BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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                              UNFINISHED BUSINESS


          Bill No:  SB 3
          Author:   Padilla (D)
          Amended:  6/20/11
          Vote:     27 - Urgency

           
           SENATE ENERGY, UTILITIES & COMM. COMMITTEE  :  11-0, 4/5/11
          AYES:  Padilla, Fuller, Berryhill, Corbett, De León, 
            DeSaulnier, Pavley, Rubio, Simitian, Strickland, Wright

           SENATE APPROPRIATIONS COMMITTEE  :  8-0, 5/26/11
          AYES:  Kehoe, Walters, Alquist, Lieu, Pavley, Price, 
            Runner, Steinberg
          NO VOTE RECORDED:  Emmerson

           SENATE FLOOR  :  39-0, 6/2/11
          AYES:  Alquist, Anderson, Berryhill, Blakeslee, Calderon, 
            Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, 
            Emmerson, Evans, Fuller, Gaines, Hancock, Harman, 
            Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, 
            Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, 
            Simitian, Steinberg, Strickland, Vargas, Walters, Wolk, 
            Wright, Wyland, Yee
          NO VOTE RECORDED:  Runner


          SUBJECT  :    Telecommunications:  universal service

           SOURCE  :     Author


           DIGEST  :    This bill extends the sunset date for the 
          California High Cost Fund A (CHCF-A) and California High 
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          Cost Fund B (CHCF-B) collections, and requires voice over 
          Internet protocol service providers to collect and remit 
          surcharges to state universal service programs.

           Assembly Amendments  (1) extend the sunset date for CHCF-A 
          from January 1, 2013 to January 1, 2015, (2) extend the 
          sunset date for CHCF-B from January 1, 2012 to January 1, 
          2015, and (3) determine that, under this bill, be operative 
          if AB 841 (Buchanan), which contains identical language.

           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 CHCF-B program, which sunsets on January 
             1, 2012.

          2. Requires that all providers of telecommunications 
             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).

          4. Existing law, until January 1, 2013, requires the 
             commission to develop, implement, and maintain a 
             suitable program to establish a fair and equitable local 
             rate structure aided by universal service rate support 
             to small independent telephone corporations that serve 
             rural areas and are subject to rate-of-return regulation 
             by the commission (the CHCF-A program).

           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. 

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          3. Requires the CPUC to require interconnected voice over 
             Internet protocol (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 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 immediately upon enactment.

           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 
          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 

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          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) CHCF-A, which provides direct 
          support to the 14 small rural telephone companies that are 
          under rate-of-return regulation; and (2) CHCF-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 CHCF-B 
          surcharge currently is 0.45 percent of intrastate services, 
          and the CHCF-A surcharge is 0.0 percent 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 
          would make changes as to how the recipient of federal 
          universal service support for serving high cost areas is 
          determined.


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          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 CHCF- 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 
          authority under state law to require this.  

          Related Legislation

           SB 379 (Fuller), 2011-12 Session, amends statement of 
          telecommunications policy to express support for 
          continuation of universal service support for the small 
          telephone companies that draw from the CHCF-A. 

          AB 841 (Buchanan), 2011-12 Session, is a spot bill the 
          author intends to amend to require the CPUC to require VoIP 
          contribution to state universal service programs.  The bill 
          passed the Senate (37-0) on August 29, 2011.  
           
           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  

          Revenues from extending the     ($25,000)           
          ($51,000)              ($25,000)         Special *

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          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  :   (Verified  8/29/11)

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

          Regional Council of Rural Counties

           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 telephone access in these 
            communities.

            "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 

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            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 
          (VoIP)."


          RM:kc  8/29/2011   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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