BILL ANALYSIS Ó SB 1161 Page 1 SENATE THIRD READING SB 1161 (Padilla) As Amended August 16, 2012 Majority vote SENATE VOTE : 30-6 UTILITIES & COMMERCE 13-1 APPROPRIATIONS 16-1 ----------------------------------------------------------------- |Ayes:|Bradford, Fletcher, |Ayes:|Fuentes, Harkey, | | |Buchanan, Fong, Fuentes, | |Blumenfield, Bradford, | | |Furutani, Gorell, Roger | |Charles Calderon, Campos, | | |Hernández, Knight, Ma, | |Davis, Donnelly, Hall, | | |Nestande, Swanson, | |Hill, Lara, Mitchell, | | |Valadao | |Nielsen, Norby, Solorio, | | | | |Wagner | |-----+--------------------------+-----+--------------------------| |Nays:|Huffman |Nays:|Gatto | | | | | | ----------------------------------------------------------------- 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 SB 1161 Page 2 service, and will remain in effect until January 1, 2020. FISCAL EFFECT : According to the Assembly Appropriations Committee, PUC estimates one-time special fund costs of about $730,000. These costs include a one-year proceeding (four positions totaling $500,000) to examine the applicability of a Certificate of Public Convenience and Necessity (CPCN) to the services and facilities of VoIP providers, and other voice service providers. Potential issues include clarifying the scope of PUC jurisdiction over facilities providers use to offer basic telephone service utilizing VoIP. Additionally, PUC anticipates a review, likely through a rulemaking, to assess the impact on its public purpose programs. This review would require three positions at a cost of about $230,000 ÝPublic Utilities Reimbursement Account]. PUC would likely address whether existing PUC rules and guidelines would still apply to a service provider that does not hold a CPCN but wishes to participate in one or more of the state's public purpose programs. While it is unclear whether PUC will need two proceedings to implement this bill, cost pressure could exceed $150,000 to the extent that a statute prohibiting PUC from engaging in regulatory activity results in an increase in disputes and a redirection of staff resources at PUC. 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. 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 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. SB 1161 Page 3 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. Evidence of the consumer acceptance of IP-enabled services can be seen nationwide: the number of subscribers to interconnected VoIP service increased 46% from 2008 to 2010, while the number of subscribers to traditional wired telephone services decreased by 17% during that two-year period. As of December 2010, 31% 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% 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 Federal Communications Commission (FCC) has primary authority, rather than state commissions. What is VoIP ?: FCC's 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 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. Does the FCC regulate VoIP ?: The Communications Act of 1934, as amended established a dual regulatory regime for communications services, granting FCC authority over all interstate and international communication, and SB 1161 Page 4 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, FCC has not regulated the Internet or the services provided over it. The Vonage Preemption Order handed down by FCC in 2004 preempted the Minnesota Public Utilities Commission from applying its traditional telephone company regulations to a VoIP service that allowed calling through a broadband connection. 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, 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, FCC has imposed specific requirements on VoIP services such as to: 1)Offer 911 service, including customer location information, and collect 911 fees. 2)Provide law enforcement access to facilities. 3)Make facilities accessible to disabled users. 4)Protect customers' proprietary information. 5)Apply number portability requirements so customers can keep their telephone number when changing providers. 6)Contribute to universal service programs. 7)Not transmit fraudulent Caller ID information. SB 1161 Page 5 8)Provide customers notice of discontinuance of service. 9)Report network outages. 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 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." 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 PUC's Web site 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 FCC, PUC has evaluated and found that it did not need to establish a regulatory framework for VoIP. 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, PUC tentatively concluded that VoIP providers are "telephone corporations" subject to its jurisdiction. Subsequently, the Legislature stepped in and passed a law explicitly authorizing PUC to require VoIP contribution to state SB 1161 Page 6 universal service programs only. Does this bill undo existing PUC authority over telecommunication services ?: Consumer advocacy groups express concern that this bill impacts 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 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 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 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. This bill does not affect 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 PUC on issues of basic service." For example, Public Utilities Code Section 489(b) provides that 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." 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). Who's looking out for the consumers who utilize VoIP and IP-enabled services ?: It is unclear if PUC has a current process for resolving complaints from consumers who utilize VoIP and IP-enabled services. FCC has adopted a number of consumer protections for these services which includes a process for addressing VoIP complaints. A consumer can SB 1161 Page 7 either file a complaint through FCC's Internet Web site or call a toll-free number to raise a complaint. Opponents of the bill argue that 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. 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) 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 PUC is not necessary or appropriate given the many ways consumers are currently protected. Moreover, this bill does not limit PUC's ability to continue to monitor, track and report to FCC and the Legislature, within its annual report to the Legislature, the number and type of complaints received by PUC from customers, and to respond informally to customer complaints, including providing VoIP customers who contact PUC for information regarding available options under state and federal law for addressing complaints. Clarifying and technical amendments : Recent amendments to this bill add clarifying language and provide additional savings clauses that delineate existing authority of PUC or other departments or agencies, as well as the application and enforcement of general criminal and civil laws. The amendments specify that this bill does not supersede PUC's authority relative to support structures, including pole attachments, or to the construction and maintenance of facilities pursuant to PUC General Order 95 and General Order 128. Clarifying language has been added to eliminate possible interpretation that a state statute is necessary if regulation of VoIP or IP-enabled service is required or expressly delegated by federal law. It further clarifies that authority exercised pursuant to federal requirement or delegation is limited only to the scope of that requirement or delegation. The language specifies that this bill does not affect state and local authority governing the use and management of the public rights-of-way. SB 1161 Page 8 Two additional savings clauses were added to provide even more assurance that the bill's limitation on regulation could not be construed to prevent enforcement of agency requirements related to communications services. The first expressly provides that the bill does not affect enforcement of the Warren Act requiring a statewide 911 emergency telephone system. The second expressly provides that the bill does not affect enforcement of policies or contracts that protect intellectual property, such as an executive order that prohibits use of state computers from downloading, streaming, or using unlicensed software, sound recordings or audiovisual works. Analysis Prepared by : DaVina Flemings / U. & C. / (916) 319-2083 FN: 0004879