BILL ANALYSIS Ó SB 3 Page 1 SENATE THIRD READING 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 Hernández, | |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 SB 3 Page 2 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 SB 3 Page 3 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 SB 3 Page 4 broadband and on the requirement in federal law that state universal service programs not be inconsistent with the federal program. 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 subscribers. 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 voluntarily. Analysis Prepared by : DaVina Flemings / U. & C. / (916) 319-2083 FN: 0002247 SB 3 Page 5