BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 740
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          Date of Hearing:   July 1, 2013

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
                    SB 740 (Padilla) - As Amended:  June 27, 2013

           SENATE VOTE  :   36-1
           
          SUBJECT  :   Telecommunications: universal service programs:  
          California Advanced Services Fund.

           SUMMARY  :   Expands eligibility in the California Advanced  
          Services Fund (CASF), establishes a program goal, and increases  
          the program funding.   Specifically,  this bill  :   

          1)Specifies the goal of the CASF program is to approve funding  
            for infrastructure projects that will provide broadband access  
            to no less than 98% of California households no later than  
            December 31, 2015.

          2)Requires the California Public Utilities Commission (PUC) to  
            give priority to projects that provide last-mile broadband  
            access to households that are unserved by an existing  
            facilities-based broadband provider.

          3)Requires the PUC to provide each applicant and any party  
            challenging an application the opportunity to demonstrate  
            actual levels of broadband service in the project area, as  
            prescribed.

          4)Allows an entity that is not a telephone corporation to apply  
            to participate in the CASF program if the entity meets the  
            program requirements.

          5)Requires the PUC to conduct an additional interim financial  
            audit and interim performance audit and to report findings to  
            the Legislature by April 1, 2017.  Final findings are due to  
            the Legislature by April 1, 2021.

          6)Extends the CASF annual reporting requirement until January 1,  
            2021 and requires additional program information.

          7)Increases the amount the PUC is authorized to collect to an  
            amount not to exceed $215 million, and requires that $190  
            million be deposited into the Broadband Infrastructure Grant  








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            Account.

           EXISTING LAW  :

          1)Establishes the CASF in the State Treasury and requires that  
            moneys in those funds are the proceeds of rates and are held  
            in trust for the benefit of ratepayers and to compensate  
            telephone corporations for their costs of providing universal  
            service and may be expended only to accomplish specified  
            telecommunications universal service programs, upon  
            appropriation in the annual Budget Act or upon supplemental  
            appropriation. (Public Utilities Code 270)

          2)Requires the PUC to develop, implement and administer the CASF  
            to encourage deployment of high-quality advanced  
            communications services to all Californians that will promote  
            economic growth, job creation, and substantial social benefits  
            of advanced information and communications technologies, as  
            provided in specific decisions of the PUC and in the CASF  
            statute. (Public Utilities Code 281)

          3)Requires that $100 million, collected by a surcharge  
            authorized by the PUC, after January 1, 2011, is to be  
            deposited into the Broadband Infrastructure Account. (Public  
            Utilities Code 281)

          4)Authorizes the PUC to collect an additional sum not to exceed  
            $125 million after January 1, 2011, for a sum of total moneys  
            collected through the surcharge not to exceed $225 million.  
            (Public Utilities Code 281)

          5)Authorizes the PUC to collect the additional sum through the  
            2015 calendar year. (Public Utilities Code 281)

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   

           1)Author's Statement.  According to the author, "SB 740 would  
            modify the CASF to support broadband infrastructure in the  
            most remote areas of the state that still lack the high-speed  
            Internet access that is essential to function in modern life.  
            It would give the CPUC flexibility to award CASF grants to  
            entities that are uniquely suited to provide broadband access  
            in the last remaining unserved areas and authorize additional  








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            funding for this purpose, thereby advancing state policy to  
            ensure that all Californians are connected."

           2)Background  .  In 2007, as part of a High-Cost Fund-B  
            rulemaking, the PUC created the CASF to help promote the  
            deployment of broadband infrastructure in unserved areas of  
            the state.  As part of the decision, the PUC reduced the  
            annual allocation of money to the High-Cost Fund-B by $315.4  
            million and implemented a phased-in reduction in the ratepayer  
            surcharge from 1.3% on all intrastate calls to .25%. 

            The PUC created the program and assessed a surcharge on  
            telephone ratepayers to fund the program however the PUC did  
            not have clear legislative authority to assess the surcharge  
            or to expend the funds.  SB 1193 (Padilla) Chapter 393,  
            Statutes of 2008, provided that authority by statutorily  
            establishing the CASF; however, SB 1193 prohibited the PUC  
            from collecting more than $100 million.  

            The PUC prioritized CASF expenditures to areas where no  
            facilities-based provider offered broadband service.  A  
            secondary priority was for funding in underserved areas where  
            no facilities-based provider offered broadband service at  
            benchmark download transmission speeds of at least 3 megabits  
            per second and upload speeds of at least 1 megabit per second.  
             By Resolution T-17143, dated June 12, 2008, the PUC adopted  
            filing requirements and scoring criteria for the award of CASF  
            funds and a timeline for further filings and for final  
            approval of awards.

            After the enactment of the American Reinvestment and Recovery  
            Act of 2009 (Recovery Act), the PUC revised the CASF program  
            to allow California companies to use CASF grants as a match  
            for Recovery Act broadband grants.  AB 1555 (Perez Chapter 24,  
            Statues of 2009) expanded CASF eligibility to any entity  
            applying for CASF funding in conjunction with a Recovery Act  
            funding request.

            Subsequently Governor Schwarzenegger signed into law SB 1040  
            (Padilla, Chapter 317, Statutes of 2010) which provided an  
            additional $125 million, and expanded the program into three  
            accounts:

                 $100 million to the Broadband Infrastructure Grant  
               Account (for a total of $200 million), 








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                 $10 million to the Rural and Regional Urban Consortia  
               Account, and 
                 $15 million to the Broadband Infrastructure Loan  
               Account.

            The Broadband Infrastructure Grant Account funds the capital  
            costs of broadband infrastructure projects in unserved and  
            underserved areas in California. Carriers eligible to apply  
            for a grant award must hold a certificate of public  
            convenience and necessity (CPCN) or Wireless Identification  
            Registration (WIR) from the PUC.

            The Rural and Urban Regional Broadband Consortia Grant Account  
            provides funding for the cost of broadband deployment and  
            adoption activities other than the capital cost of facilities.  
            Eligible recipients include, but is not limited to local and  
            regional governments, public safety, K-12 education, health  
            care and community based organizations.

            The Revolving Loan Account supplements financing for projects  
            also receiving CASF grant funding. Up to twenty percent of  
            total project cost is eligible for financing. Applicant and  
            project eligibility is the same as the Infrastructure Grant  
            Account.

           1)CASF grants awarded to date.  As of December 31, 2012, the PUC  
            reports the followings CASF grant awards:

                 The Broadband Infrastructure Grant Account: The PUC  
               authorized $41.08 million for 34 projects that will benefit  
               255,246 households when completed, including $2.31 million  
               for 15 projects benefitting 16, 530 households in unserved  
               areas, and $38.77 million for 19 projects benefitting  
               238,716 households in underserved areas.  There are a total  
               of 1,777 new subscribers since program initiation (45%  
               subscription rate).

                 The Rural and Urban Regional Broadband Consortia Grant  
               Account: The PUC authorized $2.85 million for 14 consortia  
               grantees in 2012, and has provided grantees with a  
               three-year budget allowance of $8.55 million.

                 The Broadband Infrastructure Revolving Loan Account: As  
               of year-end the PUC had not received any loan applications.  
               Currently, there are 7 loan applications pending.








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            On February 1, 2013, 28 applications were submitted to the PUC  
            for projects in underserved areas of the state seeking total  
            CASF funding of $240.6 million.  
             
           1)Alas, a goal for CASF  :  There is agreement among state  
            policymakers, key community organizations, and industry  
            stakeholders that achieving ubiquitous broadband deployment in  
            order to bring the social and economic benefits of high-speed  
            internet throughout the state. In fact, the state has made  
            notable strides to close the "digital divide" but no statewide  
            goal has been established.  Since the CASF statute does not  
            specify a goal, this bill establishes a state goal of  
            achieving deployment to 98% of California households no later  
            than December 31, 2015.  

            The California Emerging Technology Fund (CETF), established in  
            2005 with funds derived from conditions on mergers of  
            telecommunications companies, was created as a nonprofit  
            organization dedicated to making grants to community based  
            organizations for projects to help close the digital divide.   
            CETF has established a statewide broadband goal of achieving  
            98% deployment by 2017, with projects approved and funded by  
            2015.  

            According to the PUC's California Broadband Report, statewide  
            as of June 2011, an estimated 72.9% of all households  
            subscribe to fixed broadband services. It found that of  
            households which have been determined to have geographic  
            access to fixed broadband services, an estimated 74.6%  
            subscribe.

           2)Expanding CASF eligibility  : Current CASF rules limits program  
            participation to telephone corporations. This bill proposes to  
            expand eligibility to for infrastructure grants to entities  
            that are not telephone corporations, similar to the expanded  
            eligibility authorized in connection with the Recovery Act.   
            In October 2012, the PUC proposed this very issue, subject to  
            legislative authorization, because it found that commercial  
            and nonprofit entities that are not telephone corporations,  
            such as tribal entities and Wireless Internet Service  
            Providers (WISPs) have expressed interest in providing  
            broadband.  These broadband services provide wireless  
            solutions that are viable for "last mile" connection of end  
            users in rural areas that are challenging to serve.  To  








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            protect against waste, fraud, and abuse of ratepayer funds  
            being awarded to entities it otherwise does not regulate, the  
            PUC proposed imposing requirements similar to those it applied  
            to Recovery Act applicants that did not hold a CPCN or WIR,  
            including a requirement to comply with applicable PUC rules.

            Regional Consortia leaders across the state opine that this  
            bill "provides the needed flexibility in eligible applicants  
            to CASF.  Previous experience with applications submitted to  
            CASF has shown that the large broadband providers are not  
            likely to apply to deploy infrastructure into unserved areas  
            of California based on their business model."

            The California Cable and Telecommunications Association  
            "opposes the expansion of eligibility for CASF grants to any  
            entity that is not a telephone corporation, particularly with  
            regard to grants that may be awarded to public entities that  
            regulate access to rights of way, and which may seek to  
            provide a competitive broadband service in areas of California  
            that are currently served by an existing broadband provider."

            Industry stakeholders state no objection to expanding  
            eligibility to entities that are not telephone corporations;  
            however they do have concerns about these entities submitting  
            applications for CASF projects that propose to "overbuild"  
            existing broadband infrastructure of commercial providers  
            funded with private investment.  

            The author has attempted to address these concerns by  
            requiring an entity that is not a telephone corporation to be  
            eligible for a CASF grant or loan if the project primarily  
            provides last-mile broadband access to households that are  
            unserved by an existing facilities-based broadband provider.   
            Additionally, the PUC is required to provide each applicant  
            and any party challenging an application, the opportunity to  
            demonstrate actual levels of broadband services in the project  
            area and take that under consideration during the application  
            review process.

           3)Unserved vs. underserved. The PUC's rules administering the  
            CASF authorize grants for   projects to both unserved and  
            underserved areas, with a priority for funding unserved areas.  
            An unserved area is where no broadband service is available  
            (except through dial-up or satellite service).  The PUC  
            defines an underserved area as where broadband service is  








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            slower than 6 megabits per second (mbps) down or 1.5 mbps up.   
            The Federal Communications Commission defines underserved as  
            slower than 4 mbps down or 1 mbps up.   
           
            However, the majority of CASF grants awarded so far are for  
            underserved areas. This has caused some confusion as to how  
            the PUC determines a project as unserved or underserved,  
            depending if it passes through an underserved or unserved  
            area. Inconsistencies also exist between mapping data as to  
            speed of available services.  Many of these factors contribute  
            to industry claims regarding overbuild.

           4)Additional CASF funding  . This bill authorizes the PUC to  
            collect an additional $90 million in increments of no more  
            than $25 million per year through 2020 for CASF infrastructure  
            grants.  According to the author, additional funding is needed  
            for the following reasons: expanded eligibility authorized by  
            this bill will generate more applications for funding than  
            under current rules - especially for last-mile projects to  
            unserved households, pending CASF applications at the PUC seek  
            substantially more funding than currently authorized for CASF,  
            and the average cost per household required so far to connect  
            remaining unserved households exceeds authorized collections.

           5)Related legislation  : AB 1299 (Bradford, 2013) which authorizes  
            the PUC to award CASF grants for the deployment and adoption  
            of broadband services in publicly supported housing  
            communities. This bill is scheduled to be heard, Tuesday, July  
            2, 2013 in Senate Energy, Utilities and Communications  
            Committee.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          AT&T
          California Broadband Cooperative (CBC)
          California Center for Rural Policy (CCRP)
          California Emerging Technology Fund (CETF)
          California Public Utilities Commission (CPUC)
          Central Coast Broadband Consortium (CCBC)
          Central Sierra Connect Broadband Consortium (CSC)
          Connect Joy Road
          Connected Capital Area Broadband Consortium (CCABC)
          Contra Costa Council








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          Corporation for Education Network Initiatives in California  
          (CENIC)
          County of Humboldt
          County of Trinity
          Del Norte County Board of Supervisors
          East Bay Broadband Consortium (EBBC)
          Eastern Sierra Connect Regional Broadband Consortium (ESC)
          Edwin Lee, Mayor, City of San Francisco
          Fred Stump, Mono County Supervisor, District 2
          Fresno State Office of Community and Economic Development
          Frontier Communications
          Gold Country Broadband Consortium (GOLD COUNTRY)
          Golden Bear Broadband, LLC (GBB)
          Inland Empire Regional Broadband Consortium (IERB)
          Interbahn
          Jared Huffman, Member of Congress
          Lake County Board of Supervisors
          Los Angeles County Regional Broadband Consortium (LACRBC)
          Mendocino Coast Broadband Alliance
          Mendocino County Board of Supervisors (if amended)
          Mendocino County Office of Education
          Modoc County Office of Education
          Mono County Board of Supervisors
          Northeastern California Connect Consortium (NECCC)
          Redwood Coast Connect (RCC)
          Russian River Fire Protection District
          Russian River Rotary Club
          San Diego Imperial Regional Broadband Consortium (SDIRBC)
          San Joaquin Valley Regional Broadband Consortium (SJVBC)
          Shasta County Health and Human Services Agency (HHSA)
          Sierra Economic Development Corporation (SEDCorp)
          Sonoma Connect
          Sonoma County Sheriff's Office
          Spiral Internet
          Tehama County Board of Supervisors
          Tuolumne County Economic Development Authority
          Upstate California Connect Consortium (UCCC)
          West Sonoma County Union High School District
          Youth Policy Institute (YPI)

           Opposition 
           
          California Cable & Telecommunications Association (CCTA)

           Analysis Prepared by :    DaVina Flemings / U. & C. / (916)  








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          319-2083