BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1161 (Padilla) - Communications: Voice over Internet Protocol
and Internet Protocol enabled communications service.
Amended: April 26, 2012 Policy Vote: EU&C 12-0
Urgency: No Mandate: No
Hearing Date: May 24, 2012 Consultant: Marie Liu
SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Bill Summary: SB 1161 would prohibit the California Public
Utilities Commission (PUC) or any other state department,
agency, commission, or political subdivision of the state from
regulating, or having the effect of regulating, Voice over
Internet Protocol (VoIP) unless authorized by the federal law
and expressly authorized by statute.
Fiscal Impact:
One-time costs of $300,000 to $500,000 from the Public
Utilities Commission Utilities Reimbursement Account
(special fund) beginning in FY 2013-14 for proceedings to
clarify the PUC's jurisdiction in specific situations.
Background: The California Constitution grants the PUC
authority, subject to control of the Legislature, to regulate
utilities including private corporations that transmit telephone
and telegraph messages.
Voice over Internet Protocol Service is a service that allows
voice calling through a broadband connection. Because of the
broadband connection, VoIP service also allows users to send and
receive video and data services and internet access, which
differentiates it from traditional circuit-switched telephone
service (traditional telephone service). VoIP services and
providers can take several forms. "Interconnected" VoIP enables
calling to and from the public switched telephone network (i.e.
Comcast's Digital Voice, AT&T's U-verse, or Verizon's FiOS). A
subset of interconnected VoIP is "facilities-based" VoIP, which
is VoIP that is provided by the same entity that provides the
broadband connection. "Over-the-top" VoIP or "nomadic" VoIP is a
service that is offered separately from the broadband and
operates with any broadband connection (i.e. Vonage and Skype).
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Within the industry there is a debate on whether VoIP should be
considered a "telecommunications service," which may be
regulated by states, or an "information service," which the
federal government preempts states from regulating.
In 2004, in a decision known as the Vonage Preemption Order, the
Federal Communications Commission (FCC) preempted the Minnesota
Public Utilities Commission from regulating nomadic VoIP because
of the interstate nature of the service. However, the FCC did
not make a broader decision on classifying VoIP as a
telecommunication or information service in this decision or any
other decision. The FCC has not explicitly preempted the states
from regulating of facilities-based VoIP, although whether
preemption has been implied is subject to debate by
stakeholders.
The FCC has allowed or directed the states to apply certain
public safety and customer protections to VoIP including:
offering 911 service, collecting 911 fees, requiring number
portability, collecting universal service program fees, and
requiring disability accessibility. The Legislature has in
response enacted several statutes to impose specific
requirements to VoIP services consistent with federal law
including AB 2393 (Levine) 2006, SB 202 (Simitian) 2006, SB 1040
(Kehoe) 2008, AB 1335 (Fuentes) 2010, SB 3 (Padilla) 2011, and
AB 841 (Buchanan) 2011.
Proposed Law: This bill would prohibit the PUC from "exercising
regulatory jurisdiction or control" over VoIP and Internet
Protocol (IP) enabled services except if explicitly authorized
by federal law and statute. This bill would also prohibit any
department, agency, commission, or political subdivision of the
state from either directly or indirectly regulating or having
the effect of regulating VoIP and IP enabled services.
Several existing laws would be exempted from these prohibitions
including the Emergency Telephone Users Surcharge Law which
requires interconnected VoIP to collect and remit 911
surcharges, the state's universal service programs, The Digital
Infrastructure and Video Competition Act of 2006, and the
enforcement of criminal or civil laws or any local ordinances of
general applicability. This bill also specifies that it does not
affect existing regulations or existing PUC authority over
traditional telephone service through a landline connection
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including regulations regarding universal service, the offering
of basic service, and lifeline service.
This bill also provides a definition of VoIP and IP enabled
service.
Staff Comments: There is considerable disagreement on the
potential impacts of this bill should it become law, including
within the PUC staff, as illustrated by the staff memo to the
PUC Commissioners regarding this bill (available on the PUC
website). (The Public Utilities Commission considered taking a
position on this bill at its May 10th hearing, but ultimately
took no action.) The Communications Division of the PUC
concluded that no current PUC regulatory activity or programs
regarding VoIP or other IP enabled services would be impacted by
the bill but also recommends a number of amendments both
clarifying and substantive. On the other hand, the Legal
Division concluded that this bill is written so broadly, and
with some internal inconsistencies, that passage of the bill
could obstruct the PUC's ability to continue to regulate non-IP
telephone service and wireless service and potentially block the
PUC from enforcing federal regulations on VoIP Services.
Staff believes that there are several actions that the PUC will
have to take to ensure that PUC does not regulate VoIP except
where explicitly allowed. Specifically:
The PUC currently acts as the lead agency for the purposes
of enforcing CEQA and currently has an open proceeding to
determine the applicability of CEQA to various
telecommunication carriers. An example of a project that
would involve CEQA and a VoIP provider is a VoIP-related
construction project, such as a communications tower or
laying cable in the ground. This bill would require the PUC
to expand the scope of this proceeding to interpret if the
PUC has jurisdiction under CEQA for such a project, and if
so, what is the scope of this jurisdiction so that actions
required of the VoIP provider are not construed as a
restriction on the VoIP services that may be offered as a
result of the project. According to the author's staff,
there is no intent to alter the application of CEQA with
this bill.
The PUC requires telephone companies to obtain a
Certificate of Public Convenience and Necessity (CPCN),
which in essence allows the PUC to regulate that entity.
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Some VoIP-only providers, such as Cox, Comcast, and Time
Warner, hold a CPCN, as the CPCN entitles the provider to
certain regulatory protections such as ensuring
interconnection rights (i.e. connecting a call between two
different providers).Conceivably this bill would prevent the
PUC from allowing a VoIP-only provider from holding a CPCN
as it would have the effect of regulating VoIP services.
Thus, the PUC will likely need a proceeding to decide
whether CPCNs held by VoIP-only companies need to be
surrendered and if an alternate mechanism should or can be
established.
This bill explicitly states that the language does not
affect "existing regulations of, or existing commission
authority over, traditional telephone service?" This
language was added in response to concerns made in policy
committee that existing consumer protections should not be
undone by this bill, which is not the intent of the author.
However, there has been concern expressed by stakeholders
over the interpretation and scope of "traditional telephone
service through a landline connection," including by the PUC
staff in the Legal and Communication Divisions. As such, the
PUC would need a proceeding to determine the existing
customer protections that are unaffected by this bill.
To clarify at least these three issues, the PUC would need to
open a rulemaking process for each. Each proceeding is likely to
cost at least $300,000 for a total minimum cost of $900,000.
Staff also believes that this bill will likely have fiscal
impacts in the future, although it is uncertain when these costs
may be incurred. Specifically:
The PUC collects a user fee from telecommunications
carriers who operate in California. This fee is assessed as
a percentage of the carrier's intrastate revenue. The PUC
currently has the authority to asses this fee on VoIP
services, but it has not done so. This fee is used for PUC
activities, including activities that benefit VoIP
providers, such as providing arbitration for interconnection
disputes, providing access to rights-of-way, and access to
utility poles. This bill would prohibit the PUC from
assessing this fee on VoIP services in the future, making
some of the PUC's unfunded activities permanently unfunded.
While this may not be an immediate fiscal issue for the PUC,
it will become a significant issue as more customers move to
VoIP services instead of traditional telephone services.
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Revenue loses are uncertain but are likely to reach the
millions of dollars. These revenues would need to be offset
by cost-shifting to the remaining traditional telephone
service users or be supplanted by the General Fund.
Under this bill, it is unclear what regulatory authority,
if any, the PUC over how a company may transition from a
provider of basic telephone service to a VoIP-only provider,
assuming that such a transition would not be prohibited
under "carrier-of- last-resort" laws. The PUC would need to
open a proceeding to make this determination, at a likely
minimum cost of $300,000.
Staff notes that this bill likely has a very significant fiscal
impact on local governments in regards to the assessment of
Utility Users Tax (UUT). Cities and counties currently tax the
consumption of utility services, including telephone services
that include local, cell phone, long distance, and VoIP
services. Use of the tax revenues is determined by the local
government assessing the tax. It is unclear whether this bill
would prohibit local governments from assessing a UUT on VoIP
services. It is uncertain how much of the UUT can be attributed
to VoIP subscribers, but given that UUT revenues statewide
exceeded $1.8 billion in FY 2010-11 and that VoIP subscribers
account for about 18% of phone subscribers, this bill
potentially could cost local governments tens of millions of
dollars of lost revenue. According to the author's office, it is
not the intent of the author to prohibit local governments from
assessing a UUT on VoIP services.
Staff believes the fiscal impacts listed above are the most
direct and likely impacts to be seen by the passage of this
bill. However, staff notes that the PUC's Legal Division staff
also submitted to the Commission a preliminary assessment of the
potential fiscal impacts of this bill that totals hundreds of
millions of dollars impacts to the state and local governments.
This list includes potential impacts to the CPUC User fee,
Utility Users Tax, collection of property tax, California
Environmental Quality Act (CEQA) enforcement, numerous potential
proceedings and complications of currently open proceedings, 911
services, broadband deployment, customer privacy rights,
numbering administration, and disconnections. Many of these
potential impacts are not reflected in this analysis. Staff
recommends that these are policy issues with uncertain fiscal
impacts, which the author may desire to address, as many are
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likely unintended impacts of the bill.
Staff notes that the number of issues identified by the Legal
Division highlights that this bill is likely to result in
litigation, exposing the state to unknown, but potentially very
significant, legal costs.
Recommended Amendments: Staff notes that this bill uses a
different, although very similar, definition of VoIP than is
used in Section 285 of the Public Utilities Code, which defines
VoIP by reference to federal regulation. Staff recommends that
these definitions be harmonized.
Proposed Author Amendments: Explicitly state that the
application of local utility users tax and the enforcement of
the California Environmental Quality Act are not affected by
this bill and to also add an exception for the PUC's authority
to enforce existing requirements regarding backuppower.
Committee Amendments: In addition to proposed author amendments,
to allow the PUC to regulate VoIP if expressly delegated or
required by federal law or if authorized by statute; clarify
that VoIP or IP-in-the-middle is not effected by the bill; allow
the PUC to monitor and discuss VoIP services including
responding informally to consumer complaints; and add a sunset
date of January 1, 2020.