BILL ANALYSIS Ó 1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
ALEX PADILLA, CHAIR
SB 1161 - Padilla Hearing Date:
April 17, 2012 S
As Amended: March 26, 2012 FISCAL B
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DESCRIPTION
Federal law grants the Federal Communications Commission (FCC)
authority over all interstate and international communication
and reserves for each state authority over services that are
provided between points within that state's borders.
Federal law provides that it is "the policy of the United States
to preserve the vibrant and competitive free market that
presently exists for the Internet and other interactive computer
services, unfettered by Federal or State regulation."
The California Constitution grants the California Public
Utilities Commission (CPUC) authority, subject to control of the
Legislature, to regulate utilities including "telephone
corporations," defined as every entity "owning, controlling,
operating, or managing any telephone line for compensation
within this state."
Federal law and FCC decisions provide that a "telecommunications
service," but not an "information service," is subject to
utility-type common carrier regulation, including regulation of
market entry, rates, and terms and conditions of service, among
other requirements, and preempts state regulation of any
"information service."
FCC decisions have imposed public safety and consumer protection
requirements on Voice over Internet Protocol (VoIP) service,
which include requiring VoIP to offer 911 service, provide law
enforcement access to facilities, make facilities accessible to
disabled users, protect customers' private information, allow
customers to keep their telephone number when switching
providers, and report network outages.
FCC decisions have preempted state regulation of Internet
Protocol (IP)-enabled services including VoIP but have
authorized states to take specified actions with respect to
VoIP, which include requiring VoIP providers to pay fees to
support state 911 systems and state universal service programs.
This bill would prohibit the CPUC from exercising regulatory
jurisdiction or control over VoIP or IP-enabled service
providers except as expressly directed to do so by statute.
This bill would prohibit any department, agency, commission, or
political subdivision of the state from enacting, adopting, or
enforcing, either directly or indirectly, any law, rule,
regulation, ordinance, standard, order, or other provision
having the force or effect of law, that regulates or has the
effect of regulating VoIP or other IP-enabled service unless
expressly authorized by statute.
Current law authorizes the CPUC to require VoIP providers to pay
fees to support the state's 911 system and state universal
service programs and to obtain specified data from VoIP
providers in connection with certain federal proceedings.
This bill provides that the prohibition on regulation of VoIP
and IP-enabled services would not impact or supersede that law.
Current federal law authorizes the CPUC to implement and enforce
federal requirements relating to service provider
interconnection, access to unbundled network elements, and to
affect the resolution of disputes regarding intercarrier
compensation, including for the exchange of traffic that
originated, terminated, or was translated at any point into IP
format.
This bill provides that the prohibition on regulation of VoIP
and IP-enabled services would not impact or supersede that
authority.
Current law , the Digital Infrastructure and Video Competition
Act of 2006, authorizes the CPUC to grant statewide franchises
to providers of video service and enforce conditions of service.
This bill provides that the prohibition on regulation of VoIP
and IP-enabled services would not impact or supersede that law.
Current law includes numerous provisions of criminal or civil
laws of general applicability, including unfair or deceptive
trade practice laws, that apply to the conduct of business.
This bill provides that the prohibition on regulation of VoIP
and IP-enabled services would not impact or supersede those
laws.
BACKGROUND
This committee held an informational hearing on March 20, 2012,
on "Apps, Internet Services, and the 21st Century
Telecommunications Network."<1> This hearing addressed how
rapidly changing technology, especially the Internet, has led to
a much different regulatory environment than in the days when
telecommunications consisted of Plain Old Telephone Service
(POTS) - local and long distance voice service over landline
facilities with circuit-based switching offered by a monopoly
provider. Since the early days of the Internet and computer
processing, the FCC has declined from applying traditional
telephone regulations to broadband and Internet-based services
that involve some form of data processing and enable end users
to manage the communication rather than just transmit a voice
signal. The hearing reviewed this history and recent FCC and
CPUC decisions generally declining to regulate VoIP and
IP-enabled services and also heard from the CPUC, industry, and
consumer advocates on what California's policy and governance
framework should be as increasing numbers of customers abandon
traditional landline service and choose to subscribe to these
services accessible with a broadband connection.
Customer Migration to VoIP Service - Today's consumers are
increasingly abandoning landline service and opting for wireless
---------------------------
<1> See http://seuc.senate.ca.gov/informationalhearings/#Mar20 .
for hearing agenda, committee background paper and witness
testimony. See also "Where The Jobs Are: The App Economy"
(February 2, 2012), available at
http://www.technet.org/wp-content/uploads/2012/02/TechNet-App-Eco
nomy-Jobs-Study.pdf
service and fixed or mobile broadband service that offers a
platform for integrated voice, video and data services and
Internet access. VoIP is the service that allows voice calling
through a broadband connection. Unlike traditional
circuit-switched telephony, which establishes a dedicated
circuit between the parties to a voice transmission, VoIP relies
on IP technology, which changes the contents of a communication
into digital packets and sends them over the fastest available
route over private IP networks or the Internet.
"Interconnected" VoIP enables calling to and from the public
switched telephone network. VoIP service may be offered by
the same provider of the broadband connection, such as a cable
company (i.e. Comcast's Digital Voice) or a local exchange
carrier (i.e. AT&T's U-verse or Verizon's FiOS). "Over-the-top"
VoIP is offered separately and operates with any broadband
connection, in many cases free of charge (i.e., Skype).
While similar in many ways to traditional landline telephone
service, VoIP is different in that the IP technology and
broadband connection provide an integrated suite of capabilities
and features that go beyond the ability to place and receive
calls. Users can send and receive information and access their
calls and information in a variety of ways from multiple devices
- phone, Internet, video, mobile handset, iPod, or smart phone.
VoIP service allows, for example, to play back voicemails
through a computer or receive them in an email, with the actual
message attached as a sound file, have caller identification
information appear on a television screen, cause incoming calls
to ring at multiple locations simultaneously, or combine voice
calling with a live video connection.
According to FCC data, the number of subscribers to
interconnected VoIP service nationwide increased 46 percent from
2008 to 2010, while the number of subscribers to traditional
wired telephone services decreased by 17 percent during that
two-year period. As of December 2010, 31 percent of the 87
million residential telephone subscriptions in the United States
were provided by interconnected VoIP providers. California had
about 3.5 million interconnected VoIP subscriber lines at the
end of 2010, receiving service from 125 VoIP providers.
As the two largest carriers (AT&T and Verizon) continue to
migrate customers from landline to broadband connections, these
numbers will increase dramatically. These two carriers had a
combined 29 percent increase in the number of VoIP customers in
the six months from June to December 2011.
Federal Policy to Not Regulate the Internet - The Communications
Act of 1934, as amended, established a dual regulatory regime
for communications services, granting the FCC authority over all
interstate and international communication, and reserving for
each state authority over services that are provided between
points within that state's borders. The law provides that only
a "telecommunications service" is subject to utility-type common
carrier regulation, which includes regulation of market entry,
rates, and terms and conditions of service, among other
requirements. Traditional landline voice service has always
been recognized as a "telecommunications service."
Since the 1960s, when innovators began adding computer devices
to the network and the Internet was in its infancy, the FCC has
declined from applying utility-type regulation to these
"information services," concluding that they should be allowed
to compete and flourish in a competitive market place free from
the burden of rules, regulations, and licensing requirements.
Congress reinforced this policy in the Telecom Act and also
stated that it is "the policy of the United States to preserve
the vibrant and competitive free market that presently exists
for the Internet and other interactive computer services,
unfettered by Federal or State regulation."
FCC Declines Traditional Regulation of VoIP - In 2004, in a
decision known as the Vonage Preemption Order, the FCC preempted
the Minnesota Public Utilities Commission from applying its
traditional telephone company regulations to a VoIP service that
allowed calling through a broadband connection. The FCC
concluded that preemption was warranted because it was
impossible or impractical to separate out the purely intrastate
component of the service and because state regulation would
directly conflict with the pro-competitive policy disfavoring
utility-type regulations that hinder development of innovative
new services. The FCC cited the Congressional directive to
promote a free and competitive Internet and emphasized the goal
of avoiding patchwork regulation so that these new IP-enabled
services would not have to "satisfy the requirements of more
than 50 jurisdictions with more than 50 different sets of
regulatory obligations."
In the Vonage Preemption Order, the FCC declined from deciding
whether VoIP is a "telecommunications service" or an
"information service" but stated that it was "making clear that
this Commission, not the state commissions, has the
responsibility and obligation to decide whether certain
regulations apply" to IP-enabled services.
In a series of decisions since 2004 relating to IP-enabled
services, the FCC has repeatedly declined to classify VoIP
service. Instead of opting for the full panoply of regulations
applicable to "telecommunications services," the FCC has
identified specific public safety and consumer protections that
apply. These include requiring VoIP to:
offer 911 service, including customer location
information, and collect 911 fees;
provide law enforcement access to facilities;
make facilities accessible to disabled users;
protect customers' proprietary information;
apply number portability requirements so
customers can keep their telephone number when
changing providers;
contribute to universal service programs;
not transmit fraudulent Caller ID information;
provide customers notice of discontinuance of
service, and
report network outages.
VoIP Regulation in Other States - In the wake of the Vonage
Preemption Order and subsequent IP decisions, any attempt by a
state commission to apply utility-type regulation to VoIP has
been highly controversial. No state commission regulates VoIP as
a telephone utility. The few decisions by state commissions
asserting jurisdiction over VoIP have either been suspended,
challenged in court, or invalidated by legislation. At least
24 states and the District of Columbia have enacted statutes
that generally prohibit utility-type regulation of IP-enabled
services including VoIP, although generally applicable business,
taxation and consumer protection laws apply. These states
include Alabama, Arkansas, Delaware, Florida, Georgia, Illinois,
Indiana, Kentucky, Massachusetts, Maryland, Maine, Minnesota,
Missouri, North Carolina, New Jersey, Nevada, Ohio, Oklahoma,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas,
Virginia, and Wisconsin. A VoIP bill in New York that was
included in a budget bill without a public hearing was recently
withdrawn. Utah enacted a VoIP statute in March, and a bill in
Mississippi is currently before the Governor.
CPUC Activity Related to VoIP - The California Constitution
grants the CPUC authority, subject to control of the
Legislature, to regulate utilities including "telephone
corporations," defined as every entity "owning, controlling,
operating, or managing any telephone line for compensation
within this state." A "telephone line" includes "all conduits,
ducts, poles, wires, cables, instruments, and appliances, and
all other real estate, fixtures, and personal property owned,
controlled, operated, or managed in connection with or to
facilitate communication by telephone, whether such
communication is had with or without transmission wires." Thus,
the CPUC has authority to regulate the intrastate component of
service that equates to a "telecommunications service" under
federal law, subject to any preemption.
Like the FCC, the CPUC has declined from applying utility-type
regulation to VoIP and has never decided whether or not a VoIP
provider is a "telephone corporation." In 2004, the CPUC opened
a proceeding to evaluate the appropriate regulatory structure
for VoIP under state law, but several years later closed the
proceeding, concluding that it was premature to assess its
regulatory role over VoIP until the FCC classifies VoIP as
either a regulated "telecommunications service" or an
unregulated "information service." The CPUC has repeated this
conclusion in several other decisions over the years (including
a service quality decision in July 2009 and its backup power
decision in January 2010), each time declining to regulate VoIP
and IP-enabled services.
California Legislation Applicable to VoIP - The Legislature has
enacted several statutes to impose discreet requirements that
apply to VoIP in order to achieve pressing policy objectives
consistent with federal law. These include:
AB 2393 (Levine, 2006) - authorized the CPUC to adopt
backup power requirements for VoIP;
SB 202 (Simitian, 2006) - applied state privacy
protections to calling records of VoIP customers;
SB 1040 (Kehoe, 2008) - required VoIP to pay fees to
support the state's 911 system;
AB 1335 (Fuentes, 2010) - authorized the CPUC to obtain
data from VoIP providers related to forbearance petitions
filed with the FCC; and
SB 3 (Padilla, 2011) and AB 841 (Buchanan, 2011) -
authorized the CPUC to require VoIP to pay fees to support
state universal service programs.
At least one bill that would impact VoIP is pending this session
- SB 1160 (Padilla), which would update current law related to
intentional service interruptions so that it applies to any
service that enables users to call 911 in an emergency,
including wireless and VoIP service.
COMMENTS
1. Author's Purpose . The author states that this bill will
reaffirm California's current policy of not regulating VoIP
and IP-enabled services accessible through a broadband
connection unless authorized by federal law and specified
by the Legislature, thereby fostering continued investment,
job creation, and innovation in California's technology
sector and the Internet economy, and continued availability
of affordable communications technologies and services that
meet consumer demand and provide consumer and public
benefits.
2. Preserving a Free and Open Internet . This bill seeks to
ensure that California continues to adhere to the federal
policy "to preserve the vibrant and competitive free market
that presently exists for the Internet and other
interactive computer services, unfettered by Federal or
State regulation." This policy has been the foundation for
FCC decisions since 2004 declining to apply legacy
telephone regulations to VoIP and IP-enabled services
accessible through a broadband connection and for
preempting state regulation. Internet-related technology
companies, service providers, and app developers also cite
this policy as the key to the flourishing Internet and app
economy, especially in California, and to the investment
and innovation that has produced a wide array of service
options, faster networks, "smart" mobile devices, apps, and
new strategies for health care, education, energy, public
safety - all with consumer and economic benefits for
California.
TURN states that this bill "goes far beyond its stated
intent to protect the Internet from regulation" and instead
prevents "meaningful regulation of a service that millions
of California consumers rely on every day."
3. Does This Bill "Deregulate" VoIP ? Many parties opposing
this bill express concerns that it "deregulates" VoIP and
IP-enabled services and eliminates laws and regulations
applicable to VoIP today. The CPUC has never regulated
VoIP or IP-enabled services like traditional telephone
service. The FCC has imposed some public safety and
consumer protections on VoIP and IP-enabled services, and
the CPUC has imposed some requirements on VoIP at the
direction of the Legislature, but none of these are
eliminated by this bill.
4. Is CPUC Poised to Regulate VoIP ? To date, the CPUC has
declined from regulating VoIP service and making VoIP
providers subject to the same regulations that are
applicable to "telephone corporations." However, the
question of whether the CPUC can or should regulate VoIP
continues to come before the CPUC, creating regulatory
uncertainty. In January 2011, in a proceeding to require
interconnected VoIP service providers to contribute to
state universal service programs, the CPUC tentatively
concluded that VoIP providers are "telephone corporations"
subject to its jurisdiction. The CPUC's Consumer
Protection and Safety Division proposed expanding the
proceeding to require service quality standards for VoIP,
which was supported by
The Utility Reform Network (TURN) and the Division of
Ratepayer Advocates (DRA). (While parties engaged in
several rounds of comments debating whether VoIP providers
are "telephone corporations," the Legislature passed a law
explicitly authorizing the CPUC to require VoIP
contribution to state universal service programs, thereby
ensuring CPUC authority and rendering the CPUC proceeding
moot.) Comments by CPUC Commissioners at recent public
meetings indicate the CPUC may soon be opening a proceeding
on regulation of VoIP.
5. Why Preclude CPUC Regulation of VoIP? Opponents state
that this bill unnecessarily divests the CPUC of authority
to protect consumers as migration to VoIP service
increases. TURN states that the CPUC's current regulatory
approach poses no threat of overreaching or overly broad or
burdensome regulation on VoIP carriers. The CPUC should be
able to monitor carriers offering VoIP service and address
service quality problems and customer complaints without an
additional act of the Legislature, opponents state.
6. Bill Applies to Services Accessible with Broadband .
TURN and other consumer groups have expressed concerns that
this bill will "deregulate" the telecommunications industry
and eliminate laws and regulations that apply to landline
voice service provided by telephone corporations. However,
the bill only prohibits state regulation of VoIP and other
IP-enabled services accessible with a broadband connection.
The bill does not eliminate any existing regulation, or
prohibit any future CPUC regulation, of traditional
telephone service through a landline connection. Moreover,
this bill makes no change to universal service and Carrier
of Last Resort (COLR) laws, which designate a local
exchange carrier for every part of the state that is
required to provide "basic service" to any customer upon
request and to provide Lifeline service to all eligible
low-income customers.
The argument that this bill will result in elimination of
all telephone service regulation appears to hinge on the
assertion that traditional landline voice service will fall
within the bill's definition of IP-enabled service if any
aspect of the service, such as transport, involves IP, even
if it originates and terminates on landline service.
However, the IP-enabled service definition in the bill is
consistent with FCC descriptions of IP-enabled services
that require a broadband connection. In addition, the
FCC's "IP in the Middle" decision in 2004 held that a call
originating and terminating through a traditional landline
connection does not convert to an IP-enabled service by the
mere fact that IP technology is used at some point during
transport. Similarly, the IP-enabled services to which
this bill applies are those where the communication is sent
or received in Internet Protocol through a broadband
connection. To clarify the definition of IP-enabled
service, and eliminate the argument that this bill
deregulates traditional telephone service that utilizes any
IP transport, the author and committee may wish to consider
amending the bill on page 4, lines 32 to 37, as follows:
(b) "Internet Protocol enabled service" or
"IP enabled service" means any service, capability,
functionality, or application using existing Internet
Protocol, or any successor Internet Protocol, that
enables an end user to send or receive a
communication in existing Internet Protocol format,
or any successor Internet Protocol format, through a
broadband connection, regardless of whether the
communication is voice, data, or video.
7. Isolating IP-Enabled Services . To further address the
concern that this bill somehow eliminates regulation of
traditional telephone service, the language should be
consistent in focusing on the services provided, not the
providers. Carriers such as Verizon, AT&T and Frontier
offer customers both traditional landline service and
IP-enabled service through a broadband connection. A
provider's offering of any IP-enabled service does not mean
that all services the provider offers are affected by this
bill. Indeed, nothing in this bill changes providers' COLR
obligation to offer "basic service" to all customers, even
if they also offer VoIP or other IP-enabled service. To be
consistent in focusing on service and not providers, the
author and committee may wish to consider amending the bill
on page 5, lines 1 to 4, as follows:
710. (a) The commission shall not exercise regulatory
jurisdiction or control over Voice over Internet
Protocol and Internet Protocol enabled service providers
except as expressly directed to do so by statute or as
set forth in subdivision (c).
8. Potential for Federal Preemption . The scope of any CPUC
authority over VoIP and IP-enabled services, if granted by
the Legislature, is still limited by federal law and FCC
decisions that preempt state regulation. The FCC has
preempted state regulation of these services because of
their interstate character and because a patchwork of state
regulation would conflict with pro-competitive policies.
This bill generally prohibits state regulation of VoIP and
IP-enabled services except as authorized or directed by
statute. To acknowledge the potential for federal
preemption of any state regulation of these services, the
author and committee may wish to consider amending the bill
on page 5, lines 4 and 10, as follows:
710. (a) The commission shall not exercise regulatory
jurisdiction or control over Voice over Internet
Protocol and Internet Protocol enabled service providers
except as authorized by federal law and expressly
directed to do so by statute or as set forth in
subdivision (c).
(b) No department, agency, commission, or
political subdivision of the state shall enact, adopt,
or enforce, either directly or indirectly, any law,
rule, regulation, ordinance, standard, order, or other
provision having the force or effect of law, that
regulates or has the effect of regulating VoIP or other
IP enabled service, unless authorized by federal law and
expressly authorized by statute or pursuant to
subdivision (c).
9. Consumer Protections for VoIP and IP-Enabled Services .
Opponents of this bill argue that the CPUC should have
authority to adopt regulations to protect customers of VoIP
and IP-enabled services, especially as an increasing number
of customers choose VoIP for voice service. TURN supports
requiring the CPUC to study and report on measures to
promote technology innovation and protect California
consumers. More than a dozen community organizations, in
nearly identical letters of opposition, propose a CPUC
study "on how Internet technologies are impacting telephone
networks." The DRA proposes either requiring the CPUC to
open a proceeding to determine if the CPUC should exercise
jurisdiction over VoIP and IP-enabled services, or
authorizing CPUC jurisdiction over these services "as it
pertains to ensuring high quality and reliable services
with sufficient consumer protections, and that the state's
goals of universal service are achieved."
Supporters of the bill state that CPUC consumer protection
regulation is not necessary or appropriate for a number of
reasons: First, consumers today have many choices and can
change providers if they don't like their service. (Indeed,
today's new services are empowering dissatisfied consumers.
For example, when Verizon announced in late December 2011
a $2 charge for one-time online or call-in bill payment,
customers revolted, using Twitter and social media, and the
company scrapped the charge within 48 hours.) Second, the
FCC has adopted consumer protections for these services.
Third, a patchwork of differing state regulations will
impede availability of service options. Fourth, all
consumer protections available under generally applicable
laws will continue to apply to customers of VoIP and
IP-enabled services. Fifth, any customers can choose to
subscribe to basic landline telephone service, which comes
with all the traditional CPUC consumer protections,
pursuant to universal service and COLR laws and regulations
that are not affected by this bill.
POSITIONS
Sponsor:
TechAmerica
TechNet
Silicon Valley Leadership Group
Support:
American G.I. Form of California
Appallicious, LLC
Asian Business Association
Asian Pacific Islander American Public Affairs Assn. - Southern
CA Regional Headquarters
AT&T
Brotherhood Crusade
California Asian Pacific Chamber of Commerce
California Black Chamber of Commerce Foundation
California Cable & Telecommunications Association
California Chamber of Commerce
California Hispanic Chambers of Commerce
California Manufacturers & Technology Association
California Retailers Association
California State Association of Electrical Workers
California State Conference of the National Association for the
Advancement of Colored People
CALinnovates
Cambodian Association of America
Charter Communications
Support (continued):
Cisco Systems, Inc.
Coalition of California Utility Employees
Comcast Communications
Consejo de Federaciones Mexicanas en Norteamérica
Corporation for Education Network Initiatives in California
Drumbi, Inc.
Frontier Communications
Great Valley Center
Inland Empire Economic Partnership
Jobblehead
La Maestra Community Health Centers
Microsoft
Mobile Future
Orange County Business Council
Portal A
QUALCOMM
Self-Help for the Elderly
South Bay Association of Chambers of Commerce
Telecom Council of Silicon Valley
Time Warner Cable
United Cambodian Community
United States Hispanic Chamber of Commerce
Verizon
Voice on the Net Coalition
World Institute on Disability
Oppose:
AARP California
African American Lutheran Association
Allen Chapel African Methodist Episcopal Church
AnewAmerica Community Corporation
Asian American Business Women Association
BLU Educational Services
Brightline Defense Project
California Broadband Policy Network
Center for Accessible Technology
Center for Media Justice
Central City SRO Collaborative
Communications Workers of America District 9, AFL-CIO
Congregations Organized for Prophetic Engagement
Consumer Federation of California
Consumers First, Inc., concerns
Consumers Union
Davis Media Access
Oppose (continued):
Division of Ratepayer Advocates, unless amended
El Concilio of San Mateo County
Faith Temple Apostolic Church
Greater Light Community Church
Hmong American Political Association
Inland Congregations United for Change
Inland Empire Concerned African American Churches
Imani Temple Church
Knotts Family Agency
Media Alliance
Mendocino County Board of Supervisors
National Hispanic Media Coalition
Parents and Communities Engaged for Education
Privacy Rights Clearinghouse
Public Counsel Law Center
Santa Clara University School of Law
Talented and Gifted in the Inland Empire
Tenderloin Neighborhood Development Corporation
The Greenlining Institute
The Utility Reform Network
Utility Consumers' Action Network
West Angeles Community Development Corporation
Young Visionaries
An Individual
Jacqueline Kinney
SB 1161 Analysis
Hearing Date: April 17, 2012