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 | | ------------------------------------------------------------ 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 CONTINUED SB 3 Page 2 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. CONTINUED SB 3 Page 3 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 CONTINUED SB 3 Page 4 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. CONTINUED SB 3 Page 5 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 * CONTINUED SB 3 Page 6 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 CONTINUED SB 3 Page 7 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 **** END **** CONTINUED