BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
AB 1407 (Bradford) - Public utilities: voice communications
service: lifeline program.
Amended: August 12, 2013 Policy Vote: EU&C 6-1
Urgency: No Mandate: Yes (see staff comment)
Hearing Date: August 19, 2013 Consultant:
Marie Liu
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1407 would phase out the existing lifeline
program for basic landline service and create a new lifeline
discount of $11.85 per month for voice communication services
from a telephone corporation or eligible wireless and Voice over
internet Protocol (VoIP) providers. This bill would prohibit the
California Public Utilities Commission (CPUC) from requiring
state lifeline providers to offer more than is required under
the federal lifeline program.
Fiscal Impact:
Ongoing costs of $275,000 from the Universal Lifeline
Telephone Service Trust Administrative Committee Fund
(Lifeline Fund) (special) for the CPUC for administration of
the program including reviewing and processing reimbursements
to lifeline providers.
Ongoing costs, likely between $3.8 and $4.9 million, from
the Lifeline Fund for increased contract costs with the
Lifeline Administrator for increased call volumes and
increased processing of eligibility applications.
One-time costs of $210,000 from the Lifeline Fund for two
years beginning in FY 2013-14 for increased consumer calls
to the CPUC regarding the new lifeline program.
Unknown increased revenues, likely in the millions to tens
of millions of dollars, to the Lifeline Fund as a result of
a potential increase in the surcharge rate.
Unknown costs, likely in the millions to tens of millions
of dollars from the Lifeline Fund as a result of increased
participation in the expanded lifeline program.
Background: The Moore Universal Telephone Service Act (PUC §871
et seq.) establishes the California lifeline program which
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requires telephone corporation providers of residential service
to offer eligible low-income customers a lifeline class of basic
service at a fixed monthly rate. Providers of the lifeline
services receive subsidies to offset the cost of the discount.
Currently customers pay no more than $6.84 per month for
services, and providers receive $11.50 per month from the state
to offset costs after the federal subsidy is applied. The
subsidies are paid for by a surcharge of 1.150% assessed on
landline, wireless, and VoIP services (deposited in the Lifeline
Fund), though only telephone corporations may receive subsides
from these programs.
The California Lifeline Program has a third-party administer
which is responsible for determining customer eligibility for
lifeline and providing the CPUC with a list of participants for
the purpose of reimbursement. The contract with the third party
administrator, currently Xerox, is based on the number of
completed applications for lifeline and the number of minutes of
customer service provided by their call center. The contract
costs are $10 - 15 million annually. CPUC administrative costs
for the lifeline program involve distributing the lifeline
subsidy to telephone providers, handling appeals to denied
eligibility applications, and receiving general customer
complaint and inquiry calls.
Section 54.101(a) of Title 47 of the Code of Federal Regulations
establishes technology-neutral requirements to determine
eligibility for federal universal service support including
voice grade access to the public switched network, access to
emergency services such as 911, access to operator services, and
a minimum amount of free local usage.
Proposed Law: This bill would define a lifeline provider as any
telephone corporation or a provider of voice communication
services that meets the requirements of Section 54.101(a) of
Title 47 of the Code of Federal Regulations and collects and
remits surcharges for universal service programs. This
definition would allow wireless and VoIP providers to
participate in the California lifeline program.
This bill would repeal the current flat-fee lifeline program and
instead would establish a discount of $11.85 per month, in
addition to any federally supported lifeline discount, to
eligible lifeline customers to use on telephone service of their
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choice. The discount would also apply to any bundle or package
that includes voice service. The CPUC would be able to adjust
the discount amount annually according to the United States
Consumer Price Index for All Urban Customers (CPI-U). Providers
would receive reimbursement only for the discount amount
actually used by the customer.
The CPUC would be allowed to assess a surcharge up to 3.3% on
intrastate telephone communication services or VoIP service to
fund the lifeline program.
This bill would also establish the following freezes:
Lifeline income limits would be fixed to those in effect
on January 1, 2013 except for an annual adjustment
according to the CPI-U.
Through December 31, 2014, the connection charge may not
exceed $10. Lifeline providers may receive reimbursement
for this customer benefit, limited to $40 per connection.
Beginning January 1, 2015, the CPUC may adjust the
connection charge and the maximum reimbursement to the
provider according to the CPI-U.
Through December 31, 2014, existing lifeline services
(landline) must be offered at the rates that were in effect
on July 1, 2013.
This bill would require the CPUC to assess penetration rates for
the lifeline program by income, ethnicity, and geography and to
report these results annually to the Legislature. The CPUC would
also be required to report to the Legislature annually on the
fiscal status of the lifeline program.
The CPUC would be required to revise its regulations by May 1,
2014 in accordance to this bill and would prohibit the
California Public Utilities Commission (CPUC) from requiring
state lifeline providers to offer more than is required under
the federal lifeline program.
This bill would also prohibit the CPUC from denying a provider's
request to be designated an eligible telecommunication carrier
under federal law based on the requesting entity providing any
VoIP service.
Staff Comments: Participation rates in the existing
landline-only lifeline program have been decreasing due to
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customer demand shifting to wireless technology. As such, this
bill is anticipated to sharply increase participation in the
state lifeline program by including wireless and VoIP providers.
To the extent that participation rates are increased, there will
also be increased costs to the Lifeline Fund for an increased
number of subsidies. This increase may be offset by an increase
in the lifeline surcharge, which may be up to 3.3% under this
bill.
The increase in participation rates as well as the increase in
providers is likely to result in some limited-term and some
on-going costs for the CPUC. To revise the existing lifeline
regulations, then implement the new expanded lifeline program,
including preparing the reports required by this bill, the CPUC
will likely need two Public Utilities Regulatory Analysts and a
half-time Public Utilities Counsel an ongoing cost of $275,000
annually.
The CPUC's Consumer Affairs Branch, historically has experienced
large spikes in workload when there have been changes in the
lifeline program because of increased customer inquiries about
the program, lifeline billing complaints, and appeals to
declined eligibility applications. For example, in 2006, in
response to federal requirements, the CPUC implemented
verification requirements for the lifeline program which
resulted in a surge of about 6,000 appeals a month. The CPUC
ultimately utilized 10 additional limited-term staff to deal
with the surge in customer assistance. The CPUC anticipates
needing an additional three PYs in the Consumer Affairs Branch
for two years at a cost of $210,000 annually. Staff believes
that that these costs are reasonable given that the changes in
the lifeline program in this bill are substantial.
This bill will also have cost impacts to the third party
administer, Xerox, who is responsible for verifying eligible
lifeline customers. Xerox preliminarily estimates a 40% to 50%
increase in applications and calls to their call center at an
annual increase in contract costs of $3.8 million to $4.9
million. Staff notes that the current participation in the
lifeline program is approximately 1.5 million and the industry
estimates that up to 3.7 million Californians may be eligible.
Presuming that a major barrier to participation in the current
lifeline program is the lack of desire for landline service, a
40% to 50% increase in participation is plausible and in-line
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with the increases anticipated by the CPUC.