 small rural telephone 
          companies that are under rate of return regulation; 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; 3) 
          California Advanced Services Fund, which is intended to promote 
          universal service in unserved and underserved areas in the state 
          by awarding funding to qualifying certificated applicant 
          carriers; 4) California LifeLine, which provides discounted 
          basic telephone (landline) services to eligible California 
          households; 5) California Teleconnect Fund which is a program to 
          provide 50% discount on selected telecommunications services to 


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          qualifying schools, libraries, government-owned and operated 
          hospitals and health clinics, and community based organizations; 
          and, 6) Deaf and Disabled Telecommunications Program, which has 
          two components:  a dual party relay system known as California 
          Relay Service (CRS) and a specialized equipment program known as 
          California Telephone Access Program (CTAP).  Subsequent 
          legislation expanded DDTP to serve California individuals with 
          hearing, vision, speech, cognitive and mobility disabilities.  

          Similarly, federal universal service programs provide additional 
          funding to telephone companies to offset the expense of serving 
          high-cost areas so customers in those areas do not pay 
          substantially higher rates than customers in urban areas.  These 
          universal service programs are designed to support landline 
          voice telephone service.  Thus, the most efficient and 
          cost-effective investment for carriers today typically is 
          broadband facilities capable of providing voice, video, data, 
          and high-speed Internet access services.  According to FCC, 
          these new technologies touch every aspect of modern life - the 
          workplace, commerce, education, health care, government 
          services, and public safety.  Due to this technology evolution, 
          universal access to voice telephone service is no longer 
          sufficient.  The 21st century digital economy requires that 
          virtually all citizens have access to broadband.

          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 FCC's National 
          Broadband Plan released in March 2010.  

           Commitment to affordable telephone service  :  In an effort to 
          continue California's
          commitment to ensure affordable telephone service throughout the 
          state, this bill extends the sunset date for both CHCF-A from 
          January 1, 2013, to January 1, 2015, and CHCF-B from January 1, 
          2012, to January 1, 2015.  These programs are funded by a 
          customer surcharge on intrastate services.   Presently, PUC has 
          an open proceeding relating to reform of CHCF-B to consider how 
          to expand the definition of "basic service" to include more than 
          landline voice service.

          Moreover, this bill makes findings on FCC's proposals to reform 
          the federal universal service program to support voice and 


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          broadband and on the requirement in federal law that state 
          universal service programs not be inconsistent with the federal 

           What is VoIP service?  :  FCC's rules define "interconnected VoIP 
          service" as a service
          that:  1) enables real-time, two-way voice communications; 2) 
          requires a broadband connection from the user's location; 3) 
          requires Internet protocol-compatible customer premises 
          equipment; and, 4) permits users generally to receive calls that 
          originate on the public switched telephone network (PSTN) and to 
          terminate calls to the PSTN.  Interconnected VoIP services may 
          be fixed or nomadic.  A fixed interconnected VoIP service can be 
          used at only one location, whereas a nomadic interconnected 
          service may be used at multiple locations.  FCC data indicate 
          that there are, as of December 2008, some 2.5 million VoIP users 
          in California, of which approximately 2 million are residential 

           Level the playing field  :  Due to the increasing customer 
          migration to VoIP services, these customers presently do not 
          contribute to the California universal service programs.  In 
          order to level the playing field, this bill directs PUC to 
          require interconnected VoIP service providers to collect and 
          remit surcharges on their California intrastate revenues in 
          support of the universal service funds.  

          In January 2011, PUC opened a Rulemaking to address whether to 
          require interconnected VoIP service providers within California 
          to collect and remit state public purpose program surcharges on 
          intrastate revenues.  The limited objective of this rulemaking 
          is to ensure that the California universal service programs are 
          supported in a competitively and technologically neutral manner 
          and that contributions to the programs are sufficient to 
          preserve and advance universal service.  Currently, some VoIP 
          providers collect surcharges and contribute to these funds 

           Analysis Prepared by  :    DaVina Flemings / U. & C. / (916) 

                                                                FN: 0002247


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