BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 1161
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          SENATE THIRD READING
          SB 1161 (Padilla)
          As Amended  August 16, 2012
          Majority vote

           SENATE VOTE  :   30-6
            
           UTILITIES & COMMERCE              13-1              APPROPRIATIONS 
                              16-1        
           
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          |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 







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            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.  







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          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 







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          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.








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          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 







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          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 







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          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. 







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          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 


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