BILL ANALYSIS Ó SB 1161 Page 1 Date of Hearing: June 18, 2012 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Steven Bradford, Chair SB 1161 (Padilla) - As Amended: June 12, 2012 SENATE VOTE : 30-6 SUBJECT : Communications: Voice over Internet Protocol and Internet Protocol enabled communications service. SUMMARY : Requires authorization by statute or express delegation by federal law expressly authorized by statute for the California Public Utilities Commission (PUC) or any other state department, agency, commission or political subdivision of the state to regulate Voice over Internet Protocol (VoIP) or Internet Protocol-enabled (IP) service providers. Specifically, this bill : 1)Specifies certain areas of law that are expressly applicable to VoIP and IP enabled service providers. 2)Provides that this bill does not affect existing PUC authority over non-VoIP and other non-IP enabled wireline or wireless service and does not affect the enforcement of any state or federal criminal law or local ordinances of general applicability that apply to the conduct of business, the California Environmental Quality Act, or a local utility user tax. 3)Specifies that it does not affect existing regulations or existing PUC authority over non-VoIP and other non-IP enabled wireline or wireless service including regulations regarding universal service, the offering of basic service, and lifeline service, and will remain in effect until January 1, 2020. EXISTING LAW : 1)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. 2)Federal law provides that it is the "policy of the United States to preserve the vibrant and competitive free market SB 1161 Page 2 that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation." 3)The California Constitution grants subject to control of the Legislature, the PUC authority, to regulate utilities including "telephone corporations," defined as every entity "owning, controlling, operating, or managing any telephone line for compensation within this state." 4)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." 5)FCC decisions have imposed public safety and consumer protection requirements on 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. 6)FCC decisions have preempted state regulation of 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. 7)Authorizes the PUC 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. 8)Federal law authorizes the PUC 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. 9)Authorizes the PUC to grant statewide franchises to providers of video service and enforce conditions of service pursuant to SB 1161 Page 3 the Digital Infrastructure and Video Competition Act of 2006. 10)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. FISCAL EFFECT : Unknown. COMMENTS : According to the author, SB 1161 reaffirms California's current policy of fostering investment and innovation in the Internet and new "app" economy and widespread availability of Internet-based services that benefit consumers and stimulate economic growth. 1)Background : California is a global leader in the Internet economy. While other sectors continue to struggle in this down economy, innovators developing new "apps" and Internet-based services are leading the state's economic recovery with new investment and job creation. Innovation and competition are increasing to meet consumer demand for voice, video and data services using the Internet and Internet Protocol (IP) technology. For example, Skype is an IP-enabled service that allows inexpensive "face-to-face" connection between family members, friends, students and teachers, doctors and patients and businesses and their customers around the world. Consumer benefits and economic growth have been fostered by state and federal policies that promote an open and competitive Internet. Over the past decade and in parallel with the development of IP technology, the telecommunications industry has experienced advances in technology, shifts in the competitive markets, and major changes in service and price structures. Of increasing importance among these recent changes in technology is the migration of voice service away from the circuit-switched platform to routed or soft-switched "packetized" telephone transmission relying on IP. With IP, calls are routed over different network pathways maintained by the carrier or carriers carrying the voice service, not over one sustained circuit. IP increases the efficiency of voice services at a lower cost. All voice services, along with other network services are transitioning to this increasingly common means of delivering voice, data, and video seamlessly from the point of view of the consumer. SB 1161 Page 4 Evidence of the consumer acceptance of IP-enabled services can be seen nationwide: the number of subscribers to interconnected VoIP service 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. AT&T and Verizon had a combined 29 percent increase in the number of VoIP customers in the six months from June to December 2011. Federal law governs the Internet because it crosses state and international borders, which means the FCC has primary authority, rather than state commissions. 2)What is VoIP? : Federal Communications Commission's (FCC) 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. 3)Does the FCC regulate VoIP? : 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 specifies 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". Historically, the FCC has not regulated the Internet or the services provided over it. The Vonage Preemption Order handed down by the FCC in 2004 preempted the Minnesota Public Utilities Commission from applying its traditional telephone company SB 1161 Page 5 regulations to a VoIP service that allowed calling through a broadband connection. The FCC found that this preemption was needed because it was impractical to decipher the intrastate component of the service and because state regulation would directly conflict with the long-standing policy of promoting a free and competitive Internet market. This policy would also avoid patchwork regulation so that these new IP-enabled services would not have to comply with regulations of multiple jurisdictions with multiple varying 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 the Commission, not the state commissions, has the responsibility and obligation to decide whether certain regulations apply" to IP-enabled services. Rather than regulating IP-enabled services, the FCC has imposed specific requirements on VoIP services such as 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 1)Are states regulating VoIP services? : Presently, no state commission regulates VoIP as a telephone utility. Twenty four states and the District of Columbia have enacted legislation clarifying that VoIP services are not the subject of state-level regulation (District of Columbia. 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). There are several similar VoIP related bills pending in other SB 1161 Page 6 states. 2)Does the PUC regulate VoIP? : The California Constitution establishes that "Private corporations and persons that own, operate, control, or manage a line, plant, or system for the transportation of people or property, the transmission of telephone and telegraph messages,?are public utilities subject to control by the Legislature." The Constitution also confers authority to the PUC to fix rates, establish rules, examine records, issue subpoenas, administer oaths, take testimony, punish for contempt, and prescribe a uniform system of accounts for all public utilities subject to its jurisdiction. "Telephone corporation" is defined in statute as every corporation or person 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." The PUC has authority to regulate the intrastate component of service that equates to a "telecommunications service" under federal law, subject to any preemption. According to the PUC's website under Consumer Frequently Asked Questions - "Does the Commission Regulate VoIP? It states "the Federal Communications Commission has determined that it, not the states, will prescribe what regulations apply to IP-enabled services." Similar to the FCC, the PUC has evaluated and found that it did not need to establish a regulatory framework for VoIP. The PUC 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. In January 2011, in a proceeding to require interconnected VoIP service providers to contribute to state universal service programs, the PUC tentatively concluded that VoIP providers are "telephone corporations" subject to its jurisdiction. Subsequently, the Legislature stepped in and passed a law explicitly authorizing the PUC to require VoIP contribution to state universal service programs only. SB 1161 Page 7 3)Does this bill undo existing PUC authority over telecommunication services?: Consumer advocacy groups express concern that SB 1161 impacts the PUC's existing authority over certain telecommunication services such as basic service, universal service, lifeline and carriers of last resort (COLR) rules. Proponents of this bill argue that it has "no impact on the authority of the PUC to ensure the continued availability of basic telephone service, including all of the traditional PUC consumer protections pursuant to universal service and COLR laws and regulations." In PUC Decision No. 96-10-066, it designated all 22 incumbent local exchange carriers (ILECs) as "carriers of last resort" (COLRs) in their respective service territories". The designated ILECs remain bound by these requirements. Accordingly, ILECs must continue to provide basic service (as defined by the PUC) to all customers who request such service within their traditional service areas. The fact that an ILEC chooses to provide VoIP and IP-enabled service does not relieve it of the duty to offer basic service . SB 1161 does not affect the PUC's existing authority over entities that provide basic services that may also offer VoIP and/or IP services. Moreover proponents assert "SB 1161 does not affect other state laws empowering the PUC on issues of basic service." For example, Public Utilities Code Section 489(b) provides that the PUC "shall, by rule or order, require every telephone corporation operating within a service area, on first contact by a prospective subscriber and in subsequent contacts by the subscriber for the purpose of changing service, to fully inform the subscriber of the basic services available to the class of subscribers to which the subscriber belongs. For eligible residential subscribers, these services shall include universal lifeline telephone service." The PUC is also guided by the State's policy of promoting universal service "by assuring the continued affordability and widespread availability of high-quality telecommunications services to all Californians" as noted in Public Utilities Code Section 709(a). To make it explicit that SB 1161 does not diminish the PUC's authority over non-VoIP and other non-IP enabled wireline or wireless service, the author and this committee may wish to SB 1161 Page 8 amend Section 710 (e) as follows: (e) This section does not affect any existing regulation of, or proceedings governing, or existing commission authority over, non-VoIP and other non-IP enabled wireline or wireless service, including regulations governing universal service, and the offering of basic service and lifeline service , and any obligations to offer basic service. Some opponents argue that the amendment, "or proceedings governing," will allow the commission to impose requirements it is considering in current proceedings, such as service quality, upon VoIP service. This is incorrect. The language is clear: the phrase "or proceedings governing" is expressly limited proceedings that address "non-VoIP and non-IP enabled services." Therefore, any attempt by any agency to impose a regulation upon VoIP or any other IP-enabled service clearly is prohibited. 4)Who's looking out for the consumers who utilize VoIP and IP-enabled services? : It is unclear if the PUC has a current process for resolving complaints from consumers who utilize VoIP and IP-enabled services. The FCC has adopted a number of consumer protections for these services which includes a process for addressing VoIP complaints. A consumer can either file a complaint through the FCC's Internet Website or call a toll-free number to raise a complaint. Opponents of the bill argue that the PUC should have the authority to adopt regulations to protect customers of VoIP and IP-enabled services, especially as an increasing number of customers migrate to VoIP for voice service. Opponents to the bill argue that consumer protections would be lost immediately for customers with phone service provided by cable companies when the migration to digital phone service is completed. They believe that new service connections or outage restoration services will be adversely impacted. They also suggest that without PUC regulation, customers will not be protected against unauthorized charges, unauthorized release of phone records, or have the ability to file a complaint and have it resolved. Further, they believe that the service providers will not offer contracts in the same language as their marketing materials. Supporters of the bill state that customer protection is unaffected by this bill. For example, 1) consumers can change providers if they are dissatisfied with their service, 2) the SB 1161 Page 9 FCC has adopted consumer protections, 3) a patchwork of differing state regulations will impede availability of service option, 4) all consumer protections available under generally applicable laws will continue to apply to customers of VoIP and IP-enabled services, and 5) any customers can choose to subscribe to basic landline telephone service, which comes with all the traditional PUC consumer protections, pursuant to universal service and COLR laws and regulations, are not impacted by this bill. Additional consumer protection via the PUC is not necessary or appropriate given the many ways consumers are currently protected. To the extent the Legislature can ensure consumers of VoIP and IP-enabled services have a venue other than the FCC to raise complaints, the author and this committee may wish to amend Section 710 (f) as follows: This section does not limit the commission's ability to continue to monitor and discuss VoIP services, to track and report to the FCC and the Legislature, within its Annual Report to the Legislature, the number and type of complaints received by the commission from customers, respond informally to customer complaints, including providing VoIP customers who contact the commission information regarding available options under state and federal law for addressing complaints. REGISTERED SUPPORT / OPPOSITION : Support Advancement of Colored People African-American Male Achievers Network (AMAN) American G.I. Forum of California Appallicious, LLC Applied Materials Asian Business Association (ABA) Asian Pacific Islander American Public Affairs Association (APAPA) AT&T Avetta, Inc. Bay Area Council BayBio BeePolitical.com BIOCOM Black Business Association (BBA) Brotherhood Crusade SB 1161 Page 10 CA Regional Headquarters California Asian Pacific Chamber of Commerce (CAPCC) California Black Chamber of Commerce Foundation California Cable & Telecommunications Association (CCTA) California Chamber of Commerce (CalChamber) California Hawaii State Conference of the National Association for the Advancement of Colored People (NAACP) California Health Institute (CHI) California Hispanic Chambers of Commerce (CAHCC) California Manufacturers & Technology Association (CMTA) California Retailers Association (CRA) California State Association of Electrical Workers (CSAEW) CALinnovates Cambodian Association of America Chambers of Commerce Alliance of Ventura & Santa Barbara Counties Charter Communications, Inc. Cisco Systems, Inc. Coachella Valley Economic Partnership Coalition of California Utility Employees (CCUE) Comcast Cable Corporation Comcast Communications Concerned Citizens Community Involvement (CCCI) Congress of California Seniors (CCS) CONNECT Consejo de Federaciones Mexicanas en Norteamerica (COFEM) Corporation for Education Network Initiatives in California (CENIC) Cox Communications (Cox) Drumbi, Inc. Frontier Communications Great Valley Center (CVC) Inland Empire Economic Partnership Jobblehead Juniper Networks La Maestra Community Health Centers Latin Business Association (LBA) Lex Machina, Inc. Los Angeles Area Chamber of Commerce Los Angeles Opportunities Industrialization Center (LAOIC) Los Angeles Urban League Marvell Microsoft Corporation Mobile Future Orange County Business Council SB 1161 Page 11 Pelco Portal A QUALCOMM San Diego East County Chamber of Commerce San Gabriel Valley Economic Partnership Self-Help for the Elderly Silicon Valley Leadership Group (Sponsor) South Bay Association of Chambers of Commerce (SBACC) Southwest California Legislative Council TechAmerica (Sponsor) TechNet (Sponsor) Telecom Council of Silicon Valley The Village Project, Inc. Time Warner Cable United Cambodian Community (UCC) United States Hispanic Chamber of Commerce (USHCC) Valley Industry and Commerce Association (VICA) Verizon Voice on the Net Coalition (VON) World Institute on Disability Opposition AARP California Access Humboldt (AH) American Civil Liberties Union (ACLU) Citizens (2 letters) Communications Workers of America, Local 9412 Communications Workers of America, Local 9421 Communications Workers of America, Local 9505 Communications Workers of America, Local 9510 Communications Workers of America, Local 9575 Consumer Federation of California Consumers Union Mendocino County Board of Supervisors National Association of Telecommunications Officers and Advisors (NATOA) The Utility Reform Network (TURN) Analysis Prepared by : DaVina Flemings / U. & C. / (916) 319-2083 SB 1161 Page 12