BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1161
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          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 








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            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 








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            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. 









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          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 








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          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 








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          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.  








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           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 








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          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 








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          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








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          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








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          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 












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